|Finding your way into the cloud|
Why you should, and how to start
Posted on October 1, 2010
By Dr. Guido Sacchi and Jordan Fladell, of Slalom Consulting. Further information appears at the end of this article.
The use of the term “cloud computing” has risen to hype level over the past few years. According to legend, the term has its origin in technical diagrams used to portray the supply of computing resources through a large network, the location of which is irrelevant. This was depicted as a literal cloud in the diagrams. Originally, the cloud was a metaphor for the telephone network. Today, it represents the internet.
From a bank executive’s perspective, the key concept associated with cloud computing is “service.” The cloud transforms the providing and consumption of computing resources from a model based on operating, managing, and controlling the underlying infrastructure to a model where such resources are provided and consumed “as a service.” In cloud computing terminology, this is labeled as “XaaS,” or “something-as-a-service,” and includes Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS).
From a business perspective, the logic is clear: Cloud computing can free organizations from the burden of acquiring, operating, and managing costly and complex systems, by switching to a model where services are “on demand.” The company pays only for what gets used, providing full elasticity of supply–and decreasing the cost of, and dependency on, in-house IT departments. Moreover, cloud computing offers the ability to provide new, innovative services and deepens the relationship with customers.
Security: legitimate concern or red herring?
Banking officials must worry about security issues and cite them as the main obstacle to reaching the benefits promised by cloud computing. In banking, risk management is an integral part of both the cloud migration strategy and the ongoing management of the cloud computing environment, and legitimately so. Customers require their bank to aggressively protect their data. A sensible risk management approach is complicated by the fact that cloud computing has evolved more rapidly than the applicable standards and regulatory framework.
On the other hand, institutions that adopt relevant, flexible risk management practices are able to reap substantial benefits by transitioning to the cloud while still maintaining a sound governance framework. A well-executed transition to the cloud includes an assurance program that addresses issues specific to financial institutions, including: retrieving information, trans-border information flows, compliance, and privacy. Along with Service Level Agreements (SLAs) built into contractual arrangements, risks posed by cloud computing can effectively be addressed with the right technical solutions and management.
Banking executives need to manage the risks associated with organizational changes brought about by the cloud model. IT departments will be significantly transformed by a migration to cloud computing—and the makeup and expertise of the organization will have to evolve, from one based on direct operation, management, and support of the technology infrastructure, towards one centered on the effective planning and managing (including management of risk) of a cloud model.
Consumers in the driver seat
Banks must deal with the increasing “consumerization” of IT. Consumers—who may also be bank employees or customers—are increasingly familiar with and comfortable with cloud models in their personal life. Most of us live with a “personal cloud” providing us with email, file storage, productivity applications—almost all aspects of our life that involve a computer. As consumers get more comfortable with the cloud, most trust our banks and expect online access to accounts—both through computers and mobile devices, with the expectation that this information be accessible anywhere, anytime.
What does this all mean for a bank’s adoption of a cloud model?
On the internal side, these expectations are intensifying the pressure on IT departments to provide a “user experience” on par with the one experienced by employees in their life as consumers. For a variety of reasons, including risk management, resource constraints, cultural issues, internal IT departments increasingly struggle to keep pace with “consumer IT.”
Employees, especially younger generations, are demanding service models closer to the ones experienced outside of their employee life. Often this drives them to circumvent corporate IT practices to pursue business objectives. Caught between intense cost constraints and increasing demand for consumer performance in terms of scalability, flexibility, provisioning time, cost structure, etc., IT departments that fail to embrace cloud models are, to put it bluntly, at risk of irrelevance and extinction.
On the external side, banks have been engaging in cloud delivery models for some time (mobile banking? There’s an app for that!), and have dealt with similar security, privacy and performance considerations as the ones they demand of their own cloud vendors. This growing familiarity with cloud delivery models, driven by the quest for a great customer experience that can boost loyalty and profitability, may in turn cause business executives to sponsor and adopt cloud models for their internal applications.
Evolving maturity and performance
The maturity and performance of cloud computing offerings for corporate environments has dramatically increased over the past few years. On the SaaS front, leaders such as salesforce.com have established a solid footprint and expanded from Sales Force Automation (SFA) to a broader sales, marketing, and customer relationship management suite of offerings. Microsoft has embraced the SaaS model and now spans the SaaS (e.g., Office, Sharepoint), PaaS (e.g., Azure) and IaaS (e.g., Exchange) market. Amazon has been growing its AWS (Amazon Web Services) cloud platform and has found great applicability in many industries, including banking. A number of specialized players offer cloud-based solutions for testing, intensive computation, and other specific tasks.
The main players have also been addressing issues specific to banking, such as the risk considerations discussed above, and are gaining increasing acceptance in the banking environment. For example, Salesforce CRM has been successfully adopted at SunTrust and E*Trade Financial, among others, while Bank of America uses a “private cloud” to build and test website landing pages.
How can your bank reap the benefits?
The combination of these trends points to the growing relevance and adoption of the cloud model for banking institutions. Both the bank’s internal corporate environment and the external relationships with the bank’s customers will be increasingly defined by cloud computing.
Because of the type of information and transactions banks manage, there are specific challenges to executing a cloud adoption strategy, but that shouldn’t hold them back. To reap the cloud’s benefits while managing its risks, ensure you have a well-planned model for adoption:
Define the cloud. Adopt and communicate a common definition. Understand the different service and deployment models. Define the expected benefits. Establish a risk management framework.
Take advantage of the cloud. Start capturing benefits by planning and adopting cloud solutions with low risks and potential for high and short-term returns. Candidates for these early efforts include server capacity, storage, backups, communications, and documents.
“Play” in the cloud. Establish a well-planned program to continuously test adoption of cloud models for both internal and customer-facing usage. Target benefits beyond cost savings, such as time-to-market and fast ramp-up and ramp-down. Devise plans and changes that would align the organization to a cloud model environment.
Embrace the cloud. Adopt cloud computing as the bank’s “default” model, especially for new projects and initiatives. Grow the cloud computing presence and footprint as a key strategy. Fully understand trends and success factors for the consumers’ “personal cloud.”
Win in the cloud. Reap full benefits from the cloud model and manage risks with an adaptable framework. Establish a central role for the bank in the consumers’ “personal cloud.”
Cloud computing promises large business benefits that are now within reach for many banking institutions. By intelligently managing the associated risks; planning and executing an effective adoption strategy; and capturing new customer relationships and deepening existing ones by assuming a key role in the “personal cloud,” banks can capture value well beyond operating cost reductions.
Jointly authored by Dr. Guido Sacchi and Jordan Fladell, of Slalom Consulting, a business and technology consulting firm. Dr. Sacchi is Managing Director, Financial Technologies and Innovation. He has served in corporate executive roles in the financial services industry and was recognized as one of Computerworld’s Premier 100 IT Leaders in 2008. Jordan Fladell is the firm’s Solutions Managing Director and leads delivery of Slalom Atlanta’s technology offerings.
[This article was posted on October 1, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.]
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