Gartner defines Cloud Computing as “A style of computing where scalable and elastic IT-enabled capabilities are delivered as a service to customers using Internet technologies.”

It is essentially a pool of storage, network and computing resources deployed in a dynamically scalable manner as a shared pool of resources that different parts of the organization use on need basis and then free up for use by others when not required, in case of an Enterprise cloud. In a Public cloud, the resources are available to multiple entities across the planet in a controlled access manner, on a pay-per-use basis. It is essentially like using a freight liner to transport your goods when required as against buying your own ship.

With the shared services concept, utilization of the pool of resources goes up, thereby driving down per-use cost drastically.

Why should anyone consider leveraging the Cloud?

The way organizations work today, IT assets are spread across the organization, owned by different divisions and business units and grossly underutilized. Most enterprises typically use just around 40-50% of the potential storage, network and computing capacity deployed across the organization in a discreet, disconnected manner. Cloud computing connects these resources into a common, sharable pool leading to the following key benefits:

• Elasticity / Dynamic Scalability:
Just like a rubber-band, that can be stretched as much & when required and post use can return to its original steady state, Cloud offers dynamic upward and downward scalability where additional capacity can be added ON DEMAND in a matter of minutes or even seconds, at times even transparent to the users. Scale down can also happen equally fast when the need for excess capacity does not exist anymore. This is very useful for known cyclical spikes and also unknown volume spikes in activity. A good example is an online retail store that has a huge cyclical / seasonal volume spike around say Christmas where the retailer would have to provision infrastructure to handle volumes as high as twice or thrice of the usual steady-state volume. If the infrastructure is unable to scale up when required, the site would crash and there would be a huge opportunity loss. If the retailer prepares for the spike and provisions for the peak infrastructure all year round, it is a waste of investment for the rest of the year. It is much easier to provision for the additional infrastructure through Cloud service providers, for only the specific time of the year. The provisioning is dynamic in a matter of seconds or minutes as against waiting for weeks to install an additional server. Another example could be that of a portal of an anti-virus software vendor that faces the peril of sudden, unpredictable rise in traffic on a virus outbreak, or an online stock trading portal that may face sudden spikes in volume on major positive or negative news.

• Conversion of IT CAPEX to IT OPEX:
The cloud offers an effective way of converting IT CAPEX (capital expenditure) to OPEX (operational expenditure) with a pay-on-use pricing model. It negates the need for forecast-based sunk investments in IT infrastructure too.

• Speed of Provisioning:
IT managers can provision for a specific development or testing environment within minutes if not hours instead of the weeks that are required in the offline world. With the scalability being dynamic and various pricing models available, Cloud offers a speedy way of provisioning IT resources. Cloud also helps reduce time for application roll-outs and upgrades for months and quarters to a matter of hours.

• Disaster Recovery & Business Continuity:
With shared IT infrastructure, often physically located over a wide geography and with provision for dynamic mirroring, the Cloud can provide a virtually infallible IT infrastructure.

• Cost Effectiveness:
Especially in case of enterprise Clouds, underutilized infrastructure can be used much more effectively in a shared manner. For public and hybrid Clouds too, the long-term cost of pay-per-use is much lower than the long-term cost of ownership due to high utilization. Maintenance and upgrade costs are reduced to almost negligible levels through SaaS and virtualized infrastructure. Challenges & Concerns With Cloud

Now that we have looked at the silver lining of the Cloud, let us also look at the dark side, as lightning bolts usually come from there and could have lethal consequences. Despite its obvious (aren’t they very obvious now?) advantages, there are certain challenges and concerns too.

Security:
There is always a security threat in using shared resources. However this can be addressed with enterprise Cloud with a thick and smart security layer around the infrastructure and putting together specific identity and access management policies and procedures to minimize the risk. In case of public Cloud, especially in B2B scenario, appropriate vendor evaluation and strict SLAs and damage clauses could protect your interests. Discretion MUST off course be used in deciding what goes on the public cloud. Risk can also be managed by using a selective Cloud migration strategy, instead of going all-out on the Cloud.

Regulations:
With Cloud, having a disaggregated mass of IT infrastructure and applications, often spread across geographies, there are concerns about where the data is being stored and regulations in some geographies may prohibit certain kind of data to be sent out to less secure locations. There is often no way around regulations and hence these regulations could be used as one of the guiding principles in deciding what goes on the Cloud and what does not.

Licensing Issues:
Not all software vendors are yet offering SaaS or Cloud licenses for their products. This becomes a challenge when creating a Private Cloud within the enterprise where one of the features will be “apps on taps”. Decision to enable SaaS on enterprise Cloud ought to be made after discussing these issues with the relevant vendors and arriving at some mutually agreeable solution.

Bandwidth Costs:
Operating a Cloud enabled environment requires HUGE bandwidth availability with suitable redundancies to avoid crash of business operations in case of connectivity outage. Some calculations ought to be made to check the potential increase in bandwidth cost against the expected benefits accruing from Cloud.

Multi-vendor Management:
Most organizations would struggle to find a single Cloud provider that can address all its requirements. This means signing up with different vendors and managing the multiple relationships, which often has the potential to sap the management bandwidth significantly. There is also the concern around interoperability of offerings of different vendors. This risk can be mitigated through systematic vendor evaluation and selection and with well drafted SLAs.

There may be some more challenges and concerns potential buyers and actual users of Cloud may be facing, but the above are the most common. Most of these can be addressed with a little discretion and proper planning.

Payables Processing On The Cloud
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Most enterprises have a large number of suppliers spread across multiple locations, often even across continents. The procurement teams are also spread-out and it is an administrative nightmare for the corporate finance professionals to be able to manage the payments to these multitudes of suppliers. This often leads to errors in processing, delays, missed early payment discounts, large delayed payment penalties, double payments and a significant overhead cost of managing this complexity.

There is the additional complexity and cost of managing a multitude of applications to track and process payments and reporting formats spread across different parts of the enterprise. There is also a significant manual effort affecting speed and accuracy of information processing.

Cloud computing offers a credible means of managing payables processing in a very simplified manner. A payables processing portal on the Cloud can automate processing of bills / invoices across locations in a centralized manner. It is possible to upload purchase orders, goods receipt notes, bills/invoices and payment information on the Cloud-hosted portal. The applications on the Cloud could then perform a three-way verification, capture and process information from the scanned document images and create a payment dashboard showing savings potential through early payments, penalties and an optimized payables schedule. A more intelligent program can also enable automatic electronic funds transfers on authorization by a nominated decision maker. A very small team can thus manage the global payables function in a centralized and automated manner, leveraging the Cloud.

Besides lower transaction costs and faster processing at higher accuracy, leveraging the Cloud also reduces the overhead costs of a large accounts payables team spread across locations and application maintenance and upgrade costs of all the diverse portfolio of applications used across locations.

Information security concerns can be suitably addressed through contractual deterrents and security audits by 3rd party.

To experience how this actually works in practice, visit http://www.invoicetiger.com

Conclusion
---------------------

Like any new technology or concept, Cloud computing too has its enthusiasts and naysayers. However it is obvious that Cloud is emerging as the new industry standard for organizations globally due to the obvious benefits it offers. As providers and buyers mature and as the hype settles, Cloud computing is gradually becoming just another way of using IT resources in a shared manner. Low-risk functions that can give better RoI, like accounts payables can be among the first to benefit from the Cloud.

Open any respectable publication or market report today and you cannot escape the mention of “Cloud Computing”
(See you got it here too !).

The media all around us is so full of this buzz word on the Gartner hype cycle, “Cloud Computing”. With so many different messages and definitions, the cacophony of different interpretations of Cloud Computing only serves to confuse most people. There are many new strange looking acronyms like SaaS, PaaS, IaaS, StaaS, etc running all over the place adding to the chaos. This article is an attempt to “demystify” Cloud Computing, hopefully without adding to the confusion we already have around us.

So what is Cloud Computing all about?

Gartner defines Cloud Computing as “A style of computing where scalable and elastic IT-enabled capabilities are delivered as a service to customers using Internet technologies.”
Forrester defines Cloud Computing as "A pool of highly scalable and managed compute infrastructure capable of hosting end-customer applications and billed by consumption."
NIST (National Institute of Standards & Technology) has released a detailed, “Official” version of the definition of Cloud Computing running into several pages.

Confused already?

I have not yet started with definition of Cloud Computing by multitude of other “experts” in the market.

In simple terms, Cloud is a “disaggregated mass of storage, network and computing resources accessible in a dynamically scalable form in on-demand mode” … getting more complicated?

By resources, I am referring not to IT trained people as is normally done in IT organizations, but the various devices and applications and networks used by the IT organization and enterprise users.

Types of Clouds
------------------------

To simplify it further, every enterprise IT system is made up of devices & applications that allow users to store information, share information through networks and compute or process information. Usually these resources are spread across the organization with each user able to use only a fraction of the resources available to him/her. This amounts to significant over-investment and under-utilization of IT resources. For example, most of us use only a small part of all the applications available to us in Microsoft Office in our routine, though we have to pay for the full package. Some people use Excel more than anything else and some others use Powerpoint and some others use MS Word more than anything else, most of the time. Very few users actually use all the applications that we pay for when we buy the MS Office license, with significant enough frequency to justify over even 50-60% of the license cost.

In cloud computing these distributed resources are connected to a common platform that can be accessed by all users across the organization on need basis, leading to ready availability and dynamic scalability owing to tapping the under-utilized resources to their fullest potential. This is called virtualization of resources – making the functionalities available in the virtual (online) world.

With this kind of a set-up, the organization enjoys dynamic upward and downward scalability, high resilience and flexibility and better utilization of IT resources. All of this, when done within the limits of an enterprise, is known as a “Private Cloud” or “Enterprise Cloud”. In this case, various parts of the enterprise use the common infrastructure (Cloud) in a pay per use mode through a system of “internal charge-backs” When done on a larger scale for public access, it becomes a “Public Cloud” of which the Google Documents facility is an example. Here the revenue model is either pay-per-use based or free to use to grow volumes and earn revenues to advertisements.

A third kind of Cloud is a Hybrid Cloud set up where there is a secure private cloud on the enterprise side which is connected to a public cloud environment in a secure and controlled manner to enable access to information and services to customers.

Cloud Enabled Services & Cloud Enablement Services
---------------------------------------------------
Various service providers offer a variety of services leveraging the Cloud, based on their own capabilities and investments.
Application vendors offer SaaS or Software as a Service which is a refined version of the erstwhile hosted application services in the name of ASPs. In SaaS the applications are available on a pay-per-use basis and is also referred to as “Apps on Taps” by some.

StaaS or Storage as a Service is offered by providers who set up huge storage farms (yes they call them farms) and make storage available on a pay per use model such as pay-per-GB or pay-per-month for unlimited GB, and many other pricing models.

IaaS or Infrastructure as a Service is offered by providers who put together storage, network and computing infrastructure on a large scale and allow users to use it on a pay-per-use basis. They use various models such as server rentals per day or pay per computing cycle and many other such pricing models. Bandwidth allocation and server resources are essential elements of IaaS. The IaaS architecture specifies dynamic scaling of bandwidth. A cloud computing installation should never be overwhelmed by peak demand, because the infrastructure service should be able to quickly add the resources needed to accommodate peak demand.

PaaS or Platform as a Service is the delivery of a computing platform in a pay-per-use service mode. The service delivery model allows the customer to rent virtualized servers and associated services for running existing applications or developing and testing new ones. Enterprise IT managers often prefer to use PaaS for setting up application development and testing environments in an upward and more importantly, downward scalable mode, to avoid sinking huge infrastructure investments in resources that are required to full capacity for short time intervals. Many small IT service providers and ISVs (independent software vendors) also find PaaS very useful.

Some IT service providers also offer Cloud Enablement Services and Cloud Testing services. Cloud testing services refer to third-party testing of a Cloud set up by someone else to check for compliance with the mutually agreed upon expectations as per the terms of the contract, before payment is released to the provider who created the Cloud.

Cloud Enablement Services refer to services aimed at helping enterprises set up their own enterprise Cloud. This is a combination of a series of services as listed below:

Cloud Readiness Assessment:
Consultants from the provider organization study the existing IT set up and test it for readiness to move to a Cloud environment. This involves assessment of the portfolio of applications, hardware and connectivity infrastructure and also the way the processes are organized across the organization. Based on this assessment, the Consultant creates a roadmap.

Running the roadmap:
In this phase, the provider focuses on optimizing the IT resources through various steps such as applications portfolio rationalization, process re-engineering for optimization, geographical consolidation, etc. Once the existing IT environment is fully optimized in its current offline form, the consultants work on virtualizing it and creating relevant charge-back mechanisms to meter and charge for usage.

Testing the Cloud:
The Cloud that is ready in the background is then tested offload and on peak load to ensure it lives up to its promise of dynamic scalability, resilience and functionality.

Launching the Cloud:
Once the entire Storage, Network & Computing resources portfolio is virtualized and is ready for pay-per-use in an on-demand mode, training is conducted for the IT staff to get them ready to manage and maintain the Cloud. The Cloud is then officially launched by migration of the access from offline to Cloud mode. In many cases, the entire process is transparent to the end users and they may not even know their access has been transferred to Cloud mode, unless required by specific regulations.

Benefits of Cloud Computing
------------------------------------------------

The way Cloud is created, or meant to be created, it has the following inherent benefits for the user:

Elasticity / Dynamic Scalability:
Just like a rubber-band, that can be stretched as much & when required and post use can return to its original steady state, Cloud offers dynamic upward and downward scalability where additional capacity can be added ON DEMAND in a matter of minutes or even seconds, at times even transparent to the users. Scale down can also happen equally fast when the need for excess capacity does not exist anymore. This is very useful for known cyclical spikes and also unknown volume spikes in activity. A good example is an online retail store that has a huge cyclical / seasonal volume spike around say Christmas where the retailer would have to provision infrastructure to handle volumes as high as twice or thrice of the usual steady-state volume. If the infrastructure is unable to scale up when required, the site would crash and there would be a huge opportunity loss. If the retailer prepares for the spike and provisions for the peak infrastructure all year round, it is a waste of investment for the rest of the year. It is much easier to provision for the additional infrastructure through Cloud service providers, for only the specific time of the year. The provisioning is dynamic in a matter of seconds or minutes as against waiting for weeks to install an additional server. Another example could be that of a portal of an anti-virus software vendor that faces the peril of sudden, unpredictable rise in traffic on a virus outbreak, or an online stock trading portal that may face sudden spikes in volume on major positive or negative news.

Conversion of IT CAPEX to IT OPEX:
The cloud offers an effective way of converting IT CAPEX (capital expenditure) to OPEX (operational expenditure) with a pay-on-use pricing model. It negates the need for forecast-based sunk investments in IT infrastructure too.

Speed of Provisioning:
IT managers can provision for a specific development or testing environment within minutes if not hours instead of the weeks that are required in the offline world. With the scalability being dynamic and various pricing models available, Cloud offers a speedy way of provisioning IT resources. Cloud also helps reduce time for application roll-outs and upgrades for months and quarters to a matter of hours.

Disaster Recovery & Business Continuity:
With shared IT infrastructure, often physically located over a wide geography and with provision for dynamic mirroring, the Cloud can provide a virtually infallible IT infrastructure.

Cost Effectiveness:
Especially in case of enterprise Clouds, underutilized infrastructure can be used much more effectively in a shared manner. For public and hybrid Clouds too, the long-term cost of pay-per-use is much lower than the long-term cost of ownership due to high utilization. Maintenance and upgrade costs are reduced to almost negligible levels through SaaS and virtualized infrastructure.

Challenges & Concerns
----------------------------

Now that we have looked at the silver lining of the Cloud, let us also look at the dark side, as lightning bolts usually come from there and could have lethal consequences. Despite its obvious (aren’t they very obvious now?) advantages, there are certain challenges and concerns too.

Security:
There is always a security threat in using shared resources. However this can be addressed with enterprise Cloud with a thick and smart security layer around the infrastructure and putting together specific identity and access management policies and procedures to minimize the risk. In case of public Cloud, especially in B2B scenario, appropriate vendor evaluation and strict SLAs and damage clauses could protect your interests. Discretion MUST off course be used in deciding what goes on the public cloud. Risk can also be managed by using a selective Cloud migration strategy, instead of going all-out on the Cloud.

Regulations:
With Cloud, having a disaggregated mass of IT infrastructure and applications, often spread across geographies, there are concerns about where the data is being stored and regulations in some geographies may prohibit certain kind of data to be sent out to less secure locations. There is often no way around regulations and hence these regulations could be used as one of the guiding principles in deciding what goes on the Cloud and what does not.

Licensing Issues:
Not all software vendors are yet offering SaaS or Cloud licenses for their products. This becomes a challenge when creating a Private Cloud within the enterprise where one of the features will be “apps on taps”. Decision to enable SaaS on enterprise Cloud ought to be made after discussing these issues with the relevant vendors and arriving at some mutually agreeable solution.

Bandwidth Costs:
Operating a Cloud enabled environment requires HUGE bandwidth availability with suitable redundancies to avoid crash of business operations in case of connectivity outage. Some calculations ought to be made to check the potential increase in bandwidth cost against the expected benefits accruing from Cloud.

Multi-vendor Management:
Most organizations would struggle to find a single Cloud provider that can address all its requirements. This means signing up with different vendors and managing the multiple relationships, which often has the potential to sap the management bandwidth significantly. There is also the concern around interoperability of offerings of different vendors. This risk can be mitigated through systematic vendor evaluation and selection and with well drafted SLAs.

There may be some more challenges and concerns potential buyers and actual users of Cloud may be facing, but the above are the most common. Most of these can be addressed with a little discretion and proper planning.

Conclusion
-------------

Like any new technology or concept, Cloud computing too has its enthusiasts and naysayers. However it is obvious that Cloud is emerging as the new industry standard for organizations globally due to the obvious benefits it offers. As it happens with any new concept or technology, early adopters will adopt for competitive advantage and laggards will follow over time when the benefits are proven and the creases are ironed out. As providers and buyers mature and as the hype settles, Cloud computing will over time become just another way of using IT resources in a shared manner. Till the time that it actually happens, it will be good to remember the age-old adage –

“Look Before You Leap”.

******************************************************************************************** Ravindra Shriram Datar
Head - Global Marketing
Datamatics Global Services Limited

We seldom think of Unused Capacity as a Wasted Resource! In fact, it can be a wasted resource that can be fatal to the long term survival of your company and even your industry!

The Wallstreet Journal ran this story last Saturday - More Car Plants at Risk. It talks about Overcapacity in Automobile Manufacturing for Light Vehicles. We all know the trouble the car makers are in because they ignored the small car segment in favor or gas guzzlers and the market for them suddenly collapsed in 2008.

They used the following graphic from IHS Global Insight in the above article showing the difference between current and Projected Capacity and Projected Utlization!

What is remarkable is the very strict management of Capacity and Production in the past and the future of Toyota Vs. the Big 3 American Automakers! Toyota is also making losses currently but they might recover sooner than the other ones, just looking at these projections.

If you think about it, Over Capacity has a lot of costs associated with it - Idling Plants, Idling Huge Investments in these Plants for which some of these companies may be paying interest, Idling workers that are paid not to produce, Idling workers that are maintaining these plants even when they are on Ice with no actual workers around (Security, Preventive Maintenance people), etc.

Over Capacity may prove to be a huge huge waste and could be sucking a lot of the profits of the company even when some of your plants at producing at full capacity and making enormous profits for you!

Something to pay attention to, not just in Manufacturing but also in Services! Keeping the Capacity very close to Production in services, can be done easily with Multi-Skilling and good workforce optimization! There are lots of algorithms and software based on those, to account for seasonality of demand by hour of the day (Evenings and Nighttime for cusomer service on the phone, for example) and , day of the week (Mid week is peak for many business services), month of the year (Summer Travel Season or Thanksgiving for AAA services, for example) or season of the year (like Christmas!).

Training people to perform multiple tasks at work could go a long way in balancing demand and supply for business processes and services, smoothing out the overcapacity problem at any time.

Over Capacity could be one of the biggest wastes whether in manufacturing or in services or in business processes. Keeping capacity very close to demand adaptively with multi-skilling and good workforce optimization.

Production is not the application of tools to materials, but logic to work - Peter F.Drucker

Fred Smith, CEO and President of Fedex is quoted to have said "Information about Packages are just as important, if not more important, than the packages themselves".

Thinking this way has allowed Fedex to use this information to create new premium services such as being able to withdraw a package that has been already sent through Fedex. For an additional fee, they can track the package enroute and reroute it back to the sender!

I bet that this is used a lot by business users who have had second thoughts about some documents that they sent in a package and want to redo them and send them along again.

Information about packages are available on the Internet for anyone to track precisely where their package is at any time. This is possible only because delivery services consider information about delivery as important as the packages themselves.

The same principle can be applied to great benefit in business processes. If you think about it, for any business process, information about the business process and making it transparent to all participants could have the same benefits.

In fact some of this may already be happening. If you order anything online like computers or anything else you will be able to see the status of that business process as "Order Accepted","In Process", "Shipped", etc. This can be applied to most other end-to-end business processes like Order to cash also. Anyone within the company should be able to track ths status of any order through their own systems - Order, Scheduled to be Assembled or Manufactured, Work In Progress status, Shipping Status, Invoice Raised Status, Accounts Receivables Status, etc.

Currently many of the Information Systems companies use, are all islands of functional automation. They may have made all of them work automatically with each other with convoluted stick and glue integration. Financial Accounting Systems talk to Sales Ordering Systems that talk to Manufacturing Planning and Scheduling systems with exchange of transactional information, at best. Getting clear and transparent views of where end-to-end business processes are at any time could go a long way in first getting visibility into them and eventually result in Process Improvements.

Information about business processes could be just as important as business processes themselves!

Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit. - William Pollard

Gartner surveyed 1500 CIOs and published their results about their business priorities in their companies and the technologies that they were planning to spend money on in 2008. The #1 business priority is Business Process Improvement and the #1 Technology that they will be spending money on is Business Intelligence Solutions.

This raises the profile, expectations and the roles CIOs will play in Business Process Improvement! There is a lot of discussion about whether an IT person should be directing Business Process Improvement efforts or should those be in the domain of the Business People!

This is one of those Chicken-And-Egg situations. Unless CIOs get down and dirty among the Business Process weeds, they will not get an idea of what the problems are and draw upon their technology expertise to come up with good solutions. Unless business people are convinced that CIOs can contribute something worthwhile to the Business Process Improvement effort, they will consider them techies who just want to talk about some arcane technologies.

This impasse can be broken in some creative ways. CIO Offices should split themselves into Business Units and Company Insfrastructure units. The Business Unit related people in the CIO office should be attached to the businesses and sit along with business people. They will have only dotted line relationships to the CIOs office. The Infrastructure group within the CIO offices does not do applications, or implementations of IT solutions to business problems. Their only job is to make sure that hardware and basic software operating systems and office desktop software are all standardized and be only responsible for the hardware, basic software applications, security, business continuity, etc.

All business unit related applications and software should be in the domain of the business. They are the best people to manage this properly and should be in close proximity to the business end users. This way, they can be very familiar with the business processes side of things and come up with good solutions.

I know of a handful of companies that have reorganized their IT department this way and found that it is working well! Bringing Business Process Improvement to the top of the business priority list is very useful for the CIOs. They have a lot to contribute to Business Process Improvement, if only they leave their technology hats behind and put on their business ones!

I am enough of an artist to draw freely upon my imagination. Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world." -Albert Einstein