Hype & High Expectations For Cloud Computing, Part 3Cloud computing is a much hyped but often misunderstood technology that is gaining traction in different industries around the world. Businesses are integrating the cloud into countless systems, from HR to finance. Full adoption and acceptance of cloud computing, however, are still far away.
A recent global survey by Knowledge@Wharton and SAP’s Performance Benchmarking team reveals that while the hype and excitement surrounding cloud computing is reaching a fever pitch, many businesses are still expressing concerns over cloud security and IT integration issues. The survey also shows that while many people agree that the cloud is revolutionizing business, they still do not fully understand how it works.
How will these tensions surrounding the cloud be resolved? How will the cloud transform businesses in the future? What kinds of benefits will the cloud bring, and is it worthy of the current hype? Knowledge@Wharton discussed those questions and the survey results with David Spencer, vice president at SAP, and Don Huesman, managing director at the Wharton Innovation Group.
An edited transcript of the conversation appears below.
Knowledge@Wharton: When it comes to hybrid solutions, are there some areas where it’s easier to move things into the cloud than others? This relates to one more finding in our survey where 75% of the participants said they thought cloud computing meets minimal business needs. Could you speak to that?
Spencer: Well, if you take SAP as an example, we offer cloud applications in four big areas, focusing on the parts of our customers’ business that are most important to them: people, money, suppliers and customers. We’re also integrating social aspects into these cloud services. For example, we offer collaboration rooms where teams can work together to address customers’ needs. We build the analytics and we also build in the mobile applications in these systems.
The reason I mention this is because not all customers want to use the entire suite of cloud offerings. They may just want to take one application, such as expense reporting, and put it in the cloud. But then this service has to be integrated with other business applications that are not in the cloud.
Knowledge@Wharton: Don, do have anything to add?
Huesman: There are some types of document storage services that are easily moved to the cloud that might fall under the “minimal business needs” category. While some businesses in health care and law, for example, may not be able to use this kind of service due to strict regulations, other companies in other industries may find that this kind of document management system is easily moved to the cloud. This service can free up a lot of internal IT resources and can be quite beneficial in terms of savings and redeploying talent to tackle other issues within the organization.
Knowledge@Wharton: I’d like to end with some questions related to the future of cloud computing. Nearly 70% of survey respondents said that they believe cloud computing will lead to major changes in their company’s performance over the next five years. What changes do you envision and how will they come about?
Spencer: With the cloud, we are seeing people deploy technology faster and realize and recognize revenue and benefits faster. The cloud enables companies to access their customers in a way that is faster, more dynamic, more flexible and less expensive, and the system is integrated with existing infrastructure. People are also willing to make investments in cloud computing because it offers a flexible payment cycle. Furthermore, what may have taken years to build beforehand can now be done in months.
Huesman: The possible future that I see emerging is an extension of what has happened in the music industry with the development of iTunes. This classic cloud service disrupted and changed the dynamic for the music infrastructure providers. It extended music to a much larger number of providers, and it disintermediated some of the traditional businesses that controlled global music distribution. I wonder what that might look like in the space of productivity suites and enterprise resource packages. Is it possible we might see the emergence of an ecosystem of products that would allow for much broader competition? As I mentioned earlier, I think the cloud will contribute to downward pricing pressure.
Knowledge@Wharton: Which industries are ripe for that kind of disruption, thanks to cloud computing?
Huesman: I think education is in a position to finally be affected by the Internet. The classroom of today looks very much like it did in the 19th century, but I think that’s beginning to change. The change is partially due to cloud-based services, which allow the highest-quality classroom curricula to be compiled together and offered to organizations for free.
In terms of business, I think IT will become more streamlined and become more of a commodity service, which will cause downward pressure on IT expenses.
Knowledge@Wharton: That’s very interesting. Nearly 60% of our respondents believe that cloud computing will bring about precisely that kind of cost saving and encourage more business agility. Now I’d like to end by discussing how we might climb down from the “mountain of hype,” as Don said earlier, to the “plateau of productivity?” How can this be implemented in a way that delivers real value to companies?
Huesman: I’ve often been involved in projects where people hoped that an IT investment or a change in IT infrastructure would generate significant savings. But I have seldom seen that happen. However, I do see instances when deploying a new technology has provided businesses with an agility that makes them more competitive. That changes the game. While the focus on cost savings is very attractive to senior management, I would instead encourage them to focus on how the cloud can increase their agility to produce new services and new products of value for their customers.
Spencer: Let’s look at three things: agility, speed and investment in technology. In terms of agility, we see the cloud as being able to quickly deploy processes that are integrated with current systems. In terms of speed, you can deploy cloud processes so much quicker that traditional processes. From an investment standpoint, people are more willing to take on smaller cloud deployments and then ramp up and build on that success as they go.
Knowledge@Wharton: Do you agree that the opportunity to increase agility is higher than the ability to bring about cost savings?
Huesman: That’s been my experience in working with companies.
Spencer: I think it’s a combination of both.
This is part three of a three-part series. Check out parts one and two.
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