How Cloud Computing Impacts SMEs

Introduction:
Cloud Computing is changing the way business is being done. Very few in today’s world will doubt the
fact that cloud computing is here to stay. Cloud computing provides a relatively easy solution to do
business without actually investing heavily or owning a lot of infrastructure. Cloud clients can access the
data with the help of a mobile application, web browser, client terminal, emulator etc.

Many analysts are sure of the thought that cloud computing will be a potential technologies that
impacts business significantly in the next decade. It is a fact that cloud computing is beneficial to large
corporates. Cloud computing can be used in different sectors or fields to improvise the whole setting of
doing business. These fields include education, health, analysis, customer relationship, consulting,
manufacturing and a lot more. Cloud computing can be an integral part of one particular organization as
well. It can make significant impacts in Finance, Internal Audit, Tax, Risk Analysis, Marketing and Sales,
Vendor management and many more functions integral to one company. A cloud computing service
provider generally provides 3 types of services.

 Software as a Service (SaaS)

 Platform as a Service (PaaS)
 Infrastructure as a Service (IaaS)

However, the true potential for cloud computing lies in SMEs (Small & Medium scale Enterprises).

If statistics are to be analyzed, it can be understood that more than 90% of the world’s industries come
under the category of SMEs. Using or migration to cloud computing can be very much advantageous to
them by looking under the business, economic and industrial perspective as a whole. The aim of this
article is to establish the parameters for further study in the mentioned field.

Literature Review:
Prior to getting into the proper literature review, it must be of utmost importance to discuss
what an SME is and thereafter what cloud computing as defined by various researchers. Usage of
Information and Communication Technologies (ICT) for Small and Medium Scale Industries (SME) can
give them capabilities to compete with the main players in the area (Bayo-Moriones and Lera-Lopez,
2007). An SME is a firm which has employees ranging from 1 to 250. Different countries have different
criteria for defining of SME enterprise. In India, under section 7 of the Micro, Small and Medium
Enterprises Development (MSMED) Act, 2006, the Indian government defined the size of micro, small,
and medium enterprises. SMEs are also said to be responsible for driving innovation and competition in
many economic sectors. In many SME’s there is no proper integrated MIS and computer system because
of cost cutting factors which reduces their efficiency. Though some have started using MIS but it have
some constraints like budgeting of MIS is extremely difficult, lack of flexibility to update it, it requires
constant monitoring, and its effectiveness decreases due to frequent changes in top management.
Because of such constraints it is viable to move to such platform which will not only reduce cost but also
increase the efficiency and make the enterprise globally competitive.

NIST defines cloud computing as “Cloud computing is a model for enabling ubiquitous, convenient, on-
demand network access to a shared pool of configurable computing resources (e.g., networks, servers,
storage, applications, and services) that can be rapidly provisioned and released with minimal
management effort or service provider interaction” (Mell-Grance, 2011).

Another view on cloud computing was provided by Armbrust-Fox-Griffith, 2010 which defines cloud
computing as “Cloud computing refers to both the applications delivered as services over the Internet
and the hardware and systems software in the data centers that provide those services”. Cloud
computing is defining new age businesses. It provides an image which looks in providing computing
environments to end users which are dynamic in nature, reliable, provide customized and superior
Quality of services. (Wang-Laszewski-Younge-Hi, 2010).

Compared to traditional systems, cloud offers numerous revolutionary advantages that can drastically
change and improve the value creating capabilities of organizations. The most significant advantages are
much lower cost, faster time to market, and great opportunities for creating new sources of value. As
mentioned earlier, Cloud ERP solutions are delivered via the Software as a Service model. It is important
to note that some ERP solutions that are marketed as ‘cloud based’ are in fact hosted ERP solutions.
True cloud ERP systems are those that implement the characteristics of clouds in the previous category.
These systems are typically accessed via a common browser over an Internet connection, allowing
access that has little dependency on client configuration.

In the new global economy, ICT has become a central issue for almost any modern organisation, and is
considered a prime tool to enable businesses to compete

Barriers for cloud computing in SME: Although the SME sector is of increasing significance for its
contribution to economic growth, it is argued that different SMEs in different sectors and different
regions can be affected by several factors that discourage them from adopting ICT in their daily
operations. One of the important reasons why SMEs do not adopt ICT services is strongly linked to the
perception that it is unsuitable for the nature of their specific business. It is important for a business
management team to understand and appreciate the advantage of using specific ICT services. Other
barriers are lack of knowledge of ICT, Cost, lack of standards and ICT related applications for small firms.

Advantages for Cloud computing in SME: At the firm and intra-firm level, ICT tools can improve internal
and external communication, and make it faster, subsequently improving trading relationships(OECD,
2004; Quayle and Christiansen, 2004). Also, ICT ensures more effective
managementofthefirm’sresourcesandoperationalcosts,includingreducingsales, purchasing and operating
costs (Kendall, 2001; Riemenschneider et al., 2003). Implementing ICT in SMEs can improve the quality
of decision making in small firms (Malone, 1985), and enhance the activities of analysis, planning and
control (Malone, 1985).

Factors that determine how cloud computing impacts SMEs :

 Changes in organizational structure: With the adoption of an ICT like cloud computing for a
firm which was not using it, would undergo a change in its organizational structure as there
would be requirement for a separate IT department which is required to take care of the
operations. A need for a dynamic IT management will arise mainly due the extended skillset
requirements specifically related to cloud. The job description of such roles are to monitor,
configure and to ensure system integration i.e. integration of systems in the premises to that of
cloud. (Alkalil-Sahandi-John, 2013). For organizations with prior IT investments, migration to
cloud will cause some coveted IT jobs to become less in demand. Database administration and
system administration are such examples.

 Reduces financial leverage: Migration to cloud computing can be an ideal solution to companies
which do not have a huge pile of financial resources. SMEs are basically the kind of organizations
which seldom have heavy IT infrastructure. In majority of the cases they find it troublesome to
select the correct combination and purchasing software licenses (Budriene-Zalieckaite, 2012). It
will help to reduce cost for the organization by increasing the speed of process and efficiency
and thereby providing better quality services than it was prior to establishing cloud computing
(Hoffman,2011).

 Information Security of the firm: Cloud computing presents itself with an inherent risk of
information security. Cloud computing associates itself to risks to technological and legal aspects
(Pigal, 2012). This is serious concern as for many enterprises, particular data might be very
valuable. However, of late cloud computing service providers such as AWS focus heavily of
reducing such concerns and devote much attention to the security of the firm and prevent
cybercrime (Budriene-Zalieckaite, 2012).

 Better focus on developing business: Focus on cloud computing can reduce the costs for IT
infrastructure to a large extend. The main advantage of the same is that this amount can be
invested properly in developing the current business (Kersiene, 2007). This will make the firm
competent enough and will inherently ensure its success and survival. An additional advantage
is that when such focus on cloud computing earns good results; it will make the company and
people who were initially skeptical about ICT more confident to invest further into technology.
 The idea that the firm will be advantageous going ahead with new technology is an indicator to
adopt new technology (Alshamaila-Papagiannidis-Li, 2012).

 Scalability: Resource pooling and rapid resource elasticity of cloud computing make the
infrastructure capacity highly flexible and elastic. That in turn enables faster time to market,
high level of strategic flexibility and improved competitiveness. This feature is reported as a
possible advantage that is particularly relevant for SMEs in competing with large players
 Environmental factors: When it comes to environmental factors and cloud computing, it is
expected that the business’ industry may affect new technology adoption (Goode and Stevens,
2000). Recent studies on cloud computing have used industry as an indicator for adoption,
illustrating how certain sectors are adopting cloud computing services more than others
(Mimecast, 2010; VMware, 2011). Also pressure within firm, scope of market and industry and
the political conditions play a very important role in deciding the impact

Hypothesis:

Organizational context: The organizational context is defined in terms of resources available to support
the adoption of the innovation (Lippert & Govindarajulu, 2006). Organizational context basically refers
to the ability of a particular organization to impute or constraint itself to a particular innovation.
There are many attributes that play a role in the interaction between the structure of organization and
implementing a certain innovation. (Amini, 1986)
Among the multiple factors influencing the adoption of cloud computing in particular, support of top
level management and organizational readiness are most critical.

 Top Management support: The role of top management in a company or firm implementing
cloud computing is very important. When the top management sees the potential of a cloud
computing, it can allocate resources for the same. Top management support is an important and
critical issue to achieve and maintain a competitive advantage. ( AL SHAAR, KHATTAB & ALKAIED
-2015).
H1: Top Management support will positively impact usage cloud computing in terms of small
and medium scale industries.
 Organizational Readiness: Organizational readiness for a technology can simply be said to be as
the convenience in which the said technology can be incorporated into the existing practices of
the company. Organizational readiness as a shared psychological state in which organizational
 members feel committed to implementing an organizational change and confident in their

collective abilities to do so. (Weiner -2009)

H2: Readiness of an organization will positively impact usage cloud computing in terms of
small and medium scale industries.

Technological Readiness: Cloud computing is an innovative and cutting edge technology in the current
circumstances. Multiple new applications for this technology in various fields are being found out on the
same on a daily basis. It can be basically defined as to be the amount of support infrastructure required
to implement an innovation which is cloud computing in the given context.

H3: Technological Readiness in an organization will positively impact cloud computing in terms of
small and medium scale industries.

Security: Security is an important factor especially when we consider the fact that implementation of
cloud computing requires that a company has a risk of leaking confidential and sensitive data.
This is serious concern as for many enterprises; particular data might be very valuable. However, of late
cloud computing service providers such as AWS focus heavily of reducing such concerns and devote
much attention to the security of the firm and prevent cybercrime (Budriene-Zalieckaite, 2012). There
can be incidents of security breach which involves losing confidential data.

Multiple claims have been made by cloud computing firms to assure that data will not be lost or leaked.
Many such firms have implemented state of the art facilities to make sure that the information is
protected and safe.

H4: Security and privacy concerns will positively impact cloud computing in terms of small and
medium scale industries.

Cost Reduction: On implementing cloud computing, there is a great opportunity in an organization to

reduce costs. System maintenance, IT network maintenance cost will be reduced. It will help to reduce
cost for the organization by increasing the speed of process and efficiency and thereby providing better
quality services than it was prior to establishing cloud computing (Hoffman,2011).
H5: Reduction in costs will positively impact cloud computing in terms of small and medium scale
industries.

Relative Advantage:

Relative Advantage: is defined as “the degree and the extent to which an innovation and technology is
perceived as much better than its substitute idea”. It is achieved by providing consumers excellent
values and services at much lesser cost. In this scenario how the SME will get relative advantage by
adopting cloud computing over other technology is discussed. Innovations and new ideas that have a
clear advantage in creating strategic effectiveness and operational effectiveness has a higher motivation
for its adoption. If the benefits of the technology supersede existing practices and processes. The merits
will positively influence its adoption.

H1: Relative advantage will positively influence(have significant impact) cloud-computing adoption for
SMEs

Competitive Pressure:

Competitive pressure has long been recognized in the innovation diffusion literature as an important
driver for technology diffusion. It refers to the pressure felt by the firm from competitors within the
industry. Adopting new technology is often a strategic necessity to compete in the market place. By
adopting cloud computing, firms can benefit from greater operation efficiency, better market visibility,
and more accurate access to real-time data.

The level of pressure experienced by the firm from competitors within the industry is referred to as
competitive pressure. They have been proposed that an essential determining factor in IT adoption is
due to the experience of stiff competition. Firms experience pressure and become gradually aware of
and imitate their competitors’ embrace of new technologies because the high-tech industry has the
characteristics of swift changes.

Competitive pressure will positively influence cloud-computing adoption for SMEs

Compatibility:

“The degree to which the innovation fits with the potential adopter’s existing values, previous practices,
and current needs”. Compatibility is an important determinant of innovation adoption (Azadegan et al.,
2010; Dedrick et al., 2003; Ling, 2001; Thiesse et al., 2011). For example, if the purpose of adopting
cloud computing is to take advantage of the scalability benefits for applications with lower security
concern, then offloading the capability to the cloud infrastructure makes economic sense. Effortless
business enablement and compatibility are therefore factors that will determine whether cloud
computing will be adopted by an organization.

To be more specific, a technology that is difficult to understand, and use is considered to be complex.
Furthermore, a technology is considered to be complex if it takes too much time and effort to be learnt;
or if the user should spend too much time to perform its normal duties. Therefore, I hypothesize that in
the context of cloud computing the level of complexity of the system has a negative influence on
adoption of cloud computing

H2: Compatibility will positively influence cloud-computing adoption for SMEs

References:
 Business impacts of cloud-
http://www.kpmg.com/au/en/topics/cloud/pages/default.aspx
 What are business impacts of cloud computing?
http://www.pwc.com/us/en/issues/cloud-computing/functional-changes.html
 The Economic Impact of Digital Technologies: Measuring Inclusion and Diffusion on
Europe Bayo-Moriones and Lera-Lopez, 2007
 The NIST definition of cloud computing :P Mell, T Grance
 A View of Cloud Computing By Michael Armbrust, Armando Fox, Rean Griffith,
Anthony D. Joseph, Randy Katz, Andy Konwinski, Gunho Lee, David Patterson, Ariel
Rabkin, Ion Stoica, Matei Zaharia
 Cloud computing: a perspective study by L Wang, G Von Laszewski, A Younge, X He, M
Kunze, J Tao, C Fu
 Migration to Cloud Computing- The Impact on IT Management and Security An
Exploration of Senior Technical and Security Professional Views Adel Alkhalil, Reza
Sahandi , David John
 Cloud Computing Application in Small and Medium Scale Industries By David Budriene
and Laima Zalieckaite, 2012
  Amazon Web Services- https://aws.amazon.com/directconnect/?hp=tile
 Cloud Computing adoption by SMEs in the north east of England: A multi – perspective
framework by Yazn Alshamaila , Savvas Papagiannidis and Feng Li, 2012
 VMware (2011) CIO Global Cloud Computing Adoption Survey January 2011. [Online].
Available at: http://www.vmware.com/resources/wp/cloud_adoption_register.html#Register.
 Malone, S.C. (1985) 'Computerizing small business information systems', Journal of
Small Business Management, 23(2), pp. 10-16.
 Kendall, J. (2001) 'Receptivity of Singapore's SMEs to electronic commerce adoption',
The Journal of Strategic Information Systems, 10(3), pp. 223-242.
 AN EMPIRICAL INVESTIGATION OF FACTORS AFFECTING CLOUD COMPUTING ADOPTION
AMONG SMEs IN THE NORTH EAST OF ENGLAND- YAZAN YASSEN
ALSHAMAILEH,Newcastle University Business School,2013
 THE FACTORS THAT INFLUENCE ON ADOPTION OF CLOUD COMPUTING FOR SMALL AND
MEDIUM ENTERPRISES - Mahyar Amini (1986)
 Toward Corporate IT Standardization Management: Frameworks and Solutions - Lippert
& Govindarajulu, 2006
 The Effect of Top Management Support on Innovation: the Mediating Role of Synergy
Between Organizational Structure and Information Technology - ESHAQ M. AL SHAAR,
SHADI AHMED KHATTAB , RAED NASER ALKAIED -2015
 A theory of organizational readiness for change - Bryan J Weiner (2009)
 Cloud Computing Application in Small and Medium Scale Industries By David Budriene
and Laima Zalieckaite, 2012

Appendix:

Questionnaire:

Top Management support: (Likert Scale: 0-5)

  A supporting mentality is displayed by the top management towards cloud computing.
 The top management does not mind if there are risks involved pertaining to the implementation
of cloud computing.
 The company’s top management provides strong leadership when it comes to Information
Technology Solutions.
Organizational Readiness: (Likert Scale: 0-5)
 The company likes to do new things to improve its process continuously.
 The customers play a key role in setting benchmarks in process.
 The company has implemented a lot of changes in the recent past (3-5 years)
 Managers are playing a key role in setting standards for quality continuously.
Technological Readiness: (Likert Scale: 0-5)
 The company has a clear and detail knowledge on the usage of IT in support operations.
 The company has necessary resources both human and IT to implement Cloud – Computing
Security: (Likert Scale: 0-5)
 The company is very much concerned of its data on the cloud.
 The company is concerned about its customers on the cloud.
 The company has high concerns on the privacy factor on cloud.

Cost Reduction: (Likert Scale: 0-5)

 The cost for implementing cloud computing is much lesser than the benefits it provides.
 Maintenance costs decrease with the implementation of cloud computing.
 Energy costs and environmental costs have gone down with the implementation of cloud
computing.

Relative advantage: (Likert Scale: 0-5)

 Cloud Computing allows you to manage business operations in an efficient way.

 Cloud computing improves the quality of business

 Usage of cloud computing offers new opportunities

Competitive Pressure: (Likert Scale: 0-5)

 Cloud Computing has an influence on competition in the industry

 Our firm is under pressure from competitors to adopt Cloud Computing.
 Some competitors have already started using Cloud Computing.

Compatibility: (Likert Scale: 0-5)

 Cloud Computing fits the work style of the company

 Cloud Computing is fully compatible with current business operations.
 Computing is compatible with your company's corporate culture and value
system.