ICAEW flubs cloud case

Den Howlett Profile picture for user gonzodaddy May 17, 2013
The Institute of Chartered Accountants in England and Wales (ICAEW) has flubbed its understanding of cloud - big time. In a report entitled: The Business Case for Cloud (restricted distribution), author Chris Tiernan, managing partner of Grosvenor Consultancy Services makes a number of assertions that are perplexing at many levels.

ICAEW cover page
The Institute of Chartered Accountants in England and Wales (ICAEW) has flubbed its understanding of cloud - big time. In a report entitled: The Business Case for Cloud (restricted distribution), author Chris Tiernan, managing partner of Grosvenor Consultancy Services makes a number of assertions that are perplexing at many levels.

First, I find the report seems more intent on not making the case. If it had been titled: Considerations for Cloud Buyers - or some such, then it would have been a fairer reflection of the content that talks time and again about topics many buyers fail to take into account. Having said that, some of the arguments are spurious. For example, in sniping at cloud advocacy reports (which are not directly referenced), the author says:

The internet is awash with white papers setting out so-called business cases for various Cloud solutions. Many have been written by vendors and some by industry watchers who have been paid by vendors. typically these cases compare the running costs of Cloud services with the running costs of pre-Cloud services and ignore the procurement, contracting, set up, transition, service management, business change and other costs which, depending on the Cloud solution and buyer, can amount to more than the savings in running costs over many years.

That is no different to any technology acquisition and is therefore solution neutral. The report then goes on to say:

Relatively small businesses might be able to free themselves of many of the it issues which have beset them for years, like finding someone whom they trust to fix the it and undertake upgrades when needed. such organisations can save expensive floor space, effectively rent services for relatively short periods without having to expend capex and have IT facilities available to them which only large organisations could previously afford.

In other posts, I have pointed out that the cost of running SaaS applications for very small businesses can be significantly higher than might seem from the sticker price of individual services. However, the cost argument ignores the value customers report back as received from making those investments.

grovernor services
The paper is peppered with references to and comparisons with outsourcing. This should not surprise since a cursory review of the author's site shows that is where their main business is situated.

Any change to existing outsourcing arrangements is bound to have a financial impact and I am surprised that the author assumes that IT people would be ignorant fo the fact. One risk the paper does fail to highlight - what happens when line of business unilaterally decides to switch out one service for another. It has been known.

More worrying are the references to security and cloud provider risk. It says:

Two virtues expounded by vendors of certain Cloud services is that their storage is now so cheap  that you never need to waste time deleting anything and they are responsible for taking backups. This might be good news for day-to-day operations but what happens if the vendor goes out of  business or its data centre suffers a major disaster? how do you then get your data back, what disaster recovery facilities do they have available and how long will it take them to get your business up and working again?

The security arrangements and resilience of many Cloud data centres are claimed to be far superior to the vast majority of in-house facilities but that does not necessarily stop glitches arising from time to time. business continuity plans are still needed for services in the Cloud to minimise the impact on your business and due diligence is required to validate the claims of the Cloud providers.

There is no question that cloud providers will be subject to the same problems as any other technology operator. What matters is the extent to which vendors take those risks seriously. In reality, SaaS and cloud providers must operate to a higher standard than you'd expect to see in the traditional data center or in-house. That is because their business depends on service.

Last week, we asked Jim McGeever, COO NetSuite what assurances come as standard to its customers. The company promises no more than 0.05% unscheduled downtime. During 2012, it achieved 0.02% unscheduled downtime.

When I recently asked lawyers skilled in service level agreement negotiation to name me any case where business disruption from cloud services led to catastrophic loss, they could not come up with a single example. I know of one case but that arose in circumstances where the provider was less than pristine in its service provision and is some two years ago.

I do worry about the obsessions with cost that pervades the whole paper and which takes up an entire appendix. Businesses I meet are much more interested in outcomes and value received. They rarely make a decision to go to cloud technologies for cost reasons alone. That would be foolish unless the savings are enormous and obvious. Much more likely is a decision based upon a balance between cost factors and benefits that can be achieved. Yet none of that is stated in the report.

The cost argument is continued in a post on the ICAEW IT counts site. An article entitled Business benefits of cloud has almost nothing to do with benefits beyond the cost arguments.

My concern in all of this is that ICAEW is at risk of perpetuating the old saw that accountants know the cost of everything but the value of nothing. On the flip side, I see increasing evidence that forward thinking professionals are not looking at cost first. Rather they are adjusting to new business conditions and the needs of their customers.

While it is true that certain differentiating solutions may need to be kept in-house (and would almost certainly never be outsourced) we are seeing a general trend towards putting solutions into the cloud. This is because of two broad factors:

  1. Cloud economics accelerates the commoditisation of functions that have remained largely static for many years
  2. In the best case examples, cloud provides the backdrop against which we are seeing the emergence of disruptive business models that simply could not exist without cloud technologies. Diginomica is one such example.

What do you think based upon the limited evidence I've produced? More to the point, what's your experience? Let me know in comments.

Featured image from cover page of ICAEW report

Post image from Grosvernor Consultancy home page

Update: David Terrar tears into the paper's author - ouch!

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