Information Technology Capstone Project Part III: Cloud Computing, Virtualization and Industry Competitiveness

The executives of many organization are turning their attention to cloud computing and virtualization as a solution to a number of business problems and solution.  There has been research that shows that firms that use cloud computing are actually at a competitive advantage over firms that don't use this service (Von Solms & Viljoen, 2011).  However, for firms that are aware of these new technologies, but have yet to make the transition, there may be some additional questions that need to be answered.  The purpose of this paper is to address those questions.  It will also make the case that transitioning to cloud computing and virtualization are very good moves for any forward looking enterprise.  

As the board is well aware of these technologies, this paper will move on from providing any in depth overview of what these technologies do. It is enough to say that cloud computing is a model of computing which can provide an individual or an organization access to an information technology (IT) service over a network (Von Solms & Viljoen, 2011).  The service allows clients to use IT services without the usual concerns of how it is provided. It can also be defined more expansively as a service that provides network access on-demand to a shared pool of computing resources that are configurable by the user.  These resources include networks, servers, storage, and applications (Mell & Grance, 2009).  Moreover, these resources can be quickly accessed and used with little management effort or interaction with the service provider.  Virtualization involves the creation of a virtual machine that simulates hardware, an operating system, a storage device or network resources that are powerful enough to overcome the restraints. 

It should be noted that, board members have choices in the type of cloud computing services they can select from.  For instance, three different types of clouds can deployed depending on the organization's comfort with issues of security. The first, is a public cloud, which is managed by a third-party vendor and is available to all members of the public.  Organizations with proprietary information to store may chose not to use a public cloud service.  The second type of cloud  is a private cloud.  A private cloud is formed by only one participating organization and can be managed either on or off site either by a third party or the client.  This may provide a much higher level of security than a public cloud.  Similarly a number of firms may decide to join together to form a private community cloud with a closed membership.  The third type of cloud is a hybrid between the previous two types.  The hybrid cloud is formed when two or more clouds join together and are able to share data or applications.  Clearly the type of cloud is going to factor into whatever decision the board makes going forward.

First, cloud services do have their challenges and risks and it is important to be aware of them before a decision is made.  Often, when new technologies are attempted in business they end in failure because of inadequate preparation.  The major concerns of cloud computing relate to security, legal, privacy and compliance issues (Von Solms & Viljoen, 2011).  Fortunately, the Cloud Security Alliance (CSA) was formed to promote the use of best practices within the cloud computing industry.  The organization, which offers assurance of security within the cloud computing community, has indicated 13 areas of concern. These areas include many of interest to members of the board.  They include governance, risk management, legal and electronic discovery, compliance, audit, portability, and interoperability issues (Von Solms & Viljoen, 2011). 

Cloud technology has notable benefits for business.  According to a survey conducted by KPMG, the benefits firms can expect to accrue from cloud computing, include cost savings, improved flexibility and scalability.  Cloud computing is also environmentally friendly since it reduces the need for more hardware.  KPMG also found that firms experienced better functionality, improved security and technology from cloud computing services.

KPMG's survey also concludes that cloud computing is the future of business.  Their survey found that 58 percent of participating organizations are already using some features of cloud computing or have plans to shift to the cloud within a year.  There is a prevailing view that cloud computing is not hype and that it is the future of IT computing.  A number of major firms have entered into the field of cloud computing as service providers and are enjoying considerable profits.  These firms are among the most active: Amazon, Google, Microsoft, and Sun. As such, many of the firm's own competitors are likely using cloud computing services.  It behooves the board to seriously consider the place of this new technology in its own future business plans. 

Similarly, virtualization can provide both cost savings and improved efficiency.  Costs are reduced by the capacity of virtual machines (VM) to run a large number of workloads on fewer servers (Kotsovinos, 2011). This can free up servers to perform other tasks, reduce the need for additional servers and defer the need to build out data centers. Virtualization can also greatly improve the ability to manage the firm's enterprise infrastructure.  That is, virtual desktops and servers can now be migrated to new locations without the need for downtime, coordinating with hardware upgrades with users, and scheduling time periods for which to perform the migration.  Also, the high availability of VMs and the dynamic load-balancing solutions they provide allow monitoring and optimizing of the virtual environment with little need for user management (Kotsovinos, 2011).

Finally, virtualization provides cloud access on demand which is a great boost to productivity. Virtualization played a major role in getting a number of construction firms back online after Hurricane Sandy ravaged Lower Manhattan in 2012 (Joyce, Post, & Meisel, 2012).  Sandy made a number of office buildings in the area inaccessible.  The firms that got operations up running the fastest were the ones with established virtualization platforms.  They could migrate phone numbers and set up virtual workstations and satellite offices in other areas of the city and even outside the city.  In addition to improved productivity and flexibility, the use of both virtualization and cloud computing can also free up IT staff to work on business solutions, rather than IT related problems.  

Determine the possible reductions of human capital that can be realized from implementing cloud and virtualization technologies. Based on the available research it is difficult to provide an estimate on human capital reductions from these technologies.  Indeed the focus in the cloud computing and virtualization literature has been on cost savings.  But these savings are framed in terms of hardware and increased productivity of the labor force.  The benefits that these new technologies will provide is greater flexibility in a firm's work force.  This work force, both in IT and non-IT related occupations, can be freed up to work on problems and solutions more crucial to the business.

As noted above, virtualization and cloud computing can enable the quick set up of temporary satellite locations in the event of a disaster.  Staff who must remain at home during such events can also turn their own locations in virtual offices.  This means that great gains in productivity from existing work forces are very likely.  This might reduce the need to bring on additional staff  in the future. It should be noted this boost in productivity is also a competitive advantage over other firms that are not set up on the cloud. 

Conclusion

Cloud computing and virtualization both provide great competitive advantages and also reduce the firm's expenditures.  Expenditures in such areas as hardware and software can now be greatly scaled back.  Clients of cloud computing services only purchase for what it used and the purchased services can be implemented for little upfront cost to the buyers. 

It should be noted that cloud computing does come with operating expenses.  These expenses could be as much as or even greater than existing expenditures (Bloomberg Business, 2010).  How much these expenses could be or whether it is cost-effective for a firm to make the switch depends on certain factors.  When the capital expense is a small one, or the firm has more capital budget maneuverability than in its operational budget, the shift to cloud computing may not make good business sense (Bloomberg Business, 2010). 

Cloud computing is usually billed in two ways.  First, similar to a utility, the company is billed its usage. Second, billing can be on a renewable subscription basis as with a magazine.  Certain services do come with additional charges.  For instance, if the firm experiences high memory or high-CPU occurrences these may incur additional fees.  Other chargeable items include: storage, I/O requests, PUT and GET requests, IP addresses, and load balancing (Bloomberg Business, 2010).  

These additional charges accrue due to the nature of transitioning to the cloud. A considerable amount of the firm's IT infrastructure will need to be redone in order to make the transition.  Overtime however, firms will reach the "higher-value network strategies" that will add value to a business. But it should be borne in mind that there will be a cost at the start of the process (Bloomberg Business, 2010).  In figure 1 below is a diagram illustrating the affect on the business of shifts to the new technologies in before and after format.

References

Bloomberg Business. (2010). Internet and IT costs. The Controller's Report, pp. 8-9. Retrieved from Ioma.com/fin. 

Joyce, Erin, Post, N. M., & Meisel, L. (2012, Nov. 12). Virtualization, private cloud investments pay off for construction firms after Sandy. ENR Future Tech, pp. 42.

Kotsovinos, Evangelos. (2011, Jan.). Virtualization: Blessing or curse? Communications of the ACM, 54(1), 61-65.

Mell, P. & Grance, T. (2009). The NIST Definition of Cloud Computing. NIST. Retrieved from http://csrc.nist.gov/groups/SNS/cloud-computing. 

Von Solms, R., & Viljoen. M. (2011, Sept.). Cloud computing service value: A message to the board. South African Journal of Business Management, 43(4), 73-81.