Contemplating the Cloud

Cloud computing is being adopted at an exponential rate, with software-as-a-service (SaaS) arrangements being the leader. In the corporate sphere, infrastructure-as-a-service (IaaS) is leading. IaaS offers virtual hardware, storage capacity, and network connections. Another type of service is the platform-as-a-service (PaaS) which allows users to build applications on the internet.


Utilization of the cloud promises savings, flexibility, and ease, which is why many companies have begun to implement it. There are some big decisions to make before they can successfully apply cloud computing. These include: public, private, or hybrid clouds; cost-benefit analysis, and risk assessment.


cloud puzzle



When a company is considering a SaaS arrangement, the motivation is hardware or software upgrades. Usually a company has an old on-site application and they need to upgrade because the old system is running out of support. Since the cost of an upgrade may be comparable to a replacement, cloud computing should be seriously considered. If they opt for a private cloud, they are the only tenants and they own the license or software. This may be favorable for a company who wishes to cut costs and runs a tight IT division. A public or hybrid approach would be better suited for a company who experiences spikes in application usage or who wants their resources spent elsewhere.


Prominence of SaaS

SaaS has become the leader in the market for customer relationship management, supply chain management, payroll benefits, time and attendance, and ERP software. Since 2000, it has grown from being virtually nonexistent to accounting for just over half of all software deals last year. SaaS is beneficial for small companies due to its replacement cycle of only two to three years versus nine years with licensed software. Next, companies look towards IaaS and PaaS.


ERP Resistance

ERP systems are the last thing to be sent to the cloud. Integration of applications, data stewardship and governance all has higher priority than replacing or updating ERP systems. This is because ERP systems are high customized. Manufacturing companies have been the most resistant to adopt ERP SaaS solutions because the customization and integration it requires make it difficult for on site cloud systems to compete. Other highly regulated industries have also been reluctant to implement cloud arrangements due to burdensome compliance requirements.


Capital vs. Operating Expenses

One factor to consider when looking into cloud arrangements is capital vs. operating expenses. Cloud arrangements are more attractive to companies whose performance is measured return on assets deployed. On the other hand, regulated companies aren’t interested in cutting fixed assets, so they might be more likely to hold onto their data centers and other IT infrastructures and build out private clouds within these systems to reduce operating expenses. New companies and startups will most likely implement SaaS applications.


Other Considerations 

The cloud could potentially impact worker productivity, security issues, privacy issues, interdependency, and compatibility with other applications. Issues can arise when a security breach occurs, when the contract ends, and ownership issues. These risks need to be evaluated individually to come to the best conclusion for the specified use of the cloud.

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