PC Recovery

Introduction

            Global spending on information technology hit .4 trillion in 2008, although the aggregate total is expected to decline for the first time since 2001 in the current year – and perhaps for 2010 as well.  Indeed, across the private sector, information technology spending is under fire. In fact, due to the interrelated impacts of the recession and the credit crisis, capital budgeting and credit availability for large IT projects has declined significantly. Thus, the only areas of information technology that are growing in the wake of the economic crisis is outsourcing and services (Davis, 2009a). Additionally, as new entrants, many of them tied to cloud services, enter the marketplace, the prices for outsourced information technology are likely to decline over the next few years as competition intensifies between larger, entrenched competitors and these upstart firms.

            The analyst firm IDC estimates that roughly ten percent of the approximately billion spent on business applications worldwide in 2008 was spent on cloud computing applications – being those entirely delivered on a remote basis.  Many analysts, including Gartner, project growth rates for cloud computing in excess of 20% or more for years to come. The growth rate over the next few years could be as high as 30%, with analysts estimating that the global market for cloud computing services could reach billion by 2012.

            Why cloud – and why now? According to the results of Kelton Research’s 2009 Cloud Computing Survey, surveying over 500 IT decision-makers, the shift to cloud computing can be seen as organizations are increasingly “turning to new technologies to cut costs, rather than cutting back on their technology uptake.”  Cloud computing is also by no means an “all or nothing” proposition. Indeed, it has been seen in practice that cloud involvement often starts when organizations initially use cloud resources for part of their non-mission-critical applications or as resources for test projects.

            The cloud model presents three new dimensions for computing.

The illusion of infinite computing resources available on demand, thereby eliminating the need for cloud computing users to plan far ahead for provisioning.

The elimination of an up-front commitment by cloud users, thereby allowing companies to start small and increase hardware resources only when there is an increase in their needs.

The ability to pay for use of computing resources on a short-term basis as needed (e.g., processors by the hour and storage by the day) and release them as needed, thereby rewarding conservation by letting machines and storage go when they are no longer useful.

The Cloud and Government Information Technology Spending in the Federal Government

            Many analysts believe that the present economic situation – and its resulting financial strain placed on governments – will only serve to accelerate the adoption of cloud computing in the public sector. As Bernard Golden recently observed, cloud computing offers “undeniable financial payback—higher utilization, lower energy use, and better application availability. The benefits are so large that IT organizations have been willing—eager, even—to tolerate the challenges that accompany the technology.” Indeed, a July 2009 Computerworld report found that the larger the organization, the greater the likelihood that it would be engaged in using cloud computing.

            The economy and the resulting tightness of all governmental budgets – on every level – may indeed speed and heighten the rise of cloud computing. Dan Israel, an executive with Google’s federal group, recently observed that: “Given that we’re in a very tight budget situation, looking to the cloud is a very cost-effective means of bringing new technologies into the government. By moving to cloud computing, we can also help government IT get out of the business of using and managing servers and focusing instead on more mission-critical technology projects in their agencies.” As such, cloud computing gives organizations greater abilities to focus on their core business. Likewise, Ron Ross, Director of Security for the National Institute of Standards and Technology, recently commented that: “In an era where there’s going to be tight resources, there will be compelling ways to do things more effectively on the IT side…(But) we have to be able to do that in an environment that is well protected.”

            In this budgetary context, the forecasts for the impact of cloud computing on federal IT spending are certainly eye-opening. The public sector market analyst firm, INPUT (2009), recently projected that over the next five years, overall federal IT spending will grow at a compound annual rate of 3.5%, reaching billion by 2014. INPUT forecasts that federal cloud computing-related spending will grow almost eight times as fast, with a growth rate of approximately 30% annually over the same time frame. According to INPUT’s projections, federal spending on cloud computing services will triple over the next five years, growing from 7 million in 2008 to 2 million annually by 2013.  This would mean that by 2014, over billion of the federal IT budget would be devoted to cloud computing.  According to Market Research Media, cloud computing thus represents “a fundamental re-examination of investments in technology infrastructure.”

            The fast-growth of federal spending in this area is being driven by top-level commitment to transform the federal IT infrastructure through increased adoption of cloud-based architectures, with the expectations of cost savings and efficiencies to be achieved. Analysts have observed that such spending – and the executive commitment behind it – will mean that the federal government will not lag the private sector in the shift to cloud computing. In fact, the public sector may in many ways set the pace for cloud adoption. As the CIO of the federal government, Vivek Kundra recently stated: “The cloud computing investment in the 2010 budget reflects the administration’s desire to drive down costs, drive innovation across the federal government, and make sure we’re making available technologies to the workforce that may be available to them elsewhere.” Thus, cloud computing appears to be fundamental to the Obama Administration’s technology strategy to try to gain efficiency from and rationalization of federal IT, while expanding applications, interoperability, and communications.

            In May 2009, the Obama Administration expressed its commitment to transforming the architecture of federal information technology through cloud computing in a supplement to their budget proposal for the 2010 fiscal year. In the Office of Management and Budget’s Analytical Perspectives, cloud computing was a central part of an effort to fundamentally realign the government’s information technology infrastructure and IT strategy, calling for:

The Federal Government will transform its Information Technology Infrastructure by virtualizing data centers, consolidating data centers and operations, and ultimately adopting a cloud-computing business model. Initial pilots conducted in collaboration with Federal agencies will serve as test beds to demonstrate capabilities, including appropriate security and privacy protection at or exceeding current best practices, developing standards, gathering data, and benchmarking costs and performance. The pilots will evolve into migrations of major agency capabilities from agency computing platforms to base agency IT processes and data in the cloud. Expected savings in the outyears, as more agencies reduce their costs of hosting systems in their own data centers, should be many times the original investment in this area.

The pilot categories outlined by the Office of Management and Budget in the 2010 budget proposal include the following broad areas:

End-user communications and computing – secure provisioning, support (help desk), and operation of end-user applications across a spectrum of devices; addressing telework and a mobile workforce.

Secure virtualized data centers, with Government-to-Government, Government-to-Contractor, and Contractor-to-Contractor modes of service delivery.

Portals, collaboration and messaging—secure data dissemination, citizen and other stakeholder engagement, and workforce productivity.

Content, information, and records management – delivery of services to citizens and workforce productivity.

Workflow and case management- delivery of services to citizens and workforce productivity.

Data analytics, visualization, and reporting – transparency and management.

Enterprise Software-as-a-Service – for example, in financial management.

            Observers have commented that this budget commitment makes clear that the initial pilot projects and seed investments are but the “beachhead for a broader shift” in federal information technology strategy – and spending – under the Obama Administration and CIO Kundra. Cloud computing today has been termed as being in the “wonderful ‘discovery’ phase of a technology,” with great forecasts, but few guidelines on how to properly make use of the technology. What we have seen to date in the federal government are a series of small cloud computing pilot projects – as various agencies have undertaken what have been termed as “science experiments” in the use of the technology. Definitely, we are in the “early adopter” phased of the product lifecycle of cloud computing, and some have urged that the federal government, due to its market power, should help to propel the movement and become an early adopter of cloud computing. Leading cloud proponents have urged the Obama Administration to adopt “pro-cloud” policies and promote cloud computing to ensure that the U.S. remains at the forefront of this computing revolution, urging that: “It’s high time to ensure that the cloud’s promise as an opportunity for U.S. wealth generation, job creation, and business and technology leadership does not pass our country by.”  

            Craig Mundie, Microsoft’s chief research and strategy officer, observed that: “Many of these governments are saddled with incredible legacy data center expenses. They’re just some of the world’s largest enterprises and they accrue a lot of legacy, often custom systems that are hard for them to maintain and also then hard for them to replace.” Cloud computing could thus represent an opportunity to break free from the costly and problematic model of managing internal legacy IT systems and operations and move to a more outsourced model of IT operations. Indeed, Michelle Warren, a Senior Analyst for Info-Tech Research, recently observed that: “We’re moving toward a world where IT is outsourced.”

Analysis

            We have seen predictions that due to the cost and operational benefits of cloud computing, more and more companies will find themselves outsourcing most – if not all – of their IT to cloud providers, creating what have been termed as “server-less” companies. And this will not be true just for small enterprises, as it has been predicted that organizations of all sizes will find it beneficial to concentrate on and optimize their business processes by outsourcing the IT function. So, why not “server-less government”? Perhaps not outsourcing all of IT and all data storage/handling – that may be impossible for a governmental body – however, particularly for cities, counties, colleges and universities, and even perhaps state agencies, this may be a viable proposition, particularly as cloud offerings expand and are made more secure and reliable.   

            Finally, a recent Harvard Business School publication criticized IT leaders, stating that “the dirty secret of corporate IT is that its primary mission is to serve yesterday’s technology needs, even if that means strangling tomorrow’s technology solutions.” In the public sector, too often we speak in terms not just dealing with “information silos,” but a legacy of outdated systems that run in programming that is cumbersome and difficult to work with. The prime example of this is found in the federal government, with the fact that many agencies still rely on Cobol for critical applications. Cloud computing can further the application modernization movement underway to help move federal agencies away from the “Cobol world” in a fraction of the time and a far less cost than rewriting or replacing these critical applications. 

Biography

David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:

Management Concepts (http://toptenmanagement.blogspot.com/)

Book Reviews (http://wyld-about-books.blogspot.com/) and

Travel and International Foods (http://wyld-about-food.blogspot.com/).                

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