Information System Dissertation

Information System Dissertation

Information Systems Dissertation

The Impact of Cloud Computing on Small and Medium Sized Enterprises.

Abstract

In recent years a new computing paradigm has emerged: Cloud Computing. Whilst there seem to be an endless number of definitions for this new term, including one by the National Institute of Standards and Technology (NIST) that is nearly 800 words long, nobody seems to be able to settle on a true characterisation of the subject matter.

In its simplest form cloud computing can be described as IT-as-a-service. Instead of building your own IT infrastructure to host databases or software, a third party hosts them on their own servers. Companies have access to their data and software over the internet (which in most diagrams is depicted as a cloud). However, is this new paradigm simply a new term for something we are already doing or is it truly going to change the future of IT as we know it?

This dissertation investigates the phenomenon commonly known as cloud computing, focussing closely on its impact on small and medium sized enterprises (SME’s), and ultimately attempts to assess the future of cloud computing.

The research throughout this paper is based solely on secondary research. No primary research into the topic area has been made. In order to gain a broad view and understanding of the topic various existing papers and studies, on the topic of cloud computing and technology adoption within SME’s, have been studied and critiqued.

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Table of Contents

Acknowledgements ................................................................................................................................. 2 Abstract ................................................................................................................................................... 3 Acronyms ................................................................................................................................................ 7 Figures ..................................................................................................................................................... 8 1.1 0 Introduction.................................................................................................................................... 9 1.2 Overview ....................................................................................................................................... 9 1.3 Scope ............................................................................................................................................. 9 1.4 3 Aim ................................................................................................................................................. 10 1.5 Objectives .................................................................................................................................... 11 1.6 Research Methodology ............................................................................................................... 11 1.7 Chapter Structure ........................................................................................................................ 11 2.1 Cloud Computing............................................................................................................................. 13 2.2 What is Cloud Computing?............................................................................................................... 13 2.3 Three distinct layers of cloud....................................................................................................... 15 2.3.1 Infrastructure-as-a-Service (IaaS) ......................................................................................... 16 2.3.2 Platform-as-a-Service (PaaS) ................................................................................................ 17 2.3.3 Software-as-a-Service (SaaS) ................................................................................................ 17 2.4 Four Deployment Models ............................................................................................................ 18 2.4.1 Public Cloud .......................................................................................................................... 18 2.4.2 Private Cloud ........................................................................................................................ 18 2.4.3 Hybrid Cloud ......................................................................................................................... 18 2.4.4 Community Cloud ................................................................................................................. 19 2.5 Key advantages of Cloud Computing ........................................................................................... 19 2.6 SWOT Analysis ............................................................................................................................. 20 Strengths ....................................................................................................................................... 20 Weaknesses................................................................................................................................... 21 Opportunities ................................................................................................................................ 22 Threats .......................................................................................................................................... 22 2.7 Key players in the Cloud computing industry .............................................................................. 23 Amazon ......................................................................................................................................... 23 IBM ................................................................................................................................................ 23

Google ........................................................................................................................................... 24 Microsoft ....................................................................................................................................... 24 3.1 Cloud Computing: A Paradigm Shift or Marketing Hype? ................................................................ 26 3.2 Computing Paradigm Shift........................................................................................................... 26 3.3 The Cloud Computing Hype ......................................................................................................... 27 3.4 The Hype Cycle ............................................................................................................................ 28 3.5 Technology Acceptance Model (Davis, 1985) .............................................................................. 32 4.1 Small and Medium Sized Enterprises (SMEs) ...................................................................................... 35 4.2 Definition..................................................................................................................................... 35 4.3 Characteristics of SMEs in relation to IT ...................................................................................... 36 4.4 Factors effecting the adoption of IT amongst SMEs ....................................................................... 37 4.5 4 Application of the TAM within SMEs ........................................................................................ 40 5.1 Impact of Cloud on SMEs ..................................................................................................................... 42 5.2 The potential opportunities available to SMEs ............................................................................... 42 5.3 Why small businesses should embrace the cloud ........................................................................ 43 Cost ............................................................................................................................................... 43 Mobility ......................................................................................................................................... 43 Scalability ...................................................................................................................................... 43 Innovation ..................................................................................................................................... 43 5.4 Obstacles to Cloud adoption ....................................................................................................... 44 5.5 Cloud usage in SMEs .................................................................................................................... 44 5.6 How do SMEs reach the potential benefits of cloud computing given their characteristics? ......... 46 6.0 Conclusion ....................................................................................................................................... 47 References............................................................................................................................................. 49 Bibliography .......................................................................................................................................... 57 Appendices ............................................................................................................................................ 59 Appendix 1: Critical Review ............................................................................................................... 59 Choice of Topic .............................................................................................................................. 59 Research ........................................................................................................................................ 60 Project Management ..................................................................................................................... 61 Project Difficulties and Limitations ................................................................................................ 63 Project Success .............................................................................................................................. 63

Appendix 2: Formal Dissertation Proposal ........................................................................................ 65 Appendix 3: Progress Review Document – December 2011 .............................................................. 68 Appendix 4: Progress Review Document – February 2012 ................................................................ 71

Acronyms

(In order of appearance)

Acronym IT SME SWOT NIST SaaS PaaS IaaS ENISA CEO EC2 BBM CIO ERP PC LAN WAN SETI TAM EDI IS GDP

Meaning Information Technology Small and Medium Enterprise Strengths, Weaknesses, Opportunities and Threats National Institute of Standards and Technology Software as a Service Platform as a Service Infrastructure as a Service European Network and Information Security Agency Chief Executive Officer Elastic Compute Cloud Blackberry Messenger Chief Information Officer Enterprise Resource Planning Personal Computer Local Area Network Wide Area Network Search for Extraterrestrial Intelligence Technology Acceptance Model Electronic Data Interchange Information System Gross Domestic Product

Figures

Figure Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Title NIST Visual Model of Cloud Computing Definition Everything as a Service IaaS component stack and scope of control as defined by NIST PaaS component stack and scope of control as defined by NIST SaaS component stack and scope of control as defined by NIST Computing Paradigm Shift The hype cycle including the five key phases of a technology’s life cycle as described by Gartner Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Gartner Hype Cycle for Emerging Technologies, 2010 Gartner Hype Cycle for Cloud Computing, 2011 iPad 2 global demand and sales from ebay Conceptual framework for TAM Original TAM Final version of TAM Adapted from European Commission (2011) Exchange rate of 1.2106 Figure 15: A practical application of the TAM for SMEs Chapter 4 Chapter 3 Chapter 3 Chapter 3 Chapter 3 Chapter 3 Chapter 3 Chapter 4 Chapter Chapter 2 Chapter 2 Chapter 2 Chapter 2 Chapter 2 Chapter 3 Chapter 3

1.0 Introduction

This chapter will introduce the topic of cloud computing with a brief overview of the subject area. It will also define the scope, aims and objectives and research methodology of the dissertation.

1.1 Overview

Cloud computing has been an Information Technology (IT) buzzword for around five years. Its evolution is potentially one of the major advances in the history of computing and has the potential to reshape the IT sector and IT marketplace. However, does cloud computing truly differ from other IT infrastructures, such as grid computing or the mainframes of nearly half a century ago, or is it simply a new name for a current technology?

The concept behind cloud computing is arguably not completely new. It has a close connection to already established architectures and delivery models which have been around for years and many researchers and business executives have upbraided the marketing and hype surrounding cloud computing. Despite this, momentum is rapidly growing around cloud computing and analysts are predicting huge growth in the cloud infrastructure and services markets. Right now, the cloud computing market is worth almost $2.4billion and analysts predict that by 2013 this will have grown to almost $8.1billion (Gartner, 2010).

Approximately 750million people worldwide now have a Facebook account (The Economic Times, 2011) and others have accounts with Yahoo, Google or Hotmail. Although many consumers might not understand how their email is accessed through a Smartphone, or why they are able to access their Facebook accounts on any device connected to the internet, the truth of the matter is that they are all pioneers and early adopters of cloud computing. However risky it may once have seemed to store important company data on remote servers in the cloud, many business solutions are now being delivered in the same way as most popular consumer web services such as Facebook and Twitter.

1.2 Scope

In its simplest form cloud computing can be described as IT-as-a-service where computing services (both hardware and software) are delivered on-demand to customers over a network. The term ‘cloud’ is generally used as a metaphor for the internet and typically refers to a large number of servers which are owned by a host but accessed by a client.

The introduction and growing awareness of cloud computing provides vast opportunities for businesses to implement new IT business solutions and applications at a significantly reduced cost. Arguably, the most liable to benefit from this are smaller businesses which typically cannot afford to purchase, run, and maintain their own high-end business applications. Cloud computing presents an opportunity for smaller businesses to reduce the digital divide between themselves and larger organisations.

This dissertation will focus predominantly on cloud computing and its impact on small and medium sized enterprises (SMEs). Amongst other factors, it will investigate typical characteristics of SMEs in relation to IT, the opportunities available to them, and obstacles to cloud adoption, to ultimately assess the future of cloud computing.

The growing awareness of cloud computing within the industry means there are endless research papers and studies focussing on various aspects of the topic. However, many of these papers are written by organisations or individuals who have a vested interest in the success of cloud computing. This dissertation has attempted to equally weigh-up existing research to provide a balanced conclusion into the future of cloud computing and to accurately assess its influence on SMEs.

Due to time restraints and ethical issues this paper is based solely on secondary research and consequently relies heavily on the accuracy and timeliness of existing studies and information made publically available. In some cases the papers and studies researched date back over ten years and consequently may not present an up-to-date representation of the industry. However, such issues are documented where appropriate throughout this dissertation.

1.3 Aim

The emergence of cloud computing has the potential to change the way in which IT services are invented, developed, deployed, scaled, updated, maintained and paid for. From powerful consumer tools such as email and photo-sharing, to business solutions for data management, ‘the cloud’ is reshaping how we work, live and play with data in our increasingly connected world.

The aim of this dissertation is: To investigate the emergence of the phenomenon commonly known as cloud computing and to assess the impact of cloud computing, particularly for small and medium enterprises, and whether or not it will truly change the future of Information Technology as we know it.

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1.4 Objectives

The aim of this paper will be supported by the following objectives:       To identify the key advantages of cloud computing and a cloud infrastructure. To analyse the issues and concerns surrounding cloud computing. To explore the evolution of the computing paradigm shift and technology acceptance model. To consider and study the hype surrounding cloud computing. To investigate the impact of cloud computing and the opportunity it presents to SMEs. To ultimately assess the future of cloud computing.

1.5 Research Methodology

This dissertation is based solely on secondary research, carried out through the collection and investigation of existing data, as opposed to primary research collected specifically for this dissertation. Both online and printed journals and articles will be used to provide figures, academic research, and support arguments based on the topics discussed throughout this paper. Online websites will be used for more up-to-date research and examples, and academic papers and public books have been used to provide an understanding of the discussed topics.

During the writing and research of this dissertation I have also attended presentations on the subject of cloud computing to gain a deeper understanding of its capabilities and the efforts of some organisations in its development and deployment.

1.6 Chapter Structure

Chapter one introduces the topic of cloud computing with a brief overview of the subject area. This chapter also defines the scope, aims, objectives and research methodology of the paper.

Chapter two will look at the topic of cloud computing in greater detail, identifying three distinct layers of cloud, the key advantages and the major players in the cloud computing industry. I will also produce a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of cloud computing.

Chapter three will explore how the computing paradigm has evolved over the last half century, the hype surrounding cloud computing, and Fred Davis’s Technology Acceptance Model.

Chapter four will define what an SME is and explore the characteristics of SMEs in relation to IT.

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Chapter five will investigate the impact of cloud computing on SMEs, the opportunities available to them, obstacles to cloud adoption and how they can reach the potential benefits.

Chapter six will provide a summary of my findings and conclusions against the aims and objectives identified in chapter one and will ultimately assess the future of cloud computing.

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2.0 Cloud Computing

This chapter will explore the topic of cloud computing in greater detail, identifying the key advantages of cloud computing and a cloud infrastructure, and analysing the issues and concerns surrounding cloud computing through a SWOT analysis. It will also identify three distinct layers of cloud computing, the four deployment models, and the major players in the cloud computing industry.

2.1 What is Cloud Computing?

With so much hype surrounding cloud computing, and with as many definitions as there are commentators on the subject, I will not add to the fray with my own definition in this paper. Instead I have analysed numerous definitions already provided and decided that, although very few of them seem to identify all of the key characteristics of cloud computing, the US National Institute of Standards and Technology (NIST), a part of the US Department of Commerce and one of Americas oldest physical science laboratories, provides the most neutral definition of cloud computing and attempts to encompass all of the various cloud approaches.

The NIST Cloud Computing Project, led by Peter Mell, has posted its working definition of cloud computing as:

(...) a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. This cloud model is composed of five essential characteristics, three service models, and four deployment models (NIST, 2011, p.6).

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Figure 1: NIST Visual Model of Cloud Computing Definition (Belekovich, 2010).

Figure 1 provides a visual model of the cloud computing definition provided by NIST and it depicts the essential characteristics, service models and deployment models identified in the definition. The three service models (Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS)), and the four deployment models (public, private, hybrid, and community) will both be covered in more detail later in this chapter as I feel they are vital in developing a good understanding of cloud computing.

Whilst this will act as a baseline definition it is worth noting at this point that cloud computing is still an evolving paradigm. Its definitions, uses, underlying technologies, issues, risks, and benefits will be refined and debated by both the public and private sectors. These definitions, attributes and characteristics will evolve and change over time (Mulholland et al, 2010).

According to Gartner (2009), an IT research and advisory firm, cloud computing is “a style of computing in which scalable and elastic IT-enabled capabilities are delivered as a service to external customers using internet technologies”. This definition does not take into consideration the ubiquity of cloud computing nor does it mention the various service models typically associated with cloud computing. The European Network and Information Security Agency (ENISA) has defined cloud computing as “on-demand service model for IT provision, often based on virtualisation and distributed computing technologies” (Catteddu and Hogben, 2009). This relatively short definition does not mention factors such as the elasticity of cloud computing or the computing resources that can be provisioned. It does however highlight the significance of virtualisation in cloud computing. Douglas Gourlay, Vice President of Marketing for Arista Networks, also focuses more closely on the role of virtualisation and emphasizes its importance by identifying it as a key component: Page 14 of 74

People are coming to grips with virtualisation and how it reshapes IT, creates service and software based models, and in many ways changes a lot of the physical layer we are used to. Clouds will be the next transformation over the next several years, building off of the software models that virtualisation enabled (Geelan, 2009).

Unlike the NIST definition, Jeffrey Kaplan (2008), a cloud computing strategy consultant and Managing Director at THINKstrategies Inc., notes the cost benefit of cloud computing. He views cloud computing as “a broad array of web-based services aimed at allowing users to obtain a wide range of functional capabilities on a ‘pay-as-you-go’ basis that previously required tremendous hardware/software investments...” (Geelan, 2009).

Other industry experts do not stress cloud capabilities but rather believe that cloud computing is merely a ‘buzz word’. Larry Ellison, founder and CEO (Chief Executive Officer) of Oracle, says “we’ve defined cloud computing to include everything that we already do... I don’t understand what we would do differently in the light of cloud computing other than change the wording of some of our ads” (Farber, 2008). Oracles traditional business model is focussed on selling upfront software licences which would be jeopardised by a move to an on demand model. This is likely to have influenced Ellisons view of cloud computing.

The first academic definition of cloud computing was offered by Dr. Ramnath Cehllapa in 1997 where he defined the term as “a computing paradigm where the boundaries of computing will be determined rationale rather than technical” (Chellapa, 1997).

When trying to develop an understanding of what cloud computing is it is important to recognise that cloud is not a new technology. Cloud computing draws upon existing technologies, such as virtualisation, to effectively provide IT-as-a-Service. It is a new IT delivery model where all computing and networking resources are delivered as services that are elastic (use as much or as little as required at any given time), massively scalable, and available on-demand with variable pay-as-yougo cost subscriptions. (Mulholland et al, 2010)

2.2 Three distinct layers of cloud

The central concept behind cloud computing essentially relates to supplying ‘everything-as-a-service’ (Mulholland et al, 2010). Cloud computing can be seen as being made up of three distinct layers

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(figure 2) where IaaS is the most basic layer of storage and server infrastructure, and each subsequent layer builds upon this to provide software and applications through the cloud.

Figure 2: Everything as a Service (Mulholland et al, 2010).

2.2.1 Infrastructure-as-a-Service (IaaS) IaaS allows a company to rent fundamental computing resources, such as processing, storage, and networks, for deploying and running applications or storing data. It enables companies to deliver applications more efficiently by removing the complexities involved with managing their own infrastructure. IaaS enables fast deployment of applications, and improves the agility of IT services by instantly adding computing processing power and storage capacity when needed (Bizcloud, 2010). Amazon’s Elastic Compute Cloud (EC2) is a great example of IaaS as it offers server power to organisations which can quickly be scaled up or down in line with the client’s needs. The client can pay as little as eight cents an hour (Amazon Web Services, 2012) for the most basic instance and this increases with the users requirements.

The service provider is responsible for managing and controlling the underlying cloud infrastructure. However, the consumer typically has control over operating systems, storage, and deployed applications and possibly limited control over select networking components (e.g. firewalls).

There is a great deal of debate about what applications can be moved safely outside the firewall to remote hosting services (the cloud). Increasingly small and medium enterprises are driving toward this change, but larger enterprises with existing in-house IT teams are more reluctant and would choose the more costly route of traditional data centre and operational outsourcing rather than risk shared hosted environments (Mulholland et al, 2010).

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Figure 3: IaaS component stack and scope of control as defined by NIST (Techno-pulse, 2011).

2.2.2 Platform-as-a-Service (PaaS) PaaS enables companies to develop applications more quickly and efficiently in a cloud environment using programming languages and tools supported by the provider.

The consumer does not manage or control the underlying cloud infrastructure including network, servers, operating systems or storage, but has control over the deployed applications and possibly configuration setting for the application-hosting environment (NIST, 2011).

A good example of PaaS is the social media platform Facebook. Facebook allows the user to read messages, view and upload pictures and messages, and update or upload new content – all in the way the platform defines.

Figure 4: PaaS component stack and scope of control as defined by NIST (Techno-pulse, 2011).

2.2.3 Software-as-a-Service (SaaS) SaaS is a software model provided by the vendor through an online service. It provides the consumer with the capability to use the vendor’s applications running on a cloud infrastructure and is accessible from various client devices. They are made available to a business or consumer on either a subscription basis, where charges are based on the amount of usage (e.g. Microsoft Office 365), or free of charge (e.g. Google’s email service, Gmail).

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The consumer does not manage or control the underlying cloud infrastructure including network, servers, operating systems, storage, or even individual application capabilities, with the possible exception of limited user-specific application configuration settings (NIST, 2011).

Figure 5: SaaS component stack and scope of control as defined by NIST (Techno-pulse, 2011).

2.3 Four Deployment Models

Regardless of the service model adopted there are four models for cloud computing deployment which can be chosen. Each model has different derivatives which can address different specific needs or requirements. 2.3.1 Public Cloud The public cloud is a term used to describe the common cloud computing model. The service provider makes resources, such as software or data storage, available to the public over the internet. Access to the public cloud is often inexpensive or free and usually attracts smaller business or individuals (Cloud Pro, 2012). An example of a public cloud is again Amazon’s EC2 offering which provides a low cost shared computing service. 2.3.2 Private Cloud A private cloud is provisioned for exclusive use by a single organisation (NIST, 2011). It can be owned and managed by either the organisation for which it was created or a third party and can exist within the client organisations premises or offsite. 2.3.3 Hybrid Cloud Hybrid cloud computing is when both public and private cloud resources are used. This usually involves data being stored locally but replicated, or backed-up, in a public cloud. This model is common with larger organisations that already have expensive computing resources in place. Some may also wish to keep more sensitive data in-house rather than out-sourcing everything to the public cloud (Cloud Pro, 2012).

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2.3.4 Community Cloud In this model the cloud infrastructure is shared by multiple organisations or institutions that have a shared concern or interest, for example, security requirements or compliance considerations (Shimba, 2010). It may be owned, managed, and operated by one or more of the organisations in the community, or by a third party, and my be located either on or off site (NIST, 2011).

2.4 Key advantages of Cloud Computing

Confronted by headlines in the media about IT service failures, such as Amazon Web Services power failure in April 2011 (Ravindran, 2011) and Microsoft’s outage with their cloud platform Azure in February 2012 (Robles, 2012), it is far too easy to lose sight of the real benefits of cloud computing. Despite this, the idea that cloud services will make a big difference to businesses has been a recurrent theme throughout the industry for a significant period of time. This section will outline some of the key benefits of implementing a cloud infrastructure.

In June 2009, just after Michael Jackson’s death, Twitter saw traffic peak at 456 tweets a second but, by August 2011, following news of Beyonce’s pregnancy, it was generating 8,868 tweets a second. Flexible cloud-based servers meant that Twitter could handle that explosive growth – few companies could forecast and manage such expansion on internal systems (Arthur, 2011, p.1).

As demonstrated by the above extract from Twitter, an online social networking and micro-blogging site, and another example of PaaS, scalability is a major benefit of cloud computing. Cloud systems are designed to cope with sharp increases in workload. Consequently capabilities can be rapidly and elastically scaled up and swiftly released to quickly scale down. If a business is growing fast or has seasonal spikes computational resources can be scaled relatively to meet varying demand. As most cloud infrastructures work on a pay-per-use basis this also has a direct impact on IT costs.

With hosting and upgrades handled externally, small and medium sized businesses do not have the expense and maintenance costs of running their own server. Whether paying for IT services using a pay-per-use or mixed monthly fee model cloud turns IT into an operating expense rather than a capital expense. However, despite this promise of cheaper processing many IT departments have continued to purchase and maintain their own IT resources – preferring to keep their data on site as opposed to outsourcing it to remote hosting services.

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Cloud computing also represents a huge opportunity to many third-world countries that have so far been left behind by the IT revolution. Some cloud computing providers are using the advantages of a cloud platform to enable IT services in countries that would have traditionally lacked the resources for widespread deployment (Marston, 2011, p.178). It allows firms in developing countries to significantly benefit from advanced computing services without having to invest in expensive infrastructure.

Cloud services are designed to be accessed by the explosive growth of mobile devices such as smart phones, tablets and laptop computers. These platforms are now becoming a big part of how we live and work and allow mobile work forces access to a company’s systems on the go. Today’s smartphone users are already performing an outstanding number of tasks from their mobile devices and this is set to increase as more and more organisations turn to a cloud infrastructure. Cloud computing has the potential to provide continuous computational services to people anywhere at any time. In 2002 David Bowie predicted that music was set to become as ubiquitous as water or electricity – cloud computing is making that a reality (Halliday, 2011, p.7).

2.5 SWOT Analysis

The qualities which make the cloud so appealing are also those which make it most vulnerable. Being able to offload storage of the growing mountain of corporate data to a third party, while making it accessible from any location on any device with an internet connection, has huge advantages for a business. It is also a huge temptation for hackers (Garside, 2011, p.3).

A SWOT analysis is a useful technique for understanding the strengths and weaknesses, and for identifying both the opportunities and threats of emerging markets and technologies. Strengths The elasticity of cloud computing allows firms to quickly scale up or down services at very short notice. This consequently obviates the need for underutilized services in anticipation of peak demand. Take, for example, the online photo website, Smugmug. The company has relatively stable computing workloads throughout the year; however, during the months of December and January the required resources spike to five times the usual workload. Cloud computing allows the company to meet the excess requirements during these two months without incurring the extra costs of hosing a traditional infrastructure all year round (Marston et al, 2011).

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Another major strength of cloud computing is that because it is online it offers virtually unlimited storage compared to server and hard drive limits. Needing more storage space does not cause issues with server upgrades and equipment – usually all the user needs to do is increase their monthly fee to allow for more data storage (Arno, 2011).

In addition, because all maintenance is handled by the service provider, businesses do not have to worry about issues such as upgrading software or fixing bugs. This consequently ensures that software is always kept up-to-date and reduces the need for specialist IT staff.

Many international businesses also choose cloud computing because of its green credentials. Microsoft recently claimed that cloud computing can reduce a business’s carbon emissions by as much as 30%, as businesses don’t need to power an entire server, they only use (and pay for) what they require (Arno, 2011). Weaknesses One of the reasons businesses choose cloud computing is because online storage and back-up means their data can’t be lost or destroyed. However, many are concerned about the security issues associated with outsourcing their data to remote servers. Whilst many experts argue that cloud computing is more secure than traditional infrastructures, businesses are still concerned that unauthorised personnel may be able to gain access to confidential data (Arno, 2011). They are also wary of the loss of physical control they have over data that has been moved to the cloud.

Another big concern for companies when it comes to cloud computing is the failure of data centres and internet downtime. In April 2011 Amazon’s EC2 failed due to a faulty router upgrade which consequently brought down the services of hundreds of its customers. More recently RIM Blackberry customers suffered four days of degraded service after the corruption of an Oracle database brought down the Blackberry Messenger (BBM) service.

Such issues are usually short lived but can cause massive disruptions and problems for companies if or when they occur. Businesses that implement a cloud infrastructure need to take the necessary steps to reduce the risk of internet downtime and avoid such issues. However, these risks are comparable with servers or computers being out of action for a period of time, which is just as likely, or perhaps more likely to happen, than the internet failing (Arno, 2011).

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Cloud security is a major concern for IT executives and CIOs (Chief Information Officer), followed by performance and reliability. Although the cloud computing industry continues to make rapid progress in all these areas, it will still be interesting to see how these weaknesses play out over the next few years (Marston et al, 2011). Opportunities Cloud computing provides organisations with a wide array of options to implement business continuity at a level of affordability that simply did not exist a few years ago. Companies are able to implement systems which can reasonably withstand localised outages from just about any human error or natural disaster, and at a lower cost than previously possible (Crandell, 2011).

As mentioned in the last section, cloud computing represents great potential towards helping developing countries. An impressive example of this comes from Ethiopia, where the government has commissioned the cloud computing provider FullArmor to remotely manage 250,000 laptops with teachers throughout the country. The laptops will contain sensitive student/teacher data and class materials which will be managed centrally. In order to prevent security breaches, if a laptop drifts outside a virtual fence, its contents can be remotely wiped through cloud based interfaces (Marston et al, 2011).

Cloud computing also represents a huge opportunity for small and medium businesses. They now have access to high-end enterprise resource planning (ERP) solutions without the costs and issues traditionally associated with implementing such applications. ERP solutions are business management tools focused around specific business processes such as product development or marketing, and are designed to streamline an organisations business processes and flow of information.

Finally, moving towards a cloud environment not only reduces an organisations costs and IT infrastructure, but, for reasons previously mentioned, it represents a smarter use of energy and consequently reduces their carbon footprint. Threats The failure modes of cloud vs. traditional data centre architectures may differ in nature and frequency, but the threat is the same – outages, downtime, lost revenues and damaged customer trust (Crandell, 2011, p.2).

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In 2010 Amazon pulled the Wikileaks data from its EC2 cloud service after the site began releasing confidential US state department diplomatic cables. Arguably Amazon’s decision to do this undermines the value, security and independence of the cloud. Many of the cloud computing vendors are US based companies and as such fall under the US Patriot Act and Telecoms Act which means that the US government can look at private data without the owner’s permission. Why should any business risk using such services, if politicians and governments can put the cloud operators under such scrutiny?

2.6 Key players in the Cloud computing industry

Amazon Amazon made its name as an online retailer, not as a technology provider, yet it was one of the first companies to rent out everything its technology did behind the scenes to anyone who wanted it.

The launch of Amazon Web Services in 2006 brought the concept of cloud into the consciousness of many businesses with their first cloud computing offering, Amazon EC2 – a web service that provides resizable computer capacity in the cloud (Amazon, 2012). According to Randy Bias (2009) Amazon’s utilization rate for its EC2 offering is approximately 75%. (Utilisation rates allow organisations to gain a sense of how the business is operating and where improvements can be made. A utilisation rate of 75% would be considered to be at an optimal level (Tenrox, 2011) and indicates the success and impact of Amazon EC2). However, it is important to recognise that Randy’s figures are derived from estimates and calculations, based on the information made available by Amazon and two un-named sources, and can therefore not be considered to be 100% accurate.

One of the pioneers in cloud computing, and one of the first to offer pay-as-you-go access to virtual servers and data storage space, Amazon is now one of the biggest companies associated with cloud computing and IaaS. IBM As the leading provider of IT consulting and infrastructure, IBM ‘matters’.

The company has adopted an aggressive cloud computing strategy, spending over $400million on two cloud computing facilities and expanding the number of researchers in the area of cloud computing.

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In 2002, IBM unveiled on-demand computing, selling the idea that computing would soon be like electricity – available anywhere and paid for in increments (Maney et al, 2011, p.125). In 2010 IBM launched a first-of-its-kind cloud computing lab in the UK to help partners capture cloud computing business opportunities. The new lab will help IBM business partners enable their technologies with cloud and gain the sales and marketing skills they need to take advantage of this fast growing market.

With IBM SmartCloud Application Services, which allow organisations to develop, deploy, manage, and integrate applications in the cloud (IBM, 2012), IBM SmartCloud Enterprise, designed to provide rapid access to security rich server environments (IBM, 2012), and IBM SmartCloud Managed Backup, providing cost-effective data back-up and recovery (IBM, 2012), IBM are operating across all three layers of the cloud (PaaS, IaaS, and SaaS respectively). Google A commanding online presence and a successful business model makes Google a company that is automatically respected in the online world (Marston et al, 2011).

Google has a number of cloud services, operating in the SaaS layer of the cloud, which increasingly interlink. Gmail, for example, now offers an impressive 7.6GB of free storage for emails and attachments, whilst also storing contacts. Another Google cloud service is Google Docs, designed for creating, editing and sharing documents, spreadsheets and presentations – an online equivalent of Microsoft Office (Dredge et al, 2011). Microsoft With an established position in both the home computer operating system market and the office suite market, Microsoft has long been a well recognised and respected company within the IT industry.

In 2010 Microsoft launched their first PaaS cloud offering with Windows Azure (Marston et al, 2011). Designed to enable clients to quickly build, deploy, and manage applications across a global network of Microsoft-managed data centres (Windows, 2012) the Windows Azure platform has attracted business from many well known organisations such as Easy Jet, NASA and Transport for London, helping them to reduce costs and increase scalability. For example, Windows Azure worked with Transport for London to create a real-time data feed for its TrackerNet website for trains in just six weeks. With the support of Microsoft cloud services this specialist website has increased its hits Page 24 of 74

from 1,000 a day to approximately 2.3million, whilst saving Transport for London the millions of pounds it would have spent building its own IT infrastructure (Windows, 2012).

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3.0 Cloud Computing: A Paradigm Shift or Marketing Hype?

This chapter will explore how the computing paradigm has evolved over the last half century, the hype surrounding cloud computing, and Fred Davis’s Technology Acceptance Model. This will provide a basis for further study into the impact of cloud computing on SMEs.

3.1 Computing Paradigm Shift

In 1962, Thomas Kuhn wrote, The Structure of Scientific Revolution’, where he fathered, defined and popularised the concept of a ‘paradigm shift’. Kuhn argued that scientific advancement is not evolutionary, but rather is a “series of peaceful interludes punctuated by intellectually violent revolutions”, and in those revolutions “one conceptual world view is replaced by another” (What is a paradigm shift?, 2012).

A paradigm shift can be thought of as a change from one way of thinking to another. It doesn’t just happen, but is driven by agents of change (What is a paradigm shift?, 2012).

Figure 6: Computing Paradigm Shift (Voas et al, 2009, p.16).

Figure 6 illustrates the computing paradigm shifts over the last half a century. More specifically it can be seen to identify six distinct phases, or individual paradigm shifts, through which computing has evolved.

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In Phase 1, people used terminals to connect to powerful mainframes which were shared by many users (Voas et al, 2009, p.15). Mainframes, so called because the earliest ones were housed in large metal frames, have evolved over the years from being room-sized to networked configurations of workstations and servers (Business Dictionary, 2012). In Phase 2, stand-alone personal computers (PC’s) become powerful enough to satisfy the user’s basic needs and the cost became low enough that personal computing quickly became widespread. Phase 3 saw the advent of local area networks (LANs) where multiple PCs, in the same location, were connected to one another to share files and resources. Phase 4 took this one step further and introduced wide area networks (WANs) which allowed local computer networks to connect to other local networks and establish a global network. This allowed users to connect to other networks, through the internet, to share remote applications and resources. Phase 5 introduced the concept of grid computing which allowed users to share computing power and storage facilities (distributed computing). A good example of this is SETI@home (2012) – a scientific experiment which uses internet-connected computers to share computing power and Search for Extraterrestrial Intelligence (SETI). Finally, Phase 6 sees the introduction of cloud computing which allows us to exploit all available resources on the internet (Voas et al, 2009).

As can be seen in figure 6 cloud computing almost seems like a return to the original mainframe paradigm (Voas et al, 2009, p.16) where users are able to access software applications from a ‘dumb’ terminal. However, unlike a mainframe which has a finite level of computing power and resources, the cloud represents a paradigm that offers an infinite level of power, capacity and resources through the internet. It shifts the location of computing infrastructure to the network in order to reduce the costs associated with the management of hardware and software resources (Vaquero et al, 2009, p.50).

3.2 The Cloud Computing Hype

History is littered with examples of technologies that were hyped by analysts but, when it came to implementing them, they failed to live up to expectations. Take for example voice recognition, a technology which appeared on Gartner’s original hype cycle in 1995 (discussed in detail in the following section) and has still not reached maturity. From the days when voice recognition software was used on the phone lines at the local cinema right through to the modern day, with its application in mobile devices, nobody seems to have truly been able to utilise the full potential of this technology. Even the internet has, at times, suffered from overinflated expectations, particularly in terms of its speed (Hawkins, 2009).

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The question as to whether or not cloud computing is hype or reality has been the hot topic of recent years. Given that there is no formal definition of the term, and the considerable buzz surrounding cloud computing, is it promising more than it can actually deliver (Hawkins, 2009) or, as the hype would have us believe, is it truly going to change the future of IT? Larry Ellison, Oracle CEO, made his views on the topic of cloud computing very clear at Oracle Open World in 2008 where he described the phenomenon as being “fashion driven” and “complete gibberish” (Farber, 2008).

However, despite this, Ellison made it clear that he is “not going to fight this thing” (Farber, 2008) and Oracle’s actions towards cloud computing suggest that the cloud model is part of a fundamental shift in computing (Farber, 2008) and it is here to stay.

According to Mark Raskino, Vice President at Gartner, the term ‘cloud computing’ has been “hijacked” by marketing and a lot of companies are now using cloud computing simply because it is all over the media (Meir-Huber, 2008). However, with every major IT vendor either implementing a cloud strategy or announcing one, no competitive company can afford to simply dismiss the topic as hype without running the risk of being left behind by the competition.

The hype and expectations behind the introduction of new technologies is so common that analyst firm Gartner has started referring to it as the ‘hype cycle’.

3.3 The Hype Cycle

The hype cycle was introduced by Gartner in 1995 as a model to characterise the typical progression of an emerging technology to its eventual position in a market. It is designed to help companies decide when they should invest in a new technology and helps firms to see through the hype to determine how many firms are employing the technology (O’Leary, 2008).

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Figure 7: The hype cycle including the five key phases of a technology’s life cycle as described by Gartner (Gartner, 2012).

The hype cycle starts with a ‘technology trigger’ that generates so much attention that it inevitably results in unrealistic expectations (Hawkins, 2009) and significant media interest and publicity. As the technology reaches its ‘peak of inflated expectations’ a small number of companies can be seen to be taking action towards the new technology. However, the majority are much more reserved. Early publicity produces a number of success stories but is accompanied by an increasing number of failures (Gartner, 2012). As the cycle reaches its peak, the over-enthusiasm and frenzy of media coverage surrounding the new technology often results in failure to meet expectations and it descends into the ‘trough of disillusionment’. As the curve progresses it reaches a ‘slope of enlightenment’ as more instances of how the technology can benefit the industry begin to crystallize and become more widely understood. More firms become interested in the new technology and its practical application. However, more conservative companies continue to remain cautious (Gartner, 2012). Finally, the market begins to mature as the technology reaches the ‘plateau of productivity’ and its benefits become apparent and more widely accepted. The more conservative companies start to accept the new technology and firms begin to implement new business strategies revolving around the new technology.

The hype cycle characterizes the typical progression of an emerging technology (O’Leary, 2008, p.241). However, as discussed in previous chapters, cloud computing is not an emerging technology, rather a new application of a combination of existing technologies. Taking this into consideration I don’t believe it is possible to say categorically where cloud computing currently sits. Various technologies exist within the cloud each of which could be at a different stage. For example, SaaS might be seen to be more developed and further through the hype cycle than IaaS and PaaS.

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Luis Vaquero et al suggested in their 2009 paper ‘A Break in the Clouds: Towards a Cloud Definition’, that cloud computing was at the first stage in the hype cycle. However, as they later go on to discuss, this refers to cloud as a “general term that includes almost any solution that allows the outsourcing of all kinds of hosting and computing resources” (Vaquero et al, 2009, p.50).

In 2010 Gartner released its hype cycle and divided the cloud into three separate entries – cloud computing, cloud/web platforms, and private cloud computing. Cloud computing and cloud/web platforms were positioned just beyond the peak and private cloud computing was still making it up to the peak of the cycle.

Figure 8: Gartner Hype Cycle for Emerging Technologies, 2010 (Gartner, 2010).

In July 2011 Gartner released their latest hype cycle for emerging technologies. However, they devoted an entirely separate hype cycle to cloud computing. Similarly to 2010 they positioned cloud computing just beyond the ‘peak of inflated expectations’, with an expected forecast of two to five years until mainstream adoption. Cloud/web platforms were moved down the curve towards the ‘trough of disillusionment’ and private cloud computing reached the peak of the hype cycle.

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Figure 9: Gartner Hype Cycle for Cloud Computing, 2011 (Columbus, 2011).

Of the three service models (outlined in chapter two), SaaS was positioned furthest through the cycle on the ‘slope of enlightenment’ with a two to five year forecast until mainstream adoption. This should be recognised as a positive reinforcement for cloud computing as related technologies, enablers, and service models, such as virtualisation, are already delivering on initial expectations. PaaS and IaaS were positioned very close together, just reaching the ‘peak of inflated expectations’ and just beyond the peak, heading towards the ‘trough of disillusionment’ respectively, again both with a two to five year forecast until mainstream adoption.

Interestingly, cloud security, which I believe will significantly impact the adoption of cloud computing, was positioned relatively early in the hype cycle with a five to ten year prediction for mainstream adoption.

The devotion, by Gartner, of an entire hype cycle solely for cloud computing supports my statement that cloud computing is not one technology that can categorically be placed on the hype cycle. It also highlights the impact and importance of cloud computing within the industry.

Gartner’s hype cycle gives the impression that ‘emerging technologies’ are at the same stage throughout the world. However, due to factors such as financial resources, country specific legislations, and the digital divide (caused by countries being left behind by the IT revolution), this is not always the case. Figure 10, shows the global demand and popularity of the iPad 2 from ebay. It Page 31 of 74

highlights that demand in America is significantly higher than in countries such as Africa, which would indicate it is much further through the hype cycle in America compared with less developed areas. Another issue with the hype cycle is that the research is sponsored by Gartner, a company making money from technology reports and consultancy. Consequently they have a vested interest in the success of these ‘emerging technologies’ which can ultimately add bias to the research.

Figure 10: iPad 2 global demand and sales from ebay (EnGaming, 2012).

The adoption of cloud computing, particularly within smaller businesses, is going to be hugely influenced by the acceptance of owner/managers and CIO’s within organisations. Without the acceptance and backing of these people it is unlikely that cloud computing will be fully utilised by businesses as there will be nobody to introduce and implement it within the business. Fred Davis’s technology acceptance model investigates the factors that influence the acceptance of new technologies amongst users.

3.4 Technology Acceptance Model (Davis, 1985)

Fred D. Davis’s Technology Acceptance Model (TAM) is the most widely accepted model of user acceptance of technology amongst the information systems community. Davis proposed the TAM in Page 32 of 74

1985 in his doctorial thesis at the Massachusetts Institute of Technology Sloan School of Management. He suggested that system use is a response that can be explained or predicted by user motivation, which, in turn, is directly influenced by an external stimulus consisting of the actual systems features and capabilities (Chutter, 2009, p.1).

System Features & Capabilities

Users’ Motivation to Use System

Actual System Use

Stimulus

Organism

Figure 11: Conceptual framework for TAM (Davis, 1985, p.10).

Response

Davis later refined the conceptual framework (Figure 11) to propose the TAM as shown in Figure 12: User Motivation

X1

Perceived Usefulness

X2

Attitude Toward Using

Actual System Use

X3

Perceived Ease of Use

Design Features

Cognitive Response

Affective Response

Behavioural Response

Figure 12: Original TAM (Davis, 1985, p.24).

In this proposal, Davis suggested that ‘perceived usefulness’ and ‘perceived ease of use’ determine an individual’s intention and motivation to use a system (their ‘attitude toward using’ the system). He hypothesized that the attitude of a user toward a system was a major determinant of whether the user will actually use or reject the system (Chutter, 2009, p.2). Page 33 of 74

After further studies Davis suggested that perceived usefulness could have a direct influence on actual system use. He also discovered that system characteristics (represented by X1, X2, and X3 in figure 12) could directly influence the attitude of a person toward using the system (Chutter, 2009). Later developments of the model saw the introduction of ‘External Variables’, which suggested that if a system was perceived to be useful an individual might form a strong behavioural intention to use the system without forming any attitude (Chutter, 2009). Perceived Usefulness External Variables Behavioural Intention Actual System Use

Perceived Ease of Use

Figure 13: Final version of TAM (Venkatesh & Davis, 1996, p.453).

Research carried out by Mohammed Chutter (2009) indicates that although TAM is a highly recognised model, researchers share mixed opinions regarding its theoretical assumptions and practical effectiveness. A key limitation of TAM is that, whilst it has strong behavioural elements, it assumes that when someone forms an intention to act they will be free to act without limitation. However, in practice constraints such as limited ability, time, and environment or organisation limits, will limit the freedom to act (Furneaux, 2006).

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4.0 Small and Medium Sized Enterprises (SMEs)

This chapter will define what an SME is and explore the characteristics of SMEs in relation to IT. It will focus heavily on a study carried out in Western Australia looking at the factors leading to successful uptake of technology by SMEs. It will also look at the application of the TAM within SMEs.

SMEs play a central role in the European economy. They are a major source of entrepreneurial skills, innovation and employment. In the enlarged European union of 25 countries, some 23million SMEs provide around 75million jobs and represent 99% of all enterprises (BIP Solutions, 2005).

4.1 Definition

The definition of what constitutes an SME varies from country-to-country. For the purpose of this paper the definition of an SME has been taken from the European Commission. On the 6th May 2003 the European Commission adopted a new recommendation regarding the SME definition which took effect from the 1st January 2005. The revision takes into account the economic developments since 1996. In particular, it raises the financial ceilings to take into account price and productivity increases and introduces a typology of enterprises (autonomous, partner, and linked) (European Commission, 2011).

According to the new definition enterprises qualify as SMEs if they fulfil the criteria laid down in the recommendation which is summarised in the table below. In addition to staff headcount, an enterprise qualifies as an SME if it meets either the turnover ceiling or the balance sheet ceiling, but not necessarily both (European Commission, 2011).

Figure 14: Adapted from European Commission (2011) Exchange rate of 1.2106 (Yahoo, 2012).

SMEs are often the main driver for a country’s economic growth and represent a significant proportion of all enterprises in the EU. However, despite this, they are generally slow to take up new technologies and have a tendency to be reactive rather than proactive when faced with Page 35 of 74

technological problems. It is an accepted fact that these firms have fewer resources and expertise in terms of management of new technologies. However, this does not mean that SMEs are not concerned by IT and certainly doesn’t mean that they have nothing to gain from implementing a strategic IT infrastructure.

The emergence and widespread use of IT is one of the most important technological developments in the last half century. In today’s world IT must be considered as a critical resource and the potential benefits that an organisation can obtain by utilising IT are extensive. Benefits can take a number of forms, such as efficiency gains, increased management effectiveness, improved business performance, and sustained competitive advantage (Fink, 1998).

There are a range of factors, brought about by particular characteristics, which have influenced the IT adoption behaviour of smaller firms. This chapter will discuss the key characteristics of SMEs with regard to IT and investigate the factors which are impacting the adoption of IT amongst them.

4.2 Characteristics of SMEs in relation to IT

The problems encountered by smaller firms are different from those encountered by large firms, and require different managerial approaches (Dandridge, 1979). Research indicates that the majority of SMEs are too small to be able to employ a dedicated IT expert and, due to a significant lack of resources, SMEs are often regarded as being ‘poor’ in human, financial and material assets. As a result of this SMEs are generally more vulnerable and typically do not possess the technical knowledge or understanding to effectively implement an IT solution, nor the time to explore it, and tend not to update technology too readily. It is often the skill and enthusiasm of the owner-manager that typically drives the business forward and shapes the character of investment decisions (Dyerson, 2008).

According to Blili and Raymond (1993) the unique characteristics of SMEs with respect to IT can be identified as environmental, organisational, decisional, and psycho-sociological.

SMEs are usually characterised by a high level of environmental uncertainty. For example, fluctuating interest rates have a greater impact on smaller firms than larger ones. In addition, smaller enterprises have limited capacities to respond quickly to stakeholder pressures and can become vulnerable to competitive forces from customer, suppliers, etc. This can cause small firms to adopt modern IT, such as Electronic Data Interchange (EDI).

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SMEs usually do not have the capacity to develop and manage their own information systems but must call on third parties (suppliers, consultants, specialised firms) whose product and service quality may vary. This lack of control over their informational resources increases the level of risk, especially where these resources are used for both operational and strategic purposes (Blili et al, 1993). Furthermore, larger companies typically have well-defined processes for developing and implementing strategies through a corporate planning process whereas SMEs often use less structured approaches, strategies and policies that may not be formulated but may ‘emerge’ from a set of actions and experiments (Mason et al, 1997).

Decision making within small enterprises tends to be more reactive than proactive and is often the sole responsibility of the owner-manager. The decisional process of these managers is considered to be more intuitive, based on ‘guesswork’, and less dependent on information and formal decision models (Rice et al, 1979).

From a psycho-sociological perspective, the owner-manager plays a dominant role in the business’s strategy and decision making, thereby shaping the organisational culture. Often, they are the only ones in the enterprise with the authority, responsibility and access to the information needed to identify opportunities for using IT for strategic or competitive purposes (Blili et al, 1993). However, despite this, smaller enterprises have their own particular advantages. Due to their smaller size they are more flexible and adaptable to changes more readily than larger enterprises and are often innovative in new and different ways, such as their approach to management and marketing, rapid implementation and execution of decisions, market proximity, and their capacity for adaptation and short-term orientation (Poon et al, 1995).

4.3 Factors effecting the adoption of IT amongst SMEs

IT adoption in smaller firms became an issue in the 1980s when the emergence of mini computers and personal computers provided these firms with the opportunity to introduce low-cost computer hardware and packaged systems (Fink, 1998).

Traditionally the SME community is not known for its innovative attitude towards IT and has been reluctant to engage the services of in-house IT managers in the same manner as larger firms. However, the lack of in-house IT expertise is not the only reason why smaller organisations have been shown to have different technology adoption patterns than larger firms (Iacovou et al, 1995).

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SMEs have traditionally implemented and used IT in their business as a reactive measure in response to request by larger organisations that are customers and therefore provide the business imperative for them to become IT-compatible (Lawrence, 2010, p. 42). Iacovou et al (1995) examine the adoption of EDI in small firms. Their findings indicate outside pressure from trading partners to be the main reason small companies become active in EDI. Tuunainen and Saarinen (1997) show in their studies that usually small businesses have used EDI in a way that was originally established by their customers (large companies) and they have not used the technology because of the opportunities it offers them or as part of their business strategy (Lawrence, 2010, p. 42).

In 1998 Dr Dieter Fink carried out a research study across Western Australia to establish the factors that lead to the successful adoption of IT by SMEs. It provided an indication of the key factors which are important to SMEs when adopting IT.

Research was carried out through a questionnaire which was mailed to 280 organisations in the western region of Australia. Of the 280 questionnaires sent out there was an overall response of 93 – a response rate of 33%. From these responses a total of six were discarded for either being inadequately completed or for having in excess of 500 employees. This resulted in a total of 87 valid returns (31% response rate).

The study included ten research variables which each contained four items. Respondents were asked to indicate, on a 7-point scale, the extent to which the 40 items decreased or increased the adoption of IT.

Dr Fink’s study indicated that operational efficiency, management effectiveness and competitive advantage were all ranked to be significantly important with regard to IT benefits. The need for a feasibility study to establish IT benefits was also determined to be significantly important by respondents. However, the high standard deviation indicated that respondents disagreed with one another on its importance (Fink, 1998).

The services provided by the IT vendor were recognised as being significantly important with regard to outside support and so was the knowledge provided by the consultant. Whilst SMEs appear to value IT information provided by external resources highly, the study reflected that the cost of obtaining the information was not a strong inhibitor and government grants were not reflected as being supporting factors for IT adoption (Fink, 1998).

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With regard to the external environment the need to stay competitive appears to be a major requirement for successful IT adoption (Fink, 1998, p.251). However, the use of IT by competitors was not as valued as that by trading partners. This might indicate that many smaller firms can be forced into IT adoption by more powerful trading partners such as suppliers.

A positive attitude towards the use of IT was identified as being a dominant factor in shaping organisational culture. The cost of IT hardware and software were items considered to be the most relevant with regard to IT availability whilst expertise in IT amongst employees, supervisors and top management were found to be powerful determinants of IT adoption. This confirmed previous research studies (Fink, 1998).

Top management support was recognised as being a significant determinant for the successful adoption of IT followed by IT experience of employees within the organisation.

In order to ensure a successful IT selection process, the study reflected that an adequate justification of IT adoption should be carried out. According to the findings, the integration of new IT with existing IT is significantly important for successful implementation (Fink, 1998).

In the past business size has been a significant discriminator between adopters and non-adopters of IT among small businesses. In Dr. Fink’s study, size, as measured by the number of employees and by turnover, had a significant effect on the factor ‘availability of IT’ only. This factor was regarded as being more important by smaller firms than by larger ones. Therefore we can conclude that smaller firms appear to consider the element of IT cost and features more closely during IT adoption (Fink, 1998).

Internal factors (IT benefits, organisational culture, in-house IT expertise and resources, IT implementation and selection) were judged to be relatively more significant than external factors (external environment, outside support, external resources). This finding appears to contradict previous studies which indicated that small businesses largely rely on external expertise and resources when computerising because of the lack of internal IT management and skill (Fink, 1998).

The first issue that must be recognised when discussing this study is that it was carried out in 1998, over twelve years ago. Since then IT and information systems (IS), which were included in this study,

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have developed significantly and are now recognised as being a critical resource within the majority of businesses.

As established at the beginning of this chapter the definition of what constitutes an SME varies from country-to-country. For this reason it is difficult to compare the results identified through Dr Fink’s study with previous research findings. The 87 valid responses obtained for this study represents a relatively small sample size. However, it is comparable to sample sizes reported in other IT adoption studies in the SME domain (Fink, 1998).

The study was restricted to Western Australia which is particularly remote from the rest of the country (the nearest city, Adelaide, is 2000 kilometres away) and has its population centred in the capital city of Perth (Fink, 1998). In 1997-1998, the Australian economy experienced a GDP (Gross Domestic Product) growth of 4%, a growth higher than previously forecast (Australian Government, 1998). Had the study been carried out in a less remote area of Australia, for example the East coast, or if it had been carried out in a different part of the world, perhaps with a less developed economy, the results may have been different.

Another limitation of this study is that it took place at a particular point in time. Further research could be conducted to capture opinions before and after the adoption of IT. Alternatively, the study could be replicated in a few years time. The findings appear to indicate a change from previous studies in that SMEs now regard internal factors as more important than external factors. A subsequent study would establish whether or not this trend continues and whether or not new IT adoption factors emerge over time (Fink, 1998).

4.4 Application of the TAM within SMEs

Since TAM was first developed there has been an explosion of corporate computer usage and communications worldwide such as the internet and virtualisation. This has led to a series of further developments of the model as increasing investment is poured into IT development. Despite the original model being designed for use in an organisational context it has been adapted over time to cover a myriad of different areas relating to the adoption of IT.

In 2003 Ndubisi and Jantan investigated the impact of persona-system characteristics (such as perceived usefulness and perceived ease of use), technical backing, and computational skill on IS usage by Malaysian SMEs using the TAM. The study hypothesized that persona-system

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characteristics and usage of IS would be greater when there is greater computing skill and strong technical backing. The results from the study indicated that there is a positive relationship between the computing skill and technical backing and the usage of IS is directly influenced by usefulness and indirectly by ease of use (Ndubisi et al, 2003). The adapted model is shown in figure 15.

Figure 15: A practical application of the TAM for SMEs (Ndubisi et al, 2003).

The results from Dr Fink’s study agree that in-house IT expertise and computing skills (such as IT knowledge by top management and IT expertise among employees) are significant factors in the adoption of IS. The recognition of the importance of a feasibility study and adequate justification of IT adoption can be related to perceived usefulness and ease of use, and consequently also agree with the TAM. IT knowledge of the owner/manager of an SME can have a significant impact on adoption decisions. The owner/manager’s attitude towards IT, or an emerging technology, may depend, in part, on his or her IT knowledge and experience. It is increasingly likely that the more positive the owner/managers attitude, the more favourably they will view IT adoption (Harvie, 2002). The importance of the owner/manager’s attitude is noted in Dr Fink’s study which highlighted top management support as being a key factor in the adoption of IS. Regardless of the size of the organisation the support of top management addresses many project hurdles and has the ability to marshal resources in order to help projects succeed. In SMEs the only top manager in the organisation is often the owner. Combining this reality with the importance of top management support to IT success makes clear how more IT-aware owner/managers are increasingly likely to adopt and implement IS within their business (Harvie, 2002).

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5.0 Impact of Cloud on SMEs

The purpose of this chapter is to investigate the impact of cloud computing and the opportunity it presents to SMEs. It will look at reasons for adoption, the obstacles to cloud adoption, and assess how SMEs reach the proposed benefits.

5.1 The potential opportunities available to SMEs

Cloud computing can be a real game changer for SMEs as it can help bring new tools and technology, which they could not previously afford, within their reach. This new phenomenon is able to bring solutions to smaller companies to enable them to increase their business value and productivity (Choudhury, 2011). However, SMEs are widely regarded as being limited in terms of size, scale and scope of operation and as a result they may not have the necessary resources to research into and implement cloud services.

SMEs present a significant opportunity for cloud service providers and more and more IT vendors are beginning to recognise that more needs to be done to make technology accessible and affordable to smaller enterprises.

Due to the need for SMEs to reduce their capital expenditure and overcome IT resource constraints the economic crisis has pushed more SMEs towards cloud-based services (Ashford, 2011). Buying products as a service opposed to making large capital investments can give smaller businesses access to ERP solutions otherwise only available to larger companies. Savings are also made due to the reduced cost of ownership and maintenance charges associated with such systems (Hall, 2010).

The cloud enables smaller businesses to remove the barriers between themselves and larger enterprises to the point where they can enjoy the same benefits at a reduced technology investment. According to Richard Achee, head of Google Enterprise for Southeast Asia,

Before cloud computing, small businesses could never achieve the economies of scale of their larger competitors. Cloud computing helps small businesses level the playing field with their larger competitors and allows them to focus on running their business rather than on running and maintaining their technology (Choudhury, 2011).

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5.2 Why small businesses should embrace the cloud

The key challenge for SMEs, particularly with regard to IT infrastructure, is restricted capabilities. For instance, common restrictions often include not having enough time, human resources and/or money. Choudhury (2011) suggests that the benefits associated with adopting a cloud infrastructure can be categorised as follows: Cost As a low cost delivery model, the cloud addresses a key element in the average SMEs restricted capabilities – money (Choudhury, 2011). The cloud is able to bring services, which were previously only available to large organisations, to smaller companies. As there is no need to purchase, install, and maintain expensive software, it is able to do this without burdening smaller companies with the large IT investment costs typically associated with such solutions. Mobility Another key element which the cloud is well poised to address is the need for mobility. Having access to email, documents, contacts and calendars while out and about can help staff to keep in touch with customers and remain productive when they are not in the office (Google, 2011). This ability to conduct business operations at any location and time has significant performance impacts (Choudhury, 2011). Scalability Cloud computing allows a business to easily scale their IT requirements seamlessly as and when required. This means that as a company grows and develops their IT systems can simultaneously grow with them without the need for expensive changes to existing IT infrastructure. Innovation Cloud computing provides small businesses access to software, hardware and IT functionality that they would not typically be able to afford. They can now get the very latest version of software applications, and ensure they always have access to the latest technology, without the need to update software, or invest in new back-end technology, which will help to drive their business forward.

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5.3 Obstacles to Cloud adoption

According to IOD Research, security is a top concern for 78% of SMEs and is often cited as one of the key obstacles when considering a move towards a cloud infrastructure (Warwick, 2008). Organisations have ranked loss of control of data and where data is held as two of their top security concerns (Ashford, 2011). The major new concern for many organisations, both large and small, when considering a move towards the cloud is that they are no longer in control of their operations, yet still remain accountable. Sceptics also raise the issue of reliability and uptime – i.e. how a service provider is able to ensure that the internet, or cloud service, doesn’t ‘go down’ and what guarantees are in place for this (Google, 2011). Pete Zarras, CEO of Cloud Strategies, believes that cloud adoption will accelerate as users learn more about the security and reliability of cloud based services (Cohen, 2011).

According to many IT solution providers who are working with customers to help their transition into the cloud, one of the biggest issues is the lack of understanding about what exactly cloud computing is. Connie Arentson, President of Heartland Technology Solutions, says “not understanding the cloud is holding them back” (Cohen, 2011). Jason Bystrak, Director of Cloud Services at Ingram Micro, agrees with Arentson. He suggests that users’ cloud confusion has been fuelled by those who are trying to sell it to them. “There’s some murkiness around cloud as far as ‘what is cloud,’...” (Cohen, 2011).

In order to ease some of the concerns amongst SMEs, and reduce the obstacles to cloud adoption, the cloud computing industry will need to establish its own security standards, specifically tailored to cloud infrastructure, and outlining procedures such as retrieving data from a service provider. Without standards the user is completely dependent on cloud providers to deliver their services. According to Osborne (2011) this can open up the possibility of increasing costs and an inability to switch to alternative cloud suppliers. William Beer, director of OneSecurity at PricewaterhouseCoopers, says that using existing standards is a start but the cloud computing business model is fundamentally different, as is the way users will engage with services (Ashford, 2011).

5.4 Cloud usage in SMEs

Google suggest in their report ‘The Small Business Guide to Cloud Computing’ that there is a significant rise in the acceptance of cloud computing among SMEs, which reflects a growing awareness among SMEs of what exactly cloud computing is, and the benefits it can bring to smaller

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enterprises. However, whilst an increasing number of smaller businesses are adopting cloud computing it is clear that many are still unsure of what it is, how it relates to their specific business sector and most importantly how it can benefit them (Google, 2011). Regardless of this, organisations who do not adopt a cloud infrastructure in some form or another run the risk of being technologically left behind and less productive in the face of competition (Choudhury, 2011). According to Christian Nagele (2011), CEO at Centra Stage Limited, the majority of businesses reportedly use less than 30% of the functionality of their office software. The ability that cloud computing presents to small businesses - to only have and pay for the functionality they require - is an integral factor, particularly in the current economic climate. It is able to bring real business benefits to any organisation, regardless of business size, and adds huge improvements to business performance enabling smaller businesses to compete more closely with larger organisations.

Despite concerns about security, cloud providers typically have better security protocols and processes in place than the majority of SMEs. According to Wendy Goucher (2011), Idrach Ltd, information security is significantly down the list of investment priorities for SME’s. Taking this into consideration, implementing a cloud infrastructure could in fact improve security as it is a critical aspect for cloud computing providers who consequently assign a very high importance to it. Service providers are also much more likely to maintain the latest security software updates and will typically be in a better position when it comes to disaster recovery.

For many larger organisations cloud computing is all about reducing operating costs. However, for many SMEs cloud services could potentially be not only about costs but also about filling in gaps in technology that they otherwise could not afford (Choudhury, 2011).

According to Richard Achee ‘more than 3,000 businesses – primarily small businesses – sign-up for Google Apps each day’ (Choudhury, 2011). Typically smaller businesses are able to move much faster than large enterprises and are consequently expected to be early adopters of cloud computing.

The key to success of cloud computing is not the cost or availability of the services, but the value that those services bring to the organisation. It is able to reach the smallest company with the same level of quality and efficiency as any other company. According to Dave Girouard, President of Google Enterprise, “in 2010 cloud computing went main-stream, and conversations moved beyond ‘this is a way to cut costs’ to ‘this is a better way to run my business’” (Google, 2011). Page 45 of 74

5.5 How do SMEs reach the potential benefits of cloud computing given their characteristics?

Fink’s study (1998) identified that the internal factors, such as organisational culture, and in-house IT expertise and resources, are relatively more important to SMEs than external factors, such as outside support, and the external environment, when adopting IT.

Based on this study it is important that, for SMEs to successfully reach the potential benefits of cloud computing, they must firstly establish whether there are sufficient benefits (both financial and operational) of moving towards such an IT environment and if the organisational culture is supportive of such an infrastructure. For instance, Fink’s study indicated that a positive attitude towards the use of IT is vital in its successful adoption within SMEs.

Management should also determine if the necessary internal resources and procedures exist for the successful implementation of a cloud computing environment. Finally, SMEs should evaluate the external environment, the outside support and resources available, particularly if in-house resources and support are lacking (Fink, 1998).

Fred Davis suggested in his proposal for a technology acceptance model that ‘perceived usefulness’ and ‘perceived ease of use’ determine an individual’s intention and motivation to use a system. This hypothesis closely supports the results of Dr Fink’s study where internal factors, such as in-house IT expertise, organisation culture, and IT selection, were all judged as being significantly important. However, Davis’s final development of the TAM, which saw the introduction of ‘External Variables’ as an impact of an individual’s behavioural intention towards a system, is not reflected in the results of Dr Fink’s study which did not recognise external factors as being a significant influence.

Considering Davis’s TAM, in order for SMEs to reach the full potential of cloud computing it is vital that employees recognise and understand the full benefits of implementing a cloud infrastructure to both the business and themselves. This understanding will have a direct impact on the acceptance of cloud computing within the business and consequently the success of its implementation. More importantly, as discussed in chapter 4, the IT knowledge and acceptance of the new technology by the owner/manager is vital for successful adoption of cloud computing.

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6.0 Conclusion

Based on the research and findings throughout this dissertation this chapter will attempt to assess the future of cloud computing.

The cloud is not the panacea for business needs and requirements. By itself, the cloud is not the solution – it is only a tool to develop the solution (Liew, 2011).

Cloud computing is a term that has been thrown around without meaning for several years. The hype and excitement surrounding the topic is a small indication of the vast benefits it can bring to organisations of all sizes. Although the specific roadmap for cloud computing might still be unclear, the movement of many large, influential organisations, within the IT industry, towards implementing or providing a cloud infrastructure points towards one logical conclusion: cloud computing, seen by many as a marketing term for something we are already doing, is here to stay and may well be the future of IT.

Cloud computing has the potential to change the way we all live and work in the future by ensuring anywhere, anytime access to the information and people we need in order to improve efficiency and drive business growth. The fact that people have already been making significant business plans and decisions, based on a tool that is arguably still in its infancy, goes to show the impact that cloud computing is having on the industry and the confidence of many influential business leaders in its progression and ability.

According to the Future of Computing Report, by Pew Research, a solid majority of technology experts and stakeholders expect cloud computing to become more dominant than the desktop within the next decade. The report later goes on to say how by 2020 the majority of people will not do their work with software running off general purpose PCs. Instead, they will work on internetbased applications such as Google Docs, and applications run on Smartphones (Google, 2011). This will be driven by the accelerating pace of technology which is presenting us with ever-faster fixedline and mobile internet access, smaller and more powerful computing devices, and an increasing number of services and applications which are being delivered over the web and help to make us more connected and increase our desire for anytime–anywhere access to this information (Google, 2011).

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Although security remains a problem, there is still little question that cloud computing will one day become the norm. It is the next step in the evolutionary progress of computing from the mainframes of the 1960s, to the client-servers of the 1990s, to the web-based applications of the 2000s, each of which had, and continues to have, its own set of security problems (Unkown, 2010). This is supported by the fact that major ERP companies such as Oracle and SAP are aggressively extending their cloud solutions through acquisitions of cloud specific companies such as SAP’s recent acquisition of Success Factors in December 2011, and Oracle’s acquisitions of Right Now in October 2011 and more recently Taleo in February 2012.

Cloud computing might not have a complete, clear, and agreed definition within the industry, and may still be in its infancy. However, regardless of this, it represents an opportunity for SMES to implement the same software applications and solutions as their larger, more dominant, competitors. The technology which enables such an infrastructure is low-cost, scalable, and easy to implement and use. In short there has never been a better time for SMEs to make the switch to cloud computing. According to Google (2011) life in the cloud is too compelling a prospect for SMEs to ignore.

Whether we like it or not I feel it is an area of IT which we are going to see grow and develop long into the future. It has the potential to change the way we access, store, and think about IT. However, from the research I have carried out throughout this dissertation, I believe the ultimate success of cloud computing will rely heavily on security concerns being resolved and standards being introduced which will help to improve the degree of trust between the client and the vendor. Until cloud service providers can guarantee better security than SMEs can provide for themselves, or the same level of security at a lower cost, I believe the sensitivity of the data will determine whether or not an application, or piece of data, is suitable for outsourcing.

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