Running head: CLOUD COMPUTING IN BUSINESSES 1

Strategic Importance of Cloud Computing

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CLOUD COMPUTING IN BUSINESSES 2

Abstract

Cloud computing is simply internet based computing. It is a modern concept that is the

opposite of traditional computing where people would download files and programs on a

physical computer located in their building. Cloud computing has numerous strategic importance

to businesses. Cloud computing beats in-house computing regarding convenience, cost reduction,

flexibility, security, privacy and collaboration among other elements. If well utilized it enables

businesses to cut down on costs and operate more efficiently making them more competitive.
CLOUD COMPUTING IN BUSINESSES 3

Cloud computing is one of the newest concepts in the world of computing. It represented

a major improvement in the way information technology is used. With computers becoming

more powerful and the unit cost of computers falling rapidly more and more organizations are

turning to computers as a strategic weapon. By definition cloud computing is an internet based

style of computing whereby highly flexible Information Technology capabilities are provided to

multiple customers (Smith, 2009). Cloud computing drastically reduces the upfront computing

costs that deter many organizations from deploying some cutting edge computer services thus

enabling them to compete more favorably with peers.

Cost reduction benefits of cloud computing

The strategic importance of cloud computing to business organizations can best be

analyzed from a cost perspective. Most organizations have come to realize that they utilize only a

small percentage of their technological power. Capital investments in information technology

remain highly underutilized. A recent study conducted on how a sample of six large corporations

utilize their servers found out that all the firms utilize less than 30% of the available server

computing power. Desktop computers on these firms had a 5% utilization rate. Another striking

finding of this study is that they incurred significantly high costs in maintaining the same

underutilized computing resources (Marston, Li, Bandyopadhyay, Ghalsasi & Zhang, 2011).

Service and maintenance costs were taking a heavy financial toll on the already strained financial

resources. At a time when most organizations are barely making their financial ends meet and are

facing cut throat competition, cutting down on these and other computing costs are worth

consideration.
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One of the cost advantages of cloud computing to business organizations is reduced

spending on the establishment of technological infrastructure. Davasena (2014) states that Cloud

computing gives businesses the privilege to save and access computing services with minimal

upfront charges. Firms can forego the enormous costs associated with the establishment of some

computing services such as servers and data management systems. Cloud computing offers easy

access to most computing services with affordable pay as you go weekly, monthly, quarterly or

yearly packages depending on consumer preference. This is a major cost saver for organizations

and specifically small organizations that might find initial infrastructural establishment costs to

be too high. Large businesses that have huge computing demands can also benefit immensely

from such cloud-based arrangements. They can delegate the costly computing services to cloud

computing entities and retain critical services that need to be executed from within the

organization.

Businesses can also incur significant cost cuts by avoiding licensing fees, software costs,

hardware costs, maintenance costs and other overhead costs. According to Smith (2009) with

cloud computing quality costs are also absent. These costs pass on to vendors of cloud

computing. Since cloud computing services are available on demand, firms also enjoy

convenience costs associated with the breakdown of in-house systems. Costly delays as a result

of software and hardware upgrades can be easily foregone with cloud computing. Businesses

that opt to go green also enjoy power related cost reductions (Davasena, 2014). When businesses

pool resources together into a cloud consolidated environment, they lower their energy use.

Cloud computing offers an excellent platform for firms to go green.

With cloud computing servers and other computing infrastructure are off the business

premises and out of sight. Software upgrades and maintenance is a responsibility of the vendor.
CLOUD COMPUTING IN BUSINESSES 5

Businesses operate at peace and without worries of possible maintenance and upgrade issues.

Chen, Ta-Tao & Kazuo (2010) state cloud computing offers businesses peace so that all energy

is focused on growth. Businesses that opt for cloud computing also save a lot on space.

Information technology infrastructure can consume a lot of office space. Cloud computing is a

perfect remedy for this inconvenience.

A recent article published in the Operations and Research Applications Journal states that

a group of SME’s that had sought the services of Amazon Web Services experience upto to 70%

reduction in computing costs. Within a three year period, AWS services had reduced the costs of

its services a couple of times (Davasena, 2014). This made these services more accessible by

even the smallest SME’s. Even startup SME’s could now afford crucial services such as

Customer Relationship Management (CRM), Supply Chain Management (SCM), Sales Force

Automation(SFA) and Enterprise Resource Planning(ERP). With the entry of more and more

vendors into the industry, these costs are expected to continue decreasing making them more and

more affordable by businesses. The services stated above are of great strategic importance,

especially to small businesses. With access to these crucial services, small firms can integrate

innovation and control in their daily operations and thus enhance their competitiveness.

Economies of scale benefits of cloud computing

Cloud computing offers businesses the benefit of economies of scale. Cloud computing

enables businesses to benefit from economies of scale by increasing output with less

infrastructure and a fewer number of employees. Businesses that opt for cloud computing save

on personnel costs (Marston, Li, Bandyopadhyay, Ghalsasi & Zhang, 2011). There is, for

example, no need to have IT staff to ensure that software stays up to date or that servers are
CLOUD COMPUTING IN BUSINESSES 6

working correctly. Less infrastructure and a fewer number of employees lower the per unit cost

of production. Businesses can take advantage of cloud computing to scale down their staff to the

level where the least number of staff offers the greatest output. For example, software developers

can be reduced from ten to only two through the outsourcing of software development to the

cloud. The two software developers who remain are supposed to monitor software

implementation and do other tasks that cannot be outsourced to the cloud. Businesses thus enjoy

economies of scale when they opt for cloud computing. Economies of scale is a strategic weapon

for it translates to lower overall costs.

Cloud computing has advanced rapidly since its inception to become a resource that can

accommodate millions of users at a time. Multiple users can use cloud computing resources at

the same time from different locations (Smith, 2009). Businesses stand to benefit from this since

employees do not need to wait for slots to use computing resources, especially during peak

season when the demand for computing resources soars. Cloud computing, therefore, helps to

speed up business operations guaranteeing timely production. Businesses that opt for in-house

computing solutions are prone to delays especially when workloads increase abruptly. In-house

computers can get overwhelmed due to extensive use in these times. Staff from various

departments might be forced to take turns in sharing the available computing power leading to

delays. Cloud computing has the ability to accommodate such demands to guarantee speed

consistencies.

Speed and scalability benefits of cloud computing

Cloud computing also has the advantage of scalability and speed. Cloud computing

services are mostly offered by reputable companies such as Oracle which are always ahead
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regarding innovation. They strive to offer fast, convenient and up to date computing services.

Cloud computing offers business firms fast and up to date computing. Businesses that opt for

cloud computing can also easily scale up and down depending on demand. According to Smith

(2009), one of the major reasons for underutilization of computer resources is fluctuations in

workloads.

When businesses encounter increasing workloads, they invest heavily and scale up their

computing abilities. When the workloads decline a lot of infrastructure and computing power

remains unutilized beating the logic of the ‘scaling-up’ investment. Delays are often experienced

in the re-scaling process as businesses wait for infrastructural upgrades or downgrades(Smith,

2009). Cloud computing saves businesses from all these inconveniences by making re-scaling as

easy as the click of a button. When workloads reduce, and less computing power is needed

businesses can scale down immediately to avoid unnecessary costs.

Customization and flexibility benefits of cloud computing

Businesses that go for cloud computing can easily acquire customized software

infrastructure from vendors. Davasena (2014) states that cloud vendors can customize the

software to adjust it to the needs and goals of business. Normal businesses that do not do cloud

computing pay a higher price for such customization for it at times calls for alterations in

existing hardware. Ease of customization stimulates innovation and overall growth in businesses

by providing crucial computing services how a business wants them.

Cloud computing also offers a lot of flexibility to businesses. Businesses can, for

example, opt to subscribe to or out of a service anytime they feel like. If a cloud vendor does not

offer quality services a business can easily switch to another vendor at a minimal cost. Jackson
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(2011) states that vendors also offer a wide variety of services in various packages to businesses.

There is a wide variety of vendors and services to choose from, and this ensures that quality is

always enhanced. When a given cloud service does not meet the goals of a business, it can be

easily terminated or replaced. This ensures that businesses get the best value for their money and

stay ahead of their peers.

Businesses also have numerous control choices when they utilize cloud computing. They

can determine the nature of service they will use. There is the option of selecting from Software

as a Service (Saas), Infrastructure as a Service (Iaas) and Platform as a service (Paas). Cloud

computing also offers businesses a prebuilt tools menu to enable them effectively utilize the

selected service (Davasena, 2014). With all this guidance it is easy for businesses to get the best

from the service they select.

Convenience benefits of cloud computing

Cloud computing eliminates the geographical barriers that confine people to offices and

regions(Smith,2009). It enables employees to work from home similarly to how they would in

the office. Using devices such as smartphones and tablets employees can easily access crucial

data and work at any hour of the day. Businesses such as oil exploration that require a large

number of employees to work remotely at some point reap immensely from this advantage of

cloud computing. Oil explorers in the remotest part of Alaska can be able to access crucial data

through cloud computing systems. Business expatriates sent to other countries can conveniently

work and share files with their mother companies abroad.

Cloud computing also offers convenience to managers and business executives by

reducing their work burdens. Most finance and accounting work can be delegated or outsourced
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to cloud computing (Jackson, 2011). After outsourcing these services, the managers are left with

ample time to deal with decision making and other crucial services. They get more time to

supervise subordinates and ensure that operations are progressing as expected. The same

convenience can extend to all levels of the business. Work such as software development and

database administration can be outsourced to the cloud reducing the workloads for the concerned

employees. This enhances quality by increasing the available time for these employees to

concentrate on important duties.

Reliability benefits of cloud computing

The cloud is accessible round the clock and less susceptible to breakdowns. It is,

therefore, more reliable than in-house computing. In cases of failure, the affected staff just needs

to contact the cloud center support instead of depending on in-house staff. Networked backup

systems shield organizations from data loss in cases of breakdown. Cloud computing services

suffer less from breakdowns due to the high levels of advancement. In cases of errors or failures,

error codes are sent to the administrators, and automatic debugging is done remotely (Atkins,

2013). In businesses that opt for in-house computing, some types of failures and faults are too

complex for in-house staff. More experienced help has to be sought from outside the business. In

case the help takes too long the business suffers major losses.

Most cloud services are built to make data available even at periods of network

downtime. This inbuilt data redundancy mechanism saves businesses from costly downtimes at

the times of events such as power line failures. Courtesy of this built in redundancy Netflix was

able to stay online in the year 2011 when AWS experienced a major failure. Due to the same

Gmail boasts of a 99.9 uptime which is incredible (Davasena, 2014). Large businesses with tons
CLOUD COMPUTING IN BUSINESSES 10

of data benefit the most from this built-in redundancy configuration of cloud computing. In cases

of failure, all operations in these large businesses are at risk of complete halting. However, the

reliability of cloud computing is negatively affected by the lack of interoperability between

various providers in the cloud computing landscape.

Security and privacy benefits of cloud computing

Cloud computing offers businesses with better security and privacy. Due to the well laid

out encryption and authentication protocols in cloud computing businesses face almost zero

security risks. Passwords, transaction tracking systems, API keys, security patches, selective

access and other monitoring activities in cloud computing gives users peace of mind in terms of

security (Dimitrov & Osman, 2014). In this era of computer advancement where hackers and

cyber criminals have sophisticated skills and techniques, businesses take security and privacy

with utmost seriousness. Cloud computing offers businesses an opportunity to enhance their

security through virtual private clouds. In these private clouds, the businesses can put in place

strong passwords and take advantage of other features for ultimate security.

Cloud computing also reduces the use of removable devices such as flash drives and

portable hard drives. Removable storage devices have been a favorite tool for data theft and other

types of security breaches in organizations. These devices can easily be stolen or misplaced, and

crucial data stolen. When everything is saved in the cloud, the use of such devices is minimized.

Cloud computing also brings a wide range of security solutions to businesses at affordable rates.

Dimitrov & Osman(2014) state that a combination of all these security features makes the cloud

almost impervious to security and privacy breaches.

Sharing and collaboration benefits of cloud computing
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Cloud computing makes sharing and collaboration easier for businesses. Sharing and

collaboration is a necessary strategic weapon for it allows staff from different departments and

businesses to interact and share ideas. With the mass adoption of smartphones and social

networking staying connected has become easier (Surajbali, Bauer, Bar & Alexakis, 2013).

There is a better connection between staff and employees within and without a company. Cloud

services such as Google Drive, Box, Jive, and Instant messengers messages and information can

be easily retrieved and shared among a large number of people within a short time. Various

stakeholders can easily share and interact with each other through video conferencing supported

in the cloud. Through Google Docs, a common cloud-based Google App, for example, one

document can be edited and shared by multiple users in real time.

An executive team from an oil exploration company can for example easily and

conveniently oversee a drilling operation through cloud-based real-time audio visual

communication systems. They can offer technical and professional advice and instruction in real

time to increase the chances of success. Military security operations can also be easily controlled

using satellite-based cloud supported imaging systems. Commanders can coordinate these

operations from different locations and have a real-time view of what is happening on the

ground.

Increased collaboration between stakeholders calls for better file control. According to

Surajbali, Bauer, Bar & Alexakis(2013), cloud computing guarantees better file control by

ensuring that all files including confidential business files are centrally stored. Before the advent

of the cloud employees would send large volumes of documents as email attachments. There was

a lot of back and forth exchange of documents at the time. Often there would be mix up that

would lead to documents getting into the wrong hands. Conflicts were also common in
CLOUD COMPUTING IN BUSINESSES 12

collaborations involving people at different time zones. Delays in sending files were common in

these cases where different times zones were involved. However, with cloud computing when

files are centrally stored and easily accessible by people at different time zones such conflicts

have been minimized. Cloud computing has therefore greatly enhanced collaboration.

In conclusion, cloud computing has gained a lot of momentum in the recent decade due to

its perceived benefits. These benefits that range from cost savings to enhanced collaboration

offer businesses a lot of competitive advantage. With cloud computing businesses have less to

worry about for they can affordably choose from a wide range of computer services. Cloud

computing is more preferable than in-house computing due to these benefits that are of great

strategic importance to businesses. Businesses in the contemporary world should strive to fully

exploit the strategic advantage offered by cloud computing.
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References

Atkins, C. (2013). How Reliable is Cloud Computing. Florida Department of Transportation's

Traffic Engineering and Operations Newsletter, February 2013 Issue. Retrieved from

http://www.fdot.gov/traffic/Newsletters/2013/2013-Feb.pdf

Chen, T., Ta-Tao, C., & Kazuo, N. (2016). The Perceived Business Benefit of Cloud Computing:

An Exploratory Study. Journal Of International Technology & Information

Management, 25(4), 101-121.

Devasena, L. (2014). Impact study of cloud computing on business development. Operations

Research And Applications: An International Journal (ORAJ), 1(1), 1-7.

Dimitrov, M., & Osman, I. (2014). The Impact of Cloud Computing on Organizations in Regard

to Cost and Security. Retrieved from https://www.diva-

portal.org/smash/get/diva2:728880/FULLTEXT02

Jackson, K. (2011). The Economic Benefits of Cloud Computing. Forbes.com. Retrieved 6 July

2017, from https://www.forbes.com/sites/kevinjackson/2011/09/17/the-economic-benefit-of-

cloud-computing/#25de1216225c

Marston, S., Li, Z., Bandyopadhyay, S., Ghalsasi, A., & Zhang, J. (2011). Cloud computing –

The business perspective. Decision Support Systems, 51(1), 176–189.
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Smith, R. (2009). COMPUTING IN THE CLOUD. Research Technology Management, 52(5),

65-68.

Surajbali, B., Bauer, M., Bar, H., & Alexakis, S. (2013). A Cloud–Based Approach for

Collaborative Networks Supporting Serviced-Enhanced Products. In 14th Working

Conference on Virtual Enterprises. Dresden, Germany. Retrieved from

https://hal.inria.fr/hal-01463270/document

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