In 2005, hurricanes Katrina and Rita spread unprecedented destruction across the Gulf Coast just as Schumacher Group in Lafayette, La., was considering a major investment in customer relationship management software. Those double disasters provided a strong argument for locating the CRM system and other critical applications in a cloud of services available over the Internet, says Douglas Menefee, CIO of the staffing firm, which places doctors in hospital emergency departments.
“I was the new CIO back then, and I recognized right away how vulnerable our data center was from a business continuity perspective,” Menefee says. “From there, we further embraced hosted and cloud solutions.”
In 2006, cloud computing was often referred to as software as a service (SaaS) or utility computing. The nuances of cloud computing are still evolving, but the central idea turns on the concept of service providers delivering IT resources over the Internet. Although small and medium businesses in general have been slow to adopt cloud computing, advocates point out that the services are available anywhere there’s an Internet connection, even during a disaster. With minimal capital investment, operating in the cloud also provides flexibility and scalability to match a company’s changing needs, says Menefee.
A midsize business with 750 employees, Schumacher Group has begun relocating the majority of its IT infrastructure to the cloud, but intends to maintain a hybrid approach for the near present. The company has data centers in Lafayette and Dallas. A fully structured Multiprotocol Label Switching network that supports a Voice over IP phone system and video conferencing links its nine regional offices. In addition to specialized systems related to patient and doctor information, the company requires uninterrupted access to a full range of enterprise back-office applications, Menefee says.
“Essentially, our operation runs 24 hours a day, seven days a week,” he says. “Fifty percent of our processes today run in a data-center environment, and 50 percent are in a hosted or cloud environment. By the end of 2009, however, when we finish bringing on WorkDay as our human resources system, we’ll have close to 70 percent of our processes in the cloud.”
Improvement and innovation in systems are easier to achieve in a cloud, even for businesses with small IT staffs, says Menefee. SaaS solutions typically push out new functionality every few months, he adds.
Plus, using cloud computing for mission-critical applications redirects IT resources toward solving business problems rather than keeping the data center up and running. “By not having to focus on the infrastructure piece, I’ve been able to allocate dollars to employees working on the innovation side — rolling out new business solutions, meeting business needs — as opposed to being in a maintenance role,” Menefee says.
For companies such as T-System, which offers hospital emergency department clinical documentation solutions, cloud computing provides a way to give people who work in business units increased technology capabilities while making them less reliant on the IT support staff, says Paul Coyne, CIO for the Dallas company.
“We have a real need to deliver IT, to the sales team in particular, without using the IT staff,” Coyne says. “We moved to Salesforce.com, and it allows sales personnel to do things we couldn’t do without that platform. The cloud makes it scale readily and ensures that the services are available all the time, whether from a cell phone or from a client’s office or anywhere there’s an Internet connection. The transparency of information to everyone in the company is important to us, too.”
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T-System has 250 employees, and about 112 of them use Salesforce.com. The number of users is growing every day as services from the cloud demonstrate their value on a departmental level, Coyne says. That growth is made possible because of the easy extensibility of Salesforce.com in particular and software services in general in this type of environment, he says.
That flexibility and scalability translate into a competitive edge for SMBs when they face off against big players whose business processes are usually run out of entrenched data-center environments, Schumacher Group’s Menefee says.
“Small businesses can leverage software services and be able to scale very quickly; it’s nothing for us to add an additional 100 users to a software service because you don’t have to go back and reconsider your whole network infrastructure,” he says. “Over the next five to 10 years, you’re going to see small businesses really taking on enterprise-level businesses with so much invested in their data-center infrastructure that they can’t move as quickly.”
Startup company FindAPro.com in Syosset, N.Y., may be competing against large enterprises sometime soon, but for now the company’s four-person workforce is focused on building its business, a consumer review website focused on home-improvement contractors.
Launched in March, FindAPro.com’s systems rely almost entirely on software services from the Internet, says CEO Justin Rattigan. “Cloud services pretty much run our entire business,” he says. “I can’t even quantify the amount of money we’ve saved, but we have systems comparable to huge companies that cost us very little and were set up overnight. We can access them everywhere, and it didn’t take IT people to get off the ground.”
Entrepreneurs need to look for hidden opportunities that offer a way around licensing fees for software services that can be expensive for a company getting started, Rattigan says. For example, FindAPro has taken advantage of a Salesforce.com free license offer that provides access to the Force.com platform for one application.
“We built our own application so our entire company uses Salesforce for free right now; it gives us complete customer relationship management, the whole back-end system and the content management system that powers our website,” Rattigan says. “Everything is there and was built without anyone writing a line of code. The challenge isn’t so much from an IT perspective — it’s really knowing that there are solutions out there and finding the right one for your business.”
Creative cost-control strategies aside, licensing fees can be a barrier to adopting cloud computing, Menefee says. Companies with data centers in place are often reluctant to abandon that significant investment to take on sometimes hefty annual fees, he adds.
Coyne cautions that any CIO advocating cloud computing needs executive buy-in from the business side of the company and has to come prepared with a detailed cost-benefit argument for the move.
“You have to make sure you get full numbers, measure the complete value of the cloud and take a careful look at the cost of the internal infrastructure,” he says. “The justification for cloud computing is certainly there, but it’s not necessarily obvious to people used to a data-center environment.”
Companies can shop for bargains, but they should make sure that tools from untested vendors provide the performance levels required and scale effectively, FindAPro’s Rattigan advises.
41% Senior IT professionals who say they “don’t know” what cloud computing is, according to Version One, a U.K. document management software company.
Source: Version One, “Cloud Confusion Amongst IT Professionals,” June 2009
Customer references and service-level agreements with financial guarantees from providers are essential, Menefee says. As an extra layer of protection, he also recommends that businesses, especially small ones, look into cyber-liability insurance in case a provider’s outage affects the company’s customers.
Considerations of risk extend beyond finances to the threat of lost or stolen data, too. Schumacher Group requires that all its service providers maintain redundant data centers, while T-System’s IT staff makes sure all data used in the cloud is replicated and securely stored.
For some companies, cloud computing may represent a security upgrade, says Menefee. “All of our providers are HIPAA compliant and have financial institutions as customers, so they have to meet security standards set by government regulations,” he says. “Schumacher Group has a fairly small IT team of about 30 people for all of our global operations, and a couple of them are primarily focused on security. Our service provider partners have whole security departments.”
For all the apparent advantages, cloud computing has been slow to catch on among SMBs, says IDC analyst Ray Boggs. The approach may have been oversold, he says. “Cloud computing requires a certain comfort with new ways of doing things that may be missing, but mostly people don’t want a new IT religion, which is the way the cloud has been presented by some vendors and analysts.”
Hosted e-mail programs or web servers are often the first step companies make into the cloud, he says. Boggs also suggests that although many SMB users voice confusion about the meaning of “cloud computing,” they have more familiarity with software services than they think they do.
“I’ll ask, ‘Do you have online storage?’ and a person will say they do, but then they tell me that they don’t do cloud computing,” Boggs says. “There’s a difference in using specific technologies and paying attention to the concepts behind the whole approach.”