As we continue to explore cloud computing (see my recent blog post), we will look at why we consider it, what cloud computing can do for an enterprise that adopts it, and briefly, a few of the different adoption models that might be considered.

Today, Information Technology (IT) is at a turning point – there is a critical need to improve IT’s impact on businesses.  One only has to look at the following points: as much as 85% of computing capacity sits idle, 70% of IT budgets are spent on current system maintenance, with only 30% on new capabilities, and over 30% of consumers notified of a security breach terminated their relationship with the company who contributed to the problem.

Infrastructure needs to be more dynamic, in order to save capital needed else where, and to allow for new business adaptations.  Many CEOs are looking into cloud computing as a possible way to gain that sort of dynamism.  As discussed previously, cloud computing is a new model for delivery and consumption of IT and business services.  It includes on demand self service, ubiquitous network connectivity and access, resource pooling independent of location, rapid provisioning and complete elasticity of services, and efficient pay-per-use arrangements.  How do these attributes create value for the companies that adopt the cloud?

There are several ways they can do this.  First, and most obviously, they can save money on infrastructure and personnel costs.  In addition to lowering general IT costs, cloud can open up new markets, and enable new, innovative business models.  It is not merely a matter of return on investment.  The Cloud can drive innovation with new applications developed in newly affordable cloud environments, it can increase business responsiveness, it can lower total cost of ownership and improve asset utilization, it provides an elastic IT environment, enables real-time data streams and info sharing, and provides globally available resources.   Let’s look at the three major categories of value drivers, the possible game changers.

Lower IT and operating costs.  As mentioned earlier, this is the most obvious and for some leaders the overriding reason for adopting the cloud.  A good cloud model will lower these costs by providing a big improvement in the dynamic nature of the IT infrastructure.  Using virtualization, standardization, self-service provisioning, and automation of much IT management, a level of flexibility can be achieved that is impossible with conventional set ups.  The standardization of both infrastructure and processes will also drive down process and system administrative labor costs by decreasing complexity and reducing errors and re-work.  Given that an enterprise must build to accommodate peak IT needs that may only occur a few times a year, traditional models have built in waste.  It is very difficult to shift these assets effectively, so they normally sit unused, or at best under used.  The cloud allows the enterprise to use exactly what it needs, exactly when it is needed.  The savings can be substantial.  In test clouds, IBM’s research showed 65% savings in hardware (reduced infrastructure, and improved utilization), 27% savings in software (lower license fees and improved utilization), 45% savings in system administration, and 76% savings in provisioning (labor).  All of this will allow businesses to transform IT costs from a fixed (and inefficient) structure to a variable cost structure.

Better IT services and faster provisioning.  Today’s model for enterprise IT only works for large organizations that can afford to purchase their own, or set up long term leases.  Many small to medium size businesses cannot do this, so they go without robust IT structures.  The big firms will often allow their structures to get stale, because it is so expensive to replace or refresh them.  The cloud model allows for an efficient pay as you go basis that frankly helps companies of all sizes.  It stays fresh; self adjusts, and allows access to sophisticated development tools and testing environments that are not normally available to all companies.  Given a good cloud providers, the quality goes up, and stays state of the art for the customer, keeping them on the cutting edge.

Removing IT complexity from end users. The cloud separates the user from the core IT infrastructure, application and support processes.  The users simply access applications and information that is located and maintained in the cloud.  They do not have to worry about the database, back up processes, upgrades, or patches.  This is all done by the cloud provider.  It is easy to see why the cloud can look so attractive.  A security plus here (security downsides will be discussed in future posts) is that you eliminate the “VA Problem.”  You may remember the incident when a Veterans’ Administration employee lost a laptop with thousands of peoples’ personal data on it.  Using the cloud, your very mobile and distributed workforce never needs to carry data on their mobile devices. When they need it, they reach back for it in the cloud.  If a device is lost in an airport or taxi cab, no data is lost with it.  The cloud will give companies a chance to standardize their processes and applications in ways that are safe and efficient.  You can try out applications to replace legacy ones with much less expenditure of capital or training.  The safety of this will result in a good deal more standardization that might otherwise occur.

It is easy to see the potential benefits of this model.  Companies can approach the cloud in a number of ways.  Some small firms, who due to the high intensity nature of their business spaces, probably should consider plunging in now.  Others should at least begin developing strategies and possibly trying out limited pilot programs.  Larger firms who have the luxury of their own fairly robust IT systems could be a little more patient.  The fast movers can develop strategies and pilots, the more conservative ones should at least begin an investigative strategy process, and watch their competition to see where they are going.

The cloud model is coming, its use will grow everyday.  The attractiveness is quite alluring, and many are drawn to it.  Are there dangers?  Clearly, the recent T-Mobile SideKick fiasco, when a Microsoft subsidiary lost huge amounts of customer data shows one of the dangers.  In part 3, we will look at these issues.

Dr. Steven Bucci is director of the Allison Center for Foreign Policy Studies at The Heritage Foundation. He was previously a lead consultant to IBM on cyber security policy. Bucci’s military and government service make him a recognized expert in the interagency process and defense of U.S. interests, particularly with regard to critical infrastructure and what he calls the productive interplay of government and the private sector. Read More