An Area of Concern

By Tony Kontzer  |  Posted 2012-04-23

 By Tony Kontzer

It took Schaeffer Manufacturing 168 years to become a $60 million company. Then, over the past four years, its revenue shot up to $100 million. While pretty much everything else about Schaeffer had remained the same—save increasing the 180-employee headcount by a single person—one change may have been the most important enabler of the company's biggest-ever growth spurt: a move to cloud computing.

By 2007, the company's technology needs were far outstripping the capabilities of the home-grown order entry system it had long depended on to process and fulfill orders. The AS/400-based system was bursting at the seams, and St. Louis-based Schaeffer—whose industrial lubricants once greased the axles of covered wagons heading West to join the California Gold Rush—was scrambling to come up with programming tweaks that would keep it running. But it was clear to Will Gregerson, the company's CFO and de facto CIO, that a new solution was in order.

After evaluating several alternatives, Gregerson settled on NetSuite and its suite of software-as-a-service (SaaS) business applications, opting to move Schaeffer's order entry and financial systems into the public cloud. The decision proved to be a wise one. Since going live on NetSuite in 2008, Gregerson says Schaeffer has seen notable improvements in the efficiency of its order fulfillment processes.

For instance, because salespeople could suddenly submit orders electronically, removing the need to enter them manually, the company's two-person order entry team increased the number of orders they could process each day from 75 to 200. And the time it took for a processed order to be loaded onto a truck was shortened from an average of three days to one-and-a-half, with half of all orders on a truck ready for delivery within 24 hours.

Gregerson also points to numerous IT cost savings, in addition to the unknown sum the company would have spent on hardware had it chosen to keep things in-house. Both of the IT employees that reported to him have since left the company and he hasn't had to replace them, saving at least $100,000 annually. He estimates if the company had migrated to a new in-house technology platform, it would have had to spend at least another $200,000 annually for additional IT staff to keep the company competitive.

All that, and the company also filled its long-standing need for a disaster recovery solution, which had previously consisted of an extra, dormant AS/400. The new backup plan? "Go into the nearest Starbucks, plug in and go," says Gregerson.


Bullish About the Cloud

Success stories like Schaeffer's are why people like Joe Coyle, North American CTO for consultancy Capgemini, are bullish about having their clients migrate systems to the public cloud. Put simply, Coyle says the public cloud has matured to the point where it makes sense in just about every business case.

"If we look at the real facts, we're having a hard time finding anything that cannot run in the public cloud," he says. "And that includes security concerns."

That's not to say cloud migrations come without risks, both real and perceived. In fact, NetSuite had to address that pesky security issue —which Coyle includes on his list of “perceived” risks —before Schaeffer CEO Tom Hermann was convinced his company's data would be safe in the cloud. Gregerson says NetSuite provided ample guarantees that its security was top-notch, and that Schaeffer would be able to remove its data quickly and easily if it needed to.

Pushing for such assurances on critical issues, such as the portability of data and access to physical systems, is critical when doing business with cloud providers, many of whom are bent on providing cookie-cutter services that keep their costs down, says Daryl Plummer, managing vice president and chief cloud computing researcher for Gartner. "They just cook the burger the way they cook it," says Plummer. "You take it or leave it. That brings risk to you."

That inflexibility certainly hasn't dampened the enthusiasm for the public cloud market, which Gartner pegged at $105 billion in 2011. It also hasn't caused Gregerson's newfound devotion to the cloud to waver, despite having to tackle other cloud migration issues. These include ushering employees used to green-screen interfaces into a Web-based paradigm and sacrificing the speed of an in-house solution in exchange for the flexibility and data-crunching capabilities of a cloud-based system.

"I don’t think there's any reason we would ever go away from the cloud," says Gregerson. "It would seem to be going backward, not forward."


Focusing on Bread-and-Butter Issues

Larry Bonfante would agree heartily. Two years ago, the CIO of the United States Tennis Association (USTA) moved the nonprofit organization's back-end systems—including its financial reporting and departmental systems—from a shared data center into Amazon Web Services' Elastic Compute Cloud, cutting related operational costs by 70 percent and condensing the time needed to provision a new server from a week to just an hour.

Perhaps even more important, Amazon has helped the sport’s nonprofit governing body contend with what Bonfante calls "the equivalent of 14 consecutive Black Fridays" when it runs the prestigious US Open tennis tournament at its Billie Jean King National Tennis Center in Flushing, N.Y., for two weeks every September. During that time, a sleepy facility with a 30-person staff transforms into a teeming mass of 20,000 credentialed players, coaches, concessionaires, staff, media and the like, and Bonfante didn’t want to continue committing the infrastructure resources required to support the resulting burst in demand on the USTA's systems.

"It's hard to keep a cadre of experts on board the way Amazon does," he says. "Our bread and butter is tennis, not building an infrastructure."

Despite the USTA's successes in the cloud, Bonfante still wrestles with a couple of challenges. For instance, compliance-related concerns have thus far prevented him from placing consumer-facing systems in the cloud.

Because 80 percent of the USTA's ticket sales are processed online, they must conform to the PCI security standards governing credit card transactions. And any medical information pertaining to players or fans whose health issues arise at tournaments must meet the guidelines of the Health Insurance Portability and Accountability Act. Bonfante is not confident that cloud providers can ensure across-the-board compliance, but he's on the lookout for any opportunities to bridge that gap.

Meanwhile, on the reliability front, Bonfante says  "I’m not holding my breath" waiting for Amazon and other cloud providers to start compensating customers for lost revenue when cloud infrastructures suffer inevitable hiccups, such as the hours-long outage Amazon customers experienced in April 2011. Instead, he accepts the modest rebate Amazon is contractually obligated to pay and chalks up the remaining loss as an unavoidable risk of operating in the public cloud today.


An Area of Concern

The potential for such interruptions in services is an area of concern that Charles Zieres, director of technology for Preferred Hotel Group, shares with other public cloud customers. Zieres moved Preferred's entire application portfolio to Terremark's cloud-based infrastructure five years ago after determining that the cost of a five-year contract would be about the same as a new generation of hardware that would have had about the same shelf life.

The Chicago-based company, which provides marketing, reservations, purchasing and other pooled services to a network of more than 1,000 independent boutique hotels, uses a Citrix interface to enable employees to access applications.

Even though the reliability of Terremark's infrastructure has proven far more dependable than Preferred's own co-located data center, Zieres continues to worry about having all of the company's eggs in somebody else's basket.

"We recently had a firewall outage for an hour-and-a-half, [during which] our whole company was shut down," he says. "If we were down for a day, that would be really bad."

Ideally, Zieres says, he'd like to do business with a second cloud infrastructure vendor as a business continuity solution. For now, however, he keeps his concerns in perspective by recalling the more frequent outages the company used to endure.

It probably hasn't hurt that Preferred has been able to double in size over the past four years without adding the three IT employees Zieres believes would have been needed to support that growth had the company not moved to the cloud. Those savings, in turn, countered the expense of forming an e-commerce team that created an improved booking interface and rebuilt Preferred's Websites.

If that's not enough to put Zieres at ease, he also recently renegotiated a new deal with Terremark, and Moore's Law ensured that he got twice as many computing resources for the same price.

That, in a nutshell, sums up the current state of the public cloud: If you want the big benefits, you have to live with the risks.