Michael C. Pelletier, MBA, MSCS
Partner

Remember 1983?  The A-Team debuts, the final episode of M*A*S*H airs and Cabbage Patch Kids were in high demand.  Now imagine a similar situation today.  What if you needed to flex your IT infrastructure to meet a significant spike in demand?  You could do it with significant capital outlay, but what about when the fad fades?  In 1985 Coleco saw over $600 million in sales, but, by 1986, sales dropped to around $250 million.  You'd now be stuck with servers, software and staff that are being under- or un-utilized.

Manufacturers, Distributors and Retailers face a challenging business environment. Volatility in the markets, shifting and more selective customer demand, and uncertainty about the future are creating a climate of scarce capital and risk aversion. This is altering the investment and cost equation for many business owners and managers, driving a sharper focus on cost savings and a stronger requirement for immediate, measurable return from every investment.

By making targeted IT investments, these businesses can drive meaningful performance gains that can help increase competitiveness and save money. However, the costs of acquiring new IT solutions are under increased scrutiny. Managers are under more pressure than ever to justify expenditures, minimize risk and deliver faster returns on investment. Software as a service is an emerging delivery model that can help with these needs, and also offer pricing that brings advanced IT-enabled capabilities within reach of nearly any size business. Small and mid-sized companies stand to gain as they face smaller IT budgets, but still need to grow revenue while tightly managing expenses.

Cloud Computing

Software as a service (SaaS) is just one of many cloud-based services that have become more widespread in recent years.  Cloud computing generally falls into three categories:

  • Software as a Service (SaaS) – provides a full and complete software solution as a hosted service eliminating the need to have the software running on the premises of a given customer.  An example of this would be Microsoft CRM Online or Epicor Express, a full-fledged CRM and ERP platform respectively.
  • Platform as a Service (PaaS) – provides a computing platform upon which a custom solution can be built and deployed.  An example of this would be an organization developing a new website to sell product that leverages the ability of a cloud platform to dynamically add additional processing capabilities to handle customer demand over time.
  • Infrastructure as a Service (IaaS) – provides the network hardware and software infrastructure for various core services.  An example might be a VPN service or IP telephones.

How can cloud-computing approaches help enhance competitiveness?  The software as a service approach has been popular with many organizations because it removes many of the IT management burdens associated with physical hardware and software.  Because there aren't any physical servers that need to be purchased, configured or managed, it makes it easy to add additional users as the business grows and greatly reduces the amount of IT support required from the business to keep things up and running.

Let’s think back to the Cabbage Patch Kids example.  Let’s say you were a retailer selling through an online website hosted in your on-premise data center.  The number of transactions/day initially might have been small enough that you could handle the load on two or three web servers.  With the significant increase in demand you would have to purchase additional servers, software and networking equipment.  You might need to hire additional staff and, depending on the situation, perhaps even build a new data center.  However, if your situation were anything like that of Coleco, you’d end up with a ton of excess capacity sitting idle just a couple of years later. 

Cloud computing offers a solution in this situation.  Many PaaS solutions provide a flexible computing model such that additional processing can be increase 5, 10 or even 50 fold with nothing more than a simply configuration change.  These services are charged through a usage-based model so that you only pay for what you use.

While this is one example, there are many other examples in which the benefits of cloud computing are apparent.  Another scenario is providing common business productivity services through a cloud-based solution.  Here are a few examples of this in action:

  1. Give your employees the tools to be more productive.
  2. SaaS solutions provide the latest tools with a predictable monthly cost without the cost and pain of traditional upgrade processes.
  3. Focus limited IT resources on strategic business improvement.
  4. Email, document management and communication solutions, while critical to a business, shouldn’t be the focus of an IT staff.  Innovating and increasing competitiveness should be the focus of an IT organization.
  5. Ensure your business is secure and running.
  6. Most small and mid-sized businesses can’t afford the cost of implementing a reliable, secure and fault-tolerant solution for these core business systems.  SaaS solutions provide this as part of the monthly fee.

Whether it's email and instant messaging, a full scale ERP or a flexible computing platform, the capabilities offered by some of the SaaS and PaaS vendors today are quite compelling both from a feature standpoint as well a financial one.  It is important to assess the viability of these services within the context of both financial and operational/technical benefits for your specific organization.  Through a cloud-computing assessment, your organization can better understand the pros and cons of cloud-computing approach and how to evaluate the fit of making the move.

Cloud-based services are here, but is your organization ready for them?

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