Cloud Computing in Businesses: Strategies, Limits and Effects

Subject: Tech & Engineering
Pages: 7
Words: 2030
Reading time:
9 min
Study level: PhD

Cloud Computing versus Grid Computing

Kondo et al. (2009) carried out an analytical study on cloud computing and desktop grid applications. They established that both cloud computing and desktop grids have common characteristics. In both cases, users are unaware of the location of the data centre. However, the two platforms are different in terms of configurability and service quality. Cloud computing offers a configurable setting in relation to the operating system and software package. On the other hand, the virtual machines under the desk stop grid are still under study (Kondo et al., 2009).

Kondo et al. (2009) evaluated the cost and benefits of the two platforms from the corresponding and rigorous application. They analysed the overhead cost of setting up a desktop grid. According to their study, the monthly cost of desktop grid applications was between 5000 dollars and 12000 dollars. The start up cost ranged between $4000 up and $43000. The introduction of cloud computing has managed to reduce these costs. Kondo et al. (2009) also analysed the hybrid platform where the VC server is hosted on the cloud. They found out that the hybrid platform reduced the start up cost and subsequent cost considerably. Companies could save up to 95 percent of the cost depending on the platform usage (Hoffman, 2009).

Data Security in Cloud Computing

As already mentioned, many businesses are migrating to cloud computing to save cost. Cloud computing provides cheaper and scalable data storage for these businesses; however, the biggest question that lingers in the mind of many people is whether data storage in the cloud is secure. Therefore, the most imminent task for businesses is the security of data. Better understanding of cloud computing architecture is very important when handling security matters. The figure below shows cloud computing reference model that integrates all the three forms of cloud computing.


Security controls for cloud computing are almost similar to security controls in the IT environment. However, cloud computing uses a divergent service model, functional model and technologies which present new types of risks (Cloud Security Alliance (2009, p. 19). The business IT security is normally tackled in different faces ranging from physical security, network security, system security, and application security. The security responsibility of the cloud computing service providers and users depends on the type of model used. In most cases the cloud provider is responsible for physical security, environmental security and Virtualization Security (Cloud Security Alliance (2009, p. 20). On the other hand, at the lower levels of the platform consumers are tactically responsible for the security especially of application and data.

Besides the architecture, there are other areas that must be taken into account when tackling security issues in cloud computing. Cloud Security Alliance (2009) divides these areas into two namely; governance domain and operational domain. Governance domain encompasses strategic and procedural issues, while the operational domain tackles technical aspects of the security and implementation within the architecture. Governance domain takes in into account business risks caused by cloud computing, legal and electronic risks, compliance, and data management. Operation domain consists of operational procedures used to tackle security, operations of data centres, incident handling and forensics, application security, encryption and scalability management, and Virtualization (Cloud Security Alliance (2009).

Information Technology Outsourcing Theory

Cloud computing is basically an information technology outsourcing. A number of theories have been developed to help in understanding outsourcing in the field of information technology.The study explores different theories that are dominant IT outsourcing studies.These theories help to analyse IT outsourcing and each element that influence the adoption of cloud computing.

Transaction Cost Theory of IT Outsourcing

This theory is regarded as the benchmark of IT outsourcing and the most prominent among IT outsourcing literatures (Dibbern et al., 2004). Transaction theory is based on economic efficiency which is achieved through the equilibrium between transaction cost and production cost. To assess the enterprise outsourcing choice taking into account the transaction cost theory, two major elements must be considered: cloud providers can minimise production through economies of scale and increase in transaction cost can be as a result of asset rigidity, irregularity, and uncertainty. Rigid assets are those that cannot be redeployed for alternative uses or have lower value for other uses. Uncertainty encompasses volatile markets, economic and technological trends, contract intricacies and service quality. Transaction cost associated with irregularity includes weak provider-client relationship and inadequate contracts. Transaction cost theory analyses sourcing option of exploring the relative cost of cloud providers and in-house providers. According to this theory, the three elements of transaction cost theory (i.e. Asset rigidity, uncertainty and irregularity) influence sourcing option (Omtzigt, 2008).

Agency Cost theory of IT Outsourcing

This theory was developed in the early 70s. The theory emphasizes on the relationship between a contractor and the principal. The latter delegates certain duties to the former based on certain terms and conditions. The main focus of the theory is not about the choice between outsourcing and in-sourcing but rather on the agreements and the agency aspects of the agreement (Hancox & Hackney, 2000). According to the agency cost theory, significant choices are based on behaviour-based or outcome-based contracts. The alternative option must include cost of agency which is the incurred cost because of irregularities among the goals of the parties.

In the context of cloud computing the agency cost theory presents an excellent structure to explore the elements that influence the amount of agency cost. Armbrust et al. (2009) highlights five significant elements that influence sourcing choice with regard to agency cost. The five elements include uncertainty, risk prevention, programmability, measurability and time-span. Uncertainty can be caused by a number of factors, for instance, technological changes, government regulations, economic growth or depression, new rivals/competitors among others. In this case prevention of risk entails passing the risk to the service provider. However, agents who are more of the risks involved would probably charge higher cost. Measurable outcomes are more appropriate on contracts based on outcome. The length of the contract also influences the agency cost. Long-term relationship is cheaper compared to short term relationship. Therefore, long-term relationship between the principal and agents is more favourable on contracts that are behaviour oriented (Motahari-Nezhad, Stephenson, & Singhal, 2009).

Resource-Based Theory of IT Outsourcing

This theory regards resources as the basis of business strategy (Goles &Chin, 2005). Armbrust et al. (2009) defines business resources as the sum of all the assets, capacities, business processes, business qualities, and information among others. Resources enable businesses to conceive and implement strategies in a manner that enhances organizational efficiency and effectiveness. Kondo et al. (2009) classify business resources into three categories namely: physical assets, human resources and financial resources. They emphasize that business resources can only achieve competitive advantage if they are valuable, rare, non-substitutable, and imitable.

The resource-based theory not only considers the available resources but also the development of new resources and competencies of the business. Resource-based theory IT outsourcing as a deliberate plan to bridge the gap between organizational capabilities and computing resources. Capabilities include IT support, staff quality, quality of information, and financial status of the companies among others. Therefore, IT resources and capabilities should meet the required standard to ensure a sustainable competitive advantage (Motahari-Nezhad, Stephenson, & Singhal, 2009).

Resource Dependence Theory of IT Outsourcing

Unlike the resource-based theory which focuses on internal resources and capabilities, this theory centres on the relationship between these resources and external environment. Resources that are highly influenced by external environment include land, human labour, capital, and products and services. Khajeh-Hosseini et al. (2010) explained three elements of the organizational task environment originally developed by Pfeffer and Salancik (1978). These elements are power (dispersion of power and authority), munificence (availability or scarcity of resources), and interconnectedness (number and patterns of links among businesses). According to the resource dependent theory, the three elements of the organizational task environment influence the choice and decision in IT outsourcing (Kondo et al., 2009).

Partnering and relationship theory

Numerous studies (mostly management and marketing studies) have been carried out on inter-business relationship. Goles and Chin (2005) integrated the concept of outsourcing and partnering and came up with the definition of inter-business outsourcing relationship. They define inter-business outsourcing relationship as a linkage between service providers and clients arising from contractual agreement. The contractual agreement highlights the benefits to be attained by each party. Mayur et al. (2008) argues that the relationship/partnership between IT outsourcing firms and their clients helps in minimising risks, increases predictability and therefore reduces uncertainty. Therefore, outsourcing relationship has significant impact on the outcome of outsourcing contracts.

Summary of the Literature Review

Innovation is essential to counter the predestined wave of change. Most companies are working very hard to minimise the cost of computing through Virtualization. The need to reduce the cost of computing is the reason why cloud computing is becoming more and more popular among small-scale and medium businesses today. Cloud computing is the summation of Software as a Service and other computing utilities. Cloud computing is a new concept among business enterprises and is still in the infancy phase. The growing popularity of cloud computing is attributed to cost and security factors. Information technology outsourcing theories also explain the reason behind the increasing demand for cloud computing service. Most of these theories are cost-related. Cloud computing is cheaper in the long run compared to the in-house data centres. Another factor that has contributed to the growing popularity of cloud computing is scalability. The services provided by cloud computing providers are highly durable, accessible, and faster. The security of data is a major concern among the users of this computing platform. The concern arises due to the fact that cloud computing physical infrastructure is shared among many users and they have no control over it. Experts argue that data security in cloud computing depends both on the service provider and the consumer. Nonetheless, Cloud computing comes with shortcomings. It demands a constant Internet connection which is affected by the speed of the Internet. Cloud computing also has limited computing features which may not meet the organization’s standards.

Overall Summary

The study tackles the strategies, limits and effects of cloud computing in businesses. Numerous literatures have paid more attention to cost and security. Cloud computing is becoming increasingly popular nowadays and is arousing a lot of interest in the corporate world. Cloud computing evolved from grid computing thus, businesses that had used the latter technology are in a better position to understand the meaning of the term cloud computing. Businesses embracing cloud computing are in a real dilemma of whether to adopt this technology because of different views from different sources regarding the positive and negative aspects of cloud computing. The most dominant aspect of cloud computing is the cost effect. The cost effect encompasses data centre cost, models of pricing, flexibility, and administrative cost among others. Cloud computing saves businesses the cost of setting up their own data centres and hiring staff to manage them. Flexibility and different pricing models used by cloud providers makes the technology more cost effective. However, the study noted that cloud computing is popular among medium and small-scale enterprises. This is because large businesses can afford to set up large in-house data centres. Security is another aspect of cloud computing. Security encompasses web browser security, legal risks, loss of encrypted passwords, network challenges, and natural calamities among others. Notwithstanding the above risks, cloud computing also has a number of security benefits. These include standardised interface, logging, valuable updates, and effective management of risk among others. Whether the benefits outweigh the security risks of cloud computing is still a subject under study. In summary, cloud computing is a technology still in its infancy stage and has numerous benefits for the present and future generation of businesses. A lot of work is still being put in this technology and more progress can be expected in the future. Nonetheless, the most important factors of cloud computing at the moment have to be the cost effect. Security is a subject under debate and from the views of different studies it is very clear that despite the benefits of cloud computing it does not add much value to businesses.


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