The small business Cloud: escape the perfect storm

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1 RESEARCH PAPER The small business Cloud: escape the perfect storm If the future is cloud, how does the relationship between small companies and their service suppliers need to change? May 2014 Sponsored by

2 Contents Executive summary The direction of travel: towards the cloud The professional challenge Key considerations for small business IT leaders Conclusion About the sponsor, Commensus p3 p3 p6 p8 p10 p11 This document is property of Incisive Media. Reproduction and distribution of this publication in any form without prior written permission is forbidden. 2 Computing research paper sponsored by Commensus

3 Executive summary For small business, cloud computing and cloud hosting services offer major competitive potential. However, for small business IT leaders particularly those in professional sectors, such as financial, legal and healthcare services cloud solutions can create a perfect storm of challenges that risks blowing away the many advantages, such as being able to compete with larger rivals on equal terms. The problems are magnified by some troubling survey findings: only a minority of the UK s small business IT leaders say that their external IT partners understand their business, with many having no idea at all about the markets that small business operate in, not to mention their specialist needs. As IT provision moves inexorably towards the cloud and bespoke business services, it is essential that buyers and their cloud hosting suppliers develop much closer working relationships than that. The direction of travel: towards the cloud Cloud hosting, applications, services and platforms have long been pitched as ideal for small to medium-sized businesses. This is because they create the proverbial level playing field for organisations for which large-scale, on-premise infrastructures are not appropriate, but which still need the power, speed and depth of enterprise applications, coupled with clean, accessible data. In the IT industry generally, the direction of travel is strongly towards the cloud, even for those organisations that have no immediate plans to change strategy or which have legacy on-premise investments. But despite the many obvious attractions of cloud services for smaller organisations, there is a problem: they are often less able to capitalise on them strategically because the lack of a sizeable internal IT function means that they rely on suppliers to guide their technology choices, to guarantee service levels, and to look after their sensitive data. An exclusive Computing survey of almost 100 IT leaders within companies with fewer than 300 staff across several sectors of the UK economy, including banking, technology and professional services, found that 36 per cent of them do not have an internal IT team. As a result, 57 per cent of the senior IT managers questioned say that they find themselves relying on external suppliers for both strategic and operational advice either constantly (6%) or occasionally (51%). The remaining 43 per cent said that they rely on their own expertise (Fig. 1, see page 4). Computing research paper sponsored by Commensus 3

4 Fig. 1 : Do you rely on your suppliers for strategic and operational advice? 6% 43% 51% Yes Occasionally No As cloud uptake increases over the next five to ten years, not all suppliers will make good partners for smaller organisations, because not all of them will have the internal resources to look after their clients. Certainly, the Computing survey found that, despite the lack of a significant internal IT function, nearly one-third of small business IT leaders feel distinctly lukewarm towards the external suppliers that they turn to for advice: 30 per cent said they are neither happy nor unhappy with their suppliers, while a further three per cent said they were fairly unhappy. That said, there is good news for some suppliers: two-thirds of the IT leaders questioned said that they are either very happy (22%) or fairly happy (45%) with their external partners, although the much larger fairly happy camp suggests that there is room for improvement in their relationships. Why not aim for excellence? In the medium term, all suppliers will need to focus on keeping their customers happy. For IT buyers, feeling on the fence about their suppliers is likely to become more of a problem for organisations that do rely on third-party advice and expertise. But why is this? Professor Leslie Willcocks of the London School of Economics, a world-renowned expert on the impact of IT on business processes, says that the shift to cloud hosting entails a shift away from on-premise technology and towards business processes. This means that within the buyer/ supplier relationship, the focus will increasingly be on business and relational issues, such as sector expertise service quality, and less about the technology itself. In short, specialist cloud suppliers and hosting companies that focus on service quality will be vital to help buyers succeed in their business aims. 4 Computing research paper sponsored by Commensus

5 The Computing survey found that despite the groundswell of vaguely positive feelings towards their suppliers, a sizeable minority of IT leaders 22 per cent said that they may change their hosting partners, and a further five per cent said that they are definitely planning to change. The figures suggest an emerging feeling among buyers that service quality could be better (Fig. 2). Fig. 2 : Are you considering changing your cloud/hosting supplier? Yes 5% No 39% Maybe We don t have a cloud/hosting supplier but are looking to employ one No, we don t have a cloud/hosting supplier and have no plans to employ one 22% 6% 28% Asked to be more specific about why they might change their hosting partners, responses were mixed and reveal buy-side immaturity in the small business cloud market as decision-makers shop around and try to work out what is an acceptable level of service. Not as flexible as we would like, said one respondent; better support options said another of their reasons for making a change. A third said his organisation wanted better reliability, and a fourth that they wanted better security and operational reliability. But in general terms, respondents expressed a feeling that they were still getting to grips with the new normal of the market. The survey suggests that these issues will only become more important in the months and years ahead. Sixty-four per cent of respondents said that up to 20 per cent of their overall IT budget will be invested in cloud computing in the next 12 months. One-fifth of all respondents said that between 20 and 40 per cent of their annual IT budget will be devoted to cloud computing, and 11 per cent said up to 60 per cent of their budget would go on the cloud this year. A further four per cent said that cloud will take up between 60 and 80 per cent of their entire IT spend. Asked which form of cloud service they are considering, 20 per cent of IT decision-makers said that they would use public cloud services, 22 per cent said private cloud, and 40 per cent a hybrid solution. Computing research paper sponsored by Commensus 5

6 However, small business IT leaders unfamiliarity with the issue was revealed in the 16 per cent Don t know camp (Fig. 3). Fig. 3 : Which cloud models are you considering? 2% 16% 19% 23% Public cloud Private cloud Hybrid cloud Don t know Other 40% The professional challenge For customer organisations in such sensitive areas as professional services, bespoke financial advice and healthcare where a number of respondents operate the need to find the right partner for their journey to the cloud presents a particular challenge. Such organisations demand rigorous care and attention, because of the nature of their businesses and the sensitive data that they hold. The survey found that more and more small business organisations are grappling with the complex issues of data hosting and security, specifically whether they would host sensitive data in the cloud. Nineteen per cent said that they would not move such data to the cloud, because of insufficient trust in their suppliers. Thirty per cent said maybe, if we can be assured it will be secure, and a further 19 per cent said that they would, but only if it was guaranteed that the data would remain the UK. Just 19 per cent said that data security was covered by their current SLA and they are confident that it will be safe, and six per cent said that regulations prevented data from being hosted in the cloud: an issue that affects many specialist companies (Fig. 4, see page 7). 6 Computing research paper sponsored by Commensus

7 Fig. 4 : Would you move your sensitive data to the cloud? No, we do not trust cloud suppliers with our data 19% No, regulations prevent it 6% Maybe, if we can be assured it will be secure 30% Only if it remains in this country 19% Yes, data security is covered in our SLA and we are confident 17% Don t know 2% Other 6% Indeed, countless previous surveys have shown that a significant number of IT leaders have no idea what their industry s regulations say about data hosting and transfer. Such professionals urgently need to get to grips with the issue. Over half of the respondents to the Computing survey are worried about data security in the cloud in general terms. Asked whether the fear of losing control of data prevented them from using cloud services, 17 per cent answered definitely and a further 34 per cent said yes, to an extent. Only 21 per cent of the UK s small business IT leaders said that they have no worries about losing control of their sensitive data in the cloud. Twenty-eight per cent responded that they were slightly concerned about it. Fig. 5 : Does fear about loss of data control prevent you from using cloud services? 21% 17% Yes, definitely Yes to an extent Only slightly No, not at all 28% 34% Computing research paper sponsored by Commensus 7

8 The conclusion is clear: cloud suppliers have much to do to take nervous buyers with them on the journey to cloud hosting, and that demands industry expertise and knowledge of small business s specialist needs. Despite the fears expressed by many small business, however, 89 per cent of respondents said that they had not suffered any data loss or breach in the past five years. Seven per cent said that they had, while a troubling four per cent of IT leaders admitted that they did not know the answer to the question. Key considerations for small business IT leaders The industry-wide shift towards the cloud offers many attractions and makes many promises including all the now-familiar arguments about more predictable operational expenditure, scalability, and seamless IT upgrades but it also places four burdens of responsibility on client-side IT leaders. First, they need to begin thinking of their roles in terms of strategic business support, rather than mere operational maintenance. In smaller organisations, many IT leaders may see themselves occupying more of a fixer role. Second, they need to manage a different type of supplier relationship that is more about providing an always-on business service, rather than technical support for packaged software. Again, some small business IT leaders may see this as putting their traditional roles at risk. Third, they have to consider data security in new ways. This is a particular challenge, as while the onus to secure data may have shifted to the supplier, the client-side IT leader is still in the firing line if something goes wrong. Indeed, they will be held responsible and liable if customers data is compromised. And fourth, they have to optimise their IT infrastructures for cloud hosting and other services, and for working with their partner s external systems. In sensitive professional sectors, each of these pain points can present real challenges to IT leaders, as governance, transparency and regulatory compliance become ever more important issues. For example, the regulations on financial services and other professional sectors, such as healthcare and legal advice, are complex and onerous. IT leaders are at the centre of this issue, because ultimately it is their responsibility to ensure that customers data is secure. Data privacy and security are hot topics for members of the public too in other words, for organisations customers. They are becoming increasingly concerned about what organisations are doing with their data: witness the recent controversies about the sale of taxpayers and NHS patients data to private companies. In such an environment, any lapse in data protection and security can have a ruinous impact on a company s professional reputation, not to mention citizens lives. 8 Computing research paper sponsored by Commensus

9 Each of these issues represent a necessary change in mindset for IT leaders one that some may be uncomfortable with. For that reason, they need a cloud supplier they can rely on and which understands their business and the professional sector in which it operates. Sadly for many vendors, the Computing survey hardly delivered a vote of confidence on the subject of bespoke professional services: just 32 per cent of respondents with a cloud or hosting provider said that their partner offered a dedicated client manager for their business. Forty-one per cent of IT leaders said an emphatic no when asked if there was a dedicated client manager, and 24 per cent admitted they did not know suggesting that there isn t one (or if there is, that person has not bothered to get in touch!). Fig. 6 : Does your cloud/hosting supplier have a dedicated client manager for your business? 3% 24% 32% Yes No Don t know Other 41% It is hardly surprising, therefore, that only a minority of respondents said that their external IT partner properly understands their business and the market that it operates in. Just four per cent said that their external partner definitely understands their organisation, and 32 per cent that they are generally responsive. Eleven per cent of IT leaders admitted that their external IT partner does not understand their business at all, while 36 per cent said that they do not understand the organisation and generally hold them at arm s length. Sixteen per cent of respondents offered a familiar lukewarm response, saying that their external partner does not really understand their business, but they do try. As more and more data moves to the cloud, buyers should seek out cloud partners who make them feel valued, and about whom they can feel much more enthusiastic and confident. The future of cloud-enabled business goes hand in hand with personal service. Computing research paper sponsored by Commensus 9

10 Conclusion Of all the challenges facing small business IT leaders, data security is the toughest, because nowadays almost all organisations are data-based enterprises. That makes it difficult for any IT decision-maker; but for smaller organisations the challenge is particularly tough in an environment in which scare stories about snooping, hacking and data theft abound. Data security and long-term business viability go hand-in-hand in smaller organisations. For the smaller organisation, data security is everything, because the size of an organisation no longer bears a direct relation to the amount of data it collects, or to the sensitivity of the information that this data contains. Some large organisations may collect broad, general data about customers buying habits, while some smaller organisations boutique financial services companies, for example may collect rich, sensitive data about individual people, who may be high net-worth individuals. In such a market, reputation is everything. But at the same time, large organisations have some advantages over their smaller rivals: a sizeable internal team and better access to external consultancy services, for example. Smaller organisations IT leaders may find themselves with few internal support options and little in the way of external help too. And that s not all: some cloud suppliers may regard larger organisations as the greater prize, and so devote insufficient resources to keeping smaller clients happy and well supported. In all, therefore, being an small business IT leader can be a lonely, high-pressure business, which is why it is essential to choose an expert cloud partner that understands smaller organisations needs, and which also understands that small does not equal unimportant. In a service-led culture, such as one enabled by cloud technologies, all IT strategists need to be business focused, but many suppliers fail to focus enough on service quality. Again, for smaller organisations, this is a challenge for the reasons we have already explored: they may be reliant on their suppliers for expert guidance, and yet the supplier may not see them as a valuable enough client to take proper care of. In a sense, therefore, data security in the cloud can create a perfect storm for small business IT leaders who deal with a large amount of sensitive client information: an urgent need to optimise their systems and guarantee data security combined with a lack of strategic guidance and an over-reliance on third-party providers, who perhaps have little time for them. This perfect storm circles around a core concern: control over data or rather, the fear of losing control over it. Understandably, this fear prevents many smaller organisations from capitalising on the many competitive advantages of using cloud hosting, applications, services, and platforms, such as access to leading-edge technology, seamless upgrades, lower costs, and greater flexibility. Due diligence is essential when choosing cloud suppliers; indeed, it is best to consider them as prospective cloud partners on a shared journey towards improved service, rather than as a suppliers in the traditional sense. With that mindset to the fore, it is particularly important to choose a partner that knows your business, knows you, and can guarantee access to a dedicated client manager, even for a small organisation. 10 Computing research paper sponsored by Commensus

11 And with all the scare stories about data snooping, hacking and theft, it is also essential to choose a partner that can guarantee bespoke access to sensitive data, and that the suppliers internal staff will not be able to access the data themselves. About the sponsor, Commensus Commensus formed in 2008 with a simple customer question; if your business could purchase and build the best platform for your IT needs, what would it look like? We understand that your data and network are the most important elements in your IT infrastructure. That is why we give you the control of your data security and you have the ability to control and choose your data access rights. As an IT managed service provider we give you full control and choice of what you want from us and how you want to handle your data. For more information: Visit: Computing research paper sponsored by Commensus 11

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