Cloud Computing in the Enterprise

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Table of Contents

Memo...........................................................................................3

Executive Summary.....................................................................4

Problem Description....................................................................6

Background Research..................................................................8

Application.................................................................................13

Conclusion.................................................................................15

Works Cited...............................................................................18

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Memo

Jared StimsonResearch AssociateElectrical Engineering DepartmentNaval Postgraduate School

I’m a Research Associate and PhD student working in the areas of Computer Systems, Cloud Computing, Internet Engineering and Cyber Security. Needless to say I have extensive experience in Information Technology and I would like to apply my technical knowledge to business processes in order to create a competitive advantage. I would like to look at some of the ways that highly successful companies are using technology to gain an advantage and use my unique prospective to provide novel insights.

My thesis is that proper and innovative use of Advanced Information Technologies, such as Virtualization, Cloud Computing, Service Oriented Architectures and IT as a Service, can provide a competitive advantage.

I plan to accomplish this by using my own technical knowledge, case studies of successful implementations and a literature review of related publications on business applications of advanced technology. I plan to leverage my existing research to develop a plan for firm that specializes in Engineering. Through the process of doing the project research I’ll be using some case studies and I plan to pick a specific organization that specializes in the area that I work to apply the results of the project.

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Executive Summary

The cloud model has the power to open doors to more efficient, responsive and innovative ways

of doing business. There are many companies worldwide beginning to recognize cloud

computing’s potential to enable new business models and develop a sustainable competitive

advantage. As more and more companies embrace this potential, those that succeed will be the

ones that carefully develop the power of cloud computing within their organization. The

organizations embracing cloud computing are not only relying on cloud services to enhance

internal efficiencies, but also to target more strategic business capabilities. [1]

According to a study completed by IBM, the number of enterprises utilizing cloud computing to

enhance existing business models will more than double in the next three years. Business leaders

moving to capitalize on the rapidly growing and ubiquitously available data and the growing

popularity of social media will drive this explosive growth of cloud technology. To better

understand how organizations use cloud today and how they plan to use it in the future, IBM

surveyed more than 500 business and technology executives worldwide. According to the study,

as enterprises strive to better meet customers' needs and drive corporate growth, organizations

will increasingly look to cloud to develop new business models that will exploit the opportunities

made possible by these digital trends. In the study, 16 percent of the corporations surveyed said

they are already using cloud capabilities for innovation, such as entering new lines of business or

reshaping an existing industry. However, the study identified that by 2015, 35 percent intend to

use cloud technology to transform their business models. While just over half of those surveyed

identified improving organizational efficiency as a top business challenge today, only 31 percent

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anticipate it will be a top challenge in three years. Instead the study indicates that their focus is

shifting to growth and competitive initiatives in the future. [10]

62 percent of survey respondents said increased collaboration with external partners is a

key objective for adopting cloud; [10]

57 percent cited competitive cost advantages through vertical integration as a major

motivation; and [10]

56 percent pointed to opening new delivery channels and markets as an important

objective. [10]

Examples in the report show how cloud computing technology is being tapped to drive new

revenue streams and enhance business models, including an online marketplace for handmade

goods that has taken advantage of cloud computing’s cost flexibility to gain access to more

powerful analytics. The company was able to cost-effectively and efficiently analyze data from

about one billion monthly views of its website and use the information to create product

recommendations. [10] Cloud technology provided the company with access to tools and

computing power that is usually only available to larger retailers. The authors point to cloud

computing capabilities to mask complexity and enable custom user-defined experiences, as well

as its scalability and flexibility as main reasons companies are planning to move cloud based

services into their operations in the near future. “Cloud has the power to open doors to more

efficient, responsive and innovative ways of doing business, and we believe the companies that

will come out on top will be the ones that find ways to leverage it as a key point of

differentiation in driving business value,” Berman said in the report. “Whether they choose to tap

cloud to optimize, innovate or even disrupt their business models, they need to start working on

it now.” [10]

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Problem Description

Although cloud computing technologies are increasingly regarded as a technology game changer

because it offers the ability to offer services that are available anytime, anywhere however its

potential for driving business model innovation remains largely unutilized. [1] In fact, cloud

computing technology has the potential to fundamentally change competitive environment by

providing a new platform for developing and delivering business value added. To take advantage

of cloud computing ability to transform internal business operations, customer relations and

corporate value chains, enterprises need to determine how best to deploy cloud computing

enabled business solutions that promote significant and sustainable competitive advantage.

Below are some ways that an organization can utilize cloud technology to transform their

business processes. [3]

Organizations can use cloud services enhance their current business model to retain

current and attract new business by improving current products and services.

Cloud Computing technology can help a company extend their current business model by

creating new products and services.

Companies can use cloud computing technology to invent a new market and innovate in

ways that don’t seem obvious in the current markets, much like Apple did the Smart

Phone market.

Much like the ways an enterprise can use cloud computing to transform it’s business model, it

can also apply this technology to its value chain.

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Cloud computing can assist an enterprise sustain its current location in the value chain

while increasing its efficiency and an improving its ability to seek out partners, source

and collaborate with them.

Cloud computing technology can help an organization transform its role within its market

or enter a different market providing the platform for developing new operational

capabilities.

An enterprise could use this technology to build an entirely new value chain dramatically

changing market economics.

A survey of 572 business and technology executives across the globe suggests that while cloud

computing is widely recognized as an important technology, relatively few enterprises utilize it

to drive their business model. However, the survey also indicates this will change with more

organizations looking to cloud computing services to develop new business models, disrupt and

transform existing industries, and create entirely new markets. [3]

Research conducted by the IBM Institute for Business Value identified some transformational

business enablers driven by cloud computing technology. Enterprises are utilizing these business

opportunities to drive innovation that extends well beyond the Information Technology

Department. From the IBM Study, three models, that represent the extent to which an enterprise

uses cloud computing services to impact the company and market value chain: [10]

There are optimizers that use cloud computing services incrementally to increase

customer value while enhancing organizational efficiency. [10]

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Innovators substantially improve customer value through their development and

utilization of cloud computing services, which results in new revenue streams or

changing the enterprise’s role within their market. [10]

The disruptors use cloud computing services to create dramatically different value

schemes, as well as develop new customer segments. [10]

Whether an organization chooses to become an optimizer, innovator or disruptor depends on

various factors, including the amount risk they are willing to take on and the organization’s

current market environment. Organizational leaders must carefully assess their enterprise to

determine which model they should pursue and where they would like to see the enterprise go in

the future. Understanding this will allow them to leverage cloud computing services to develop

business models that stimulate long-term growth and profit. [10]

Background Research

Cloud computing is a model for providing on-demand network access to a shared pool of

configurable computing resources that can be quickly and easily provisioned and released with

minimal effort and intervention on the part of the service provider. The emergence of cloud

computing is changing the way enterprises purchase and manage computing resources. This is

providing a fundamentally different information technology acquisition model in which a cloud

computing technology provider may be responsible for a wide range of information technology

services, including hardware and software installation, upgrades, maintenance, backup, data

storage, and security. [8] This has allowed organizations to lower their information technology

investments because they can now purchase information technology resources on demand from a

cloud service provider while also eliminating the requirement to maintain legacy equipment

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beyond its useful life. Cloud computing services may also include environments for application

development and access to important technologies, software, and skilled information technology

personnel that would otherwise be too costly and difficult to obtain and maintain individually.

By cloud sourcing these technologies the provider can provide economies of scale to costumers

that may not be able achieve them on their own. [8]

Cloud computing technology is divided into three basic service models. Each model addresses a

specific business need. [8]

Infrastructure as a Service (IaaS). This is the lowest level of the cloud computing service

models. In this service model the customer is purchasing raw computational processing

power, data storage, and network transfer resources. These resources are usually

delivered as an operating system on a physical or virtualized server with some amount of

storage and network transfer provisioning. These offerings can be delivered as a single

server or as part of a collection of servers integrated into a virtual data center. In this

model the customer is usually required to provide some of the maintenance for the

infrastructure, but will not have physical access to the hardware.

Platform as a Service (PaaS). The next level up is where the customer is purchasing an

application or development environment on top of shared infrastructure. An example

would be a software development environment that could be accessed through some type

of user interface. The advantage of PaaS is that a developer can is provided with fully

functional development or production environment with out having to invest in the

configuration and deployment of the environment.

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Software as a Service (SaaS). At the top of the cloud computing service models is

software as a service. This is where the customer is provided with a complete application

and is usually accessed though a web interface.

Bellow are some of the technological needs Cloud computing seeks to address:

On-demand access. Rapid fulfillment of demand for computational processing.

Elasticity. Processing is only provided in the amount required and disposed of when no

longer needed.

Pay-per-use. Charges for resources are based on the quantity used.

Connectivity. Resources are connected to a in a way that allows data to flow to the

Internet as well as between other resources. This is usually transparent to the user.

Resource pooling. The infrastructure is shared, providing economies of scale.

Abstracted infrastructure. The end user does not usually know the exact location or the

type of hardware the applications are running on. They are usually provided with

performance metrics.

Little or no commitment. Users can terminate service at anytime in accordance with their

service agreement.

Along with hardware, software, and technology platforms, cloud computing technology delivers

additional benefits, including reduced IT costs and increased agility. With cloud computing, the

expenses generally associated with developing, procuring, administering, and maintaining

information technology infrastructure can be shifted to the service provider who can lower costs

by providing services to several customers. Cloud computing allows an enterprise to lower the

capital expenditures required for large information technology investments as well as operating

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and maintenance costs. This can free up more capital for core business activities, which can turn

cloud computing into an information technology related strategy to create competitive advantage.

However, enterprises still face many obstacles in the deployment cloud based services, including

an uncoordinated adoption, inadequate technical experience, and data security issues. There may

also not be an adequate understanding between the organization and the service provider about

the terms of services. An organization is unlikely to fully realize the benefits or related

competitive advantage when cloud computing services fall short of expectations. [8] While

cloud computing technologies should theoretically provide benefits to any organization, the

challenge of differentiating an organization and gaining advantage depends on implementation

and use of the cloud based services. Enterprises may differentiate themselves despite having

similar information technology solutions when the enterprise uses the IT resources to leverage

their core business processes and capabilities. Cost reductions, economies of scale, and

performance advantages are expected result when technical, managerial, and integration

capabilities work together to develop the cloud computing environment.

Despite implementing industry standard information technologies, an enterprise can still create

competitive advantage through close partner relationships with their cloud service providers. The

trust relationship can lower the cost of negotiations and also may enhance cooperation between

the organization and the provider by creating favorable conditions for constructive exchange and

shared governance. Cooperation and the coordination of operations can encourage the enterprise

and its cloud computing service provider to develop new ideas. [1] On the other hand, the

absence of a trust relationship could hinder exchange of information. Such conditions could

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prevent the organization from fully committing to the cloud service business model that could

diminish its effectiveness. Some of the pitfalls of a cloud strategy involve an enterprise with rigid

information technology infrastructure that generally lacks the ability to fully implement a cloud

strategy. [4] IT managers who lack business experience and IT technical understanding required

to fully exploit cloud computing technologies or integrate a complete cloud computing solution

across several business units. While an enterprise without the required technical knowledge and

managerial ability may achieve some performance gains and cost reduction, but it will not create

a competitive advantage simply by using transferring its information technology to a cloud

service provider.

Prior to developing a cloud computing strategy, an enterprise should assess its technical and

managerial capabilities and also its ability to develop relationships with its cloud computing

service providers. The extent these abilities are present will determine how well the cloud

computing services will assist the enterprise achieve its goals and competitive strategy. An

enterprise without the proper technical and managerial capabilities should develop them prior to

taking on a cloud computing implementation to ensure they develop the best IT environment for

the organizations business model. Having the proper information technology capabilities can

mean a greater probability of cloud computing success. [4] Without it the enterprise is unlikely to

reduce information technology costs, achieve economies of scale and will not be able to redirect

its resources to important business operations and core competencies that yield long-term

competitive advantage.

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Application

To provide technical and economic advantage, a cloud computing endeavor must be developed,

as well as implemented, in a fashion that enables the organization’s core competencies. Because

merely utilizing the services of a cloud service provider does not by itself differentiate an

enterprise from its competitors the development phase is even more important than

implementation phase. The organization’s competitors likewise can implement cloud computing

services and take advantage of the resulting information technology efficiencies. [9] However, a

successful cloud computing deployment requires the achievement of differentiating

organizational benefits that are a source of uniqueness and competitive advantage. Cloud

computing success is measured through three categories of derived benefit: strategic, economic,

and technological. Strategic benefit refers to an enterprises ability to focus on its core business

operations that are possible with a move to cloud computing. Economic refers to an enterprise’s

ability to utilize the cloud service provider’s experience and technological resources to reduce its

information technology expenses. Technological refers to an enterprises access to the latest

technology and experienced personnel, reducing the risk and cost of technological obsolescence.

An organization’s technical capability represents its physical assets or collective resources that

give an enterprise its functionality and a flexible, scalable base. It means being agile enough to

respond quickly to technology changes in the market without hindering the implementation of

new technology. An enterprise’s unique technical capabilities together with cloud computing

could yield improved time to market and a streamlined business processes differentiating the

business from its competitors. [4] The enterprise could also integrate the cloud computing

technologies with existing process specific platforms and create opportunities for synergy across

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different business units; the business and economic opportunities of new technology could be

realized more quickly and cost effectively if deployed in a cloud environment. Cloud

technologies could also reduce the complexities of the organization’s information technology

space, enabling the its IT department to deploy new technology more efficiently and effectively.

[7]

In the end, the likelihood of an enterprise implementing a new information technology system

successfully, whether it by cloud based or not, is a directly proportional to managers’ ability to

coordinate the operations required for the development and implementation effort. The human

capital associated with its information technology capabilities are as critical to the enterprise

achieving the benefits of cloud computing as the technology itself since they represent the

accumulated training, experience, and insight behind the technology needed to implement cloud

computing services. Managerial capabilities includes the business and technical skills, as well as

enterprise knowledge, required to see the potential of new technologies and their ability to

influence the enterprises overall performance. [2] An IT manager’s technical skills might include

a system of systems approach to integrating emerging technologies into an existing information

technology infrastructure. This coupled with the project management, leadership skills, and

technical skills to utilize emerging technologies before of the competition. Better managerial

capability improves the effectiveness of integrating new technology into existing business

processes. [2]

Enterprises with capable IT managers with strong technical and business skills are be better

positioned to distinguish among the services available from cloud service providers and

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implement cloud computing based solutions that enhance the organization’s business strategy.

Managerial capability also includes the enterprise knowledge required to see future business

needs and understand how new technologies can affect the business strategy. An important yet

often overlooked factor in a successful cloud based service deployment is the trust relationship

between the client and the service provider. The capable IT manager can facilitate that trust and

convey it to the organizational leadership. [5] As the trust relationship increases with a cloud

provider, the client realizes greater IT economies of scale and deployment success because the

enterprise can feel confident in the decision to utilize the cloud services and focus on its core

business competencies. The relationship capability reflects an ongoing integration between IT

management and the cloud based service provider where the service provider has a clear

understanding of how the organization utilizes the cloud services and how they benefit the client.

The enterprise also needs to be confident the cloud computing service provider is working to

enhance its ability to leverage its IT resources in conjunction with its cloud services. In cloud

services deployment, success depends largely on the ability of the enterprise’s technical,

managerial, and relational capabilities to work in conjunction develop a system that focuses on

the businesses core competencies and create efficiencies in the value chain. [7]

Conclusion

Many advanced technology and concepts have been generated by the explosive growth of

Internet. Things such as distributed computing and virtualization reflect the revolution of

information technology. These in turn promote the development of the Internet and bring more

technologies and concepts into life. Along with this the concept of cloud computing recently

becomes a hot topic in the Internet field. Being focused and promoted by the information

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technology industry, cloud computing is no longer just a buzz word in people’s mind but an

important project to be carried out. [7]

Cloud computing is a model for providing on-demand network access to a shared pool of

configurable computing resources that can be quickly and easily provisioned and released with

minimal effort and intervention on the part of the service provider. The emergence of cloud

computing is changing the way enterprises purchase and manage computing resources. This is

providing a fundamentally different information technology acquisition model in which a cloud

computing technology provider may be responsible for a wide range of information technology

services, including hardware and software installation, upgrades, maintenance, backup, data

storage, and security. [6] This has allowed organizations to lower their information technology

investments because they can now purchasing information technology resources on demand from

a cloud provider while also eliminating the requirement to maintain legacy equipment beyond its

useful life. Cloud computing services may also include environments for application

development and access to important technologies, software, and skilled information technology

personnel that would otherwise be too costly and difficult to obtain and maintain individually.

By cloud sourcing these technologies the provider can provide economies of scale to costumers

that may not be able achieve them on their own. [8]

Cloud computing services can provide up to date and cost effective information technology

functionality to small and large organizations alike. While there are many benefits associated

with cloud computing technologies, the key to success is for the enterprise to use its own

capabilities and core competencies to leverage cloud based systems in a way that creates

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efficiencies in the market and sustainable competitive advantage. All other things being equal,

organizations that develop and strengthen their information technology related capabilities along

with implementing the cloud based services are more likely to achieve greater value from their

investment compared with organizations that implement only a cloud computing resources

without investing in other IT related capabilities. [8]

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Works Cited

[1] A. Aljabre, “Cloud Computing for Increased Business Value,” International Journal of Business and Social Science, vol. 3, no. 1, pp. 234–238, 2012.

[2] M. Armbrust, A. Fox, R. Griffith, A. D. Joseph, R. Katz, A. Konwinski, G. Lee, D. Patterson, A. Rabkin, and I. Stoica, “A view of cloud computing,” Communications of the ACM, vol. 53, no. 4, pp. 50–58, 2010.

[3] S. J. Berman, L. Kesterson-Townes, A. Marshall, and R. Srivathsa, “How cloud computing enables process and business model innovation,” Strategy & Leadership, vol. 40, no. 4, pp. 27–35, 2012.

[4] D. BUDRIENĖ and L. ZALIECKAITĖ, “CLOUD COMPUTING APPLICATION IN SMALL AND MEDIUM-SIZED ENTERPRISES,” Issues of Business and Law, vol. 4, no. 1, pp. 119–130, 2012.

[5] V. Chang, G. Wills, and D. De Roure, “A Review of Cloud Business Models and Sustainability,” 2010, pp. 43–50.

[6] D. Durkee, “Why cloud computing will never be free,” Communications of the ACM, vol. 53, no. 5, p. 62, May 2010.

[7] Z. Fang, J. Chen, M. Yi, Z. Wu, and H. Qian, “Cloud Computing Business Model Based on Value Net Theory,” 2010, pp. 462–469.

[8] G. Garrison, S. Kim, and R. L. Wakefield, “Success factors for deploying cloud computing,” Communications of the ACM, vol. 55, no. 9, pp. 62–68, 2012.

[9] Dhar, S. (2012). From outsourcing to cloud computing: Evolution of IT services. Management Research Review, 35(8), 664-675. doi: http://dx.doi.org/10.1108/01409171211247677

[10] S. J. Berman, L. Kesterson-Townes, A. Marshall, and R. Srivathsa, IBM Institute for Business Value. “The Power of Cloud: Driving Business Model Innovation”. Strategy and Transformation. February 2012.

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