Executive IT Corner
with Biju Kewalram
You can’t avoid factoring in the “cloud” in any current discussion about software or system acquisition. Cloud-based capability now appears on most lists of selection criteria and technology requests for quotations for software.
But what is the “cloud” and what does it mean to logistics companies making systems investment decisions? The key thing to note is the cloud is ultimately about infrastructure and the underlying technology on which software runs, even though the term is sometimes confused with software itself.
To avoid a detailed technical description for non-technology executives, consider this subjective working definition of the cloud: all the necessary server and data center technology that your organization uses but does not have to be responsible for – and which allows centralized application software and data to be available to users, utilizing web-based technologies.
Without getting too technical about public and private clouds and the underlying technology, let’s focus on software vendor-provided cloud technology for the purpose of this discussion. The origins of the term “cloud” are actually quite simple: engineers have traditionally depicted communication networks (like the Internet) as a cloud in network diagrams. Connectivity to servers that run the application software occurs through networks (whether it’s Verizon, AT&T, Sprint, or public networks like the Internet). It is, therefore, easy to see why the concept of accessing servers over a network became termed cloud-based technology.
Cloud-based software (i.e. application software that is hosted by the vendor and not by you) has become popular because:
- Increasingly ubiquitous nature of cloud access – Rentable technology capacity now makes it easier for software vendors to make their applications cloud-enabled. Simultaneously, the cost of communications access continues to drop. This means software companies providing everything from specialized rating software for logistics to warehouse management systems providers and integrated operations software are able to provide cloud-based software with relatively lower capital investment on their part and low access cost on the part of the software user.
- Functional fit – Software vendors make continuous enhancements to their software. Implementing these version changes across multiple client PCs and servers can slow down the delivery of functional enhancements. It is far more efficient for the software vendor (and the customer) if software enhancements are delivered in a highly centralized, “one-and-done” approach. This is particularly important in the world of shipping where multiple global partners need to access the same information.
- Technology fit – Cloud-based software delivery means less worrying about compatibility between your in-house technology and the provided software, since it is delivered from a centralized server over a network and generally through a web browser so your own server configuration does not matter. This makes implementation easier.
- Cost – In addition to reducing both direct and overhead costs, utilizing a cloud approach to deliver the software means that vendors can provide user-based pricing, or “per seat” pricing. The term generally applicable here is software as a service, or SaaS. This type of pricing model was pioneered by companies providing specialist software like Salesforce automation and has extended today to full ERP systems.
Turning the attention to the actual data that might also be stored by the vendor on their own servers in a cloud configuration, the primary advantage to storing data on a vendor’s cloud-based system is that you don’t have to worry about installing, maintaining (and perhaps continually upgrading) your own data storage technology. There are cost and efficiency benefits related to this.
However, companies have traditionally worried about the implications of storing their proprietary and confidential data on a vendor’s servers. C-level executives charged with risk management typically frame their concerns as two main questions: “What if the vendor is hacked and my information is stolen by an external party?” and “What if the vendor (or a rogue employee) steals my information and makes it available to my competitors who might also be using the same vendor?”
Over time, organizations have grown increasingly comfortable with letting their information be stored on vendor-hosted servers. As decision makers in organizations store more of their own personal information in the cloud (like with Google or Microsoft and others), the familiarization with the concept makes them more accepting of the perception of the risk.
The risk discussion is generally influenced by the size and technology capability of the customer. The more technology resources a software customer has in-house, the more likely they are to try and keep their data in-house. Another consideration is a subjective assessment of the value of the data and the risk, if compromised. For example, the same company willing to entrust its Salesforce data to the cloud might balk at its ERP data being hosted in the cloud. And finally, the characteristics of the vendor (size, reputation and history) make a difference. Companies find it easier to let their data be hosted by companies that have high brand visibility and market presence that they can build a trust relationship with.
The move to cloud-based software and data access is an irreversible trend and likely to figure more in software evaluation exercises.
Kewalram has spent decades developing freight forwarder and NVO information technology, and now provides systems consulting and training to logistics services providers. He can be reached by email.
This column was published in the August 2014 issue of American Shipper.