The Strategic Importance of Cloud Computing in Business Organizations

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Table of contents

  1. Current Situation
  2. The Widespread Use and Continued Growth of Cloud Computing

    The Ever-Increasing Vital Nature of Cloud for Business

    Cloud Offerings and Their Various Forms

  3. Risks and Opportunities
  4. Future

Nowadays, we see businesses use advanced technologies such as virtualization for storage and compute power, and software for internal processes being delivered over the Internet via pay-per-use models. But what existed before cloud came into the spotlight? Traditional on premise consisted of stand-alone computers (Ashraf, 2014) and more recently, large, expensive, difficult to maintain server rooms on site which handle business processes, store customer data and provide compute power. Using an on-premise model, internal business processes are carried out on software which had to be licensed to the business, installed and upgraded manually by an IT department. This is still the way some businesses operate today, but over the last number of years a paradigm shift has occurred toward cloud computing and its shared pool of hardware and software resources - available cheaply and on demand – which has transformed the way businesses operate entirely (Ashraf, 2014).

Before making comparisons between the two approaches (on premise versus cloud), it is useful to provide an introduction to cloud. Cloud computing is the on-demand delivery of compute power, database storage, applications, and other IT resources through a cloud services platform via the Internet with pay-as-you-go pricing (AWS, 2020). Using cloud in modern business can be defined as making use of computing services from outside the firewall (Fisher, 2018), as opposed to keeping everything ‘in house’. This encompasses multiple areas of the business as referenced in the aforementioned AWS documentation, including storage and compute power. In short, businesses like Amazon and Microsoft have become experts in these domains. Transitioning to cloud in business means stepping out of the perceived security and familiarity of managing these technical tasks locally within the business and offloading this workload to those who know it better – all the while increasing the efficiency and effectiveness of your own business.

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The growth of cloud computing within business was inspired by a number of factors – all of which are why the technologies involved continue to be used and advanced today. In general, businesses require varieties of complex software applications for their internal operations (ERP, CRM etc.) and originally this software had to be installed, configured and maintained by an IT department. For small to medium companies in particular, paying an IT team was a large economic burden. The new concept of software-as-a-service (SaaS) negated this worry as internally needed software was now readily available to use over the Internet when needed (Mangiuc, 2011) and could be operated by all employees with relative ease. Furthermore, businesses now had the ability to use software only when they needed it and be charged for the time in which they used it. This pay-per-use model for both SaaS and infrastructure-as-a-service (IaaS) opened up a world of opportunities to smaller businesses who could not afford their own hardware or software infrastructure (Ashraf, 2014). These initial benefits of cloud inspired the surge toward it’s widespread use in the modern business world.

Current Situation

The Widespread Use and Continued Growth of Cloud Computing

Cloud computing has grown into an absolutely vital part of any modern business. Cisco released their Global Cloud Index (2016-2021) in 2018 and predicted that by 2021 94% of workloads and compute instances would be processed by cloud data centers (Cisco, 2018). It’s estimated that 81% of businesses in 2018 used some form of cloud in their business (CIO, 2018), and that number is only swelling higher. Forrester produced a report in the early 2000’s which aimed to quantify the forecasted growth of cloud over the subsequent 10 years, in which they estimated that the cloud market would grow from $25.5B in 2011 to $159.3B in 2020 (Columbus, 2011). Gartner reports in a 2018 press release that cloud computing was worth $196.7B in 2018 – already exceeding the 2020 forecast from Forrester (Gartner, 2019). These figures demonstrate how use of cloud computing has skyrocketed and exceeded expectations.

The Ever-Increasing Vital Nature of Cloud for Business

To assess the growth of cloud it’s useful to understand just why it has become unavoidable for businesses to use. Cloud is said to be vital for modern businesses because of the capital expenditure cost reductions (Fenton, 2017) and the scalability, availability and customizability (Ashraf, 2017) which these technologies offer. It is hard for businesses to predict the ebb and flow of growth, and that is why the elastic nature of cloud computing resources is extremely useful. Businesses which operate on premises pay large sums to manage server rooms which offer them storage and compute power. While this infrastructure is powerful, it is also expensive to maintain and make available for use at all times – cloud offerings are cheaper, at least in the short term (Fisher, 2018). IaaS negates this cost, allowing the business to only pay for what they use as they access this hardware and software via the Internet through virtualization.

Cloud Offerings and Their Various Forms

The different types of cloud computing available from today’s vendors can be defined in 3 main models, all of which are useful to a business in their own way. This includes SaaS, IaaS and PaaS. Although FaaS is coming into the fore today.

  • SaaS (software as a service). SaaS is the highest level of cloud, in which vendors provide entire applications running on cloud infrastructure (Daylami, 2015). SaaS has uses both internally and externally to the business. The traditional way of getting software solutions to customers was by delivering a solution to them in increments of upgraded software, then installed by a local IT team. When a business is delivering SaaS, it opens up benefits for both the customer and the software developer. Consumers have instant access to the latest versions of software and in turn, developers get speedy feedback from their users, leading to reduced development costs and increased profit margins (Mangiuc, 2011).
  • IaaS (infrastructure as a service). IaaS is a massively popular cloud offering, pioneered by Amazon with their Elastic Computer Cloud (EC2). Customers can buy processing, storage, and network services and then build their own systems on top of this infrastructure (Daylami, 2015). IaaS means a business can stop worrying about managing hardware and software infrastructure – traditionally hosted on site. Instead, the business can focus on their own engineering and quality concerns. Cloud providers provide highly elastic and scalable IaaS solutions which provision more storage or compute power instantly, only when needed (AWS, 2020).
  • PaaS (platform as a service). PaaS takes IaaS a step further, providing everything from operating systems to database systems to compute power, as well as handling deployment of applications. It provides a complete development platform for its users, allowing them to create and maintain their own applications and cloud specific utilities (Ashraf, 2014). PaaS involves 3 stakeholders – the host, the provider and the user. The PaaS host has the responsibility of deploying hardware infrastructure (using IaaS) and the PaaS provider should provide a development platform to developers (the user) – allowing them to develop their software application without having to think about server infrastructure (Ashraf, 2014). The provision of this complete platform speeds up business progress as developers can get software out quicker to their customers and get valuable feedback for improvement of quality.

By far and away the most prominent Cloud providers are Microsoft, Google and Amazon, offering various solutions from SaaS right across the scale to FaaS. They provide solutions for all ranges of businesses from start-ups to large enterprises – and deliver these services in a range of ways – through public clouds (a shared pool of resources with other enterprises), private clouds (a private pool of resources) and hybrid clouds.

Risks and Opportunities

If an on-premise business grows quickly, more servers would have to be bought and installed and this would take time and resources, distracting from and stalling growth. Contrastingly, if the business is going through a downturn, it still has to maintain the hardware on site, and this is costly and could be what puts the company under. Cloud providers offer instant scalability at a low cost due to the practically unlimited resource pool available – ideal for facilitating business growth. Along with scalability also comes elasticity, meaning if the business has a downturn like mentioned, cloud providers will manage usage so that you are only paying only for what you use.

When you keep your data (in particular customer data) on site, you have to handle everything to do with compliance with laws and regulations around this data. This is time consuming and takes away from the business purpose. Cloud providers are experts in this domain, with vendors such as AWS providing access to tools for GDPR compliance. AWS provide a list of their services and describe the ability to delete, encrypt and monitor the processing of data (AWS, n.d). Cloud computing removes the need for expertise in these areas.

Another issue with remaining on premise is support for server rooms. If something goes wrong and the business has an outage, the responsibility falls on the business to fix it and there will be considerable down time if servers are in one location (Fenton, 2017). With cloud, you avoid this issue by always having other instances of virtual servers ready to automatically fire up in another location if there is a failure.

It is important to recognize that although cloud has its many benefits, businesses are putting their vital information in harm’s way while rushing to take advantage of cloud computing (Behl, 2011). The cloud computing model does not deliver users with full control over data. Distinct to conventional computing model, cloud computing allows service providers to exercise control over servers and data (Ali, 2015) – which is great when they are relieving the stress of infrastructure management – but worrying when considering potential data breaches. Transferring control of business data to a cloud service provider requires a certain level of trust, as it creates risks related to data confidentiality and integrity, data recovery vulnerability, and data backup (Ali, 2015). This loss of governance over data can be difficult to accept for business leaders as evidenced in a survey carried out in 2011 (Mangiuc, 2011). Even today, 10 years later, it is hard to trust entirely that the service provider has implemented security procedures to great effect.

Secondly, virtualization in IaaS introduces another layer of risk. The multi-tenant model whereby the same physical resources can be used by multiple customers (for example, AWS servers for data storage) means multiple virtual machines can be routed to the same physical resources (Ali, 2015). This resource sharing introduces risk such as the data recovery vulnerability mentioned above. The elastic nature of cloud resources mean that storage space previously used by the business may later be used by another tenant and a malicious user could potentially apply data recovery techniques to obtain the data of previous users (Ali, 2015).

Outsourcing the management of data opens up the risk of data loss if cloud service providers have operational failures or vulnerabilities in their services. Data loss (in particular customer data) can cause massive financial and reputational losses for the business (Behl, 2011), as seen frequently on the news. As such, on premise is less vulnerable to data leakage or external security threats, but this assumes the business’s internal security is mature (Fisher, 2018).

Cloud providers offer hybrid cloud solutions for those businesses who are nervous about data governance and the security of their data (as mentioned above). Hybrid cloud solutions allow businesses to keep some of their data in a private cloud – which ensures that resources (hardware and software infrastructure) are only being accessed by the business and are not being shared. When the business needs access to more storage or compute power (perhaps for other business functions), they also have access to the public cloud through this hybrid cloud structure – giving them required scalability while negating privacy concerns (Microsoft Azure, n.d).

Cloud providers don’t just say ‘trust us with your data’. When you start to use a cloud provider, you sign a service level agreement (SLA) – a (usually) legally binding agreement between the business and the provider about what which party is responsible for. It’s the business’s responsibility to make sure they get what they want – in regard to availability and data ownership. A cloud service provider should detail in this agreement their disaster backup and recovery systems (Hein, 2019) and this serves to give the business confidence in the services offered.

This report has already touched on some of the advantages of cloud, when it pitted cloud computing against on premise but there are plenty more advantages cloud vendors can offer a business. Small to medium businesses (SMBs) and in particular start-ups benefit massively from cloud – and in particular public cloud, which is cheaper and easier to use. Where it previously was hard for a business to afford infrastructure, pay per use models now mean that there are no massive start-up costs. Rightscale’s 2019 State of the Cloud report details that SMBs run 78% of workloads in the cloud; 43% of which is in public cloud (Flexera, 2019). This is due to smaller businesses desiring to reduce their capital expenditure (CAPEX), in exchange for operational expenditure (OPEX) over time. This allows new businesses to initially invest in other areas and grow (Fenton, 2017).

Within the business, cloud computing makes working remotely possible. SaaS applications make everything an employee needs to communicate and work accessible with an Internet connection. Teams working with data on a public cloud can collaborate from multiple locations and move projects forward (Leading Edge Tech, n.d).

The goal of every business is to grow. A good business needs the ability to facilitate growth. Cloud computing offers a scalability and performance increase (equating to future proofing) which cannot be compared to any other traditional method of computing. Further to this, is the evolution of cloud. It has become much easier through developing technologies such as containers, container orchestration and even ‘serverless’ applications, to instantly provision resources and scale up compute power (Dua, 2014). The continued modernization of cloud means businesses which adopt cloud will stay ahead of the pack and be ready for changes in the cloud industry.

Future

While cloud has advanced greatly over the past few decades, investment in the area has not ceased. Forbes report that Amazon, the most popular cloud service provider, are the largest investors in the future, spending $22.6B on research and development (Loeb, 2018). According to telecoms.com, Google announced last year that they would be investing $13.0B into cloud computing across 2019 – in the shape of thousands of new employees, 9 offices and 6 data centers (Davies, 2019). This massive focus on investment into future technologies is demonstrative of the competition that exists between top level cloud vendors.

This is great news for businesses wanting to move more of their workload into the cloud – as competition rises, prices inevitably fall– making it easier for businesses to make their first investments into cloud. Secondly, increased competition between cloud vendors will drive up quality of service (QoS), meaning businesses will be getting more for less.

As the world populace grows, so too does Internet usage. The need for cloud computing in our future for interconnecting the world will only grow.

Cloud providers are continually evolving their services to make everything simpler and more cost effective for their customers. Developers’ lives are being made easier through new function as a service (FaaS) services available. Developers can define their application through only a set of service functions, relieving them of infrastructure management tasks, which are executed automatically by the platform (Kuhlenkamp, 2019). This will free up developers even further than PaaS solutions could do in the past, as they have absolutely no need to worry about servers and infrastructure – this is handled by the cloud provider entirely. This is perhaps the most abstracted version of cloud computing available on the market today. AWS once again are at the fore of this movement with their AWS Lambda solution.

Some of the hottest technologies on the market fall into hyped buzzwords such as Internet of things (IoT), artificial intelligence (AI) and big data. These are technologies of the future, and studies have indicated that cloud computing will be vital to advance our future, hand in hand with these new, developing technologies.

World population growth is a particularly succinct challenge for healthcare as they manage the records of swelling numbers of patients. The proper application of big data is vital - the ability to store large amounts of data in private clouds will allow electronic records to be kept safely with patient health records and monitoring of patient care will be made possible (Rajabion, 2019). This application of big data relates directly to business too, as business needs with large datasets can now be met entirely by serverless applications operating on FaaS (Kuhlenkamp, 2019).

In the future, we hope to have sustainable ‘smart cities’. Obtaining value from data is the goal for businesses and is transferrable when we look at developing smart cities. Those building smart cities want to learn a lot about how to city uses transport, its infrastructure, it’s people and more. This means harvesting a lot of data – and in turn storing and processing this data (Kang, 2019). Undoubtedly, cloud service providers will adapt to provide solutions which can manage and process this level of data to help lead us into the future.

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The Strategic Importance of Cloud Computing in Business Organizations. (2022, October 28). Edubirdie. Retrieved June 17, 2024, from https://edubirdie.com/examples/the-strategic-importance-of-cloud-computing-in-business-organizations/
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The Strategic Importance of Cloud Computing in Business Organizations. [online]. Available at: <https://edubirdie.com/examples/the-strategic-importance-of-cloud-computing-in-business-organizations/> [Accessed 17 Jun. 2024].
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