Cloud computing has been hailed as the answer to a company’s ICT needs. In brief, the financial benefits are:
- Reduced cost of infrastructure, and
- reduced labour.
Fulfilling The Dream
At first glance this is brilliant. By taking advantage of someone else’s expertise and economies of scale a company has the ability to reduce their infrastructure costs significantly. Not only do they pay less for the same equipment, they pay less for maintenance and also regain valuable office space. Now, potentially, a firm can actually capitalise on the age-old promise of ICT by not only substituting technology for labour but actually reducing both.
So What Is The Problem?
The problem is that cloud services can require higher integration costs and longer setup times between transactions. Although the answer is better data integration between applications to improve workflow, I don’t see open source code changing this situation any time soon. Firms will still need programmers or technical integration specialists to assist. One only need look at the plethora of Microsoft specialists to see that integration is a bourgeoning cloud industry.
SaaS is rigid by its very nature. For reduced cost it offers certain parameters on integration. ERP solutions where integration costs can be astronomical are a testament to this. The increased costs don’t just stop with integration, however. Transactional costs (which cannot be attributed to the cost of good sold) also increase as setup times between workflow tasks rise. The management burden is also greater as additional decision making is required to make sense of isolated data (this may come in the form of downstream consulting or upstream meetings etc). Companies which are unable to take advantage of service/platform/infra outsourcing will notice an overall increase in both their overhead costs and total employment of information workers. This will not happen in the ICT cost centre where the costs will largely decline. However, it is likely that ICT will largely pass on a greater and more expensive problem to the business.
The solution is not greater vertical integration of shared services. It may reduce the overhead in the short term but in the long term the increase in the cost of goods sold will price products out of the market. One part of the solution is a greater focus on data for decision making through the expert use of case workers (information workers covering multiple transactions).
A key factor is that along with outsourcing our platforms we also outsource our decision making/support. Don’t forget to retain the information management function and your company won’t succumb to the siren song of cloud applications.