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Questions top executives should ask about cloud computing
Article Type: CEO advisory From: Strategy & Leadership, Volume 38, Issue 6
Business leaders need to evaluate how cloud computing – which allows users, wherever they are, to obtain computing capabilities through the Internet from a remote network of servers – can enhance their ability to innovate processes, enhance customer relationships, and affect competition in their industry. Many global organizations – including Citigroup, Eli Lilly, and Starbucks – are already using cloud computing to analyze data, provide applications to employees and run special projects. Media giants Time Warner and Disney are using cloud computing to re-engineer their processes for distributing digital content. And more cloud services will soon be available, as established IT and telecom providers such as Microsoft, IBM, Accenture, Fujitsu, KDDI, China Mobile and SingTel joining cloud pioneers like Google, Amazon and Salesforce.com.
But because its potential uses are exceptionally broad and its risks difficult to foretell, the advent of cloud computing generates thorny questions. While it promises to deliver a wide and powerful range of capabilities, it will likely affect how information is controlled and the economics of business technology. To help senior executives come to a timely, focused and productive evaluation of cloud computing, here are a few key questions business decision makers should ask about this still-new technology (see Exhibit 1, “A guide to cloud terminology”). By focusing on the strategic issues, leaders can start to identify opportunities and risks for their own organization.
1. What is its competitive advantage?
For businesspeople, cloud computing services offer more for less: plenty of computing power, without the costs of maintaining expensive IT infrastructure. Instead of licensing software, users tap into a service when it’s needed for as long as it’s needed. All that is required is a broadband Internet connection, and a phone or personal computer with a browser. As with cable TV or a phone service, organizations pay by the kind and amount of services used, plus any additional fees.
At the other end of the Internet connection are supersized data centers containing tens of thousands of servers hosting web applications. So with cloud services, the major burdens and expenses of IT power become someone else’s problem. By obviating the need for large investments in IT, cloud computing makes it easier for small, agile competitors to enter data-intense markets.
2. What specific benefits can clouds bring to my organization?
Some big companies are finding cloud computing to be surprisingly cheap. For example, Eli Lilly paid Amazon Web Services only $89 to analyze data on a drug under development. To do the job themselves, its researchers would have had to buy or redeploy 25 servers. Add the savings from eliminating the cost of servers, software licenses, maintenance fees, data center space, electricity and IT labor, and the benefits of replacing a large up-front capital expense with a low, pay-for-use operating expense, and the financial appeal of cloud computing is obvious.
Cloud computing is especially well suited for sporadic, seasonal or temporary work, for finishing tasks at lightning speed and processing vast amounts of data, and for software development and testing projects.
Clouds are still too new to fully understand their benefits. Business leaders should begin by looking for specific benefits for their own organization – ways to reduce costs, improve processes and more. They should also investigate when clouds do not make sense. For example, a complex legacy system would require a costly redesign to operate on a cloud, and projects requiring a guaranteed response time should be avoided, since guarantees are risky when data has to run over the Internet. Executives are likely to find the greatest benefit by envisioning new processes, applications, services and offerings that had been too difficult or expensive for the organization.
3. How will clouds affect the way my organization competes?
Some companies are using cloud computing to create new products and services. For example, NASDAQ is offering investors new cloud-based tools to analyze trades, capitalizing on its database of stock transaction data. Best Buy is preparing for the day DVDs are obsolete by launching a new online movie-streaming service that works through a cloud managed by a third party (see Exhibit 2, “Sample uses for cloud computing”).
Organizations can also use clouds to quickly engage with customers. Starbucks used clouds to develop a web site promoting volunteerism in just four weeks, timed to Barack Obama’s inauguration. Designed to scale easily, it handled three million hits on its first day alone. By using the speed, power and easy access of cloud applications, start-ups and established companies alike can attempt to seize first mover advantage in a new market, enter an adjacent market or new region, and displace slower-moving, less innovative rivals. Every strategist will need to understand when clouds can provide a competitive advantage, and when their current IT infrastructure becomes a competitive disadvantage.
Clouds can also help companies improve their efficiency and decision making, and make them more competitive and profitable. BT Group is using cloud-based analytics for revenue optimization, by analyzing hundreds of millions of call-center records to develop more lucrative pricing plans. Low-fare airlines around the world are using reservation and other business-process services run on a cloud operated by Navitaire (an Accenture subsidiary).
Clouds will not only enable strategy, but change competitive environments. Organizations will have to learn to thrive in a world of Internet giants with extraordinarily large computing capacities. The Google cloud processes 20 petabtyes of data a day – the equivalent of 400,000 PCs with 50 gigabyte hard drives. Few companies will choose to build the massive clouds that run these services, but many must compete with or rely on organizations that do. Failure to do so, as many media, music and conventional retailers are finding, can devastate profits.
Executives also need to consider cloud computing in a global context. Enterprises in developing nations may use cloud computing to compensate for immature or incomplete IT infrastructure, much as they used mobile telephony to offset a lack of land lines. Developing nations may also promote clouds as a low cost way to provide IT services to small or start-up businesses. Tomorrow’s global competitor or partner could well be built on clouds.
Finally, executives should remember that clouds can promote cooperation as well as competition. Think of how an industry cloud, by providing a common back-office platform, could enable information to be shared between hospitals, doctors, nursing homes, insurers, regulators and patients in the US health care system.
Strategists will need to perform a thorough assessment to understand how clouds can help them compete with existing businesses or how they might be threatened by startups.
4. What risks must my organization manage?
Technologists and agencies have already identified many data protection and privacy risks connected with cloud computing. It is possible that data could be stolen by hackers, mixed with data from their cloud providers’ other customers, or released by mistake. Any of the above would expose organizations to public embarrassment and lawsuits as well as the time and expense of cleaning data and undoing other damage. Less well understood is how local laws and regulations apply to cloud computing, especially among multi-national companies.
Problems with reliability, performance and other technical issues present IT-related risks. Clouds do fail: even prominent cloud service providers have suffered service outages or slowdowns. Executives should discover which risks apply to their organizations and how to ameliorate them. They should find out which cloud service providers are trustworthy, and whether their own organizations’ data management practices expose them to risk. And they should not forget that clouds can provide security benefits as well as risks. (For more on security risks – and benefits – see Exhibit 3, “Cloud security risks and benefits”).
5. What are my next steps?
Cloud computing is too important a technology to leave entirely to technologists. To make sure an organization maximizes benefits and minimizes risks from cloud computing, executives must:
Ask hard questions and demand data-based analyses regarding cost savings.
Establish a clear governance structure for cloud computing.
Make sure the organization senses and responds appropriately to the impact clouds are having on their industry and competitive environment.
Make sure goals and deliverables are well understood, and projects are well aligned with business needs.The critical strategic issues are: how companies could make money from the capabilities cloud computing offers, how it could change the competitive dynamics of markets and how companies can recognize and minimize its risks.
Jeanne G. Harris Senior executive research fellow with the Accenture Institute for High Performance and a co-author of the recently published Analytics at Work: Smarter Decisions, Better Results, with Thomas H. Davenport and Robert Morison. (email@example.com)
Allan E. AlterResearch fellow with the Accenture Institute for High Performance. (firstname.lastname@example.org)
James HarrisSenior executive and the managing director of cloud computing for Accenture. (email@example.com)