How Cloud Technology Gives Mid-Size Firms a Competitive Edge

Leveling the Playing Field
How Cloud Technology Gives Mid-Size Firms a Competitive Edge
Co-Authored By: Melissa Andrews, Robert Costello, Javier Dela Cruz, Susan Foley and David Sperry
March 26, 2013

Leveling the Playing Field: How Cloud Technology Gives Mid-Size Firms a Competitive Edge
Introduction
In 2001 the industry leader in customer relationship management (CRM) software was Siebel
Systems generating more than $1 billion in revenue. In a Fortune magazine interview that same
year Thomas Siebel, Siebel Systems founder and CEO, was asked about a new company and
stated “There is no way that company exists in a year” (6). That company was Salesforce.com.
Four years later Siebel Systems was out of business. Today Salesforce.com is the industry leader
in cloud CRM software applications with more than $2 billion in sales.
With companies like Salesforce.com, Google, Microsoft, Amazon, SAP and hundreds of others
like it, the cloud has transformed the way companies address their IT strategy regardless of
company size. In a November 2012 CDW “State of the Cloud” survey 21% of both small
business and mid-market companies responded they used cloud offerings in 2011. In 2012 that
number jumped to 42% and 40% respectively. By 2016, 38% of the entire IT budget is expected
to be comprised of investments in cloud computing (2). Clearly mid-markets are choosing to
leverage the cloud as a means to accomplish strategic initiatives and fuel growth.
Mid-size organizations focused on growth face unique challenges in comparison to their small
business and enterprise level counterparts. Like small businesses, mid-markets must innovate
rapidly with limited resources in order to compete with enterprise level players. However, in
order to maintain existing market share, mid-market companies must also work within the
confines of their established business practices as the firm grows. According to findings from
the GE Capital 2011 National Middle Market Summit, mid-market executives believe that in
addition to the primary objective of attracting new customers, the key elements to achieving
continued growth are increasing operational efficiency, managing external pressures and
regulations and investing in innovation (14). These fundamental goals align with the primary
drivers of cloud adoption as cited by CIO’s and business executives. In a 2012 Dimensional
Research survey the most compelling reasons for CIO’s to adopt cloud technologies include the
value of cloud technology, compliance concerns and the ability to be competitive (4). Therefore,
the correlated benefits of recaptured costs, enhanced security and increased agility offered by
cloud technology do in fact level the playing field and give a competitive advantage to mid-
markets players.
Recaptured Costs
Forbes.com recently posted that the primary strategic CIO initiative for 2013 must be to simplify
IT and kick the 80/20 budget habit. According to the article most companies dedicate up to 80%
of their IT budgets maintaining their current infrastructure and only 20% to funding innovation.
Forbes suggests that it should be the initiative of every successful CIO to recapture at least 5% of
these operational costs and reallocate them in pursuit of “snazzier and unquestionably vital new
initiatives” (5). This mindset is also in line with two primary growth initiatives cited by mid-
market executives; investing in innovation and increasing operational efficiency (14).
Fortunately for mid-market firms cloud technology offers clear opportunities to meet both of
these objectives. By utilizing cloud technology mid-market companies can recapture costs by
harnessing scalability, eliminating legacy and solidifying business continuity.
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In a traditional IT infrastructure the implementation a new system or service usually requires the
purchase of new hardware. Since this purchase is often considered a long-term capital
investment the infrastructure is typically sized so that a company will not immediately grow out
of it. The effect of this method is that the company buys equipment that will not always be used
at full capacity. On the contrary, cloud solutions such as Infrastructure as a Service (IaaS) allow
companies to consume or pay only for the resources currently being used. As infrastructure
needs expand, the cloud solution can be seamlessly scaled without a major upfront investment or
complete overhaul of equipment. Such scalability facilitates flexible growth, eliminates
investment restrictions and frees up funds for other initiatives of growing mid-market firms.
Figure 1: Shows how scalable cloud computing can be. A mid-size company can start with a very small virtual
machine, storage, bandwidth and database for resources. When more resources are needed you can increase
resources by moving the slider to the right. As an example, Microsoft cloud computing can provide a broad range of
infrastructure needs; such as those required for a personal webpage to those required to run a multi-national
company. This flexibility is vital for mid-size companies poised for future growth. (17)
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Similar to IaaS cloud offerings, Software as a Service (SaaS) solutions provide mid-market firms
with an equitable opportunity to replace the aging legacy or cumbersome manual systems they
have grown with. Regardless of whether a company is using a manual or an automated legacy
application, the most obvious reasons for cloud migration are to reduce system costs and cash in
on productivity gains. According to a research study referenced in the article “Evidence of
Cloud Development Saving Development Time”, 65% of the cost of an application’s lifecycle
can be tied to maintenance due to a significant number of failures that are hard to locate because
of overly complex processes (7). One specific burden is that many legacy systems are often built
via legacy computer languages which add to the complexity of troubleshooting issues. Given the
complexity, firms may have trouble sourcing the technical skillsets needed to support the legacy
system and therefore be forced to pay high consultant fees. Additionally, self-hosted systems
require an internal IT team to provide technical support and maintain patches and upgrades. All
of these secondary costs can be eliminated with a SaaS solution. By their nature SaaS solutions
are actively maintained and improved by the cloud vendor on a routine basis without any
interruption to service. Lastly and possibly most important, mid-markets companies that choose
to invest in new SaaS solutions will have an opportunity to streamline existing processes and free
employees to refocus their efforts onto more value added activities. Achieving such productivity
gains and operational efficiencies are paramount to mid-market growth.
Another major benefit of cloud solutions that is not often thought of in terms of cost reduction is
guaranteed business continuity. According to the article titled “2013 CIO Strategy Guide: Top 5
Strategic Issues” Ponemon Institute calculated that the average cost per minute of a system
outage can exceed $5,000. The article also states that research by Gartner found that businesses
can experience up to 87 hours of outages on average (1). Clearly, these potential losses would be
a significant hit to a growing mid-market company. Likewise, an inability to consistently
produce quality products could cause customers and investors to question a firm’s reliability.
Although cloud providers are not impervious to outages and downtime, it is their absolute goal
that such incidents be minimized. Internal IT departments typically have backup plans in place
for times of disaster or data loss. But true business continuity plans consisting of redundant
power, redundant internet connectivity and virtual appliances on stand-by for failover are often
not in place due to costs and complexity. Cloud providers utilize these mechanisms and others to
guarantee system redundancy and they routinely test the effectiveness of their continuity plans.
Additionally, mid-market companies have the benefit of developing a well-structured Service
Level Agreement (SLA) with their cloud vendor that stipulates specific reimbursement rates for
unplanned outages. Given the scope of inherent risks that a technical outage poses to
maintaining normal business operations and the restrictive costs required to facilitate true
redundancy, a move to the cloud provides an advantageous opportunity to mid-market firms.
The cost benefits of cloud adoption achieved via harnessing scalability, eliminating legacy and
solidifying business continuity are squarely aligned with the underlying growth initiatives of
innovation and operational efficiency. Cloud providers offer right-sized yet scalable solutions
with modular cost structures allowing mid-markets to expand business operations without huge
capital investments. Cloud solutions minimize the operating expenses required to maintain and
house legacy applications and provide an opportunity to further streamline business processes.
Solidifying business continuity plans minimizes the costly risk of data loss and technical outages.
Given these factors, forward-thinking mid-market leaders that incorporate cloud technologies as
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a means to recapture and better allocate costs will be the leaders achieving success.
Enhanced Security
A primary concern that businesses raise when considering a move to the cloud is security. There
is a perceived fear that the cloud is less secure than on-site storage since control over data is
being relinquished. Companies have great reason to be concerned with the integrity of their data.
Federal standards and recent breach notification rulings have put emphasis on maintaining
appropriate security measures to protect information as well as requirements for strict action
plans in the event that a breach does occur. Failure to comply with these requirements can result
in lofty fines in addition to a blow to the company’s reputation. Yet, adhering to these
increasingly complex and strict regulations is becoming a serious resource hog in terms of both
technical expertise and budget. This is why cloud providers are the best option for mid-size
companies in terms of enhanced security. With an unsurpassable investment in resources,
efficient adaptability to change and a core focus on maintaining security cloud providers pass on
the benefit of equitable yet improved protection to mid-size organizations.
In terms of resources mid-size firms can’t afford to invest in the same state of the art security
systems and high level of staff expertise the way cloud vendors can. In a recent debate, Shel
Waggener, Sr. Vice President at Internet2, stated “the cloud represents a $250 billion market.
$250 billion in investment means an investment in security that will eclipse anything, any one
individual or institution or state can accomplish on its own” (16). Given this magnitude, it’s easy
to see that cloud providers are able to invest in the best of the best. Likewise, cloud vendors hire
specialized staff to concentrate on specific security concerns. These are cream of the crop
experts focused solely on minimizing threats to customer data. Smaller organizations with tight
budgets and varied business needs require their technical staff to cover and support many
different realms (11). Therefore, moving to the cloud allows mid-sized businesses access to a
superior level of security expertise without the superior expense.
Another security advantage the cloud offers is efficiency in regards to regulatory adaptation and
best practice adoption. Cloud service providers keep up with the ever-changing regulatory
requirements and the latest security upgrades in a way that most mid-sized companies cannot.
First, as security demands change, mid-size firms must continue to spend their limited funds on
capital investments in security. At some point, mid-size firms may choose that such investments
are not advantageous for the company and make-do with aging technology. For a cloud provider,
investing in the latest security offerings is not optional. Secondly, enhanced products are
implemented by cloud companies long before a mid-sized company has time to thoroughly
assess and plan for them; and with little or no service interruption. Consequently, the
fundamental design of the cloud solution makes adoption of security measures more efficient
(11).
Lastly, there is the fundamental business aspect of security for cloud providers. Providing a
secure cloud solution is the core focus of every cloud provider. Cloud providers need to
distinguish their service from other providers and offering clients top rate security is the way to
do it (11). Cloud service providers take security measures seriously and any provider who
doesn’t simply won’t last. With this in mind, many cloud service providers have achieved high
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levels of third party security certifications and validations. Serious cloud contenders are not just
claiming to be secure; they are backing it up with external resources (11). Some industry
security standards and certification requirements include: ISO/IEC 27001 certification,
Registration with CSA STAR (Cloud Security Alliance’s Security, Trust, & Assurance registry)
and the Cloud Control Matrix (CCM) (9). Additionally, cloud providers often serve as advisors
to the government agencies dictating the regulatory requirements mid-market companies face.
Mid-market companies simply can’t maintain the same vested interest in security as cloud
providers.
The misnomer that a cloud solution equates to an insecure solution is evaporating and statistics
prove it. According to a 2010 survey by Mimecast, 57 percent of respondents agree stating that
cloud computing actually improved their security (10). Clearly by leveraging the advantages
held by a cloud provider; those being expansive resources, efficient adaptation methods and a
core focus on security, mid-size businesses can enhance their security. To the contrary, mid-
market firms that remain adamant about sustaining adequate security measures in-house will find
their competitive stance erode as technical resources and budgets are diverted from supporting
true strategic objectives.
Increased Agility
Mid-sized businesses that successfully coordinate their information technology and operate with
agility possess a competitive edge. To maintain that competitive edge businesses have begun to
leverage cloud computing as a means to acquire increased agility. In the European Business
Review online, Michael Hugos, Principal at Center for Systems Innovation, makes several points
that frame the use of cloud computing in his article, “Agility and Cloud Computing”.
Agility and Cloud Computing:
1. “Success will go to those companies that combine business agility and cloud computing to
continuously explore new opportunities. Attempts to pick winning opportunities by doing
lengthy analysis do not work in our unpredictable real-time economy.”
2. “The agility benefits of cloud computing far outweigh the purely cost saving benefits. It
enhances a company’s ability to bring new products to market and improves its capability to
expand geographically and open new offices.”
3. “Using cloud technology to enable new business formation and new product development
creates what could be called multinational small and medium businesses (SMBs). With cloud-
based technology SMBs can now be truly global where 10 years ago they could not afford the
ICT (Information and Communication Technology) infrastructure to support global operations in
an integrated fashion. For instance, such businesses can open new sales offices in countries
around the world and conduct local sales campaigns in a way unthinkable before. Opening new
country sales offices simply means paying for more people to use a cloud-based CRM package
and a cloud-based teleconferencing system.” (8)
To summarize Hugos’ point, the agility acquired through cloud technology allows mid-size firms
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to bring revolutionary products to market and develop new sales channels. The agile benefits of
rapid implementations, unrestricted mobility and leveraged social engagement competitively aid
mid-markets in achieving their primary growth initiative of attracting new customers.
A multitude of service models are offered by cloud providers including Software as a Service
(SaaS), Network as a Service (NaaS), Platform as a Service (PaaS), and Infrastructure as a
Service (IaaS). The intrinsic scalability and modularity available within these solutions allows
firms to rapidly deploy new products and new infrastructures. According to a recent article
posted by Cloud Computing Journal titled “Agile Cloud, Big Data and Mobility” cloud
computing has significantly reduced application deployment times and allowed firms to test out
new ideas without significant infrastructure investment (3). For example, mid-size firms can
immediately spin up virtual testing platforms that mirror productions systems. This allows firms
to test product innovations faster and with limited financial risk. Similarly, cloud computing
solutions, such as virtual desktop infrastructure, allow mid-markets to rapidly deploy sub-
networks and globally expand its operational reach in an instant. By employing cloud
technology, mid-markets garner a clear competitive advantage in terms of product and market
development.
As true with scalability, growth-focused organizations can profit from the undeniable value
gained by increasing workforce mobility. An unrestricted mobile infrastructure provides
anytime-anywhere access to systems and supports instant workforce collaboration. In addition to
these productivity gains as Beecher Tuttle explains in his blog article titled “Leveraging the
Power of the Cloud to Deliver Teleworking, Social Networking Services” recent advances in
mobility offerings now allow firms to develop complete, holistic teleworking models. By
instituting such models, mid-market firms can not only utilize a global workforce but
simultaneously improve employee morale (15).
Figure 2: The diagram above details the critical elements within a mobile cloud solution which increases agility: “A
robust service platform enables the needed capabilities of a mobile enterprise platform.” (12)
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As depicted in Figure 2 a secure and stable mobility infrastructure includes virtualized
applications, identity and device management and centralized data storage. To implement and
maintain these systems in-house would restrict the technical resources and budget of mid-market
firms. However as discussed by CEO of Tellago, Jesus Rodriguez, in his SYS-CON Cloud
Computing Journal online article titled, “Using the Cloud to Enable Next-Generation Enterprise
Mobility Solutions”, “Cloud computing infrastructures offer a unique opportunity to enable a
simpler, better and more agile approach to enterprise mobility. In addition to its numerous
technical benefits, a cloud-based model to enterprise mobility can leverage the economics of
scale that, at the end, have made cloud computing the most important technology movement of a
generation” (12). Like the benefits of SaaS and other subsets of cloud technologies, utilizing
cloud based mobility solutions gives mid-markets scalable access to cutting-edge technology
without administrative cost and burden.
As is the case with mobility, leading businesses have begun to harness the power of social clouds
as a means to understand their customers, improve products and expand their marketing reach.
Through social media sites such as Facebook, Twitter and LinkedIn mid-market companies can
spark customer engagement and strengthen their brand. Additionally, by analyzing the chatter
and analytics customers imprint on social networks mid-markets firms can cash in on customer-
driven product ideation and quickly bring winning products to market. As discussed in the
article “Leverage Social CRM, Billing To Better Engage And Understand Your Customers” yet
another wave of agile marketing strategy is upon us; the integration between customer
engagement and sales data. “The future for cloud, SaaS and social business models is focused
around the power of social CRM and billing data combined. It is not just about tweeting,
AdWords or liking a Facebook business page. Social CRM and billing involves building a
complete relationship model and holistic financial picture of the customer. Only then can a SaaS
business engage and respond to customers in valuable ways that impact the bottom line of the
organization and drives organizational valuation” (13). The article suggests that by fusing
financial, customer relationship and social analytic data companies will be able to instantly
predict customer needs and wants prior to their decision points. This level of targeting is
invaluable especially in the context of high value customers. For example, an auto dealer with a
Nissan Altima for sale could receive a system alert whenever a potential client liked, wrote about
or searched for an Altima. Backed by historical sales data, the alert would also provide a
recommend discount to be offered to the client via Facebook message. That traceable message
could then be sent to the targeted client with just the click of a button. Such immediate and
direct promotion improves ROI by strictly narrowing marketing efforts on those customers
specifically seeking the message. While such system synergy may not yet exist when it does it
can only be facilitated by cloud technology. Therefore, mid-markets that establish their cloud
strategy now will be properly positioned to garner the marketing advances that are bound to
come to fruition and aggressively compete for new sales.
Clearly, cloud computing provides mid-size companies with alternatives to leverage and enhance
agility in decision making, development and execution at all levels of the company. The benefits
offered by the cloud in terms of rapid deployment, unrestricted mobility and leveraging of social
engagement will prove instrumental as mid-markets seek to develop new products, customer
base and sales channels. As standard practice, growth-focused mid-market firms will
continuously evaluate and redesign their individual cloud strategies as a means to maintain
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ongoing business agility and achieve their primary initiative of utilizing innovation to attract new
customers.
Summary
The top items on any CIO’s current agenda include security, cost and agility. Yet mid-market
CIO’s are also faced with unique challenges in terms of addressing these needs. The cost
effective software and toolset options available to small businesses do not meet the larger needs
of mid-market companies nor do mid-markets have the market share or ability to harness
traditional enterprise level pricing of the more sophisticated technologies on the market.
Additionally, mid-size firms are exposed to more regulatory scrutiny than their small business
counterparts but at the same time have less resources than the enterprise players to address these
concerns. In terms of agility, mid-markets by nature of their more grounded establishment
cannot as quickly test, implement and adapt to new technologies like a small business can. A
small business can afford to make a technology mistake as the company learns to navigate the
industry and garner market share. Similarly, mid-markets looking to grow must be able to adapt
more quickly that their enterprise level foes in order to capture their market share. In essence
mid-market organizations are tasked to conquer enterprise level challenges with small business
resources.
Cloud technology provides solutions to these challenges and levels the playing field for mid-size
companies. By providing enterprise level security, cost benefits in terms of scalability and
reliability and unlimited opportunities in terms of innovation and agility, cloud adoption is a win-
win for any mid-market firm. The cloud has no edge. Therefore, it is destined to expand and
will continue to fundamentally change the nature of business technologies. Astute mid-market
executives will recognize the competitive advantage offered through cloud technology. They
will harness its power to fuel business initiatives and lead their companies to sustained success.
Those that don’t will be left behind.
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