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The CEO Point of View

The No-Longer-Hypothetical Case for Jumping on the Cloud
By N. Chandrasekaran, CEO and Managing Director, Tata Consultancy Services


Tata Consultancy Services has watched with great interest the ongoing development of cloud computing. We have advocated the opportunities in multiple Innovation Forums and through different media since 2004. We have sought out the best practices in using this new technology by bringing our clients, venture capital firms, startup companies, professors, industry analysts and other technology companies together to talk about the implications of this on major business and technology issues of the day.

We see cloud computing as an ecosystem play – an opportunity that requires us to work deeply with a range of entities from academia and start-ups to corporations, and technology providers –to bring world-class solutions to market. Cloud has become a key focus of our Co-Innovation Network (or COIN), which is our mechanism for collaborating with these entities.

We have invested in building capabilities of our engineers to create a suite of cloud-based solutions to help our clients capitalize on the cloud. We have been redesigning their business processes and shifting on-premises applications to the cloud; developing, testing and maintaining whole new applications for the cloud; and in some cases hosting and supporting their cloud applications.

We have developed new business models using the cloud paradigm. One year ago TCS launched iON, a cloud-based holistic IT offering for small and medium-sized businesses in India – services that can give the country’s 35 million SMBs enterprise-quality IT services on a pay-as-you-grow model. This requires no capital investments in technology and eliminates technology redundancy, thereby addressing two key concerns for capital-constrained SMBs.

We have used the cloud platform to drive financial inclusion in India and aided the expansion of rural banking services by offering the latest core banking solution engines that run on the cloud. And we have created special cloud offerings for insurance companies and banks, as well as offerings that provide certain business processes from the cloud.

There is no question that we are excited about its potential to be all over the cloud. But last fall, the question for us about the cloud was this: Does the world of large enterprises view cloud computing the same way? Are they as bullish on the cloud as we are? Are they making big bets on the cloud too?

As a result, we decided to conduct a major study to understand the expectations and the potential of this new paradigm in computing. We fielded an extensive survey that was completed by 606 companies around the world in 16 industries (most organizations came from a corporate group had more than $1 billion in annual revenue). We also engaged in in-depth interviews with six enterprises to dive well below the surface of these issues. Executives at a large bank in Australia, a leading educational assessment testing company, a large technology manufacturer, an online media company, a $5 billion consumer products company, and a major telco talked to us about their cloud activities.

We wanted to shed light on the extent to which large enterprises had adopted cloud applications and their cloud plans in the next two years. Has enterprise adoption of cloud reached an inflection point? What business applications have companies shifted from on-premises technology to the cloud? And what new opportunities is cloud opening up for IT functions that may view their role as “keeping the lights on” – of running data centers? Do they see opportunities from the cloud to create new value to their organizations?

 

What We Thought We’d Find

Going into the study, TCS viewed cloud computing as critical piece of a big, emerging puzzle: how companies can use it as a platform in combination with other technologies to create great experiences for customers who increasingly do their shopping on the mobile devices they carry in their pockets, backpacks and purses.  We saw cloud computing as a key building block for bringing the “digital consumer” to life – as important as social media, mobile technology (and apps) and “big data.”  We believe cloud makes it possible for companies to experiment with high-potential new online marketing, sales, customer service and other business processes, as well as promising new online products – all without having to make huge, fixed-cost technology investments. But were companies around the world viewing cloud applications the same way – as a tool to dramatically scale up their operations at variable costs, especially in emerging markets that had yet to prove out?

So what did we learn from our research? Our key takeaway is that as lofty as our vision may be for the long-term impact of cloud computing, we have, in fact, underestimated its potential. The research is moving us to believe that by 2020, when executives at large global companies reflect back on the major trends that shaped their businesses this decade, they will see cloud computing as one of the biggest.

The net of our findings is this: Cloud applications are an already-substantial piece of the large corporate IT infrastructure, one that is having significant impacts and is viewed to be even more important going forward. The views and activities of the companies that we surveyed and interviewed suggest there is no turning back from the cloud. The early benefits achieved are too substantial to revert to days of yore, when companies hosted all their application software on computers in their data centers and on their employees’ digital devices.

 

The Findings: We’ve Reached an Inflection Point with Cloud Applications

Every calculus lover knows that the inflection point on a curve is the place at which the curvature changes. The term “strategic inflection point” connotes a major change in the market – a point on which companies must change their offerings and/or the way they do business in order to keep up with the market.  So is cloud computing at an inflection point – the moment in which companies have embraced it as a critical technology strategy? Our study tells us the answer is a strong yes.

We asked IT executives what percent of their total applications were cloud applications. The answer: an average 12% in European firms, 19% in U.S. firms, 28% in Asia-Pacific firms and a surprising 39% in Latin American firms. In light of that, saying cloud applications have gained a toehold in large enterprises would be a gross understatement. (See Exhibit 1.)

What’s more, these same companies projected those percentages to grow significantly by 2014. For example, in European companies cloud applications are projected to double to becoming 24% of all applications. U.S. firms see cloud applications being about a third (34%) of total applications by then, when Asia-Pacific companies project them to be a full half of all their applications and Latin American companies see them becoming 56% of total applications. That’s quite a change from the last 30 years, when the vast majority of companies ran their applications from computers located on their premises.


Why Companies are Rushing to the Cloud, and the Returns They’re Getting

Why are companies embracing the cloud? Among U.S. and Asia-Pacific companies, the most important driver is not the one that many think it would be (to reduce technology costs). To be sure, cutting IT costs is a big driver. But more important was the need to standardize applications and the business operations those applications support – a critical need in an increasing number of global companies that want to establish common policies and procedures in the ways they hire people, take orders, serve customers, manage the books, and conduct other critical business activities. A major telco that we spoke to said standard cloud applications are helping business units cut IT costs and reduce its data center footprint.

Another big driver of cloud applications (especially in the U.S. and Asia-Pacific) was increasing the flexibility of applications – the ability to ramp up or down applications quickly. Online media firms are using the cloud to respond to huge variations in the demand for online services by online customers. One online media firm last year implemented its first private cloud in a new data center. It can get a new server running in minutes vs. the 6-12 weeks it took a decade ago. That’s critical when in a business where online viewers can increase in the millions from day to day or week to week.

The need to process “big data” – huge volumes of transactional and other digitized data – is also a big driver of cloud applications. About two-thirds of the U.S. companies surveyed said improving the way they gathered and analyzed data was a key factor in shifting to cloud applications.

Perhaps the most important piece of evidence that companies will embrace cloud applications in a big way is the value they have achieved to date from such applications. By shifting on-premises applications to the cloud, the companies we surveyed reduced their IT costs an average 31% in U.S. firms and 28% in European companies. (See Exhibit 2.) To us, this is not surprising. Such savings come from such sources as the ability to purchase network capacity and storage far less expensively, locate data centers in areas with lower post costs, and institute more highly automated data centers. By using public clouds (Internet services provided from data centers that host many companies’ applications), companies are able to tap into powerful application software that would have been cost-prohibitive for many.

But cost reduction is by no means the only benefit companies had generated from cloud applications.  Those that launched whole new applications in the cloud — applications that might have been economically infeasible had they required costly new computer hardware — reported 13% (U.S.) to 32% (Latin America) average revenue gains from their new, cloud-based products and services. Whether they are replacing on-premises applications or representing whole new applications, the cloud is generating substantial business value in many companies.

To examine the impact of cloud applications up close, we interviewed executives at six companies who shared their cloud experiences. As an example of the cost-reduction potential of cloud, the previously mentioned telecommunications firm moved all HR applications to the cloud last year, standardizing on enterprise software packages. The company believes cloud applications hosted in its own data centers (so-called “private clouds,” which would eventually house 80% of its applications) could cut IT costs by $100 million to $200 million annually and its number of data centers 80%. Another example is a large financial institution based in Sydney, which reduced its cost of computer storage 40% by putting applications in the cloud.

But those stories just speak to the cost benefits of cloud applications. The companies we surveyed and interviewed said the business process improvement and revenue benefits were even more important. After beginning to shift on-premises applications to the cloud in 2007, the previously mentioned bank in Australia has been using the cost savings from the cloud to develop new banking services  – apps that present offers on financial products to customers in real time – particularly on mobile devices, for instance.

Another example of a company that sees cloud applications to be critical to developing new products is one of the three largest U.S. suppliers of school assessment tests. The company has been shifting assessment testing of U.S. K-12 students from paper to online. Because many states are expected to require online assessment tests this decade, the company is experimenting with cloud-based solutions. It envisions having to deliver and score more than 40 million tests in a two-week period by 2014. The cost of building the technology infrastructure for such a short time would be enormous. That’s why the company is all over the cloud.

Companies have big plans to shift many more applications across all their business functions to the cloud over the next two years, particularly in customer-facing business processes of marketing, sales and customer service.  Firms like the technology manufacturer that we interviewed are using cloud systems aggressively in their marketing campaigns, starting with online games (so-called gamification applications) that appeal to customers.


Certain Industries are in the Lead

Our survey found four industries have been much more aggressive in adopting cloud applications (in public or private clouds) than other industries. We asked companies to tell us how many cloud applications they were using in 10 core business functions: marketing, sales, R&D, manufacturing/operations, HR, finance, customer service, legal, distribution and procurement. At the top of the list were the computer/electronics, financial services, industrial manufacturing and telecom services industries (averaging with more than six cloud applications per function). At the bottom were healthcare services and chemicals companies, averaging less than four cloud applications per business function. (See Exhibit 3.)

Yet despite the strong embrace of the cloud in many industries, most companies have remained somewhat conservative about what systems and data they put in public clouds – in the data centers of third parties that host many companies’ applications and IT infrastructure. While our survey found that the majority of U.S., Asia-Pacific and Latin American companies would consider putting their core applications in private clouds, only a minority today would put core applications in public clouds. The reason is fear of data security and privacy. The companies we surveyed in all four regions said their biggest challenge to leveraging the cloud is overcoming their concerns about IT security.

Thus the challenge for companies and cloud vendors like TCS is clear: to greatly reduce the fear that most large companies have about putting mission-critical information systems and sensitive data in public clouds. Large companies now want to shift many applications to the cloud, and they realize that if they are to get the greatest cost savings, it will have to be to public clouds (where cloud vendors can spread their costs across hundreds or thousands of customers). But customers will need to be sold on cloud vendors’ information security promises. That will require bringing industrial-strength practices to information security and maintaining systems availability. All this will separate the cloud-proficient vendors from the cloud pretenders.

Stories like these, and the responses of the 600+ companies that we surveyed, show that the cloud is beginning to have a profound impact on a number of industries. The benefits we’ve uncovered should remind business and IT executives that where there is smoke, there is fire. As an increasing number of companies publicly discuss the benefits of cloud computing, we expect many more enterprises will rush to adopt cloud applications in every facet of their business.

Now is the time for business and IT executives to look strongly at the cloud – both private clouds dedicated to the needs of one company or public clouds in which multiple companies can be served. Our research shows that companies have moved beyond the inflection point. The next few years will be ones in which market leaders are companies who quickly capitalized on the cloud.

Key Success Factors in Capitalizing on the Cloud

The keys to adopting and benefiting from cloud applications are overcoming fear of security risks and skepticism about ROI.


  • Comparing responses by region of world

Any technology that is as hyped as much as the cloud (remember adulation over artificial intelligence, client-server computing, and the Web in its early years?) generates an almost equal amount of skepticism from those who have seen numerous tech evangelists over time. Cloud computing, too, has drawn its fair share of unabashed advocates and hard-bitten skeptics.

And so when we asked our 606 survey respondents around the world to rate the key success factors in generating benefits from the cloud from a list we provided, the most highly rated success factors were overcoming two fundamental fears about cloud computing (see Exhibit X-1):

  • That cloud is a highly risky technology from a data security standpoint.  Overcoming this fear was rated the most important factor in generating benefits from cloud in every region. In other words, they seem to be indicating to us, the benefits are there – one just has to make sure that the pursuit of those benefits is a safe pursuit.
  • That the benefits of cloud are a mirage.  The second most important success factor in US, Asia-Pacific and Latin American companies was demonstrating returns on cloud investments earlier in the process. For European companies, the third most important success factor was quantifying the potential benefits of cloud upfront. (It was tied for first in importance in Latin America.) Both issues point to the skepticism over whether cloud computing can deliver on the benefits that have been bandied about everywhere – saving big technology costs, standardizing the ways a company does business around the world, and much, much more.

In the U.S., near the bottom of the list of success factors were two that we thought would carry more weight before we fielded the survey: getting the CEO or head of a business function to drive a cloud initiative rather than the IT organization, and overcoming the IT function’s fear of a diminished organizational role from the adoption of public clouds – i.e., from shifting in-house applications to a cloud vendor’s data center. (See Exhibit X-2 below.)

 


TCS Cloud Study – 10 Key Findings
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Differences in Cloud Benefits by Region of World

The most aggressive adopters of cloud applications are companies in Asia-Pacific and Latin America. They report having much higher percentages of cloud apps to total apps – and bigger results from cloud apps than their peers in the U.S. and Europe.


  • Contrasting US, European, Asia-Pacific and Latin American companies in cloud benefits achieved to date

Many articles have been published over the last decade about how emerging economies in Eastern Europe, Latin America and Asia-Pacific have leapt ahead of the advanced economies in their telecommunications networks. By establishing cellular networks rather than continuing to invest in traditional wire-and-telephone-pole landline networks, these emerging economies have built telecommunications systems that offer higher-speed networks for mobile phones. That, in turn, means their mobile phones can do a lot more bandwidth-intensive tasks than the telecommunications networks of advanced economies: television on demand, payments through mobile phones, and the like. Cellular networks have, in effect, enabled many emerging economies to leap ahead of their more advanced counterparts.

The findings of this study suggest that a similar phenomenon may be happening with cloud technology.  The companies we surveyed in Latin America and Asia-Pacific were much more aggressive adopters of cloud (as measured by the percentage of total applications that were cloud applications) than were US and European companies.

Are smaller Latin American companies leading the way on cloud? On the contrary: In companies of less than $1B in revenue, 36% of their total applications software is in the cloud. At companies of greater than $1B in revenue, 42% of their applications are cloud applications. Large Latin American companies appear to be leading the way in the cloud.

Greater Usage of Cloud Means Greater Benefits

The companies we surveyed in Latin America and Asia Pacific were also bigger beneficiaries of cloud – they reported generating much larger average benefits. This was true for both applications they shifted from on-premises computers to the cloud, as well as for entirely new applications they placed in the cloud. Latin American companies in particular reported much larger benefits from shifting on-premises applications to the cloud in the seven metrics that we used – improvements that were in the range of 50%-60% vs. the largely 30% range of improvements for U.S. and European companies.

For the six metrics that we tracked in benefits from launching entirely new cloud applications, Latin American companies, too, far exceeded their peers in the U.S. and Europe. Latin American companies reported improvements in the 20%-30% range vs. in the teens for U.S. and European companies.

Perhaps Latin American and Asia-Pacific companies see the cloud as a way to technologically leap ahead of their counterparts in the U.S. and Europe, many of which are saddled with aging IT infrastructures that are not so easily or quickly moved to the cloud.

 


TCS Cloud Study – 10 Key Findings
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The Most and Least Popular Cloud Applications

Many companies are reluctant to put applications with sensitive data in the cloud. In the U.S. and Europe, the applications least frequently shifted from on-premises computers to the cloud were those that compiled data on employees (e.g., payroll), legal issues (legal management systems), product (pricing and product testing), and certain customer information (e.g., customer loyalty and e-commerce transactions). Still, some companies had shifted applications with customer data to the cloud, especially in customer service, and many planned to shift a number of customer-related applications to the cloud by 2014.


 

  • Cloud applications most frequently shifted from on-premises technology
  • Cloud applications least frequently shifted from on-premises technology
  • Case study: Dell Inc.

In the previous section, we mentioned that across all four regions of the world, companies were in most cases putting the largest share of their cloud applications budgets in marketing, sales and service. Yet in spite of that, many companies appear to be staying clear of putting sensitive data into cloud applications.

We found this to be the case in looking at other data in our survey. In the U.S. and Europe (where we had large-enough sample sizes to explore what applications companies had in the cloud in each of the 10 core business functions), we found that the applications that were most frequently shifted from on-premises computers to the cloud were those that typically do not have highly sensitive information on employees, customers, new-product plans, and other data that companies go to great lengths to protect (see Exhibit VI-1).

In the U.S., when we looked at the applications that were least frequently shifted to the cloud from on-premises computers, several of them were applications that often store highly sensitive data:

  • Legal-related – legal management solutions (which can contain the status of lawsuits against a company)
  • Employee-related – compensation planning (employee salaries) and payroll/time and attendance systems (which, of course, in the U.S. can have Social Security information)
  • Product-related – product testing systems (which often compile data on product efficacy and of course reveal a company’s product launches), and pricing and promotions systems (which, in competitors’ hands, can tip off pricing changes)
  • Customer-related — customer loyalty (which can reveal buying preferences), customer/market research applications, E-commerce, and customer analytics — all of which can risk customer privacy and provide competitors with useful targeting information
  • Risk-related – risk assessment and monitoring systems, which compile data on a company’s most vulnerable activities

In all five areas, less than 20% of companies had shifted on-premises apps to the cloud (see Exhibit VI-2).

Still, that doesn’t mean that all customer data is being kept out of the cloud. For U.S. companies’ customer service applications, 42% have shifted customer order-entry systems from on-premises technology to the cloud. And 37% have moved their archived customer records to the cloud. (See Exhibit VI-3.)

In addition, the numbers in the chart above indicate that many companies’ fears about putting customer records in the cloud are likely to subside. When asked what customer service applications they expected to be in the cloud by 2014, the majority expected to shift their customer order entry, archives of past customer records, post-sales inquiries and online customer communities from on-premises to cloud-based applications.

In looking at marketing applications, we found such hesitation to put customer data in the cloud looks like it will decline by 2014. At least half of U.S. companies plan to shift customer research, e-commerce, customer analytics and social media data to the cloud by then. And even 39% of companies say they’ll shift customer loyalty systems to the cloud by 2014. (See Exhibit VI-4.)

Dell: Riding a Tsunami of New Cloud-Based Marketing Tools

As the computer company that became known worldwide for its direct model, Dell Inc. has had to master the Web, email and other online marketing tools to get customers in the fold and keep them there. Of course, the company has much to boast about, growing from a concept in the University of Texas dorm room of founder Michael Dell to a multibillion-dollar juggernaut of the global technology industry in less than 30 years.

But now comes the cloud. It ushers in a whole new set of online tools that serious online marketers such as Dell must experiment with. In fact, Dell has adopted a marketing strategy for public and large enterprises that puts cloud applications at the center of its channels to customers. “The cloud is very appealing to us,” says Rishi Dave, executive director of online marketing for Dell’s large corporate, public and government enterprise division. “I live in constant paranoia of innovation overtaking us in the online space. So we constantly are reviewing, evaluating, and testing new offerings from cloud providers to see who is at the leading edge so that we are using the latest, greatest marketing tools.”

Online marketing has become a blood sport, especially in the computer industry. Competition in the IT market has become so fierce that products are quickly commoditized and margins rapidly squeezed. Hundreds of millions of dollars ride every week on whether a technology company can troll the vast World Wide Web looking for enterprise customers ready to change vendors. A snarky comment in a LinkedIn or Facebook group, a complaint Tweeted for all to see, and other digital droppings can lead a company like Dell to identify a ripe prospect – or a customer ready to defect.

Before the advent of social media, the ways companies like Dell used software to track what was being said about them on the Web, in calls with customer reps, and in emails. But the world of marketing applications has changed dramatically. Dell uses Salesforce.com to manage its CRM efforts. And now the Round Rock, Texas-based IT giant is also using other cloud vendors’ marketing-related applications. “This means we can innovate more quickly,” says Dave.

He is experimenting with cloud-based gamification — as Wikipedia defines it, “the use of game design techniques and mechanics to solve problems and engage audiences” — to both entertain and enlighten current and prospective customers. The company sees gamification as important for getting rapid feedback on new products and marketing collateral.

Gamification Delivered in the Cloud: The New Dell Marketing Tool

A great example of how Dell drove results fast with cloud-based marketing applications came at its first annual conference for global customers, Dell World, held last October in Austin. Four months prior to the conference, Dave and other online marketers at Dell decided they needed a novel way of interacting with attendees, one that would engage them more deeply and give Dell a deeper understanding of what solutions customers cared about.  Working with a cloud-based gamification vendor, Dell used mobile gamification to reward attendees for downloading Dell content at the event, sharing it with their peers, and letting others know about it through sending out Tweets, visiting physical locations at the conference, and exchanging contact information.

A big advantage of working with a cloud vendor for the game application was that Dell’s online marketing group didn’t have to request a system that would touch the company’s internal IT infrastructure.

The Biggest Barriers to Adopting Whole New Cloud Applications: Giving Up Control and Changing the Way Dell Markets

In working with vendors of cloud-based marketing applications, Dell has had to learn how to deal with a new set of business partners – many of which are small startup companies that need to handle a large, global firm. “When you no longer own the technology, you have to be much better at managing cloud vendors and developing partnerships,” explains Dave, who says the firm evaluates as many as a dozen cloud marketing application vendors at any one time. “You have to have a process to identify the right partners, and you have to learn to relinquish total control.” In contrast to marketing applications built internally (over which Dell can determine every feature, function and interface aspect of the software), using cloud vendors’ marketing applications means Dell must give up control of product features, look and feel.

This, in turn, means Dave and his team must carefully evaluate whether Dell can change its marketing processes to take advantage of a promising new cloud-based marketing application. “It is relatively easy to identify new tools but a big challenge lies in absorbing them,” he says. “This requires looking at it from an internal business process perspective.” Cloud applications that require too many internal changes – or vast amounts of training to master it – have a much higher barrier to adoption. “A limiting factor is how much training, additional resources, and process changes are needed. Also, providers must eventually be able to scale their capabilities as their organizations grow.”

Of course, one of the big attractions of cloud marketing applications to Dell (and many, many other companies) is turning a fixed cost (licensing marketing applications software and the purchase of servers to run it) into a variable cost. If the company doesn’t like a particular cloud application that it has been using to sort out sentiments aired about the firm through social media, it simply stops using the service. Dell doesn’t have to remove the software from servers in its data center – and most of all, it doesn’t have to buy the extra servers need to run the software in the first place. Those applications run on a cloud vendor’s software.

All in all, Dell sees cloud-based marketing tools as critical to effective marketing in the present and future. Online marketing chief Dave believes that cloud vendors selling applications for mobile phones, tablet computers and other highly portable digital devices will be especially important to Dell given that its large-company customers do a large and increasing share of their daily tasks through such devices.

“We constantly trial cloud providers to see who is developing the latest tools,” Dave says. “Our use of such tools will absolutely grow. And as we ramp up our mobile strategy, cloud becomes critical.” As a case in point, he and his team are already thinking about creating games for the next Dell World conference that can be played on any digital interface – smartphones, tablets and PCs.

 


TCS Cloud Study – 10 Key Findings
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Why Companies are Using Cloud Applications

The biggest driver of cloud applications is not to cut IT costs. IT cost reduction is an important factor, but not the most important. Rather, standardizing software applications and business processes across a company (in the U.S. and Asia-Pacific) and ramping systems up or down faster (in Europe and Latin America) are the most highly rated drivers for shifting on-premises applications to the cloud. And the factors driving companies to launch entirely new applications in the cloud are quite different – to institute new business processes and launch new technology-dependent products and services. The case of assessment testing company CTB/McGraw-Hill shows why cloud computing will become a key tool for delivering pioneering IT-enabled offerings.


 

  • Factors driving companies to shift on-premises applications to the cloud
  • Factors driving companies to launch whole new applications in the cloud
  • Case study: CTB/McGraw-Hill

We asked companies to rate on a scale of importance (1 to 5) what had driven them to implement two kinds of cloud applications:

  • Cloud applications that had previously been installed on on-premises computers
  • Entirely new cloud-based applications for which there had been no on-premises versions before

How they rated a set of drivers that we offered provides insights into the motivations for adopting cloud applications. We’ll start with the factors that pushed companies to shift on-premises apps to the cloud.

 

Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’t the Leading Driver

Among U.S. and Asia-Pacific companies, the most important driver of shifting on-premises applications to the cloud is not what many think it would be – to reduce technology costs (although that is a key driver). Ahead of that is something that is not as well understood by the press, analysts and others covering cloud trends: standardizing applications and the business operations that those applications support.

Numerous large companies – especially those with multiple business units/divisions – are saddled with huge duplications in technologies: commercial application software packages, hardware and data centers that are serve individual business units (and sometimes even just a single compute-intensive business function such as R&D or manufacturing in a division). By giving companies the ability to take such applications out of departmental or business unit data centers and put them in a centrally accessible location – a private or public data center that hosts the applications – cloud computing creates the prospect of standardizing applications across a big business.

The major telco that we spoke with said offering standardized cloud applications will help its business units reduce their IT costs and the need for so many data centers (which today are in the hundreds). Having dozens of financial, HR, customer management and other applications today – each devoted to a narrow slice of its business – has resulted in huge IT costs (software, hardware and data centers). In fact, the company believes that its shift to cloud applications will help it reduce its number of data centers by 80%, which would produce an estimated annual cost savings of $100 million to $200 million.

Another highly rated driver of cloud applications in both the U.S. and Asia-Pacific companies was increasing applications or systems “flexibility.” In both regions, this was the third most important driver of shifting on-premises applications to the cloud. What does this mean? It refers to the ability to scale an application up or down.

The need to process “big data” – huge volumes of transactional and other digitized data (video, social media chatter, and other) — appears to be a big driver of cloud applications. Nearly two-thirds (65%) of the U.S. survey respondents they were driven to the cloud to improve the way they gathered and analyzed data (rated as an important or very important factor). A similar number of Asia-Pacific companies said this was an important or very important driver of their shift to the cloud. Less than half (47%) of the European companies said it was an important or very important factor in using cloud. However, 80% of the Latin American companies said this was an important or very important factor. One of the biggest differences that we found between the companies that had generated the largest benefits from the cloud and the ones that had generated the least benefits was, in fact, their interest in using the cloud to manage “big data.”

Big Data and the Push for Cloud

Our U.S. data shows that savvier uses of cloud applications are distinct in many ways – one of which is their interest in using the cloud to process and analyze volumes of digital data.

We compared the answers of the companies in the top quartile of benefits achieved from shifting on-premises apps to the cloud (the “leaders”) to those in the bottom quartile (“laggards”). Some 74% of the leaders said using the cloud to process and analyze data for trend identification was important or very important. But a much lower percentage of laggards (55%) said that was a key driver.

We found a similar set of drivers in the Asia-Pacific companies that we polled. The three most important drivers in this region – just like in the U.S. – were 1) standardizing applications and business processes, 2) reducing IT costs, and 3) increasing application flexibility.

The biggest factor driving Commonwealth Bank of Australia to shift on-premises applications to its private cloud was to use the savings in IT costs to providing more bank services through mobile applications and social media. “For us, cloud is not just about on-demand, selective scalability and automation,” says Rajasingham. “It’s also about self-funding IT, removing cost from running the business – and reallocating that into delivering more value-added services.”

In both Europe and Latin America, the most important driver of shifting to cloud applications was the need to increase “system flexibility” – the ability to launch or shut down applications quickly.


In Latin America, standardizing applications and business processes ranked below four other drivers, which were led by increasing application flexibility. IT cost-cutting was rated the lowest of the seven options we provided. Perhaps Latin American companies look at cloud less as giving them more efficient ways to deploy computing applications and more as a tool giving them a greater ability to adopt strategic applications of technology.

Why Companies are Launching Entirely New Applications in the Cloud: They Want to be Quicker to the Punch with New Business Processes

We also surveyed companies about any new applications that they launched in the cloud – applications for which they had no previous versions installed on their on-premises computers. In three of the four regions (all except for Europe), the factor rated as the most important was the need to institute new business processes to generate revenue and increase customer loyalty.This was not a surprise to us. Increasingly, companies are doing business with customers online, and cloud computing can give those businesses a faster route to changing the way they do business on the Web. The Web has become a critical place for many customers to find out about a company’s products and services, place orders, check on shipment status, and (post-delivery) get answers to questions about how to use the product or otherwise get support.

Take the case of Dell Inc., the multibillion-dollar supplier of innovative technology and technology services. One of the Round Rock, Texas-based company’s online marketing groups caters to large corporate and government customers (the Public and Large Enterprise business unit). It has put cloud applications at the center of the marketing tool strategy that it uses, according to Rishi Dave executive director of online marketing. Many vendors of online marketing tools – for example, those that assess social media influencers – provide their products via the cloud, he explained. Using cloud vendors’ applications enables Dell’s online marketing function to execute online marketing, social and community programs without having to “touch our internal infrastructure,” Dave explains.

The cloud helped Dell introduce gamification to customers and prospects at the 2011 Dell World conference. In the four months prior to Dell’s first Dell World client conference (which ran from Oct. 12-14, 2011 in Austin, Texas), Dell’s online marketing group decided to provide gamification to motivate customers to download Dell marketing content, visit physical locations at the conference, and network with each other. By using the cloud-based gamification services of one vendor, Dell was able to plan and execute the project in less than four months.

CTB/McGraw-Hill: Looking to the Cloud to Set the Pace in Online Student Testing

CTB/McGraw-Hill is one of the three largest suppliers of assessment tests for public and private schools in the U.S. and other countries. Million of students in all 50 states take CTB’s tests. They help school districts and states rate the quality of the teaching delivered in their classrooms, as well as determine how to improve it.

The company, based in Monterey, Calif., believes cloud computing will be essential for competing in a highly price-sensitive market (U.S. public schools). CTB/McGraw-Hill also feels that cloud will be critical to shifting its testing services from a paper-and-pencil process to an online experience – one with great potential to improve teachers’ ability to address students’ learning deficiencies. The company believes cloud computing will be a crucial channel for delivering its products and services to school districts in the future.

But given the nature of CTB’s business – delivering tests to hundreds of thousands of K-12 students over two weeks each year – that creates enormous demand for the ability to scale computing resources up or down to administer online tests, which it believes will be the wave of the future. “Given that we have high spikes in capacity, we must be able to increase it and lower it quickly,” says CTB’s chief technology officer, Jayaram “Bala” Balachander. “We can’t do that today. That’s where cloud will be critical.”

In 2011, CTB delivered online assessment testing to 180,000 U.S. K-12 students over a two-week period. With each student taking as many as five tests, this meant the company had to score 800,000 online tests concurrently. “This lends itself very much to the cloud because we can go up or down depending on the activity in our business.” In 2012, the numbers are expected to more than double, creating an increasing need for ramping up and down infrastructure resources. As a result, CTB is experimenting with cloud-based solutions.

Balachander predicts that about a million U.S. students will take their assessment tests online (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of their assessment testing to be online at some point, that would require CTB to have the computing resources to serve the online assessment needs of millions of American children in K-12 grades at once, a number he believes could be reached as early as 2015.

Even if that turns out to be a smaller number in three years – say 75% of the 55 million U.S. students take online assessment tests — if CTB commanded a 20% share of that market, it would need computing resources to support the delivery and scoring of more than 40 million tests in a short period of time. “It would be very difficult for us to do that without the cloud – to invest in the infrastructure from a capital expenditure standpoint, and then make the ongoing technology investments,” Balachander explains.

By this August, CTB intends to shift six to eight on-premises applications to the cloud, one of which is the online testing. The firm’s website and extranet are also being evaluated as potential candidates to put in the cloud.

Balachander believes all new CTB applications should be cloud applications. “With new applications, we are saying that by default we should put them in the cloud.”

“At the end of the day, CTB needs IT services that can adapt to varying scalability demands,” Balachander says. “We clearly don’t want to invest in fixed infrastructure costs to handle our spikes in volume and scalability. The current set of cloud services and ongoing advances in technology in this area give us an ability to approach our infrastructure needs in a whole different way.”

 


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