Cloud Computing as an Enterprise Application Service
Reordering the economics of software, cloud computing is alleviating many of the capital expenses (CAPEX), inflexibility of previous-generation software platforms, and inability of on-premise applications to be customized on an ongoing basis to evolving customer needs. These are the three top factors of many that are driving the adoption of cloud computing technologies in enterprises today. Implicit in the entire series of critical success factors that are forcing the migration of on-premise to cloud computing platforms is the greater agility and speed the latter platform offers. Line-of-business executives today are increasingly defining the priorities of IT departments, often also defining budgeting cycles as well. Their primary concern is ability able to quickly get up and running on a new enterprise application, integrating its workflows into existing legacy and 3rd party systems, databases and applications, while also getting the performance gains of the new software (Bentley, 2008). Due to these factors cloud computing is evolving rapidly, changing the economics of enterprise software especially. Large-scale systems are most often purchased using Capital Expense (CAPEX) budgeting processes that often take several months ot over a year to complete. Often CAPEX-based spending on enterprise software also requires the board of directors for a company to authorize spending large amounts on new systems. The greatest cost benefit of cloud computing applications is that they don't require this level of funding approvals, as cloud-based applications are often expensed. The operating expense (OPEX)-based approach to buying that cloud computing applications in general and Software-as-a-Service (SaaS) specifically create due to their scalability and use models are leading to line-of-business managers paying for them out of their operating budgets, no longer going to the Chief Information Officer (CIO) for approvals (Aljabre, 2012). This has also completely changed the balance of power in how software is purchased and used in enterprises today as well. Throughout this analysis, these dynamics will be analyzed in the context of the strategic importance and objectives of cloud computing, while also reviewing the operations management concepts of cloud-based applications as well. This analysis concludes with a series of recommendations for improving cloud computing operations as well.
Strategic Importance and Objectives of Cloud Computing
Unifying legacy, 3rd party and enterprise-wide systems while at the same time significantly improving time-to-market of new product development strategies are two of the many strategic priorities that drive enterprises to adopt cloud computing platforms. The economics of this platform however are pervasive across all enterprise systems, with the most immediate impact being seen online-of-business applications that can be easily replicated onto a cloud computing platform. Due to cloud computing's economics favoring OPEX-based purchasing models where enterprises only pay for the computing power, processing and storage time needed, Customer Relationship Management (CRM), accounting, finance, Human Resource Management (HRM) and most recently Enterprise Resource Planning (ERP) systems are being migrated from costly in-premise-based licensing models to cloud-based pricing models that are more oriented towards OPEX-based pricing models (Dihal, Bouwman, de Reuver, Warnier, Carlsson, 2013). The strategic performance objectives of cloud computing include providing enterprises with greater cost efficiencies with regard to their use of computing systems (as they only pay for as much as they use on a cloud computing model) in addition to accelerating how quickly an organization can integrate legacy systems and accomplish their long-term strategies over time. These strategies include more efficiently orchestrating new product introductions, which are by definition highly integrative and synchronized in nature. Another aspect of the strategic importance of cloud computing includes transitioning IT infrastructure-centric assets to a more solution-centric role in the organization (Bowers, 2011). The migration of IT infrastructure-centric computing to solution-centric is also serving to re-order all of enterprise computing, with cloud computing being the most disruptive of catalysts forcing the redefinition of the enterprise software market. Figure 1, Heat Map Analysis of Cloud Computing Services Provider Levels illustrates this market dynamics shift.
Figure 1 also illustrates the technology structure of cloud computing with Cloud Services Enablement being at the foundation. This is also referred to as Infrastructure-as-a-Service (IaaS) and is the foundation of cloud computing platforms. The Mgmt. And Security Services shown with System Infrastructure Services, App. Infrastructure Services are the Platform-as-a-Service (PaaS) layers of the cloud computing architecture. The Software-as-a-Service (SaaS) level of the model is Application Services and Business & Information Services. Taken together the IaaS, PaaS and SaaS stacks combined create the cloud computing stack (Dihal, Bouwman, de Reuver, Warnier, Carlsson, 2013). Cost efficiencies are created...
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