SMEs and the cloud: A union made for each other

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PwC says that SaaS could change the way companies execute business finance functions over the coming years. PwC says that SaaS could change the way companies execute business finance functions over the coming years. PwC says that SaaS could change the way companies execute business finance functions over the coming years.

Small- and medium-sized enterprises (SMEs) have long been regarded as the bedrock of most developing economies in the ASEAN region.

In Malaysia, this trend is no different, with SMEs accounting for about 97.3% of total business establishments in the country (645,000), according to statistics from the Economic Census 2011.

SME Corp, the government’s agency in charge of SMEs in the country notes that most of the businesses are in wholesale and retail trade, restaurants and accommodation, as well as manufacturing of textiles and food products.

But while SMEs have in the past 20 years enjoyed thriving growth, there is added pressure today for them to provide better business value whilst delivering their goods and services at lower costs.

The impetus to do so is as a result of globalisation, and competition from countries which have cheaper foreign labour. The government for its part has continued to champion the need to push local SMEs through various initiatives in the Ninth and 10th Malaysia Plan.

Central to this effort is the fact that SMEs must embrace various new trends in information and communications technology (ICT) as a catalyst for better productivity and lower operational costs.

One new trend that can help SMEs achieve this is cloud computing. But whilst there are benefits to adopting this trend, there also are some fuzziness over what this technology can do for SMEs.

Part of this challenge is due to the fact that the concept of the cloud is many things to many people. Thus, the key to getting SMEs on board such a technology must lie in education and awareness of SMEs, as well as the easy implementation and pricing models that must be easily comprehensible.

One easy way to think of cloud computing is to think of it as computing resources that are offered on-tap in the same way that electricity and water come to you in your homes and offices.

Just like how you get electricity and water by subscribing to your local power and water utility provider, you can similarly do so by subscribing to cloud computing service providers (CSPs) and request that computing resources – compute power, memory, disk storage, software – be delivered to you over the public Internet or via a private or leased line connectivity.

Improving agility

Simply put, cloud computing is a new way of delivering software and IT services in today’s broadband-enabled world.

SMEs & the cloud

SMEs & the cloudAccording to Shahrin Ismail, executive director in PwC’s South East Asian consulting services’ technology consulting practice, SaaS could change the way companies execute the business finance functions over the coming years.

“Cost savings, access flexibility, scalability, elasticity, and resilience of SaaS-based solutions will drive the changes. From the CFO’s perspective, SaaS can provide IT cost reductions as it’s based on consumption.

“It can also improve agility as cloud allows rapid scale-up/scale-down capabilities depending on the workloads. In a nutshell, as a C-level, anything that offers the capability to shift spending from capital investment to pay-as-you-go is attractive which inadvertently frees up capital investment for other purposes.”

Four-letter acronyms

To understand cloud computing further, it would be necessary to define the technology in the three usual taxonomies used in the industry to describe it. The three terms are: Infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS).

IaaS are providers that serve hardware services such as memory, compute power, storage to customers; examples of these are Amazon EC2 and Rackspace.

PaaS delivers the same services as IaaS but has the added element of application development solution tools so that programmers and developers can use these tools to build end-user software on top of an IaaS infrastructure; examples of these are Google App Engine and Microsoft’s Azure.

SaaS is a method of delivering software over the Internet – think of Dropbox for storage, Google Docs or Microsoft Office 365 for productivity suites, Salesforce.com for customer relationship management tools, WebEx for online collaboration tools.

Collectively, these three taxonomies define what is commonly known as cloud computing for most CSPs.

Best Internet Concept of global business from concepts series

Best Internet Concept of global business from concepts series

Benefits of the cloud

So what are the benefits of the cloud for SMEs especially?

To begin with, the use of cloud computing can save SMEs as one of the main advantages of the cloud is to rent ICT infrastructure instead of buying them. So instead of going to the IT vendor and specifying technical details of what servers you should buy, you can just tell the CSP what kind of services you need and get them to suggest what is best for you.

The immediate benefit by doing this is that you can also park payments for these services as part of your operational expenses, which are tax deductible, rather than as capital expenditure, which is not.

Secondly, a user or company does not need to have the expertise to handle IT infrastructure as these technical details are taken care of by the CSP and not you as the user. This means that you would not have to handle issues like software and server upgrades, which would be very handy for any business not familiar with such matters.

Next up is the universal accessibility of the cloud. By having your data and applications accessible from virtually anywhere, anytime, SMEs do not need to tie their employees to a particular location for them to work.

Another big advantage of the cloud is that it is ‘elastic’ or ‘burstable’ in its capacity. Imagine this: if an SME has a yearly sale over a weekend, which involves extra transaction in payment processing or stock ordering, you can request your CSP for more ICT resources without having to foot out capital investment just for that short period of time.

These are but some advantages of cloud computing. In the next column, we shall drill down further details of cloud computing including what are the best practices and introduce the easiest for cloud computing – SaaS – which many SMEs can quickly adopt without much hesitation.

Tomorrow: First steps to the cloud

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