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Technology Forecast

In IT, the forecast looks cloudy

Introduction

The world of information technology is dominated by jargon, fashion and the occasional fad; the landscape is littered with new supposedly ‘world shattering’ initiatives and the carcasses of businesses set up in failed attempts to exploit them. ‘The Cloud’ is the latest of these new ideas and, as witnessed in the past, there is a wholesale rush by the mighty and the minnows alike to cash in on the anticipated bonanza of riches that are expected to follow.

In the midst of all of this is the busy businessman who must assess the claims of their IT Manager as to the benefits, real or imagined, that will follow if some or all of their key systems are transferred into the anonymity of this thing they call ‘The Cloud’. In reality the issues faced by a business trying to capitalise on the benefits of Information Technology to improve competitiveness and raise margins have never changed. Information systems must make a clear contribution to productivity, product quality, customer service, communications, information and data sharing and team work. In turn the hardware these business systems operate on must be secure, resilient and have optimum total cost of ownership. Where does the cloud fit into this complex business agenda?

What is ‘The Cloud’?

There are now a growing number of global players who are building huge and scalable data centres throughout the world, containing large and expanding numbers of powerful computers and scalable quantities of data and information storage.

The starting point for this revolution has been the sudden appearance and growth of search engine companies, such as Google. These companies have capitalised on the advertising revenues they have generated and started to expand the potential use of the computing capacity required to underpin their primary search business. Hence the appearance of Google’s successful email service and their hosted online alternative to the Microsoft Office suite of Word, Excel and PowerPoint. The benefit of the latter is the aversion of significant up front expenditure and regular upgrades, as these services are a combination of zero cost (fuelled by advertising revenues) or a regular monthly payment. These hosted services are now expanding to include access to online versions of customer relationship management software such as SalesForce.com. With more business-focussed software services being presented from an anonymous host or hosts that could be anywhere in the world (‘the cloud’), we now have critical business and customer related data stored on anonymous systems. The key question concerns the acceptability of this to the modern business man who is legally responsible for protecting sensitive and confidential information about all of the stakeholders involved in her or his business. In addition, commercial information in today’s world can be a considerable competitive advantage and critical business systems must be available at all times if a business is not to be severely compromised. None the less the ability to avoid significant upfront capital cost for new hardware and license costs is an attractive option for many businessmen, which means the allure of ’The Cloud’ will be difficult to resist for some.

Is ‘'The Cloud’ the only option?

The arrival of anonymous, globally hosted services has had a considerable effect on the service offerings of companies that have traditionally relied on hardware and infrastructure sales and services. There has been an explosion in the number of robust but small scale data centres throughout the world offering low cost but secure rack space for companies of all sizes to host their own equipment. With the arrival of virtual server technology that allows many instances of a basic operating system and business software to be operated on a single physical computer, these data centres are being used by IT Services companies to host business systems on server capacity they rent to the customer. This gives many of the financial advantages of operating in the cloud but with a supplier who is both visible and accessible. It is possible to tailor services to precisely meet the needs of the customer and there is open access to service support people who can respond to requests for service change - or immediately address any issues with security and data protection. The range of services, the infrastructure, security measures and business continuity design underpinning the hosted solution is completely transparent to the customer. The additional advantages offered by adopting this less anonymous but more tailored approach also include the relative ease with which systems integration and data transfer can be accommodated between systems that are hosted, or where a selection of business systems are kept on the customer’s own premises.

Where is this all leading?

Before any businessman or IT Director makes a decision on whether to use systems hosted in the cloud or a more visible and customer intimate provider, they must be very aware of what their business is actually trying to achieve and of what the organisation’s strategic goals are. There must also be a clear understanding of where technology is going to contribute to the achievement of these goals. An additional important consideration is ensuring that data is secure and that the required levels of resilience exist to ensure that critical systems are always available. The truth is that cloud based solutions are not invulnerable but they do offer access to generic and less business specific systems whilst avoiding the need for capital investment. Where a more tailored and potentially complex solution is required - and where the ability to communicate intimately with the service provider is preferred - then a hosted arrangement with an approachable, transparent and more accessible supplier could offer considerable operational advantage and just as much of a capital saving. There is the possibility that some customers could opt for a mixed environment where vanilla business systems such as email and word processing could be sourced from the cloud to reduce capital exposure but where more specialist software and sensitive data is either kept on site or hosted with an IT Service company on rented hardware in one or more data centers. Either way, an ever increasing number of companies will be seeking to avoid the cost of routinely purchasing and maintaining new equipment by looking for partner companies that can both provide hardware or some elements of software as a service paid out of revenue.

Conclusions

  • There is a considerable growth in the number of generic systems hosted globally on a vast network of computers referred to as “The Cloud”. These offer access to storage capacity and basic desktop software for a regular fee while avoiding the need for upfront investment in hardware and license costs. The relationship with companies offering a cloud solution is more remote and anonymous and there is little chance of a tailored solution matched closely to business need.

  • For organisations with more complex demands and those that need IT systems closely aligned to the strategic needs of the business, there is the option of partnering with an IT Services company offering hosting and hardware as a service. These companies utilise existing datacentre capacity and offer the prospect of a more transparent, intimate and consultative relationship with the customer.

  • Before choosing either of these routes to reducing capital investment costs it is imperative that issues associated with data security and desired levels of systems and data integration are taken fully into account.

  • Whatever the solution, it is imperative that the systems hosted either in the cloud or with a third party services company are properly aligned with the commercial and strategic needs of the business they are serving.

Technology in M&A Event

22 January 2020

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