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The value of cloud computing: CIOs discuss expectations and payoffs

CIOs are cautiously deciphering the value of cloud computing, and finding that their expectations don't always match the payoff. Yet the service delivery model is gaining traction.

Ask CIOs what they expect from a hosting company or an outsourcer, and they rattle off a list of capabilities and terms, right down to clauses in the partner contract. Ask what they hope to gain from a cloud services provider -- what the true value of cloud computing is -- and they hesitate.

It's not that CIOs don't understand the technology behind the concept, it's that the concept itself means different things to different CIOs and depends on their industry, company size, economic situation, business needs and IT infrastructure -- to name just a few factors. Then comes the list of unanswered questions and uncertainties surrounding data privacy and security, application and network performance, bottom-line costs vs. an in-house deployment, existing infrastructure investments, and service-level agreements (SLAs).

As with any new release, CIOs are waiting for the bugs to shake out -- and doubts surrounding security and costs are some big bugs.

Rich Adduci, CIO of $8 billion medical device maker Boston Scientific Corp. in Natick, Mass., said he thought email would be a simple first foray into cloud computing, but found that it was a no-go from a privacy and security perspective.

"I thought it would be a low-hanging fruit that we could put out in the cloud, but we are just so heavily regulated that it wasn't possible," Adduci said.

Jay Kenney, CIO of Lincoln Property Co., a large U.S. residential property management and development company, no longer has a data center, having outsourced his mission-critical applications -- ERP, customer portal for payments and service inquiries, and email -- to a mix of Software-as-a-Service and cloud providers. The Dallas-based company's conversion (with the help of systems integrator Cloud Sherpas LLC) from an in-house Novell GroupWise email system to Google Apps is expected to save the company about $200,000 a year.

Kenney, however, doesn't think his company's approach will be emulated by a lot of other enterprises, he said. "Many companies have big data centers that I don't see them moving," he said. "Financially, it's less compelling if you're already running a data center and could stand up another application without increasing costs internally in terms of space, power and personnel in your own data center. [On the other hand,] we were renting space at a data center in Dallas, and all that was left that was considered mission-critical in there was email, so we could shut it down," he added.

Kenney said he's even considering bringing his data backup services, which a third-party provider handles, back in-house because the service costs continue to rise. "I keep waiting for someone with scale to offer a less expensive service, but it hasn't happened yet and I'm running out of time [from a cost perspective]."

Value of outsourcing vs. value of cloud computing

Amtrak CIO Ed Trainor sees the value of cloud computing for extra capacity, although like many CIOs, he isn't calling it a cloud computing relationship.

"Our outsourcing agreement is structured in a way that I can ramp up our capacity for computing and storage by paying an additional, prenegotiated price," Trainor said. "If we want to call that cloud computing, I suppose we could, but it's a very mundane version of it."

As for mission-critical systems, such as enterprise resource planning (ERP) or SAP, or Amtrak's reservations system, "it is really unique," Trainor said. "It's not a generic thing where we can go out and buy it over the Web from other people."

Trainor still views cloud computing, or "IT as a Utility," as potentially transformational to IT and the business, and doesn't see it going away anytime soon, he said. "But I have seen so many of these things oversold. We move in [those kinds of] directions, but we don't leap. Maybe I'm a dinosaur."

Or maybe Trainor is a CIO who has a long history of seeing how trends shake out. While he was senior vice president and CIO of Paramount Pictures Corp., film companies used to outsource their global distribution. As it became clear that this segment was increasingly a profit source, however, the film studios brought the function back in-house because it was a competitive advantage.

Trainor said he believes the same will hold true with cloud computing: The areas of IT that can confer competitive advantage on a company will not be hosted with cloud providers that, at least at this juncture, can't give companies the kind of SLAs and perhaps the confidentiality necessary to protect intellectual property, he said.

What CIOs hope to gain

Erik Dubovik, vice president of information technology at private equity firm Audax Group LP in Boston, is seeking a business partner.

My only issue with cloud computing is that I can't do it fast enough. I would like to never have another asset in our organization that carries depreciation.

Denis Edwards, senior vice president and global CIO at Manpower Inc.

While he was vice president of IT strategy at Digitas Inc., an advertising agency bought by Paris-based Publicis Groupe SA in 2006 for $1.3 billion, Dubovik outsourced the company's resource, staffing and project management business processes to OpenAir Inc., now owned by Net-Suite Inc.

At first, Dubovik's motivation was to shed the burden of managing a mishmash of off-the-shelf and open source platforms supporting those applications. But what sold him and the business on cloud computing was the business process expertise gained from the relationship with his oursourcer.

"[OpenAir] truly became a partner -- we could leverage their expertise, which was based on best practices gathered from their network of customers, and use them to improve our business processes," Dubovik said.

What Dubovik was buying wasn't a technology or infrastructure, but resources his company could use to solve business problems, he said.

The speed of change

For Denis Edwards, senior vice president and global CIO at Manpower Inc., a Milwaukee-based staffing company with 400,000 clients in 82 countries, the value of cloud computing is the opportunity it offers to improve IT's ability to accommodate business needs faster.

"My only issue [with cloud computing] is that I can't do it fast enough," Edwards said during a presentation at the Fusion 2010 CEO-CIO Symposium in Madison, Wis. "I would like to never have another asset in our organization that carries depreciation. I would like to find a way to be as flexible as I can for the business. I do not ever want to have to say no to the business to a viable opportunity.

The caveat? One of the challenges preventing the company from a swift adoption of cloud services is that it's locked into assets that can't be disposed of right away.

And urged by federal government CIO Vivek Kundra to save money and go green, many public-sector CIOs are developing cloud services for other agencies and the public, or are in talks to develop private clouds:

  • The Ames Research Center introduced the Nebula cloud computing platform, an open source self-service platform that will support Mission Control and act as an information portal for the public.
  • The National Business Center developed its own set of cloud computing services, the NBC Cloud, for the 150 government agencies it serves, which can have their applications hosted on NBC's mainframe or x86 servers. The NBC Cloud already includes hosted collaboration, issue and bug tracking tools, and blogging applications. Upcoming offerings will include a software development tool environment, customer portal and file storage
  • Bill Oates, CIO of the city of Boston, said he's talking to "like-minded cities" about ways to develop and share applications in the cloud. "Think of applications like 311 [Citizen Connect] available on the iPhone, and how we could work with other cities to develop such applications and share services, and not have to build out [our own] systems and infrastructure for those applications," he said.

Many CIOs' cloud plans are still in the works, however, and in turn, their hopes for cloud computing have yet to be realized, or their misgivings assuaged. As Rich Secor, CIO of Health Advances LLC in Weston, Mass., said so succinctly, consider this version 1.0: "The biggest challenges to using cloud services now are questions about performance, security and price."

Let us know what you think about the story; email Christina Torode, News Director or Linda Tucci, Senior News Writer.

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