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Misconceptions about cloud computing

"It is clear that cloud computing is here to stay and that it can deliver significant IT cost savings and improve the efficiency of IT operations."


Chris Burn and Conrad Thompson
Financial Times
4 March 2011

As the market for cloud computing matures, there is growing awareness of its potential among chief executives and finance directors. However, that awareness tends to be based on three misconceptions: firstly, that the CIO should lead the organisation’s approach to cloud; secondly, that there will be significant legal, security and regulatory obstacles; and thirdly, that the cloud is only about IT cost savings. Each of these is wrong.

First, CIOs cannot give impartial advice on cloud. A business that transfers its IT to the cloud will receive those services in a very different way, and that will almost certainly require a smaller IT department. Speaking recently at the London School of Economics, Microsoft CEO Steve Ballmer suggested that increased use of cloud services could lead to job losses of 10 to15 per cent across the worldwide IT industry.

The shift towards cloud is also creating concern for traditional enterprise IT hardware vendors. Big players are hearing some of their clients talk about adoption of cloud-based IT services at a pace that would devastate their existing hardware revenue streams.

They are responding by offering ‘private cloud’ solutions that play perfectly to typical CIO sensitivities. These private clouds, or pre-integrated units of hardware and software from the same vendor, are very attractive at first glance as they address perceived security and confidentiality risks by keeping the hardware and its management on site. This approach creates the illusion to casual observers that cloud is being adopted but preserves the complexity, and size, of the in-house IT organisation.

Ultimately, however, private cloud deployments do not make any significant impact on how IT services are delivered. These rebranded legacy vendor services only lock the organisation further into proprietary standards and expensive service contracts.

This means CIOs need help to challenge the status quo if they are to secure the full benefits of cloud for their organisations. Unfortunately, that support is unlikely to be provided by the leaders of the security, legal and regulatory departments. These groups will find many reasons why cloud is unlikely to be suitable for their particular needs. Here again the problem is that they cannot give an unbiased perspective. They will know that handing over compliance monitoring or regulatory liaison to an external provider risks their own jobs.

Indeed, solutions based on Software-as-a-Service (SaaS) providers such as, are already eliminating some in-house assurance processes as they are automatically pre-approved. This reflects the efforts of SaaS vendors to acquire independently audited third-party certifications, such as ISO27001, as well as increasing customer maturity and willingness to focus on the particular needs of their business rather than the routine mechanics of information systems.

This does not mean that vendors have all the answers yet. Organisations need to secure assurances about the ability of their cloud suppliers to meet standards and remedy failures but also seek expert guidance to understand the laws and regulations that apply to any service moved to the cloud. This is particularly important for multinationals, those working in regulated industries and those dealing with sensitive data. A careful examination of these requirements will highlight the genuinely difficult areas which may need to be dealt with separately from the main cloud provision.

However, the evidence is that obstacles in these areas can be overcome cost effectively, either by providing a mix of services at different price points or by deferring transfers until vendors and regulatory bodies develop ways of managing the issue.

Having challenged that misconception, business leaders considering moving to the cloud need to challenge the view that it is just about IT cost savings. As Peter Coffee, Head of Platform Research at, said at a recent IT professional cloud computing conference: “If we talk about cost reduction, the most I can do for you is cut your IT spending by 100 per cent. Then we’re done. If we talk about value creation, I can keep on delivering value with no upper bound. That’s a much more interesting conversation.”

The key strategic driver for cloud cannot be cost alone. Like all IT initiatives, the success of cloud depends not only on getting the technical aspects right, though that is important, it lies in securing the engagement from the business. Cloud can transform the way a business operates, it can stimulate innovation and provide a real competitive edge – but it can only do this if everyone is willing and able to use IT in a different way.

This requires business leaders to reconsider what they need to deliver improvements for their customers. That means going beyond generalities such as greater flexibility or lower cost services. The business needs to focus on more specific requirements, such as how to provide self service customer access to processes buried within complex legacy applications, or how to improve the management of customer relationships through more joined-up access to data that is spread across existing systems.

Companies such as Starbucks have taken this approach and used cloud to drive transformation in customer engagement. They built an online platform in six weeks to facilitate conversations with customers and to generate ‘crowd-sourced’ ideas as to how they could improve services. They received 77,000 ideas and 150,000 comments and are now implementing those with the most votes, including new smoothie flavours and the reintroduction of old biscotti favourites, with the confidence that they have the support of their most loyal customers. A traditional IT-driven approach for a worldwide customer collaboration website would undoubtedly have failed at the business case stage by being prohibitively expensive. However, by leveraging the power of the cloud they enabled a successful, cost effective engagement with their customers.

So it is clear that cloud computing is here to stay and that it can deliver significant IT cost savings and improve the efficiency of IT operations. In order to realise those benefits CIOs will need to go beyond the status-quo and understand their IT organisation will be smaller and more focused. Yet cloud’s true potential lies in its capacity to transform business models and help companies respond to an ever more competitive, fast moving world. It will only do this if business leaders understand that cloud is too important to be left to IT and that it has to excite and engage everyone across the organisation.

Chris Burn is an expert in cloud computing, PA Consulting Group and Conrad Thompson is an expert in IT enabled business change, PA Consulting Group.

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