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Cloud's Business Drivers
Why has Cloud service adoption by SMBs grown from a mere 14% to over 60% in the past 3 years? Not to mention that the number of SMBs (Small to Mid-sized Businesses) using Cloud Services is expected to grow to 73% by mid-2013 (Source: State of SMB IT, Spiceworks 2012). And according to analyst firm Gartner, 50% of all CIOs expect to operate the majority of their applications and infrastructure via the Cloud by 2015.
What is the driving force behind this staggeringly rapid growth?
Cloud adoption is first and foremost being driven by the business case, and secondly by the technology. Some drivers are obvious while others are more subtle, and some are just downright compelling. But all the drivers behind Cloud adoption can be boiled down to one simple common denominator: Cloud-based IT services provide far greater business value than their in-house equivalents.
The key word here, of course, is value. Value is derived from many different aspects of Cloud Services, be they financial, operational, productivity, efficiency, flexibility, and so on. Whatever your definition of business value, Cloud Services are the way to capture that value.
Consider the business drivers listed below. All of them have been realized to varying degrees by adopters of Cloud Services. Which ones are the most compelling or relevant to your company? You might be surprised...
Whether your company is seeking to deliver better products or services than its competitors, or is looking for ways to more quickly respond to competitive threats, Cloud Services can provide the mechanisms necessary to improve corporate agility and speed. For example, let’s consider an organization that sets out to establish a business analytics program that will mine big data for new opportunities. It would take months to set up an analytics centre using dedicated, in-house infrastructure: data centre enhancements, additional servers, data warehousing, business intelligence software, network extensions for branches that want to use the system, and so on. Not only will this approach be time-consuming – possibly taking months to implement – but it will also be incredibly expensive.
By using Cloud Services, a full end-to-end business analytics solution can be installed and ready for use in weeks or days, and in some cases, even a few hours. This rapid deployment is possible thanks to the standardized applications and processes of the Cloud service provider, all delivered instantly via the web on their existing infrastructure instead of the one you would have to build in-house. By leveraging the expertise and in-place infrastructure of Cloud vendors, you will save time and money while having the ability to respond to competitive threats and opportunities on demand.
Companies grow and flex in many different ways. Some grow organically, while others expand into new geographical markets, and still more expand through mergers and acquisitions. Cloud Services simplify and facilitate all of these growth dynamics. A company that is launching new business initiatives or establishing a presence in another country must come up with a way to provide IT services appropriately.
The cost of expanding or replicating infrastructure is typically time consuming, complicated, and entails substantial capital investment: all of these can dampen corporate expansion. Particularly problematic is a situation where the new market or business model is untested and additional revenue streams are not guaranteed. The need to spend precious capital on in-house IT and divert critical IT resources to such an effort can be a major roadblock to exploring new business opportunities.
Cloud Services are faster and easier to deploy because they require far fewer internal resources and come with significantly reduced entry costs with a flexible, month-by-month fee structure. If the business initiative succeeds, it’s quick and easy to expand IT capacity to meet demand. If it doesn’t succeed, it’s easy to stop the cash flow and re-direct IT resources to other business initiatives.
Leveraging Cloud-based Infrastructure as a Service (IaaS), businesses can rent data centre computing power on a pay-per-use basis from anywhere in the world and have it delivered to anywhere in the world, thus mitigating the overhead, time delays, and financial risks associated with building traditional infrastructure in an unproven market or geographic area.
2. Expanding the Business
While Cloud Services can provide immediately noticeable IT cost reductions, there are other financial benefits to moving to the Cloud. The chief financial advantage of the Cloud is fiscal flexibility. The traditional IT financial model is purchasing high-priced depreciating capital assets (e.g. servers and storage) up front and holding on to them for long periods of time, typically three to five years. Cloud Services allow the CIO to shift IT costs to predictable operational expenses in the form of easy-to-manage monthly fees. However, a concurrent advantage to this shift is an instantaneous response to changes in supply and demand for IT infrastruc-ture.
For instance, when demand for a particular Cloud service slows down for one reason or another, all operational expenses associated with that service stop very quickly when it is turned down or switched off entirely. And since capital expenses have already been avoided, turning down the usage of the operational Cloud expense is a double win. In this way, Cloud Services eliminate underutilized IT assets that are costing the organization money. There is no traditional IT hardware vendor that can deliver this kind of financial benefit.
3. Smarter Budget Management
IT COST SHIFTS
PCsCapEx Staff, Hardware,
Software
Tablets, Thin Clients Network, Servers
OpEx
IaaS, SaaS
This diagram illustrates the broad trends reshaping traditional IT spending in a world of Cloud Services. Money that was historically spent on physical PCs is now going increasingly to thin clients, tablets, smartphones, and the network to support these devices. CapEx that was typically used to buy IT hardware is now being turned into OpEx to acquire Cloud Services as needed.
Spending on in-house IT hardware, software, and staff is now being redirected to specialized, highly skilled IaaS and SaaS suppliers. The Cloud is reshaping the fundamental financial dynamics used to acquire, deploy, and manage IT infrastructure.
PHYSICAL
SERVICE / FUNCTION
Servers
SAN
PC
Processing
Storage
Windows
Due to the sheer number of providers that offer Software-, Network-, Platform-, and Infrastructure-as-a-Service solutions, there are innumerable improvements that IT operations can derive from Cloud adoption. Perhaps the most readily apparent improvement is reduced complexity for IT staff that will no longer have to manage in-house infrastructure. In addition, IT employees no longer have to expend time and energy on supporting outdated legacy applications or equipment.
Cloud Services allow CIOs to directly access the function without having to acquire the physical infrastructure (see diagram below). By eliminating in-house infrastructure (i.e. storage, servers, and PCs), a CIO can directly access the functions that these devices perform. This frees up IT teams to focus on projects and initiatives that support corporate goals, objectives, and strategies. This focus on applications and systems rather than physical infrastructure helps ensure IT/business alignment as well as boosting the perception of IT value to the business.
The Cloud also provides CIOs with the opportunity to reconsider the current state of IT organizational design. Some IT roles may need to be redeployed or retrained because of Cloud adoption. These could include data centre employees, network technicians, or help desk support personnel, among others.
Also, adopting Cloud Services can result in significant helpdesk optimization. When using IaaS or SaaS Cloud Services, any user problem that would normally create a help desk ticket for internal resolution is passed on to the IaaS or SaaS vendor for external resolution. These outbound tickets still have to be monitored, sent, and tracked by the help desk, but this becomes an administrative tracking function rather than the exertion caused by problem resolution. Essentially, the in-house help desk is focused on level 1 support. The IaaS and SaaS vendor resolves all issues at level 2, 3, and up. Internal help desk staff now only have to coordinate administratively with the vendor to identify the cause of an incident and to restore service as quickly as possible.
Help desk staff must also develop visibility into the IaaS/SaaS vendor’s plans for modifying or releasing updates to their offering so as to minimize potential end-user disruption. The net result, however, is nevertheless a substantially simplified and reduced help desk team that costs far less to operate.
4. Improved IT Staff and Operational Efficiency
The expectations placed on IT by today’s end users are unprecedented in both quantity and sophistication. Access to on-demand mobile applications, bring your own device (BYOD), and employee demand for flex-time are becoming the ‘new norm’ in many
impossible – to satisfy. Consider the following scenarios:
a) Cloud-based mobile extensions easily deliver seamless access to corporate applications on personal mobile devices as well as corporate mobile devices.
b) Virtual PCs accessible in a “private corporate Cloud” enable employees to access the same desktop whether they’re in the office or on the road, anytime, from any device, seamlessly.
c) Virtual Windows PCs can be stocked with an app store, similar to the iPad app store, where users can access applications on demand and pay for them on a per-use basis.
d) There are many SaaS collaboration tools that enhance employee mobility and support flexible working hours, work-at-home arrangements, and so on.
e) If the organization is experiencing a growth phase, Cloud Services can scale up quickly to meet increased demand. When growth slows down, the Cloud solution(s) can be quickly dialled back to avoid unwanted costs. In an on-premise situation, these actions take much, much longer to perform and involve the physical installation and/or removal of hardware.
Public Cloud Services from Apple, Google, Yahoo and others enable and encourage drastic changes in end-user expectations. Adopting Cloud Services as a corporate tool equips IT departments to fulfill these ever-changing user demands.
Many Cloud offerings started life as consumer-facing solutions. Services such as Dropbox, Zoho, iCloud, Google Apps, and Evernote appeal to professional consumers because these solutions allow users to obtain desirable applications without having to gain permission from IT.
Now that professionals have grown used to these Cloud-based applications, they don’t want to give them up just because IT says no. As a result, this ‘consumerization of IT’ means that corporate IT groups are sometimes seen as an obstacle instead of a trusted business partner.
The CIO must discover – and ultimately acknowledge – which consumer-grade Cloud Services are being used surreptitiously in their organizations. Wherever these exist, IT can start meeting that demand through approved Cloud Services that technology staff can manage and administer. Such affirmative action will result in high end-user satisfaction, while allowing IT to minimize the risk of corporate data ending up in places it’s not supposed to be.
6. Ease the Burden of Consumerization
Many consumer-grade Cloud apps now have corporate versions with administrative back ends that
enable IT control while still retaining the functionality that attracted their customers in the first place.
Process Area Cloud-Induced Change IT Optimization Point
IT is evolving. IT is no longer a manager of in-house people and technology, but instead a manager of service providers. While this has its advantages, it also requires that the CIO enhance IT’s vendor management processes. In some respects, traditional vendor management best practices don’t change all that much when switching to Cloud Services. There are, however, several potential issues that the CIO must be aware of when moving to the Cloud.
7. Enhanced Vendor Management Processes
Vendor Management Enhancement
Skills management
Relationship management
Contract management
Performance management
Risk management
IT staff must now develop skills that weren’t required before, while other skills have become obsolete
Control is now shared with the Cloud provider, so strong vendor relations are more important than ever
IT no longer manages the technology, so it must now manage the contract that manages the technology
SLAs and KPIs are shared with the vendor, even though IT is still responsible for delivering technology services
Cloud-specific risks must now be managed for services that didn’t have such risks when they were managed in-house
IT staff acquire business communication, negotiation, relationship building, and contract management skills
IT line workers develop new processes for handling issue resolution with vendors, managing the Cloud vendor portfolio, and so on IT develops knowledge of new issues in usage clauses, termination clauses, liability waivers, and other Cloud-specific topics
Service levels are re-engineered to determine contract terms for service outages/disruptions, changes to the service, and so on
IT learns about new potential risks to data privacy, data integrity, compliance, security, continuity, and other area
The advent of Cloud Services is as large an IT shift as the advent of the PC, possibly larger. Cloud Services are changing the way companies acquire and consume IT hardware, software, and systems of all types. They are fundamentally changing the role the CIO and the IT group plays within their corporate sphere. Cloud Services are changing the nature of IT services available to end users and the balance of power between the user and traditional IT departments.
It’s not just the CIO – the CEO, CFO, and COO as well must become aware of the value of Cloud Services. Every CxO needs to know how these powerful services affect their companies (financially, structurally, and functionally), how they enable speed and flexibility, and how to tap into the transformative power of the cloud.
