Terry
Dann
looks at the opportunities in cloud computing
for financial services businesses

Cloud computing: everyone’s talking about
it – from Timothy Gartner, to The Economist, to the
man-in-the-street (or my son at least). How many of us understand
what it is though? Is it another over-hyped piece of packaging from
the technology geeks or could it really be the silver bullet which
will revolutionise IT departments?

Relatively few companies are truly using it, but it
could have the potential to dramatically change the means and the
cost of future IT services provision.

Cost saving versus delivery
improvement

In my article for Motor Finance in
January, I challenged CIOs to reduce their IT spend by 25 percent.
I wonder how many have really taken that challenge on board –
maintaining and even improving their service delivery and project
completion while taking serious positive action on the bottom line?
Among the techniques I proposed to help achieve this goal were
virtualisation and outsourcing – underlying elements of cloud
computing.

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Virtualisation delivers optimised use
of data centre resources

For almost 10 years we have seen the
growth of server virtualisation in our data centres. Physical
server boxes have been pooled and sub-defined into multiple
‘logical’ machines, enabling more cost-efficient use of capacity,
reduced power usage, increased responsiveness and higher
reliability.

We have seen similar advances in storage
utilisation – storage abstraction has enabled disparate storage
elements to be managed as a single environment and delivered
dynamically on-demand, once again maximising the utilisation of
available capacity and providing greater reliability.

Most enlightened IT organisations have been moving
towards the increasing use of service-oriented architecture (SOA)
in their application portfolios over the past few years. SOA breaks
applications into autonomous system services abstracted from one
another. Each service provides a self-contained function with a
published interface conforming to web services architecture
standards.

The services can be made available over the
internet, either as unique elements, or built into complete
application packages, software as a service.

Employing application structures which can benefit
from web services enables faster, simpler and cheaper application
development to be achieved. Many companies from SMEs to large
multinationals have made significant investment in this area
already

Next stop – cloud
computing

Cloud computing is the next logical step
which combines the two concepts of data centre virtualisation and
web-based application services.

Cloud computing utilises the power of a broad base
of multi-tenancy physical computing and software services resources
to deliver capacity and applications on demand via the internet.
Not just ‘software as a service’ but also ‘platform as a service’
and ‘infrastructure as a service’.

Ultimately, cloud computing could achieve the
utopian vision of computing on demand, moving IT spend from capital
expenditure to operating expenditure and commoditising the IT
industry. This would be much to the chagrin of many of my CIO
friends but it’s some way off yet.

Financial services afraid of the
cloud

Reports on recent research by the
Financial Services Club think tank indicate that of 230 financial
firms surveyed, none has yet completed a cloud computing project.
Within the retail banking sector almost 38 percent of organisations
are not considering cloud computing at all. This figure only
improves to 24 percent in the investment banking sector.

Given the potential benefits, why are financial
services companies so reluctant to give it a try? The answer is
that they have real fears. Embracing cloud computing means
reviewing many of the cornerstones of financial services computing
– control of applications; regulatory concerns; security; and,
critically, accountability. Who is brave enough to mess with these
in the current economic climate?

But we should be brave: All advances in technology
present new capabilities which can challenge many of our
pre-existing operational norms.

An ‘internal cloud’ is a
no-brainer

Financial institutions usually have large
data centres with masses of computing power, much of it
under-utilised. The internal cloud is a solution which could
provide greater increases in data centre utilisation, uptime,
dynamic adaptability and cost efficiency.

Under the internal cloud concept, all the company’s
IT resources are managed as a conglomerate whole, to deliver
computing services on an ‘as and when required’ basis without the
control, security and regulatory concerns of an external solution.
Also, the CIO and his team still remain fully accountable. This is
a great place to start your journey to the clouds.

The external cloud is maturing
fast

Virtualisation software providers such as
VMware, Citrix and Microsoft are addressing the overall management
and continuity issues with rapidly maturing solutions.

Cloud platform and application providers, such as
Amazon, Rackspace, Salesforce, Microsoft and Google are aware of
the regulatory issues and, for instance, when required can
guarantee the countries in which data will reside.

The cloud is however unlikely to ever be suitable
for all a company’s IT needs. Many key applications will remain
bespoke and will run under the tight control of that company’s IT
department for many years to come.

The most likely end state for larger companies is a
connected enterprise cloud – a combination of the internal cloud,
the trusted, reliable, secure and accountable internal data centre,
and the public cloud, composed of efficient, flexible and dynamic
multi-tenant internet services.

Cloud opportunity too good to
ignore

With the cost pressures and the public
spotlight on all financial services businesses, we need our CIOs to
be investigating every opportunity for efficiency.

The utopian promise of cloud computing is
certainly over-hyped, but can we afford to ignore the opportunity
and miss out on the prospect of some very real advantages, not only
in cost but also in flexibility and agility for the future
organisation?

Some 3.4 percent of retail banks in the Financial
Services Club research reported they have started a cloud project
and this rises to 4 percent of investment banks.

You should join them. Pick an application area
which is not business-critical or unique to your operation and dip
your toe in the water – or your head in the clouds!

Terry Dann is a director of Woburn
Consulting Group