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GFC Slows Down Cloud Computing Developments

The ongoing Global Financial Crisis (GFC) has also had a significant impact on some of the developments in our industry—for example, cloud computing.

It looks as though the GFC is the key reason that developments in cloud computing have not happened more quickly. Industry evidence suggests that shifting to the cloud saves 20%-50% off current IT deployments, and, according to its advocates, it can be many times more than that.

Since cloud computing also involves saving capex and reduced opex, the switching costs to cloud computing are relatively low. It is even possible to run existing systems parallel to cloud computing, which makes migration easier. However, rather than picking up pace, growth has slowed.

Now on to one of my colleagues, Tim Cowen Chairman, opencomputingalliance.org he has made some suggestions as to why this might be happening:

  • No change means no additional risk and CTOs have their ‘helmets on and heads well down’. They can’t get fired for not making a decision. They cite worries over data security and data protection, but fear of change and corporate cultures looking for people to fire has to be a factor. The huge issue here is that the lack of trust and confidence is supporting short-term profitability at the expense of experimentation and innovation. CEOs brought up on the good times may not have the wit or longevity to lead organisations out of this trap.
  • Too few practical examples. Suppliers ahead of the game are not releasing examples of what works and what doesn’t; possibly since the victor is the credible supplier with most practical experience in a short time.
  • Issues such as outsourcing and supply chain and business process change are the essence of what needs to change to allow business to be successful.
  • Technology lock-in to existing systems.
  • Really short-term savings being taken off existing contracts, such as 25% off existing UK government contracts as part of the spending review. Higher savings are available from newer cloud solutions, but they have not been considered as departments look to shave costs on old technology and existing contracts.
  • Lack of confident suppliers. Focusing on cash and worried about existing contracts and revenues they are all being timid. These sorts of ‘animal spirits’ are not unusual in the GFC circumstances, but they are the opposite of entrepreneurial spirit—one that goes for growth and takes advantage of uncertainty to pitch new solutions and to innovate.

The lack of investment can’t go on forever, and with all that cash on balance sheets, M&As will boom before dividends increase.

Also, at a certain stage shareholders will start challenging management to go for more of a growth profile. Stability and safe investments aren’t enough for portfolio managers, where some risk is needed in the mix. However the question is: when will this start to happen?

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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