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
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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.

I was reading an article about how measuring Average Handle Time (AHT) in a Financial Services company, did not allow a very eager Financial Services Agent to provide the best service she could have provided a customer.

The customer wanted to do something on the Financial Services company online website, but the Average Handle Time (AHT) metric did not allow her to spend more time on the phone with the customer, and give him more information that would have made his online interaction with the company's website easier. Seems like that would brought the AHT metric for the whole center, as well as that particular agent down. So she had to bite her tongue and not tell the customer about something that would have prevented frustration on his part in the first phone call even though she knew about it! When he tried doing what he wanted to do, he could not and has to call them again on the phone!

The center explained that they were trying to increase the Customer Satisfaction KPI and if the AHT value goes up, the Customer Satisfaction KPI might suffer because that meant someone else was waiting to be serviced. However the above customer who had to call back again, would definitely would have brought that measurement down anyway!

So they may not have achieved anything more than frustrating an important customer!

Measurement and Reporting of KPIs should also identify these kinds of outliers, or exceptional cases, and allow them to be included in the analysis of the KPI performance. Metrics drive behavior and your interpretation of metrics should not enable the driving of undesirable behavior, eventually!

Many time, once we put technologies and metrics together, we think we have put behavior on auto-pilot! We may have automated the driving of undesired outcomes, rather than the desired ones instead! They are our tools and not ends in themselves. The ends, we will have to be very clear about and communicate them well!

Exceptions and outliers happen all the time and as long as we interpret metrics and measurements along with them, we should be fine!

The young man knows the rules but the old man knows the exceptions - Oliver Wendell Holmes

I once did a crude study, at our local library, of the Average Financial Performance of Public companies in various Industry codes. I discovered that out of every dollar earned by companies from Manufacturing to Service Industries they were spending an average of 40 Cents to 80 Cents on Operating Expenses. Of course, the Service Industries had more of their Sales revenue dollar spent on Operating Expenses and Manufacturing was on the other end. Net profit percentages were about 0 or negative to about 6% or 8%.

My guess is also that a large percentage of Operating Expenses are spent on Internal Business Processes, especially in Service Industries. On an average Operating Expenses budget of 60%, if you were to improve your business processes and reduce your operating expenses by 10%, many of these companies stand to become Doubly Profitable if you were to save an additional 6%!

It’s no wonder that companies like Toyota that use the Toyota Production System (TPS) to continually look for waste and inefficiences and eliminate them systematically. They are able to reduce their costs constantly while increasing quality at the same time. TPS has not been applied as much outside Manufacturing but the basic idea of elimination of waste is a universally applicable!

That’s powerful motivation to look at Continuous Process Improvement! Many Continuous Process Improvement efforts are hampered by availability of good data. Some of them are natural to the problem at hand, but none of them are insurmountable! Especially when there is so much to be gained!

Typical data characteristics or problems are:

a. Disparate Data Sources - An Order to Cash Process may be using a variety of backend software systems - Order Processing, Sales Accounting, Production Planning, Manufacturing and Production, Warehousing, Shipping, Billing, and Financial Accounting Systems. These may be from the same software company like SAP or Oracle or different functions may have software from different companies. End to end collection of data becomes a task of Extracting, Transforming and Loading (ETL) data to a single repository. I know Business Process Orchestration tools can collect this kind of information but what about the other 95% of companies that don’t use those currently or plan to use them in the near future?

b. Multiple Data Cubes - For the same end to end process, analysis may have to be different in each stage of the process. While processing orders you may want to analyze by regions or zones where the orders are coming from.When it is being manufactured, KPIs may need to slice and dice process data down to the manufacturing shop or teams within. When a product or service is being supported over phone or other media, customer support center metrics may be the way process is analyzed.

c. Data Availability and Integrity - If parts of an end to end process are outsourced, then the vendors systems may be involved and you may need to get data from the vendors’ systems! Data Integrity is always brought up as a key issue.

None of the above problems are insurmountable but looking at the potential for Continuous Process Improvement to improve the bottom lines of companies significantly, it should be motivation enough for companies to hunker down and address all of these individually and collect the data needed for analysis and focused Process Improvement.

It is a capital mistake to theorize before one has data - Arthur Conan Doyle. Sr.

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

Value Innovations are a very useful concept pioneered by people in Competitive Product and Services Positioning. Analyzing the various of dimensions of Value of products or services as perceived by customers leads to competitive positioning that can lead to success.

McDonalds restaurants always sold very inexpensive coffee. However they wanted to compete with Starbucks in the Coffee department. They have introduced a new line of coffee products, somewhat more expensive than the ones they offerred before but less expensive than the ones at Starbucks. Starbucks was not serving the segment that was unhappy with the McDonalds coffee but did not want to pay Starbucks prices. They found innovation in Value. This can be value in the sense of Price, Quality, Speed of Service etc.

The same Value Innovations are applicable in Business Processes when it comes to Process Improvement. Customers are very used to paying different prices for Package Delivery all the way from Next Day to 3-Day to Ground Delivery. Their expectations are all the Value they want out of the delivery process. They fully expect to pay different prices for the different levels of service.

Credit Card companies have started authorizing applications instantly online, sometimes allowing them to apply in the context of an online purchase, allowing them to charge that purchase with the online authorization that happened just seconds ago.

Technlogy in the form of Business Rules Engines, Workflow Solutions, Online Credit Reports, Online Databases of various kinds, etc allow business processes to be designed to allow a number of Value Innovations to be added to the business process.

Business Process Improvement stands to benefit a great deal when combined with technology and Value Innovations. It offers the company to effect competitive strategy when it comes to products and services.

Something to think about when pondering process improvement!

To innovate is not to reform - Anonymous