The impact of cloud storage on business information technology
Whether they use it for storage or information services, the cloud is transforming how businesses consume, manage and price information technology.
The recession may be behind us, but with the latest economic indicators showing a slowdown in growth across the UK, there's little scope for businesses to rest on their laurels. Owners and directors know all too well that reducing inefficiencies and achieving more with less remain key challenges.
The difficulties of managing IT infrastructure and sourcing appropriately skilled staff to keep it up and running are of growing concern, as the increasing complexity and growing interdependence of systems leaves many struggling to keep up.
In response, the technology industry has been quick to push the benefits of cloud computing, which allows businesses to access software applications as a service through the Internet instead of running them on in-house hardware.
Analyst Gartner predicts that, this year, half of large global enterprises will rely on external cloud computing services for at least one of their top 10 revenue-generating processes. It also forecasts that half of all new application software vendors will be pure Software as a Service (SaaS) providers.
In the meantime, intense hype around cloud computing makes it difficult for buyers to understand their options. Despite its relative immaturity, those options are growing rapidly, with cloud services today enabling businesses to run everything in a virtual way, from infrastructure and storage, through application infrastructure and full applications, to information and business services. Regardless of the applications you run, what's clear is that cloud computing changes the way that businesses consume, manage and price IT.
The silver lining
For Chris Gilchrist, managing director and founder of Dundee-based web design agency Hit Reach, the move to the cloud has completely transformed the way he can keep track of the numbers.
Chris said: "Primarily it was frustration that made me look at the cloud two years ago. We used Excel to itemise everything for our accountant who used Sage. To get a view of what had been paid and for quarterly management accounts, we had to ask them for reports – we had very little visibility over the accounts."
After considering a number of cloud accounting products on the market, Hit Reach opted for Edinburgh-based FreeAgent. Chris said: "We are keen to support local businesses, but we also sent them lots of support queries during our trial. The support they gave us was the biggest thing."
Efficiency improvements made possible due to functionality in the software have also ensued. In addition to automatic bank reconciliation, FreeAgent allows automatic submission of quarterly VAT returns via a link from the cloud software to HMRC's website. "It probably doesn't save us that much time but it removes the hassle and stress of doing it," Gilchrist says.
Historically we would have spent one or two days a month chasing invoices, representing between £7,000 and £14,000 a year in chargeable time
Meanwhile, tracking functionality takes much of the guesswork out of invoicing clients. The FreeAgent software enables Hit Reach to group invoices by project and automatically send them out, while the ability to send out automated invoice reminders has massively improved credit control and cash flow.
"Historically we would have spent one or two days a month chasing invoices, representing between £7,000 and £14,000 a year in chargeable time" said Chris. "Our accountancy fees have also dropped from £7,000 to £1,000 a year and I can print management reports out any time I like. And that's all for a monthly fee of £20.
Now Hit Reach has offices in London and Chicago and 90 per cent of the business is cloud-based, Chris said. "Very few things are installed locally, partially because of the location of staff but also because of the flexibility that gives us."
For forward-thinking accountancy firms, cloud computing offers the potential to move away from compliance and instead focus on more value-added services. For clients, greater efficiency can mean they have less to pay for low-level work.
"Some businesses, particularly those looking to reinvest in growth, will just want to reallocate that overhead," said Chris. Either that or they can expect to get more insight for their money.
Michael Beaver is a sole practitioner who set up his firm in West London a year ago and today services around 150 clients across a variety of industries. He is also a Clear Books Pro Partner and resells the cloud-based accounting software.
He said: "Accountants have been slower off the blocks in terms of adopting cloud because they are cautious by nature. When I set up I was free to set the agenda in terms of how I wanted to work with clients."
To date, around 30 of Michael's clients use cloud-based accounting software – of those, 20 use Clear Books – and allow him online access to their accounts data. "It has changed the conversation," he said. "It means I have much more frequent contact with clients than I used to and I'm offering more of an advisory service."
Being able to access systems regardless of your location also comes in handy, particularly when you're a sole practitioner trying to juggle the demands of clients with the equally demanding needs of a wife and family.
Michael said: "I have around 10 clients I do a monthly payroll for. I recently had a situation where I did the payroll then went off on holiday and realised I'd been given the wrong information. I was on a cruise ship in the Mediterranean but was able to sort it out."
Bearing in mind that an estimated 800,000 laptops are lost or stolen each year in airports alone, the security implications of storing data in the cloud and the fact that data can still be accessed no matter what happens to a machine, offers some peace of mind.
Michael is so confident in the SaaS concept that for the last month or so he has been running all of his applications in the cloud using Hosted Desktop UK. He pays £50 a month for email archiving, data backup, file storage and support.
Kevin Doran, a sole practitioner who launched his firm Platform Accounting seven years ago, said familiarity with social media and mobile working means today's entrepreneurs have the expectation of being able to run their businesses in a similar way. Despite being based in Coventry, he has customers as far afield as Glasgow, and Newhaven on the south coast of England.
Use of Clear Books is a prerequisite for Doran's clients, who receive access to the software and training from him as part of their accounting fees. Doran is also the first port of call for support. "You need to manage their expectations. You can't just send them a user manual and expect them to crack on."
In return the cloud set-up gives him access to information at the drop of a hat and removes the situation where clients turn up once a year with a box-load of receipts. Kevin said: "It allows me to keep my fees down and it means we're not getting to that horrible situation at the end of the year."
Jyoti Banerjee, a director of not-for-profit policy think tank M Institute, believes the subscription model of cloud applications has struck a chord with all sorts of businesses for which business software has become a commodity. He said: "The pay-monthly subscription model of cloud software means it's not a big lumpy transaction at the start that has to be written off over time."
And because cloud computing is much faster to deploy, businesses have minimal project start-up costs and predictable ongoing operating expenses.
That's not to say it's going to be cheaper though. A study by 451 Research conducted at the end of last year found that while lowering costs emerged as a major driver for cloud adoption, 36 per cent of respondents ended up paying more for on-premise cloud compared with the equivalent services delivered by a provider, and 26 per cent were paying about the same.
Nonetheless, the potential for lack of long-term customer commitment keeps vendors honest and on their toes, according to Kevin McCallum, business development director at FreeAgent. He said: "You're only one month away from customers being able to say I've had a better offer."
It's going to accelerate with use of mobile devices. It's naïve to think that everyone is interested in the cloud, but it's coming whether you like it or not
Another main driver of cloud adoption is that companies no longer want the headache of running a complex IT set-up and ensuring the applications they run are the most up to date, not to mention the worry that is IT security – and that's if you can find suitably qualified IT staff in the first place, and are prepared to pay the going rate.
Cooper Software is a user and reseller of NetSuite, a business management suite, offering a single, web-based platform to integrate business processes. "Cloud offers the potential for organisations to consolidate several systems allowing the IT department to spend more time on value add instead of administrative tasks such as backup and cabling," said Frank Cooper, the consulting firm's managing director.
In addition to slashing 50 per cent off the cost of hardware and licence fees over six months since going down the cloud route, the fact that consultants can update systems while out on the road has speeded up the invoicing processes dramatically. "We can push out invoices immediately – previously it was a two-day process – and they are accurate, whereas there used to be discrepancies. As a result we have succeeded in halving the amount of time it takes to get paid," said Frank.
Jyoti, who for the last two years has been running an MBA elective class on Software Entrepreneurship at the University of Oxford's Saïd Business School, said extensive use of "APIs" (application programming interfaces), the name given to the routines, protocols and tools for building software applications, makes it fairly simple for one application provider to connect to another application.
"In many ways, SMEs have access to better systems than large companies because the integration is so good," he said.
The arguments in favour of cloud may be compelling, but penetration of the market remains small. If you take accounting applications as an example, currently there are around 250,000 businesses in the UK using online accounting. That's a drop in the ocean when you consider there are five million companies with fewer than 10 employees.
Kevin McCallum said, however: "It's going to accelerate with use of mobile devices. It's naïve to think that everyone is interested in the cloud, but it's coming whether you like it or not."
In the meantime, David Evans, deputy head of department, computing and mathematics at the University of Derby, said the hype surrounding the cloud is potentially a good thing.
"If businesses think about cloud in the context of what they currently do, it could solve some of their problems or allow them to work in a new and more efficient way," said David. "The danger of the hype, however, is that you can go for something shiny that doesn't actually add value."
The cloud is her cup of tea
The ability to access information on the go is a major benefit to Jules Quinn, managing director and "chief tea lady" of The TeaShed. She launched her Gateshead-based tea importing business four years ago, fresh out of university, and now sells tea all over the world.
She uses a number of cloud-based applications including team communication tool Slack, data synchronisation tool Cozy, social media scheduler Buffer and, for the last year, Sage's cloud-based Sage One accounting application.
Jules said: "As a small business you're always on the move and the way that many SMEs work today isn't a 9-5, Monday to Friday thing. You're running the business from the palm of your hand. I would never go back to an Excel spreadsheet. The cloud really is the way forward for a small business."
Jules admits to being a "little bit cautious" in terms of the security aspect of cloud computing "but I haven't had any problems".
Her advice to others is simple: "Don't have too many apps – it's easy to forget where you're at. Have a few key ones and make sure you can get them on your phone."
This article first appeared in The CA magazine.