The Impact of Cloud Computing on the Enterprise

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Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc390107250” 1.0 Introduction PAGEREF _Toc390107250 h 3

HYPERLINK l “_Toc390107251” 1.2 Background: Cloud Computing in Enterprises PAGEREF _Toc390107251 h 4

HYPERLINK l “_Toc390107252” 1.2.3 Definition of cloud computing PAGEREF _Toc390107252 h 4

HYPERLINK l “_Toc390107253” 1.2.4 Integrating cloud computing in business environment PAGEREF _Toc390107253 h 4

HYPERLINK l “_Toc390107254” 1.2.4 Cloud services delivery levels for enterprises PAGEREF _Toc390107254 h 5

HYPERLINK l “_Toc390107255” 1.3 Rationale and significance of the report PAGEREF _Toc390107255 h 6

HYPERLINK l “_Toc390107256” 2.0 Positive Impacts of Cloud Computing on Enterprises PAGEREF _Toc390107256 h 7

HYPERLINK l “_Toc390107257” 2.1 Levels of cloud computing impacts PAGEREF _Toc390107257 h 7

HYPERLINK l “_Toc390107258” 2.3 Business Model Innovation level PAGEREF _Toc390107258 h 8

HYPERLINK l “_Toc390107259” 2.3.1 Set pace for new business models and setting up of business ecosystems PAGEREF _Toc390107259 h 8

HYPERLINK l “_Toc390107260” 2.3.2 Security Enhancement PAGEREF _Toc390107260 h 9

HYPERLINK l “_Toc390107261” 2.4 The Utility Level PAGEREF _Toc390107261 h 10

HYPERLINK l “_Toc390107262” 2.4.1 Higher service levels despite lowered costs PAGEREF _Toc390107262 h 10

HYPERLINK l “_Toc390107263” 2.4.2 Impacts on Enterprise Software PAGEREF _Toc390107263 h 12

HYPERLINK l “_Toc390107264” 2.4.3 Impacts to Software Vendors PAGEREF _Toc390107264 h 12

HYPERLINK l “_Toc390107265” 2.5 The Process Transformation Level PAGEREF _Toc390107265 h 13

HYPERLINK l “_Toc390107266” 2.5.1 Improved Business Processes PAGEREF _Toc390107266 h 13

HYPERLINK l “_Toc390107267” 2.5.2 Storage space PAGEREF _Toc390107267 h 14

HYPERLINK l “_Toc390107268” 2.5.3 Extended market reach PAGEREF _Toc390107268 h 14

HYPERLINK l “_Toc390107269” 2.5.4 Promoting attainment of sustainable corporate responsibility PAGEREF _Toc390107269 h 15

HYPERLINK l “_Toc390107270” 3.0 Negative Impacts of Cloud Computing on Enterprises PAGEREF _Toc390107270 h 16

HYPERLINK l “_Toc390107271” 3.1 Security issuesmakes up PAGEREF _Toc390107271 h 16

HYPERLINK l “_Toc390107272” 3.2 Loss of Confidentiality and privacy PAGEREF _Toc390107272 h 17

HYPERLINK l “_Toc390107273” 3.3 Technical issues PAGEREF _Toc390107273 h 18

HYPERLINK l “_Toc390107274” 3.4 Complicates business operations PAGEREF _Toc390107274 h 18

HYPERLINK l “_Toc390107275” 4.0 Recommendations PAGEREF _Toc390107275 h 19

HYPERLINK l “_Toc390107276” 5.0 Conclusion PAGEREF _Toc390107276 h 19

HYPERLINK l “_Toc390107277” 6.0 References PAGEREF _Toc390107277 h 21

1.0 IntroductionCloud computing denotes a paradigm shift in computing with the capacity to revolutionize the entire perspective, through which enterprises view computing in contemporary business management. Presently, numerous computing devices, such as laptops, desktops, tablets and several other devices have penetrated enterprises, as a result, becoming shockingly requisite (Misra and Mondal 2010). Accordingly, it is deducible that cloud computing is indeed an innovative paradigm for enterprises that integrates into a single environment applications, business models and architecture, as well as a range of professionals in performing business tasks within the Internet medium.

To this end, an underlying argument is that cloud computing has the potential to revolutionise business scenario. Budriene and Zalieckaite (2012) has supported the capacity of cloud computing to completely change the way businesses are run, as well as indicated how it poses as a paradigm shift from the conventional business computing.

An ongoing state of uncertainties on the impacts of cloud computing on enterprises has complicated the whole cloud adoption arena. Current studies have established that the existent pricing patterns for cloud services along with a range of other factors have made it suitable for small and medium-sized enterprises (SME). Contemporary surveys have also indicated that cloud services may not be suitable for the large-sized enterprises. Despite this, no criteria have been established to consider the factors that define whether a company is small, medium-sized or large, and whether it should be based on annual revenues or employee size (Budriene & Zalieckaite 2012). Based on this premise, this report examines the impacts of cloud computing on the enterprise. It examines the background of cloud computing deployment in enterprises before exploring the positive impacts and the negative impacts of cloud computing on enterprises.

1.2 Background: Cloud Computing in Enterprises1.2.3 Definition of cloud computingThe National Institute of Standards and Technology (NIST) defines cloud computing as a model for facilitating on-demand network access to a collection of shared configurable computing resources that can be swiftly provisioned, through an application of limited administrative efforts and interfaces between or with the service providers. According to Zissis and Lekkas (2010), cloud computing encompasses innovative Information System architecture with the capability to save enterprises from the need to use hardware infrastructure while at the same time limiting the general client-side complexities and requirements. This definition is relatively narrow.

Budriene and Zalieckaite (2012) provided a reasonably broader definition. They stated that cloud computing is a collection of intangible computing services accessible from any place and at any time using mobile devices that are connected to the internet. These services are provisioned by distributed and parallel system of virtualized computing devices, which are interlinked and dynamically supplied and delivered to end-users as single or integrated computing resources rooted in the service-level agreements, reached between the user and the service provider.

1.2.4 Integrating cloud computing in business environment

Recent studies on the importance of cloud services on businesses have established that adoption of the cloud computing services and other IT solutions by the enterprises happens in response to the changing customer demands. Towards this end, it is likely that businesses will link the market trends to the IT solutions. Some earlier studies have also elaborated that enterprises tend to view cloud services as technical means other than as business objective (Babu & Chakravarty 2014). This justifies the need for extension of knowledge on the cloud computing potentials on businesses growth, as well as their capacity to contribute to improved quality of products and services, as well as formation of perceived value of an enterprise’s products and services. As a result, since cloud computing is essentially viewed as a technical solution, its significance and impacts have remained unrecognised by SMEs while the large-sized enterprises have regarded cloud services as capable of reducing IT maintenance costs.

1.2.4 Cloud services delivery levels for enterprisesThree different service models of cloud delivery to the enterprises are available namely, Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS). SaaS depicts the process where a range of software application is provisioned as rental to the end-users by the Application Service Provider (ASP). The internet leverages the cloud infrastructure, as a result, eliminating the need for software and hardware maintenance (Zissis & Lekkas 2010).

PaaS refers to an entirely virtualised platform that incorporates one or more servers of certain applications and operating systems that are provisioned as service over the internet, hence allowing enterprises with the capacity to deploy its own applications on the cloud infrastructure that it created, using the cloud services. Within this model, the enterprise has no control over the underlying cloud infrastructure, such as the storage or operating system (Zissis & Lekkas 2010).

IaaS refers to the delivery of the computer infrastructure, such as storage, servers and processing power, as a service. It minimises the upfront capital investment to enterprises looking to start SMEs. It also provides enterprises with the means to provide the enterprises with the capacity to provide storage, networks, processing, as well as other significant computing resources that allows installing and running of arbitrary software, such as operating system. In this case, the enterprise maintains control of the operating system and other installed resources (Zissis & Lekkas 2010).

1.3 Rationale and significance of the reportThere is clearly the paramount potential of cloud computing, although it is yet to cross its infancy stage following limited adoption due to the security and trust risks associated with cloud computing. A study by Gartner in 2008 anticipated cloud computing to be a significant technology that had substantial financial impact. In 2010, the global cloud services market was estimated to surpass US$68.3 billion and to exceed some $148.8 billion in 2014 (Akbari 2012). A comparatively conservative report by IDC showed that some 41 percent of the firms in Asia/Pacific were still evaluating the impact of cloud services and whether to adopt them (Akbari 2012).

Global surveys have estimated that some 71 percent of the enterprises believe that cloud computing is a definite technology option while 70 percent maintain that it would make their businesses more flexible. Additionally, another 62 percent hold that it will enable their businesses to respond rapidly to market conditions while 65 percent fell it would augment their focus on core businesses (Budriene & Zalieckaite 2012). Despite this positive indications, few companies are actually deploying cloud computing. Investigations into the trend showed that slow adoption has been due to improper understanding of the impacts of cloud computing, the cloud infrastructure, suitability for different scenarios and its pricing models. These form the rationale for this report to explore the impacts of cloud computing.

Cloud computing was in 2013 rated by Gartner to be among the top 10 technologies regarded as strategic for most organisation (Kar 2013). Global IT marketing research firm Forrester Research projects that cloud services market will increase from the 2011 figure of $25.5 billion to surpass $159.3 billion in 2020, and that all computing resources would have been migrated to the cloud. Despite this, enterprise migration to the cloud is still at its infancy stage (Ried & Kisker 2011; Boillat & Legner 2013).

Therefore, the findings of this report elaborate the impact of Cloud computing and will help businesses to adopt cloud computing based on corporate objectives, as well as technical means.

2.0 Positive Impacts of Cloud Computing on Enterprises2.1 Levels of cloud computing impactsBoston Consulting Group (2009) suggested three levels under which the impacts or values of cloud computing can be analysed. Each successive level depends on the previous ones and requires a shift in the current business processes. At the same time, the levels facilitate value creation to a degree of magniture that is greater than the previous level. These include utility level, process transformational level, and Business model innovation.

In utility level, enterprises accrue lower costs while at the same time benefitting from higher service levels because of the elastic nature of cloud computing and its pay-per-user models. In process transformational level, enterprises can come up with new and advance business processes, through leveraging of the common yet scalable assets, in addition to collaborative cloud service potential (Babu & Chakravarty 2014). Concerning business-model innovation level, the new business models are established through sharing, linking and combining of resources through the use of cloud computing in the entire business ecosystem.

Figure SEQ Figure * ARABIC 1: Cloud Computing Levels

2.3 Business Model Innovation level2.3.1 Set pace for new business models and setting up of business ecosystemsOn varying extents, businesses depend on cooperation and partnerships with other enterprises. Among these include the business ecosystems, which are highly-developed and have shown success. Examples of business ecosystems that have been successful due to cloud computing include Toyoto Motor’s supplier’s networks and Proctor & Gamble’s Connect + Develop program.

The impacts of cloud computing include powering the next-generation business ecosystems by facilitating the deconstruction of value chains, as well as the emergence of innovative and new business models. For instance, the healthcare industry value chains include insurers, pharmaceuticals, hospitals, patients and physicians (Babu & Chakravarty 2014). Under the current health information system in many countries, such as Australia, the patient’s health records, histories or insurance data are distributed in several locations rather than any single private hospital. Cloud computing makes it easy to access the patient data given to the established business ecosystem. For instance, Quest Diagnostics has revolutionised the business in the industry by making patient laboratory results available to patients via Microsoft HealthVault and Google Health, both of which are cloud services. Despite being a small step, it is a step towards the right direction in ensuring that health information is delivered efficiently, hence promoting quality health care and health safety.

The pharmaceutical industry has also explored ways in which it can reconfigure the processes for discovery of new drugs through cloud computing by simplifying collaboration among players in the industry. By creating shared data standards, processes and tools, the companies have dramatically increased their capability to work collaboratively with the external researchers and partners. For instance, it is estimated that such actions have enabled enterprises within their respective industries to save some 30 percent of the discovery cost (Boston Consulting Group 2009). This can add up to millions of dollars per drug.

2.3.2 Security Enhancement

As stated by Babu and Chakravarty (2014), most organisations in the developing nations have weak information security defence systems. In a separate study of the worldwide IT security market in 2006, an estimated 3 million of Brazilian SMEs had no anti-virus software in their personal computers. Similarly, some 60 percent of the banks operating in developing countries, such as Kenya, were reported to have unprotected computer systems (Babu & Chakravarty 2014). Among the explanations for this trend is that many enterprises operating in the developing nations have not sufficiently invested in technologies and human resources that are dedicated to enhancing security. The cloud has the potential of enhancing security for these enterprises. Towards this end, the cloud’s economies of scale encouraged a business model where third parties can offer cost-effective security for the SMES through integration of security applications into the cloud (Grossman 2009). Delivering security on the cloud has the potential to address a range of human related problems, such as installations as well as technological issues, in order to fortify the defence mechanism.

Enterprises should not treat cloud computing as a panacea, or remedy for all kinds of problems associated with their business models, or through which they can attain greater collaboration. For instance, Toyota Motors started collaborating with its partner firms and suppliers long before it adopted cloud computing. In any case, cloud computing provides a shared platform that eases enterprise collaboration.

2.4 The Utility Level2.4.1 Higher service levels despite lowered costsDespite the fact that SMEs and startup companies have been named as the early cloud computing adopted, the large corporate firms are starting to selectively go for applications that leverage greater scale, efficiency and cost-effectiveness. The focus of these firms has been to improve their power, software, hardware and labour deployment. For instance, a biotechnology firm called Genentech that was acquired by F. Hoffman-La Roche portrays an example of a firm that resorted to use cloud services, such as Google Apps for its emails and calendar programs for its more than 11,000 employees. During its migration in 2008, the company had 36 terabytes of email, in addition to 2 million scheduled data-centres. Genentech evaded the capital expense and minimised its expected costs of ownership by some millions of dollars over a five-year period, through the application of cloud computing.

When it comes to reduced costs of labour, a study by the Boston Consulting Group (2009) found that most enterprises are aware that their departments spends much time in order to keep their businesses running and that such responsibilities tend to devolve substantially within the cloud environment. In regards to IT hardware, Boston Consulting Group (2009) found that enterprises benefit immensely from the affordability of the cloud services when compared to procuring IT hardware and the maintenance costs.

Figure SEQ Figure * ARABIC 1: Impacts of CC at diferent levels

Concerning reduced costs of software, Boston Consulting Group (2009) remarked that enterprise consumption is triggered by demand. In using cloud computing, enterprises can more efficiently use newer applications, as well as adjust the application up or down compared to traditional setup. Since traditional support and maintenance are executed by the cloud service providers, it substantially cause reduced operating costs for the enterprises.

When it comes to power, enterprises have benefited from the advanced power-management capabilities provided by the cloud service providers (Budrienė & Zalieckaitė 2012). Companies have taken advantage of the application of renewable energy supplies, in addition to other green initiatives designed to reduce carbon footprint caused by servers and computers.

2.4.2 Impacts on Enterprise SoftwareEnterprise software consists of a combined set of software applications that enterprises deploy to run their business process operations, including supply chain management (SCM), customer relationship management (CRM) and enterprise resource planning (ERP) systems. In this respect, delivery models such as SaaS are regarded as currently causing paradigm shift in enterprise software adoption. It has evolved to packaged business applications from customer-generated software packaged. It has further evolved to augmented service-orientation with application service provisioning (Subashini & Kavitha 2010). Current trends have showed that on-premise enterprise software is predominant with some 90 percent of the manufacturing firms using ERP.

Typically, they are standardised software packages rooted in integrated database and consist of a range of modules focused on certain business functions. In the same way as on-demand software delivery, delivery models such as SaaS have presented an alternative to the conventional on-premise software that needs users to deploy and run software on an enterprise’s local IT environment. The enterprise’s data is separate from the other enterprises’ while at the same time sharing similar instances of application. Due to this, enterprises are less likely to personalise SaaS save during dedicated installation (Subashini & Kavitha 2010).

2.4.3 Impacts to Software VendorsSoftware vendors also make up a category of enterprises who experience great impacts of cloud computing. According to Subashini and Kavitha (2010), provisioning of cloud services is correlated to the shifts in pricing models, in addition to revenue streams to the software vendors. In comparison to the conventional revenue models for enterprise software that have unique license and recurrent maintenance fees. To this end, SaaS signifies new types of price and revenue models. For instance, in the case of subscription, the customers would be charged similar fixed monthly or an annual amount for independent use. In regards to free service, the enterprises are not charged, although they cannot use the entire functionalities. In pay-per-use, the enterprises using the cloud service pay for the actual usage only.

Overall, these imply revenue streams for the vending enterprises. Three types of revenue stream can be identified in this regards. These include usage-based, subscription-based or pay-per-use and advertising. In the case of PaaS, Subashini and Kavitha (2010) identified eight types of revenue-streams based on the perspective of customers (enterprises) and the provider (vendor). These include subscription, transaction-based and revenue-sharing. Others include advertisement, platform services, admission fees, upgrade fees and affiliate services.

Cloud computing also causes a shift in the software vendor’s business models. For instance, as software becomes more affordable and cheaper to deliver and install, through the internet, it attract small enterprises (Subashini & Kavitha 2010).

2.5 The Process Transformation Level2.5.1 Improved Business ProcessesCloud computing contributes to improved business processes due to process transformation. This can allow the financial staff to undertake the business transaction more efficiently and the sales workforce to address the customer needs more efficiently (Boston Consulting Group 2009). In practice, enterprises are confronted with difficulties in improving businesses processes and systems.

Essentially, most businesses are insufficiently supported by the basic technologies, including a range of systems and incompatible data structures. To this end, the cloud computing model of data formats, standardised applications, and development tools assist in the deployment of processes that rely on accessing shared data or remote or mobile access (Budrienė & Zalieckaitė 2012). For instance, Bechtel, which is a large construction and engineering firm, is on its way to standardising construction management, the company has experienced better transformation of its business processes by creating a large private cloud, based on shared combination of applications and processes that permit contractors, employees and partners to work collaboratively.

Similarly, small-scale retailers may also be the ultimate beneficiaries of process transformation facilitated by cloud (Mirashe & Kalyankar 2010). Since the companies need extensive computing resources for analysis of mushrooming data on customers and products that increase intermittently, cloud computing offers the needed resources for understanding the customer behaviour, including the huge spending standards.

2.5.2 Storage spaceCloud computing also offers business unlimited storage space. This has allowed enterprises to store unlimited data on the cloud without worries of having to acquire personal servers or computers with large disk space to store huge files. Enterprises also benefit from enhanced backup and recovery (Waldner 2010). Because all company data are stored in the cloud, the cloud facility allows easy data backup of restoring the same kind of data much easily on a physical device. At the same time, the cloud services providers often have the required expertise handle data recovery. This makes it easy to store and back up data much easily compared to the traditional data storage methods.

2.5.3 Extended market reachCloud computing has extended the market reach for small and medium-sized enterprises, particularly of those in developing nations like India (Babu & Chakravarty 2014). For instance, in the health care industry, the industrialised global healthcare providers are incrementally off shoring services associated with insurance claims, medical billing and medical transcription and telepathology in India. This reflects the scenarios for enterprises such as Teleradiology solutions and Wipro solutions. In which case, cloud computing has opened the doors for small industry players in the developing nations to take part in the global healthcare off-shoring industry (Babu & Chakravarty 2014).

2.5.4 Promoting attainment of sustainable corporate responsibility

Adoption of cloud computing into an enterprise’s business processes also boosts their sustainable development strategies. As noted by Issa et al. (2010), adopting the cloud computing technologies can enable businesses to realise the six criteria for sustainable business, namely being eco-efficient, socio-efficient, socio-effective, eco-effective, sufficient and ecological equity.

Essentially, cloud computing contains ‘green credentials’ based on the limited use of hardware infrastructure to using renewable energy sources. Hardware usage has been linked to destruction of the environment, specifically when it comes to disposal of plastic wastes or other material matter that make up the computer system. At the same time, cloud computing reduces greenhouse gas (ghg) accumulation, through reduction of carbon dioxide emissions. This is essential given the range of negative impacts associated with the rise in the cost of waste disposal, the public perception and corporate image.

Cloud computing offers a range of benefits including reduction of electric power consumption by Information Technology hardware. The technology promises a range of sociological and technological benefits. Studies have also identified its potential to address energy efficiency needs (Issa et al. 2010).

Some studies have showed that cloud computing pledges better reliability, performance, and scalability. Additionally, it enables businesses to be ethically responsible and sustainable. As remarked by Grossman (2009), adoption of cloud computing services helps in reducing capital expenditure and carbon footprint, as a result highlighting the significance of sustainable corporate responsibility. Issa et al. (2010) established that integration of cloud computing in business can eliminate the need to have a full server support and help desk, hence reducing the costs and encouraging the deployment of such staff into other white collar jobs within the enterprise.

3.0 Negative Impacts of Cloud Computing on EnterprisesCloud computing is more critically a disruptive resource with weighty implications for the enterprises, both large corporate firms and SMEs. Despite this, some outstanding issues still exist that are specifically associated with security, privacy, service level agreements, as well as power efficiency. Cloud computing has plenty of loose ends that has slowed its adoption by enterprises.

3.1 Security issuesmakes up

Several studies have reached at a consensus that guaranteeing the security of corporate data when using cloud services (Subashini & Kavitha 2010; Boillat & Legner 2013). A recent study established that enterprises across diffreent sectors are willing to adopt cloud services but the issues of security have hindered them (Subashini & Kavitha 2010).

Cloud services use there delivery models, namely IaaS, PaaS amd SaaS, through which varied services are delivered. The three service models offer different degrees of security requirements in their cloud environment. Indeed, there are varing trade-offs in each model in regards to the integrated features, extensibility, complexity and security. For instance, since the cloud service provider (CSP) gives regard solely to security at the lower level of the secuirty architecture, the end-users (in this case the enterprises) became more resonsible for execution and control.

Of all the related issues, security concerns have been regarded as the most critical issues why enterprises have been slow to adopt SaaS. IaaS also need the host to provide higher security since it merely offers basic security. On the other hand, since PaaS offers complex set of developer environment, it is associated with complex security issues (Subashini & Kavitha 2010). For instance, the developer environment can allow the hacker to leverage the PaaS cloud infrastructure, hence allowing for malware command that infiltrates the IaaS applications. As a cosnsequence, tackling enterprise security concerns has been portrayed as the greatest challenge to adopting SaaS, IaaS and PaaS applications within the cloud.

3.2 Loss of Confidentiality and privacyThe risks of data compromise rises in the cloud because of the augmented number of parties, applications, and devices deployed, leading to several points of access. Delegation of data control to the cloud contributes to increased risk of data compromise, since the data is made accessible to increased number of parties (Zissis & Lekkas 2012). A range of concerns materialise when it comes to the issues of data remanence, multitenancy and privacy. Multitenancy in this case denotes the cloud attributes of sharing resources. In cloud computing, numerous aspects of Information System include data, networks, memory, and software. Essentially, cloud computing is based on business model where resources are shared between different enterprises at the application level, host level and network level. Despite the separation of users at the virtual level, the hardware used such as the servers is not separate. Hence in a multitenant architecture, software applications are developed to separate configuration and data virtually allowing each enterprise in the ecosystem to use the customised application instance (Zissis & Lekkas 2012).

3.3 Technical issuesCloud computing augments the technical hitches related to an enterprise’s Information System. Despite the ability to access some information on the cloud at any place and any time because of the cloud’s ubiquitous nature, it is likely that the system may experience severe malfunctioning. According to Apostu et al. (2013), the fact that cloud computing operates on the internet and is usually prone to outages, as well as other technical issues, means that it cannot be relied on absolutely. Apostu et al. (2013) elaborated that even the best kinds of cloud services often run into some technical hitches despite the high maintenance efforts.

3.4 Complicates business operations

The inflexibility of cloud services has signified their capability to make enterprises inflexible. For instance, the cases of vendor lock have had several unfavourable impacts on enterprises. In such cases, the capabilities and viabilities of small cloud vendors can be concern for long-term service continuity (InforWorld 2014). Enterprises that deploy proprietary technology are likely to experience greater costs in case they decide to change to a different cloud platform. Selecting a cloud computing vendor implies locking an enterprise into strictly using a vendor’s proprietary platform. For instance, a document created using Google Docs cannot be REPLACEed into document created using a different cloud application from a different vendor. This complicates business processes.

4.0 Recommendations

It is therefore recommended that enterprises should not treat cloud computing as a panacea, or remedy for all kinds of problems associated with their business models, or through which they can attain greater collaboration.
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