Migrating to Cloud-Based Services
By Tony Kontzer
When John Cirocco, IT director for Kegworks, a Buffalo, N.Y.-based online retailer of bar equipment and accessories, began his search for an ERP system, he wasn't about to do it on vendors' terms. Instead of evaluating what the market had to offer, he brought the market to Kegworks.
Working with the small company's leadership, Cirocco wrote a requirements document clearly stating that unless a provider could deliver the desired functionality—most notably Kegworks' desire for customized rules built around its existing order processing—it shouldn't even bother bidding for the business.
"We said, 'This is what we want you to show us,' rather than 'show us what you can do,'" says Cirocco. Only one software-as-a-service (SaaS) provider, NetSuite, bid for the business, but that evolved into having four finalists demo their ability to support at least 15 of 300 stated requirements. The company eventually chose NetSuite's cloud-based business software suite.
Even though Cirocco wasn't specifically looking for a SaaS solution, his experience reinforced the idea that, when dealing with cloud providers, there's no reason to accept their services as is. "You need to determine what your company's core requirements are that are must-haves, and make sure the vendor can meet those requirements," he says.
The growing movement among IT departments of all sizes toward making use of cloud-based IT services is changing the way companies look at their technology engagements. Alternatively referred to as "everything as a service" (EaaS), the collection of cloud computing categories—(SaaS, platform as a service (PaaS), infrastructure as a service (IaaS)—may be delivering an array of business benefits to those who embrace it.
However, this trend is also introducing a laundry list of potential pitfalls that IT decision-makers need to consider before jumping in. They range from poorly worded contracts and burdensome change-management efforts to pricing concerns and fears about data portability and security.
Many of those pitfalls have as much to do with companies adopting cloud-based services before they're ready as with any technology shortcomings, says Jeff Muscarella, executive vice president of the IT practice at spend-management consultancy NPI. Like Cirocco, Muscarella strongly recommends that companies have a clear picture of their own requirements, as well as the vendor's capabilities, prior to signing any contract.
"It's not like buying servers and installing them, and if a server goes bad, someone replaces it," says Mucscarella. “You're now dependent on another organization to do anything and everything for you, so it's incumbent on you to define everything you want that service to do."
That means insisting on contract language that allows the company to exit a service and provides transition assistance to move data to a new service should the need arise.
Muscarella says vendors are now doing a better job of providing contract templates that provide such basic assurances, but, "If a company has unique needs, then it must be aware of those and make sure it addresses them on the front end."
Up to Speed on the Cloud
Kegworks has quickly gotten up to speed on the pros and cons of the cloud. Since the company adopted NetSuite's platform two years ago, it's also moved from Microsoft Exchange in favor of Google Apps for Business, and has moved its all-important Website infrastructure from a hosted instance with Rackspace to the vendor's 100 percent cloud-based alternative.
The collection of cloud-based services has paid off: The company is now automatically processing 92 percent of the orders generated by external sites such as Amazon and eBay, all of which previously were handled manually. "People who used to do hands-on work are now dealing with customers, potentially increasing sales and resulting in happier customers," says Cirocco.
What's more, Kegworks is capitalizing on more powerful querying and report-generation capabilities than it's ever had. "The amount of data that's available to us is 100 times greater than what we had before, and that's probably not doing it justice," says Cirocco.
That said, relying on its assortment of EaaS resources is forcing the company to live with a certain level of discomfort. For instance, Cirocco bristles at the idea that he's paying a flat per-user annual license fee regardless of whether a user is an information worker who receives 100 emails a day or a warehouse employee who gets 10 emails a month.
What's more, Cirocco is concerned about NetSuite having so much access to the company's data, which presents a potential security risk. "When you send your data off to the cloud, that's probably the predominant fear of every CIO and IT director," he says.
Michael Pearl, who leads the U.S. cloud computing practice for consultancy PwC, says more companies should handle cloud vendor engagement similarly. "You want to move to the cloud with a purpose," he says. "Understand what you're trying to accomplish before you move in that direction, so you don't do cloud for cloud's sake."
Apparently, the market is getting that message. Pearl says there's been an "enormous uptick" in the number of clients who want help in determining what they should be asking of cloud-based service providers. And on the flip side, he says growing numbers of cloud vendors are seeking assistance to better articulate the assurances they provide in their contracts.
Looking to the Future
Mike Blake, CIO of global hotel operator Hyatt, says merely knowing what you want from a cloud service provider is not enough. Rather, he says companies looking to cloud-based solutions should be looking five years out when hammering out contracts.
"You should be fairly prescriptive about how you want to grow and what you're getting yourself into," he says. "Then you can write an effective contract."
Blake characterizes the migration of IT assets into cloud-based services as a fundamental rethinking of how IT is managed, with the old plan-build-run approach being replaced by a broker-integrate-orchestrate strategy. That, he says, means that the traditionally valued IT skills—development and programming—increasingly are taking a back seat to emerging skill sets such as procurement, vendor management and integration.
Blake should know, as Hyatt has been an aggressive cloud adopter under his IT leadership. The company's lifeblood, its Micros property management system, resides in a cloud-based infrastructure hosted by AT&T, enabling it to push updates to all of its 34,000 knowledge workers in just a few hours, rather than the three to four weeks it used to require.
Its Oracle Business Suite environment has evolved from an on-premise instance to one residing in the cloud, maintained by Oracle. In August, the company moved the last of its email users to Microsoft's Office 365 cloud-based productivity software service.
Hyatt also uses Salesforce.com for CRM, and Blake would like to move the company's legacy group sales application to the vendor's Force.com cloud-based application development platform, but says there's not enough agreement internally to make that happen. The same is true for the company's reservations system, which he says many in the company view as a key competitive advantage and thus not a good candidate for the cloud—a perspective with which he respectfully takes issue.
This speaks to what Blake argues is one of the biggest potholes on the road to EaaS: People. Moving IT assets to the cloud causes fear of change, and Blake says people are key to the success of any IT initiative—especially when moving in-house systems into cloud services. As a result, he says companies that migrate systems to the cloud need to be prepared for a heavy change-management burden.
"People will make this work or they won't," he says. "That was true before cloud, and it's still true during and after cloud."
Guidelines for Developing Cloud Contracts
Most IT executives are well aware of the numerous business benefits cloud-based services provide, but they're also keenly aware of the potential pitfalls that lurk when making the transition to a cloud service. That's why it's just as important to have some idea of how to minimize the odds of being bit by one of those pitfalls as it is to identify services that can deliver value to your business.
With that in mind, here's a short list of steps IT and business leaders should consider taking before entering into a contract with a cloud-based service: