Laying the groundwork

There is a strong potential that any cloud computing effort will generate savings and allow the company to better focus on its core business. For companies considering cloud computing, however, it is important to thoroughly examine how this approach fits into the company?s overall IT and business strategies. Because the use of cloud computing can be a major change in the way IT thinks and operates, it is important for all impacted stakeholders to examine the key areas potentially impacted by cloud computing, including: privacy (e.g., customers, employees, etc.); information security; data storage; identity and access management; and enterprise architecture. The explosion of data and information has generated a corresponding rise in the costs related to the purchase and maintenance of servers and storage capacity. Most companies have finite hardware, storage and budgets. Buying new servers that may remain below capacity levels for some time is difficult to justify. Many large organizations such have developed massive computing capacities and specialized IT staffs around the globe. As a result, their economies of scale present opportunities for companies looking to outsource their computing needs. In some cases, having another company handle your computing requirements can help business and IT leaders improve their return on in-house IT investments.

Implications

In challenging economic times, companies are looking for ways to operate more efficiently and reduce costs. Cloud computing can have several major impacts on the enterprise, including:

? Reallocating and refocusing in-house IT staffs away from day-to-day maintenance of servers and toward activities that add directly to the bottom line; this can help reposition IT functions more as revenue contributors than cost centers.

? By leading the way in efforts to reduce overhead costs through computing outsourcing, IT functions help to set an internal tone in support of the company?s overall strategic goals and initiatives.

? Virtualization ? the more efficient pooling of IT resources such as networks, servers and storage ? is facilitated by cloud computing.

? Potential reductions in IT staff, budgets and resources ? either short term or permanent.

Potential benefits

The potential benefits of a well-devised and well-executed cloud computing strategy can be significant and include:

? Potential reductions in personnel, software, hardware, real estate, cooling, power, licenses and maintenance costs. Companies may no longer need to maintain large, specialized IT staff and resources responsible for the maintenance and upkeep of expensive computing and storage infrastructure. The potential for reduced hardware and software costs means that capital can be freed up for use elsewhere towards strategic corporate goals. In addition, most patches, fixes, browser application updates and other expensive and time consuming trouble-shooting would be done by the computing hosts rather than in-house personnel.

? Minimal start-up costs. Much of the computing capacity available through these third-party providers is available with little more than a flip of a switch. Often, businesses need specific servers to be specifically configured in an application or for only a small amount of time ? requiring time and money. A large-capacity third party provider would likely have immediately available what is needed.

? Better realignment of IT support services and resources. By directing more specialized IT resources away from the relatively commoditized duties of computing and storage maintenance, and toward initiatives that add directly to the bottom line, companies can better see the potential benefits of IT professionals.

? More efficient IT services focused on infrastructure and non-application services. For many companies, the IT function is a cost-intensive support function. At larger computing outsourcing companies, however, IT is in itself a revenue generator and a core competency. As a result, the IT infrastructure receives the attention necessary to provide faster bandwidth, more capacity and reduced downtime.

? Flexible infrastructure and capacity. Cloud computing allows companies that need massive amounts of computing capability for only short periods of time quick and easy access without long-term amortization costs.

? Improved disaster recovery/damage mitigation. Companies that have onsite or nearby data centers are at risk of data loss and downtime caused by catastrophic occurrences such as hurricanes, earthquakes, fire, or terrorist activities. However, with cloud computing, because the data exists ?in the cloud? and usually offsite, the potential that one specific event to cause major problems is significantly reduced.

Potential challenges

In today?s turbulent economic times, companies are looking for IT to operate more efficiently and to help drive costs out of the business. Implementing cloud computing, however, is not without its challenges. Some of the key challenges include:

? Potential data privacy and security issues. A recent CIO.com survey indicated that 45% of respondents cited security as the major concern facing cloud computing. The companies that provide cloud computing services may provide those services in different data systems in various data centers in cities around the world. Unlike a more traditional IT outsourcing arrangement, cloud computing clients do not have dedicated servers or dedicated lines. This raises issues about exactly where clients? data exists, and under whose jurisdiction it resides at any one given point. In addition, the possible need to recode data may increase the exposure to errors and security risks.

? Control and responsiveness. With in-house IT functions, with employees reporting directly to in-house executives, there is little question about who should be doing what and when. However, when the employees and the servers are far away, there is a risk that the provider?s and executive?s priorities may not be in alignment.

? Uncertainty over where the legal line exists concerning data privacy. There is some data that cannot ? or at least should not ? be co-mingled, such as private health and financial information. Which entity bears ultimate responsibility for maintaining data privacy? What kind of public, legal or consumer backlash might occur because of a failure to maintain privacy? Data privacy can be a crossborder issue. For example, the European Union restricts not only the sharing of data but also where the data can be held. These issues need to be considered early in the process.

? Lack of benchmarking or leading practice experience. Because the use of off-site computing capability is relatively new, there is insufficient experience from which to draw guidance for companies looking to build an effective cloud computing strategy. For example, there is some uncertainty on how to incorporate current applications and technology into the cloud platform. Can internal proprietary business applications easily run on outside using servers not configured for this specific purpose?

For example, software-as-a-service applications are maturing, but the platform-as-a-service and infrastructure-as-a-service applications are developing more slowly.

? Ambiguity over how best to quantify, track and communicate the benefits of cloud computing. Because costs are shifted to a third-party provider, benefits tend to be measured more with intuitive and anecdotal feedback than with quantifiable information. This can complicate attempts to accurately measure the return on investment.

? Potential for a public relations nightmare. Not being able to state the exact location where their computing services are performed, or where data is housed, may leave a cloud computing client open to concerns that its internal controls are insufficient to reassure stakeholders. This issue could arise through consumer product recalls, and workplace or product liability litigation.

? Threat of potential overreliance on a single-source IT provider. The relatively easy turnkey nature of cloud computing and the subsequent attraction of cost reduction through its use may promote a company?s gradual overreliance on a particular third-party service provider. And this could cause problems at some point in the relationship.