Cloud computing has the potential to solve a lot of the problems that are being encountered by organizations these days with regard to expansion, cost effectiveness, and Information Technology. The concept itself has attracted the attention of big players in the government, business, and in the IT industry. However, many of the key decision makers are still in the dark, not knowing what cloud technology really means in practice, the benefits it brings, and the specific challenges that need to be hurdled before it can be exploited in large enterprises.
A real phenomenon that is accelerating and must be taken seriously
There are already a number of Australian organizations, including large businesses, that are adopting a zero software policy, as they aggressively adopt cloud computing in their infrastructure when found feasible.
The biggest benefits are unexpected
While majority of cloud computing adopters do so because of the promise of cost efficiency, they tend to discover better strategic benefits with regard to improving their organization’s agility, flexibility, efficiency, and relationships with clients and customers. Most of them even benefit in a way that allows them to reduce the time it takes for new products and services to enter the market.
What Does Cloud Adoption Look Like in Australia?
In the Australian IT industry, the different types of cloud computing activity can be categorized into three tiers:
- Software as a Service – Renting software that are accessed via the web, instead of buying a copy and installing it on their local servers. Some example of these pay as you go model software include SAP Business By Design, Google Apps, RightNow, and Salesforce.com.
- Platform as a Service – Development and hosting of software in a virtual cloud environment that already has the tools, languages, databases and resources needed instead of developing code on premises. Some examples of this approach include Microsoft’s Azure and Google’s App Engine.
- Infrastructure as a Service – Paying for access to computer processing power and storage, instead of building their own server farms and hosting their own services on premises. Examples include Amazon’s EC2 and S3.
Different Paths to Cloud Computing
Due to the nature of cloud computing, organizations tend to undertake different paths and different timeframes. Most of the time, their journeys towards the cloud were determined by accidents, unplanned trials, experiments, and recommendations from peers. The differences are further exacerbated by the inherent variations in the different companies’ structure and computing needs. However, there are two themes that seem to crop up in multiple cases.
The first theme is when an organization adopts a cloud based service for one key enterprise application, only to adopt more cloud based services as they begin to see the benefits of cloud computing. One of the services that serve as this type of gateway app is Salesforce.com.
The other is when a company tries to improve their organization’s use of overall computing resources and capacity, only to eventually consolidate their most critical applications and processes in fewer larger facilities, with their extraneous applications being virtualized and ran in the facilities instead of being stored locally on individual workstations. The good results from this practice eventually lead to organizations expanding their strategy, until they decide to shift every single computing task they can to the cloud.
There are also other variations, but they don’t happen as frequently as the two above. In some cases, they start because of the adoption of open source software that is installed locally, only to be convinced by the benefits of pay as you go applications due to their more practical, utility-based pricing. In other cases, it is the adoption of third party collaboration tools hosted on the cloud that acts as the gateway to more extensive cloud applications. Regardless of the path they take, the journey to the cloud in Australia still falls within the 3 categories of services above: SaaS (Software as a Service), PaaS (Platform as a Service), and IaaS (Infrastructure as a Service).
Extent of Adoption
Even if all Australian organizations adopted the same cloud strategy, they still differ greatly in terms of the extent to which they adopted the technology. 3 organizations, in particular, stand out as the most advanced adopters due to 80 to 90 percent of their applications now rented as services from third party providers. Two of the three are large enterprises but they sit at the lower end of this classification since they only employ less than 400 people. The third one is a small business.
In 5 other cases, the utilization of cloud technology is estimated at the 30 to 60 percent range. The mid range consists of five organizations that have migrated between 10 to 20 percent of their applications to the cloud, with the remaining being organizations that have 5 percent of their software and services accessed via the cloud.
During the course of the research done to came up with the sample figures, 2 additional Australian organizations – one of them large and the other mid-sized – were cited by respondents as likely to be running more than 80 percent of their applications in the cloud, but the lack of interviews resulted in the inability to verify the claims and exclusion from the research.
The applications that are migrated to the cloud serve a wide range of purposes related to business functions, such as HR management, training, supplier management, procurement, accounting and finance, customer relationship management, helpdesk, billing, project management, travel management, personal productivity, collaboration, document management, and communications.
The type of adoption exhibited in Australia is not limited to packaged solutions, as there was extensive use of platforms for developing and running stand alone applications via the cloud. It wasn’t limited to non-critical tasks either, as there are many instances of strategic and security-sensitive applications still being ran via the cloud.
A large number of organizations who had less than 20 percent adoption rate prefer virtualization, as they work methodically in order to create centralized, shared pools of computer hardware inside the enterprise. In two distinct cases, the organizations were very aggressive and have migrated 80 percent of their applications to a virtualized network, successfully completing a major internal transition as they moved out a large part of their infrastructure and put it in the hands of third party providers.
Intention to Adopt
There is a strong overall intention to continue the adoption of cloud computing technology in Australia, with 10 out of 18 cases implementing a zero software policy as they start to prepare for the eventuality that all business computing would be migrated to the cloud, as it starts to become more cost efficient and practical. In said cases, the key decision makers in the organization have already come to the realization that taking advantage of the cloud will translate into a significant competitive advantage.
As to when it would be practical to move to the cloud, the organizations and their key management people have differing views. Some of them decide based on their attitude towards risk, the maturity of the cloud services they are eyeing, and the complexity of their existing infrastructure. In three of the organizations observed, the transition to the cloud is already complete. For the rest, though, the transition is expected to take years to complete even though the management is already convinced that it is the path they need to take.
In eight of the cases, the dominant attitude is that cloud is an important option that must first be evaluated on a case by case basis, with people seeing the technology as just another tool in the toolbox, only making sure that it will be used at a specific time deemed as the “right time”.
There are cases of the reverse, though, with organizations eventually moving out of the cloud and hosting applications on premises. These cases usually involve small enterprises who had adopted the cloud aggressively, and experience good outcomes, only to find that the more they grow and become established, the more that they need the controls to be on-premises, which is why they eventually decide to move operations back on site instead of relying on the cloud.
These are isolated cases, as the organizations were extremely aggressive adopters of cloud technology, and cannot be taken as indicators of adoption across the board.
The informal data gathered from organizations with unknown adoption status was very important, as key executives in said organizations tend to see the cloud as an important phenomenon and are watching it closely. Unfortunately, they have reservations and fear that the technology is not yet ripe for large scale adoption, so they are not aggressively pursuing its implementation in their respective organizations.
- In a lot of cases, cloud computing is being adopted piecemeal, as isolated cases of web-based applications are used by individual business units on their own, without going through the organization’s IT department. They also tend to resort to virtual applications in order to improve their overall capacity utilization.
- Even though a larger sample is required to determine the true capabilities of the cloud computing technology in Australian organizations, the following conclusions can be made:
- A small number of Australian organizations have already adopted a zero software policy and are adopting cloud technology aggressively. The size of these organizations can range from small to medium enterprises to large ones.
- Most Australian enterprises are already feeling and noticing the shift of the industry towards the cloud, through the adoption of strategic we based applications in the business. The shift is so noticeable that even organizations who are not pursuing a cloud strategy have had to adopt web based applications in order to remain competitive.
- A large amount of Australian organizations are implementing internal programs that serve as preparation for cloud computing in the future, even if unintentional and even if the company has no plans of migrating to the cloud.
- All of the trends above are happening at a rapidly accelerating pace.
Based on respondent comments, first hand observations, and US cloud adoption announcements, we can safely conclude that Australia currently lags behind the US by 12 months in terms of cloud adoption. One key factor to this is the fact that high profile cloud service providers started out as catering exclusively to the US market, and have only branched out once they have established themselves in the industry.
Path to Discovery
Respondents have generally described their path towards the cloud to be a constant discovery and learning experience, wherein their understanding of the technology, its benefits, and how their organizations can benefit from it was continually being expanded the more they use it. These managers and executives – even those who were initially skeptical of cloud computing as a concept – were frequently surprised with new possibilities that they are discovering. One of the key reasons for this is the fact that cloud computing is still trudging towards maturity and is constantly evolving at a rapid pace, with new cloud uses and services coming out on a regular basis. The key takeaway from this is that many of the most beneficial uses of cloud only came about due to practice and usage.
One consequence of this was that the motivation for adopting cloud technology has changed over time. It used to be that the main motivation for cloud adoption is its cost efficiency, but over time, as the technology is experienced and creative new uses were discovered, organizations and providers both created new strategies and new value propositions that go far beyond saving a few dollars here and t here. As a matter of fact, a lot of the respondents tend to view the new outcomes far more positively than just cost efficiency. This is a very important finding as it underscores the massive shift from cost/efficiency to business innovation.
Benefits of Cloud Computing to the Australian Industry
1. IT Cost, Efficiency, and Speed – this benefit actually originated not from the pitches of service providers, but from the experiences of people who put cloud computing into practice. Respondents stated that they were getting very good value for money based on the transitions they have made, particularly with regard to reduced capital outlay on hardware and the reduction of costs made from the lack of computer management and maintenance needed. Additionally, there are also a lot of savings coming from not purchasing any computing capacity of hardware that isn’t necessary.
There is also a lot of cost savings involved due to the reduction of manpower needed, as there’s no more need to hire extra people whose only jobs will now be handled by the service providers. The improved productivity also makes it easier to test and deploy services, and to pull them out if needed. This helps prevent massive cost overruns usually associated with failed launches.
2. Removing Complexity – this benefit is closely related to cost efficiency. As cloud computing made a lot of IT operations and considerations unnecessary, the management of infrastructure became less complex and removed many of the overheads commonly associated with day to day maintenance, development, and repair of hardware and code. Even the need to apply patches to software has become simpler, as the IT managers now only need to deploy updates and patches to a single application hosted on the cloud. There’s no longer any need to visit each workstation and upload patches individually, which also removed a lot of the hassle dealing with different hardware.
The cloud technology certainly made IT consolidation less intimidating and more feasible for organizations that used to hold off on it, for fear of being stuck mid-consolidation due to software and hardware incompatibilities, inefficient infrastructure and massive costs. Basically, cloud computing did not solve the problems inherent in IT consolidation, rather, it made IT consolidation unnecessary as an infrastructure that’s been migrated to the cloud is already seamlessly consolidated.
3. Relocating IT People to More Mission Critical Positions – while a lot of people are afraid of the cloud because they believe it will take jobs away from people, the truth is that managers did not see the cloud as a replacement for valuable personnel. Rather, they saw cloud technology as a way to free up valuable personnel so that they can be reassigned to higher value and mission critical tasks.
This is a great benefit to both the employees and their employers, as mundane, day-to-day technology operations that add no direct value to their bottom line are no longer handled by paid employees, but done automatically on the cloud provider’s side. The benefit works two ways: they reduce the costs on maintenance and management of hardware and software, while at the same time it frees up people so that they can be reassigned to activities that provide a much more direct contribution to their bottom line.
4. Flexibility – another benefit of cloud computing that’s being touted by provider and user alike is its added flexibility. This also ties in with cost efficiency, as there’s no longer any need to waste money on buying computing power that they don’t really need, but it also provides the ability to scale up and down according to needs, without any of the downtimes and hassles involved with conventional expansion or reduction of operations.
With Cloud Computing, enterprises don’t need to worry about any limits other than what they would need and afford in the future, as cloud providers offer the ability to scale up or reduce rapidly. Compare this with the past, when companies would have to worry about the downtime they’re going to suffer from as servers are deployed and maintained, and the fact that they can’t add any more computing power if their offices can no longer accommodate the additional hardware. With the cloud, they can increase both storage and computing capacity without the need for additional server space.
5. Business Agility – all of the previous benefits, when combined together, make up this benefit. As cost efficiency, flexibility, consolidation, and simplicity all translate to a business that is more agile and able to adapt faster to industry and market changes. This is arguably the benefit that is best seen by the higher ups, as the business as a whole becomes more efficient – they gain the ability to open new offices, move staff and operations around, put new ideas into practice, and meet new business requirements very quickly and without the need to compromise key operational schedules.
6. Innovation – as expected, as businesses become more agile and break away from the inefficient practices of the past, decision-makers started to see opportunities to innovate and introduce new services to customers. They have also become more creative with the use of the back end services that they were renting from cloud providers. In a lot of cases, the lower operational costs provided by cloud computing has been passed on to customers, either as lower prices or better products and services as companies were able to divert more funds into bettering their offerings or adding value added services.
The most important message provided by the benefits that drive interest towards cloud computing in Australia is that every benefit outlined above is only the tip of the iceberg. Most of the benefits experienced by users were only made apparent through practice, and there is a good chance that more and more benefits will continue to crop up as organizations become more creative and experiment with the implementation and usage of the cloud. Based on the studies done and the responses given by the respondents, the cloud computing phenomenon is real and needs to be taken very seriously if your organization doesn’t want to be left in the dust by more aggressive and competitive cloud adopters.
This is not to say that there’s a need to throw all caution to the winds and adopt just because everyone is doing it, but rather an encouragement, that you should not be content with merely waiting and seeing how things develop for people who took that first step. Key decision makers should be part of the first step, and should join in with the rest of the cloud adopters, slowly at first if initial feasibility studies show some risks, but basically, it is imperative that you don’t become passive as the paradigm shifts around you. In the wise words of one of the respondents: Nothing beats getting your feet wet.