Gartner defines Cloud Computing as “A style of computing where scalable and elastic IT-enabled capabilities are delivered as a service to customers using Internet technologies.”
It is essentially a pool of storage, network and computing resources deployed in a dynamically scalable manner as a shared pool of resources that different parts of the organization use on need basis and then free up for use by others when not required, in case of an Enterprise cloud. In a Public cloud, the resources are available to multiple entities across the planet in a controlled access manner, on a pay-per-use basis. It is essentially like using a freight liner to transport your goods when required as against buying your own ship.
With the shared services concept, utilization of the pool of resources goes up, thereby driving down per-use cost drastically.
Why should anyone consider leveraging the Cloud?
The way organizations work today, IT assets are spread across the organization, owned by different divisions and business units and grossly underutilized. Most enterprises typically use just around 40-50% of the potential storage, network and computing capacity deployed across the organization in a discreet, disconnected manner. Cloud computing connects these resources into a common, sharable pool leading to the following key benefits:
• Elasticity / Dynamic Scalability:
Just like a rubber-band, that can be stretched as much & when required and post use can return to its original steady state, Cloud offers dynamic upward and downward scalability where additional capacity can be added ON DEMAND in a matter of minutes or even seconds, at times even transparent to the users. Scale down can also happen equally fast when the need for excess capacity does not exist anymore. This is very useful for known cyclical spikes and also unknown volume spikes in activity. A good example is an online retail store that has a huge cyclical / seasonal volume spike around say Christmas where the retailer would have to provision infrastructure to handle volumes as high as twice or thrice of the usual steady-state volume. If the infrastructure is unable to scale up when required, the site would crash and there would be a huge opportunity loss. If the retailer prepares for the spike and provisions for the peak infrastructure all year round, it is a waste of investment for the rest of the year. It is much easier to provision for the additional infrastructure through Cloud service providers, for only the specific time of the year. The provisioning is dynamic in a matter of seconds or minutes as against waiting for weeks to install an additional server. Another example could be that of a portal of an anti-virus software vendor that faces the peril of sudden, unpredictable rise in traffic on a virus outbreak, or an online stock trading portal that may face sudden spikes in volume on major positive or negative news.
• Conversion of IT CAPEX to IT OPEX:
The cloud offers an effective way of converting IT CAPEX (capital expenditure) to OPEX (operational expenditure) with a pay-on-use pricing model. It negates the need for forecast-based sunk investments in IT infrastructure too.
• Speed of Provisioning:
IT managers can provision for a specific development or testing environment within minutes if not hours instead of the weeks that are required in the offline world. With the scalability being dynamic and various pricing models available, Cloud offers a speedy way of provisioning IT resources. Cloud also helps reduce time for application roll-outs and upgrades for months and quarters to a matter of hours.
• Disaster Recovery & Business Continuity:
With shared IT infrastructure, often physically located over a wide geography and with provision for dynamic mirroring, the Cloud can provide a virtually infallible IT infrastructure.
• Cost Effectiveness:
Especially in case of enterprise Clouds, underutilized infrastructure can be used much more effectively in a shared manner. For public and hybrid Clouds too, the long-term cost of pay-per-use is much lower than the long-term cost of ownership due to high utilization. Maintenance and upgrade costs are reduced to almost negligible levels through SaaS and virtualized infrastructure.
Challenges & Concerns With Cloud
Now that we have looked at the silver lining of the Cloud, let us also look at the dark side, as lightning bolts usually come from there and could have lethal consequences. Despite its obvious (aren’t they very obvious now?) advantages, there are certain challenges and concerns too.
Security:
There is always a security threat in using shared resources. However this can be addressed with enterprise Cloud with a thick and smart security layer around the infrastructure and putting together specific identity and access management policies and procedures to minimize the risk. In case of public Cloud, especially in B2B scenario, appropriate vendor evaluation and strict SLAs and damage clauses could protect your interests. Discretion MUST off course be used in deciding what goes on the public cloud. Risk can also be managed by using a selective Cloud migration strategy, instead of going all-out on the Cloud.
Regulations:
With Cloud, having a disaggregated mass of IT infrastructure and applications, often spread across geographies, there are concerns about where the data is being stored and regulations in some geographies may prohibit certain kind of data to be sent out to less secure locations. There is often no way around regulations and hence these regulations could be used as one of the guiding principles in deciding what goes on the Cloud and what does not.
Licensing Issues:
Not all software vendors are yet offering SaaS or Cloud licenses for their products. This becomes a challenge when creating a Private Cloud within the enterprise where one of the features will be “apps on taps”. Decision to enable SaaS on enterprise Cloud ought to be made after discussing these issues with the relevant vendors and arriving at some mutually agreeable solution.
Bandwidth Costs:
Operating a Cloud enabled environment requires HUGE bandwidth availability with suitable redundancies to avoid crash of business operations in case of connectivity outage. Some calculations ought to be made to check the potential increase in bandwidth cost against the expected benefits accruing from Cloud.
Multi-vendor Management:
Most organizations would struggle to find a single Cloud provider that can address all its requirements. This means signing up with different vendors and managing the multiple relationships, which often has the potential to sap the management bandwidth significantly. There is also the concern around interoperability of offerings of different vendors. This risk can be mitigated through systematic vendor evaluation and selection and with well drafted SLAs.
There may be some more challenges and concerns potential buyers and actual users of Cloud may be facing, but the above are the most common. Most of these can be addressed with a little discretion and proper planning.
Payables Processing On The Cloud
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Most enterprises have a large number of suppliers spread across multiple locations, often even across continents. The procurement teams are also spread-out and it is an administrative nightmare for the corporate finance professionals to be able to manage the payments to these multitudes of suppliers. This often leads to errors in processing, delays, missed early payment discounts, large delayed payment penalties, double payments and a significant overhead cost of managing this complexity.
There is the additional complexity and cost of managing a multitude of applications to track and process payments and reporting formats spread across different parts of the enterprise. There is also a significant manual effort affecting speed and accuracy of information processing.
Cloud computing offers a credible means of managing payables processing in a very simplified manner. A payables processing portal on the Cloud can automate processing of bills / invoices across locations in a centralized manner. It is possible to upload purchase orders, goods receipt notes, bills/invoices and payment information on the Cloud-hosted portal. The applications on the Cloud could then perform a three-way verification, capture and process information from the scanned document images and create a payment dashboard showing savings potential through early payments, penalties and an optimized payables schedule. A more intelligent program can also enable automatic electronic funds transfers on authorization by a nominated decision maker. A very small team can thus manage the global payables function in a centralized and automated manner, leveraging the Cloud.
Besides lower transaction costs and faster processing at higher accuracy, leveraging the Cloud also reduces the overhead costs of a large accounts payables team spread across locations and application maintenance and upgrade costs of all the diverse portfolio of applications used across locations.
Information security concerns can be suitably addressed through contractual deterrents and security audits by 3rd party.
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Conclusion
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Like any new technology or concept, Cloud computing too has its enthusiasts and naysayers. However it is obvious that Cloud is emerging as the new industry standard for organizations globally due to the obvious benefits it offers. As providers and buyers mature and as the hype settles, Cloud computing is gradually becoming just another way of using IT resources in a shared manner. Low-risk functions that can give better RoI, like accounts payables can be among the first to benefit from the Cloud.
