Suppliers addressing businesses' concerns over cloud computing, says expert

Out-Law News | 14 Mar 2013 | 10:54 am | 2 min. read

Suppliers have changed the way they provide services through the cloud in order to address the concerns businesses have about utilising the technology, an expert has said.

Cloud computing specialist Charles Park of Pinsent Masons, the law firm behind, said that the results of a recent survey conducted on behalf of KPMG had highlighted the "maturing" nature of the cloud market.

In a report by KPMG, the accountancy firm said that most organisations had now adopted cloud as part of their way of doing business and "cloud adopters" were now focusing on issues such as redesigning their business processes, making improvements to their business models and "moving more core functions to the cloud".

The report charted the results of a survey conducted on KPMG's behalf which found that, of 650 senior IT and business executives, 33% had identified issues around implementation, transition and integration costs being too high as a key challenge to their firms' approach to cloud adoption. More executives (31%) also identified integration with their firms' "existing architecture" as a key challenge to cloud adoption than those who identified the challenge of data loss and privacy risks and a loss of control (both 30%). KPMG said it was the first time data security issues were not ranked as the most raised issue for businesses in respect of cloud adoption.

Park said that the findings showed evidence that actions taken by suppliers were beginning to impact on businesses' attitude to cloud.

"The report shows that the cloud computing market is maturing," Park said. "There is a clear change of mood in the dialogue as evidenced by the fact that businesses are now discussing issues to do with implementing cloud strategies as opposed to giving reasons why they are not adopting cloud solutions."

"In our experience change has come about because cloud suppliers have listened to the concerns expressed by businesses and tailored the services they offer to address them. Regulators too are beginning to catch up and change their stance on cloud matters," he added.

One of the regulatory developments Park cited was an agreement the Dutch Central Bank has formed with Microsoft over auditing rights in the software giant's Office 365 cloud service contracts. The Dutch Central Bank requires financial institutions to agree rights of audits with providers of outsourcing services but businesses had found it difficult to negotiate those auditing rights themselves. However, the regulator was able to convince Microsoft to include an audit right in its Office 365 cloud service contracts.

KPMG said that the results of its survey showed that businesses are looking to boost data security through adopting cloud solutions and that they are also "establishing policies and procedures that enable them to modify their cloud strategies and address future regulatory requirements as they arise".

In addition, businesses are "more proactively and strategically" assessing the tax implications inherent in using cloud services and that, by doing so, companies had been able to "make a significant difference" to their tax position "and therefore positively impact the overall cloud business case".

Tax law specialist Heather Self of Pinsent Masons said that there are a multitude of tax issues related to doing business in the cloud.

“Businesses generally recognise that transfer pricing is likely to be an issue with cloud-related projects - but they may not be aware of the seismic changes which could result from current OECD work on e-commerce and intangibles,” Self said. “The indirect tax issues, such as VAT and sales taxes, are also critical and can be overlooked.  As with any major business change project, the earlier there is tax input, the less likely there are to be tax problems later on."

In order to see the cost benefits businesses hope they will obtain from adopting cloud solutions, firms need to "transform their business processes" in tandem, KPMG said. It said that if they don't, those companies "run the risk of misinterpreting the short term IT savings as success, while the longer term strategic business objectives go unrealised".

KPMG said that 70% of respondents to its survey agreed or strongly agreed that cloud adoption had led to "significant efficiencies and cost savings" and that this was driving a "greater appetite and acceptance of cloud" across their business.

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