Jul 26, 2010 3:30 AM AWST

Cloud Computing - A Whether Update

Everyday it seems we hear something about cloud computing. As a topic, it pops up everywhere. Industry experts describe its paradigm shifting potential for customers, while major suppliers are buying up companies with cloud related capabilities while proclaiming astronomical business potential. Everyone seems to be offering some variation of service. It has been around for years, but suddenly it is being identified as the top strategic technology for 2010. Something is going on.

What is it?

Definitions abound, but a common element of all cloud computing definitions is that it involves the provision of services over the internet, thus deriving its name from that fluffy internet cloud appearing in technical diagrams. Beyond this, details diverge and are frequently driven by the perspective of the definer. Frequently, definition efforts launch into descriptions of characteristics of cloud computing, citing:
. scalability - the consumer uses as much or little as needed at any given time;
. full management by the provider, so the consumer needs only device with access to the internet (which usually entails a browser);
. charges relating to use, frequently time.

That may be exciting, but it is not all that new. Talk is actually being driven by the explosion of service offerings and service providers, a mix that is changing the way customers approach and contract cloud computing services. The service offerings involve software as a service; platform as a service; and infrastructure as a service. The service providers include the familiar companies, but also include your search engine provider, your telecoms provider and even your book and consumer product seller, each vying to sell you often sophisticated services in the simplest of ways.

Who cares?

Of the many benefits to cloud computing, technical advantages are frequently first noted. These include on-demand computing services, saving time and money by avoiding investment in hardware, software, network infrastructure; and pooled computing resources across multiple users, so fluctuations in demand are more easily met.

There are operational advantages which increase opportunities for collaboration and knowledge sharing as files are available to any designated users from any location (with internet access). Control of data can be enhanced, as the paradigm shifts from shipping data around to controlling access to data, and on a real-time basis.

However, challenges are quite wieldy. The services contracting model, which has developed over many years to address significant concerns sufficient to allow third party services to be incorporated into business operations, is facing a tough go with cloud computing. Especially among the new breed of service providers with little outsourcing experience, suppliers are emphasizing low cost offerings and have limited capacity for or interest in contractual commitments or customer requirements.

This situation requires customers to exercise significant judgment, diligence and restraint. Not all service / contractual arrangements fill all needs. On one end of the spectrum, some "nice to-have tools, routines and non-sensitive data may allow use of a standardized, low-cost cloud computing service with few contractual protections. A move toward the other end of the spectrum, such as toward mission critical data and applications, gives rise to the need for security and predictably.

Then there are the regulatory challenges, of which many have already become legend. Businesses involved in any kind of regulated activity face obvious risks, where restrictions on data disclosure, access and even location of storage will have to be carefully considered in the context of any cloud computing solution. Issues may rise under import/export control regulations as data moves around the cloud, often to non-identified locations and parties holding the data. Data retention and disposal requirements can present challenges in cloud computing. But the grand regulatory challenge by far relates to privacy and security issues related to regulating personal information. Customers must determine how to ensure compliance with these various laws and standards while taking maximum advantage of the benefits of cloud computing.

Applying to the Supply Chain

Cloud computing is also beneficial and risky for supply chain operations. With applications as diverse as customer relationship management, human resources and accounting being made available through cloud computing offerings, supply chain organizations will increasingly face the appeal of obtaining powerful functionality without the time and costs of arranging for the people, applications and facilities required to do-it-yourself is absolutely huge. However, equally huge is for those organizations will be retaining requisite control of critical proprietary data, so that they have confidence that it will be where it needs to be, and won't be where it shouldn't or cannot be- whether such requirements are driven by business need or law. Such responsibility cannot be delegated and seeing to such needs will almost certainly require increasing judgment, discipline and, in some cases, powerful restraint.

Ultimately, cloud computing is a variation of outsourcing. In this sense, many of the risks are the same as the risks faced for years in more traditional outsourcing. They also must be mitigated the same way - through successful navigation of appropriate due diligence up front, appropriate contractual protections that account for higher risk data and applications, and continuing vigilant governance.

Ultimately, cloud computing is a variation of outsourcing, so many of the risks are the same ones faced for years in more traditional outsourcing.