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Be Clear about the Cloud

As the dominant IT paradigm continues to shift, companies need to manage critical components of the migration.

“You need to understand that you may have to address the skill sets in the organization,” says Steve Hill, leader of innovation for KPMG. “Services management is very different from services delivery.”

But capabilities offered by cloud computing may create upheaval throughout the organization. For example, some retailers and manufacturers are now employing what’s known as a “community cloud” to improve supply-chain efficiency. That involves requiring suppliers to access a closed cloud platform across which data flows seamlessly from the retailer’s point-of-sale system to the supplier’s requisition, inventory management, and shipping systems and back to the retailer’s receiving system. A similar concept could take hold in many other parts of the business.

Managing such a process is very different from what many business leaders are accustomed to. Some may see it as a purely IT function, which is a mistake. “The cloud concept seems technical, so it’s often left to the CIO,” says Hill. “But it’s really about business. CFOs need to understand the implications of the cloud, even if it seems scary at first.”

Take Care with Contracts

As with all outsourcing arrangements, contract terms will prove critical. When dealing with cloud providers, it is crucial to specify that your company has the right to retain ownership, use, and control of its data. Demand to be notified in the event of changes in the service that would affect your business processes. Insist on detailed descriptions of how the vendor will assure the integrity, confidentiality, and availability of data.

Also, be aware of some potentially costly “gotchas” when contracting for cloud services:

¥Don’t tie usage levels to your baseline demand. If the contract doesn’t provide for variable-demand periods, there are likely to be costly up-charges when they happen, notes Jeff Muscarella, executive vice president of the IT division at NPI, a spend-management consultancy.

¥Be sure to understand what charges will apply to serve any unique requirements you have. Most cloud offerings are fairly generic. To handle specialized needs, such as compliance with payment-card industry regulations for retailers, there may be additional charges. Understand such charges before signing on.

¥Don’t assume you’ll be able to move your applications to the cloud for free, Muscarella says. Many software licenses prohibit a transfer to a multi-tenant environment, but the provider may let you do it for a price. If you think you’ll want the flexibility, ask for such permission to be written into licenses at the time you’re negotiating them.

Finally, consider adding a clause that stipulates that if your vendor is acquired or sells its assets you can terminate the contract without penalty.

Know Where Your Data Is

Cloud services usually involve moving data around among servers, which may reside in different locations. That makes it important to understand the legal requirements for jurisdictions in which a cloud vendor operates and to know exactly where your data may be sent. For example, the European Privacy Act limits the transfer of private personal information outside the European Union. If your data is transmitted between servers in London and India, you could risk a regulatory violation.

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