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Procedía Engineering 178 (2017) 443 - 451
Procedía Engineering
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16th Conference on Reliability and Statistics in Transportation and Communication, RelStat'2016, 19-22 October, 2016, Riga, Latvia
Cloud Computing: Business Perspectives, Benefits and Challenges for Small and Medium Enterprises (Case of Latvia)
Tatjana Vasiljevaa*, Sabina Shaikhulinaa, Karlis Kreslinsb
aRISEBA University, Meza street 4, Riga, LV-1047, Latvia bVentspils University College, Inzenieru 101, Ventspils, LV-3601, Latvia
Abstract
Cloud computing (CC) is a recent and significant trend in Information and Communication Technology (ICT) usage paradigm. The research attempts to evaluate the current situation of CC deployment in Latvia and investigate how CCservices can improve business performance of Latvian Small and Medium Enterprise (SME) in various industries. The aim of the research is to identify the main factors motivating and influencing the adoption of CC services in Latvian SME, understanding the concept, benefits, and challenges of CC, its' impact on business performance and future perspective. This exploratory research paper tries to answer the following research questions: to what extent CC services are familiar to Latvian SMEs and how are they using CC services; what is the impact of CC usage on business performance and what is the potential and future foreseen of cloud computing services at Latvian SMEs in various industries. To attain the goal and objectives of the research the theoretical literature review is made and exploratory, descriptive mixed approach is applied for further research. The research was made during period 2016 April-June. This study provides insights and recommendations to SME, ICT vendors, service providers, government agencies, researchers and students.
© 2017 The Authors.Publishedby Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/4.0/).
Peer-reviewunderresponsibilityofthescientific committee of the International Conference on Reliability and Statistics in Transportation and Communication
Keywords:Cloud Computing, SME, ICT industry,finance industry,transport industry,business performance
* Corresponding author. E-mail address: Tatjana.Vasiljeva@riseba.lv
1877-7058 © 2017 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the International Conference on Reliability and Statistics in Transportation and Communication doi:10.1016/j.proeng.2017.01.087
1. Introduction
Nowadays, CC presents a significant technology trend and it is definitely aimed at tremendous shift in information technology processes and the IT marketplace (Manyika et al., 2013). According to the international study managed by Luftman et al. (2015) on "Influential IT Management trends", CC was categorized in top 5 of the most influential technologies over 10 year period. Goel and Sharma (2014), Sharma et al. (2016) state the vital necessity for enlarging the Technology Acceptance Model considering CC deployment at business enterprises and identifying the main factors essentially influenced CC adoption. ICT area is defined as one of the principal fundamentals of information society and knowledge economy in Latvia (Balina and Mickevica, 2012; KPMG in Baltic States, 2014). We could assume that key trends for the future of ICT in Latvia include active development of CC technology, according to the data from Central Statistical Bureau of Latvia, for the last years the use of CC services increased from 5.7% in 2014 till 8.3% in 2015 (CSB, 2015).
Moreover, for a target group of the research, SMEs have been chosen as they are playing an essential role in the economic growth of the country by generating a large employment pool and thus alleviating poverty (Savlovschi and Robu, 2011). As reported in "Annual Report on European SME" gathered by Muller et al. (2015), SMEs have compiled 99.8% of the whole enterprise market for the last years. Ross and Blumenstein (2015) believe that CC is a serious facilitator of SME entrepreneurship "providing greater access to global markets, lowering opportunity costs and supporting collaboration and innovation in an increasingly connected world".
2. Theoretical framework
Nowadays, attention from all kinds of companies to CC services is increasing rapidly. Forrester Research's forecast is promising a growth of CC industry from US$40.7 billion in 2011 to $159.3 billion in 2020. Likewise to estimations, IBM survey with more than 3,000 global CIO's stated that 60% of organizations were "ready to embrace CC over the next five years as a means of growing their businesses and achieving competitive advantage."(Yigitbasioglu et al., 2013).
In general, previous researches stated that CC is a form of convergence of two major trends in information technology - (1) IT efficiency, whereby ventures can utilize modern computers through highly scalable hardware and software resources and (2) business agility, whereby IT is used as a competitive advantage through rapid deployment and real time collaboration with customers (Marston et al., 2011).
A recent research by KPMG reveals the most successful areas of business improvement as a result of cloud computing implementation, wherein the enhancement of business performance and service automation as well as cost reduction has been positioned in the top (KPMG, 2014). Likewise, the study done by Harvard Business Review (2011, p. 2) sponsored by Microsoft revealed the most valued benefits of CC that increase business agility. Highly valued benefits of CC the respondents estimated as the following: increased business agility (44%); flexible capacity (41%); faster adoption of new technology (36%); lower fixed costs (shift from CapEx to OpEx) (33%); lower upfront costs to develop/deploy IT systems (31%); always on newest versions of software without IT updates/patches (26%). The survey by Luftman (2014) stated that the highest interest will be derived from Software as a Service model, followed by Infrastructure as a Service and lastly Platform as a Service.
The development of CC in the EU countries is growing slower in the comparison with progressive USA market. Nevertheless, recent data on Eurostat (2014) predicate that over 30 % of enterprises are using CC in Finland, Iceland, Italy, Sweden, and Denmark. On the other hand, fewer than 10 % did so in Hungary, Bulgaria, Greece, Poland, Latvia, and Romania. According to the article of Pelse and Zeverte-Rivza (2015), in comparison to other EU states, Latvia is using CC services rather rarely. Results of the survey conducted by Budniks and Didenko (2014, p. 76) elucidate that CC services are utilized by employees mostly in private services, even though, the majority is not aware of what CC is.
The aim of this paper is the evaluation of business perspective of CC at Latvian SMEs from both sides -consumer (SME) and the CC providers. Nowadays as marked by Maresova and Halek (2014), CC is one of the essential technologies HP and Microsoft deliver to their clients. As was stated in the article "Cloud Computing: Paradigms and Technologies" by Shawish and Salama (2014)CC has been coined as an umbrella term with many on-demand computing services offered by ICT providers.
One of the earliest definitions of cloud has been presented by Wang and Laszewski (2008)is the following: "a computing cloud is a set of network enabled services, providing scalable, Quality of Services guaranteed, normally personalized, inexpensive computing platforms on demand, which could be accessed in a simple and pervasive way."
Later, Hewitt (2008) stated in his article published by IEEE Internet Computing that "CC is a paradigm in which information is permanently stored in servers on the internet and cached temporarily on clients that include desktops, entertainment centers, table computers, notebooks, wall computers, handhelds, sensors, and monitors."
Generalizing the majority of the researches the components of CC model are be defined. Five characteristics: on-demand self-service, broad network access, resource pooling, rapid elasticity, and measured service; three service models: Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS) and four deployment models: private clouds, community clouds, public clouds, and hybrid clouds.
In the current research, the authors consider the business perspective of CC deployment at Latvian SMEs as dependent variable; as independent variables are: awareness of CC concept and the use of CC services; the impact of CC deployment on business performance; the potential and future foreseen of CC services. The conceptual model of the research is given at the Figure 1.
Fig. 1. Conceptual model of the research.
The authors stated the following research questions: RQ1: To what extent CC is familiar to Latvian SMEs?
RQ2: What is the impact of CC deployment on business performance of Latvian SMEs? RQ3: What is the potential and future foreseen of CC services at Latvian SMEs?
3. Empirical part
Firstly, a pilot study was initiated in order to test the practicality of the research procedure and research measurement tools, notably feasibility of questionnaire for SMEs. The pilot study was implemented among 19 SMEs in the period of 28th of March, 2016 - 8th of April, 2016 in the Czech Republic as this country was considered similar to Latvia in terms of using CC for business companies.
Afterwards, primary research has been launched with a glance of improvements and modifications identified in the pilot study. The questionnaire was spread among Latvian SMEs and was available during one month from 18th of April, 2016 till 18th of May, 2016.The core data has been collected through online questionnaire that was sent randomly to Latvian SMEs operating in various areas. A total of 86 small and medium enterprises filled in the survey. For amassing accurate records from SMEs, a questionnaire among CC providers has been launched in attempt to get their expert opinion and thoughts on CC development in Latvia. In online survey8 CC vendors were participated.
The following parameters were evaluated: general characteristics of enterprises (size, industry); awareness of CC, current deployment situation; the impact of CC on business performance and future perspective of the technology within enterprises.
3.1. Primary research (Latvia)
CC providers were asked to give their opinion on the grasp of CC understanding by SMEs and furthermore describe the current situation of CC deployment in Latvia. The opinions of providers about CC awareness by Latvian SMEs were different, some of them are confident that the greater part of SMEs has heard of CC when others assured that SMEs are not familiar with CC concept at all. Nevertheless, all providers highlighted that most of SMEs are not aware of characteristics and benefits CC services can deliver and even more there is a huge chance that they are using CC solutions but just do not know it.
The questions for survey are designed according to the conceptual model identified in the theoretical framework; primary data are collected from the survey of 86 SMEs.
3.2. Analysis and interpretation of the results
Characteristics of Latvian SMEs'- respondents are presented below in Table 1.
Table 1. Distribution of SMEs by employee number and industry.
Size of SMEs SME number SMEs' industry SME number
1-9 employees 49 ICT 35
50-250 34 Financial institutions 25
Over 250 3 Transport 13
Other 13
RQ1: To what extent CC is familiar and used at Latvian SMEs? The results on how well Latvian SMEs are aware of CC concept shows the following: 98% SMEs are aware of CC conception, when 86% of SMEs are using CC services. According to the results, the majority of Latvian SMEs are aware of CC term, only 2 enterprises out of 86 have not been familiar with the concept. Moreover, 86% meaning 71 enterprises responded that they are using CC services. As a consequence, the responses of 71 enterprises have been counted in for the further analysis.
Type of CC services. The most popular types of CC services are storage and backup solutions, web-based e-mail services and online office software. SME (employees' number 1-9) are deploying web-based e-mail services largely while medium enterprises with a number of headcounts 10 to 250 are actively using storage, backup solutions and online office software. ICT sector is proactively using storage and backup solutions and tools for developing and testing software, while other sectors are mostly concentrated on web-based e-mail services and online office software. Types of CC services used are shown at the Figure 2.
■ Storage and back up solutions
■ Web-based e-mail services
■ Enterprise Resource Planning System
■ Online service software
■ Customer Relationship Management
■ Business Intelligence and Analytics
■ Software developing and testing tools
■ Computer networks
■ Server rental
Fig. 2. Types of CC services used by Latvian SME.
Deployment and Delivery Models. Latvian SMEs are currently using Public Cloud (42%); Hybrid Cloud (24%); Private Cloud (31%) and Community Cloud (3%). As Delivery models the most popular is SaaS model (49%); IaaS Model (38%); PaaS (13%).
Business functions using CC services the most are shown at the Figure 3.
Fig. 3. Business functions using CC services.
RQ2; What is the impact of CC deployment on business performance of Latvian SMEs?The impact of CC usage on business performance is shown in the Table 2.
Table 2. The impact of CC deployment on the business performance of Latvian SMEs.
Business function SME positively answered
Superior employees' collaboration 36
Collaboration with customers 36
Innovation and R&D development 27
Development of new services and products 28
Better managing and analyzing of big data 27
Entering new markets 22
Increased agility and responsiveness to customers 20
Introduction of new lines of businesses / business models 18
Revenuegrowth 18
Impact of CC deployment on cost savings. The authors decided to consider "cost savings" more thoroughly as stated by Kepes (2011a, 2013b) who stated that cost saving is cited advantage due to four distinct aspects that leveraging it: "(1) the opportunity cost of running technology, (2) a shift from CapeEx to OpEx, (3) the total cost of ownership of technology,(4) the ability to add business value by renewed focus on core activities". More than half of respondents marked out that CC deployment promoted cost cutting - 68% have answered Yes, 9% believed - No, while 23% Have not noticed yet. Likewise, SMEs are saving money by lowering power costs. According to Azarnik et al. (2012, p. 41), the CC is green computing, the cloud service providers succeed as the typical on-premise computing centers are based on better cooling systems, voltage conversions, and lower electricity rates. Even more, they throughly plan the location of cooling systems and mostly give preferences to less energy consumption places. Therefore, CC helps the enviroment keeping safe. Advantages and risks of CC deployment specified by Latvian SME are shown in the Table 3.
Table 3. Advantages of CC deployment specified by Latvian SMEs.
Advantages of CC deployment SME positively answered
Access to applications/ data from anywhere 44
Cost Savings 40
Speed of implementation 36
Data backup services/ disaster recovery 36
Flexible payment model "Pay-as-you-go" 35
Automatic software updates 29
Reduce the size of on-site infrastructure 23
Reduce workload for internal IT department 19
Scalability and flexibility in terms of capacity/costs 14
Increase competitiveness 15
Environmentally friendly 8
Along with researches examining benefits and future perspective of CC solutions, there are a number of studies that present challenges and risks of it. The study of Harvard Business Review Analytic Services (2015, p.7) sponsored by Oracle acknowledges data security as a biggest barrier to CC adoption. SMEs have been asked to mark out the Risks associated with CC - see Table 4.
Table 4. Risks of CC deployment and reasons of poor CC adoption identified by Latvian SMEs.
Risks of CC deployment SME positively answered
Security and Privacy of sensitive enterprise data 42
Availability/Reliability 37
Little control over services 22
Legal compliance 15
The absence of appropriate SLA 14
Integration with current infrastructure 12
Unclear payment system 4
RQ3: What is the potential and future foreseen of CC services at Latvian SMEs? The following reasons behind poor CC adoptions were discovered - see Figure 4.
and privacy
Fig. 4. Reasons of poor CC adoption amongst Latvian SMEs.
The enterprises that are not utilizing CC products have been asked to indicate if they are planning to deploy CC services in future. According to the results, only 8% of respondents provided positive answer, even more, 50% assured that they will not use CC services in future and 42% are still hesitating.
4. Conclusions, recommendations and limitations
4.1. Conclusions
The evaluation of RQ 1.Majority of Latvian enterprises are familiar with CC conception, 98% of respondents are aware of the term while 84% are deploying CC services. Storage and backup solutions, web-based e-mail services and online office software defined as top deployed CC services. Among Deployment Models, Public Cloud is actively used by Latvian SMEs, following by Private Cloud, Hybrid Cloud and lastly, Community Cloud with 42%, 31%, 24% and 3% distributed accordingly. SaaS is in high demand among Latvian SMEs, followed by IaaS and PaaS with 49%, 38% and 13% accordingly; 30% of all business functions of SMEs are using e-mail / collaboration software. Customer care and marketing business departments deploy CC services at most.
The evaluation of RQ 2. Small enterprises benefit by improving customers' and employees' cooperation while medium enterprises by developing new lines of business and opportunity to grow globally; ICT sector is gaining a lot from the deployment of CC services, finance and transport sectors specifically promote the launch of new business lines and models. Vast majority (68%) of SME confirmed CC services reduce costs. Access to applications and data from anywhere at any time defined as top advantage by Latvian SMEs while security and privacy of sensitive enterprise data as a great risk.
The evaluation of RQ 3determines the future perspective of CC technology within Latvian SMEs. 83% of organizations that are using CC services at present are planning to increase the usage of CC services in future; only 8% of enterprises that are not utilizing CC services presently claimed that they would like to deploy CC solutions; the main reason behind CC adoption is security and privacy of sensitive data.
4.2. Recommendations
• SMEs should thoroughly analyze the data to be passed to clouds, deploying CC services;
• SMEs have to align the business needs with CC services for the most benefit. CC deployment has to be designed according to technical, organizational, and legal aspects for mitigating all possible risks;
• SMEs should assess the protection side of offered CC services in order to gain strong security frame and should develop self-training programs for the employees;
• Academia should develop and promote a teaching courses aimed at study of CC characteristics, main advantages, and drawbacks.
4.3. Limitations
Some limitations should be highlighted. Firstly, insufficient sample size might not present accurate picture of CC development at Latvian SMEs; secondly, different perspective of CC conception by enterprises is another possible limitation, meaning that each organization and even every employee can interpret CC term differently. Despite the limitations presented, the main aspects of CC deployment that impact on business performance of Latvian SMEs, have been defined.
4.4. Further research
Taking into account defined limitations current research should be repeated in future with higher sample size and in a longer duration, as well with strong statistical data interpretation for validating the results obtained. Furthermore, the research tools should be improved, appropriate software should be used for processing the results of unstructured and semi-structured interviews with CC providers. Moreover, there is a possibility for more researches in the field, for instance future study can be focused on the deployment of CC services in a specific business sector like ICT, Finance and/or Transport industries.
Acknowledgements
The authors would like to express deep gratitude to the representatives of CC providers who were so ready supporting our research, being extremely responsive, accessible and interested in the research topic. The authors believe that the results of this research can be used for future Cloud Computing services introduction and fostering at Latvian SMEs.
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