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

Ravindra Datar (Ravi) has over 15 years of Industry Research, Consulting and Strategic Marketing experience. His experience spans: 2 years at Indian Market Research Bureau as a Consultant in their Business & Industrial Research & Advisory Division, that catered to the advisory requirements of the B2B market place. As a consultant, Ravi managed all stages of research-based advisory services from primary research surveys, secondary research (in the pre-internet days), analysis and advisory to the clients across industries as diverse as construction, steel, fine chemicals, packaging, furniture, State Government/s, shipyards, heavy vehicles (earth movers) manufacturers, food products manufacturers and automobile companies. 8 years at Gartner Inc, starting as a research analyst in 1998 and growing very rapidly to Principal Analyst in 2001, winning many global research awards at Gartner on the way, covering research agendas as diverse as the domestic printer market, domestic IT services market, IT Services Offshore services (exports) from India and BPO markets and delivery locations across the Asia/Pacific region, all simultaneously. In 2001, Ravi set up Gartner's Asia Pacific BPO research coverage across 11 countries from scratch. He continued running all these programs simultaneously till 2005, when he moved on to Patni Computer Systems Limited. 5 years at Patni Computer Systems limited where he joined as Senior Manager - Corporate Marketing, focused on setting up strategic marketing initiatives. At Patni, he set up and grew the Analyst Relations function and grew it into a larger Industry Influencer Relations Function covering industry analysts, advisors, provider industry associations and buyer industry associations. Patni got featured in Gartner's Magic Quadrant for Offshore IT Services in the strong challengers quadrant consistently for 4 years in a row and also got featured in some other Gartner reports on the way. At Patni, Ravi also set up the Strategic Research Group that was instrumental in proactively feeding significant market intelligence to business units and corporate leadership, triggering various strategic market initiatives like a special program targeting the US recession, an initiative to build, package and take to market a new set of offerings around Cloud Computing, etc. Ravi was also directly involved in setting up the Strategic Outsourcing Group that rose above business unit silos to address lareg deals opportunities with integrated solutions blending various business unit competencies into solutions that delivered direct business benefits to clients. Ravi moved on from Patni as Associate Vice President - Strategic Marketing Initiatives, in 2010. At present, as Head - Global Marketing, Ravi is in the process of setting up the global marketing fucntion at Datamatics Global Services Limited, a global Provider of business-aligned "Smart Solutions", integrating depth & breadth of domain, technology & process expertise, with a global track record of excellence.

We have seen the early impact of the sub-prime crisis and wondering if there will be aftershocks. We have seen the Madoff rip-off. Now what? Just wondering if there has been any assessment of the potentially large Tsunami of credit card defaults that may be the next wave to hit the financial markets, considering the early impact of the sub-prime and Madoff washouts, with thousands already rendered jobless and thousands more likely to be in 2009. By definition, lending institutions would be more diligent in conducting checks before giving a house loan as compared to giving a credit card. Also, credit card outstandings have absolutely no collaterals to back them up in case of default. What if the thousands rendered jobless by the earlier waves start defaulting on their credit card bills, many of which may have swollen to scary proportions due to rolling credit arrangements? Will that be another HUGE TSUNAMI hitting the US economy in 2009? Am a lay-person voicing my concern and am eager to know views of experts who understand this better !

Product manufacturers across sectors have been facing a classic decision point for generations: "MAKE or BUY?" This decision is almost always based on the cost-benefit considerations of whether making it in-house would be a faster & cheaper way of manufacturing with better quality than what is available for direct purchase in the market. The decision also hinges on whether the item under consideration is core and critical to the business and a part of the company’s key competitive differentiator. This would mean that getting it made from the outside could dilute the company’s competitive advantage.

Answering this question right is crucial to the very core competitiveness of the company.

The question, though largely initiated in the product manufacturing space, is equally relevant to most in-house business processes and services provided by organizations to external customers. It is all about cost, quality, customer satisfaction, competitive differentiation and strategic gains for the company. In ITO & BPO parlance this leads to terms such as local sourcing, near-shoring, offshore sourcing, in-sourcing, captive facilities, outsourcing, offshore outsourcing, global sourcing and so on.

Listed below are the pros & cons of captive versus outsourcing of IT & BPO services in any organization:

Captive Sourcing

Benefits:

• Total control over the cost and quality of services and all elements of the process.
• All information handled in-house with direct responsibility and control over security and privacy of information.
• Talent and process knowledge remains within the company.

Challenges:

• Dependence on skills and expertise of in-house resources that may not be aware of global best practices in running the process or implementing the technology.
• Increasing “fixed cost” spending on non-core resources.
• Hidden costs may creep into cost centers unless internal processes are properly mapped against global best practices.
• Retention of talent in a non-core function is a challenge and at times expensive.
• Requirement of dedicated and hence often sub-optimal investments in technology and concepts since in-house consumption scale doesn’t offer economies of scale.
• Cost of technology obsolescence has to be borne by the organization.
• Need to invest in over-capacities to plan for rapid scale-up scenarios.

Outsourcing

Benefits:

• Better visibility of all cost elements that may otherwise be hidden in a captive set-up (may even result in substantial cost savings through cost arbitrage, economies of scale by leveraging resources across multiple clients and improved process).
• Outsourcing to experts enables easier access to global best practices resulting in better quality of processes, possibly with accompanying cost savings.
• Conversion of fixed cost/capital expenditure to variable cost/operational expenditure for the process being outsourced.
• Ability to add new service lines enabled by new technologies without having to make large up-front investments in technology.
• Ability to address new market segments.
• Reduced demands on management time from the process and hence ability to focus on the core business.

Challenges:

• Possibility of overt or covert resistance from staff who are likely to be affected by the outsourcing decision.
• Risk involved in sharing confidential information with external service provider.
• Possible loss of control over quality and cost of the process being outsourced if the relationship is not managed well.
• Managing the complex interchange of information on need-to-know basis versus free-flowing information within the captive department as a part of the organization.
• Integration of technology and business culture between the client and service provider.
• Setting, communicating and managing realistic expectations between the client and the service provider.
• Intellectual property and knowledge gained in the process of optimizing and running the process remains with the service provider.
• Some talented resources are also lost in the process of transitioning the process to the external service provider.
• For the outsourcing company, it is important to ascertain that the service provider has staff with process expertise relevant to the unique domain requirements.

For more insights on outsourcing, offshoring, BOT, global sourcing and other such jargon, visit:

http://www.patni.com/global-sourcing/global-sourcing.html

- Ravi