Study shows major shift to cloud computing in manufacturing

More manufacturers plan to stop managing IT internally, says IDC. Many will use traditional outsourcing, but for some, private clouds top the agenda.

Cloud computing technology will be the main driver of manufacturing IT productivity in the coming decade, a new report from IDC Manufacturing Insights claims. And manufacturers appear to be well on their way, adopting cloud computing technology slightly faster than other industries: 23% are already running cloud technology and another 44% are implementing it or have firm plans.

“I was a bit surprised that it was as strong as it was,” said Bob Parker, group vice president at IDC Manufacturing Insights and author of the report, titled Business Strategy: Cloud Computing in Manufacturing. “This is evidence of a market that is going to have some lift."

The findings come from the Framingham, Mass.-based research firm’s analysis of a survey completed early this year. Among the 658 respondents, 98 identified themselves as manufacturers.

The results suggest cloud computing--broadly defined to include everything from basic computing resources to end-user applications and services--will continue to attract a bigger share of manufacturing IT budgets, as more manufacturers said they plan to outsource their IT infrastructure in the next two years. The percentage of companies managing infrastructure internally will drop from 55% to 38%, according to the report, with traditional outsourcing -- in which a third party owns the hardware and maintains staff -- seeing its share of IT budgets rising from 14% to 21%. The report says other industries plan, on average, to keep budgets for traditional outsourcing flat and predicts manufacturers will do the same “once the perception of cloud risk is abated.”

Still, cloud computing will outstrip traditional outsourcing by then, consuming around 40% of manufacturing IT budgets, nearly matching the percentage devoted to internal IT management. Private clouds are by far the preferred choice, says IDC, with externally hosted clouds slightly more popular than internally hosted ones. Public clouds will see some growth and consume 13% of IT budgets in two years, according to IDC.

Flexibility, services mentality driving cloud computing investments 
Parker theorizes that sharp economic fluctuations are pushing manufacturers toward cloud computing technology because it lets them add and remove resources instead of over-investing internally to handle spikes in demand. “Manufacturers, more than other industries, have software license fatigue,” Parker said.

But the survey also suggests Software as a Service (SaaS) is beginning to lose its luster as a cheaper alternative as companies gain more experience with the real costs of multiple SaaS subscriptions, Parker said. Manufacturers are starting to realize that their best, long-term savings opportunities might instead be in Infrastructure as a Service (IaaS), which lets them access storage, CPU cycles and other basic resources from the cloud.

Manufacturers are slightly more likely than companies in other industries to see cloud computing technology as a way to standardize IT services, the study shows.

“There’s a movement among manufacturers to do this kind of catalog of services,” Parker said.

Manufacturers have been strongly influenced by the Information Technology Infrastructure Library (ITIL) v. 3 best practices and similar approaches, which call for building “catalogs” of services that can be replicated and shared throughout an organization.

“They’re using them to get out of project jail and be more thought of as a service provider of IT,” he said.

Manufacturing’s dramatic shift toward outsourcing comes at a time when companies are de-emphasizing traditional IT jobs and hiring more data scientists, “anthropologists” trained to analyze human behavior in social media, and others with the hybrid IT and business skills to perform analytics on “big data,” Parker said.

“There’s a transformation going on in terms of the people who work in IT in manufacturing," he said. "It has moved from building systems that drive processes to analyzing data to drive better decisions.”

Strategic role of cloud computing in manufacturing
Stepping back to examine the long term, Parker says cloud computing technology will be the most important platform for continuing the IT productivity improvements of the past decade, which he said were enabled by such technology trends as virtualization, ERP consolidation, software outsourcing to India and exponential growth in network bandwidth. “IT costs actually went up almost 50% in that time period,” he said. “It’s just that revenue doubled. [IT] was able to do more with less.”

Cloud computing will be the key to continuing these increases in IT utilization rates while still driving down resource costs, according to Parker. In the coming decade, however, “manufacturing is being asked to improve [IT] productivity, but in half the time,” he said.

The report concludes with these recommendations:

  • Publish a cloud computing position paper that includes the company’s near- and long-term plans.
  • Set specific goals for the amount of resources and applications to run in the cloud.
  • Perform an honest assessment to ensure current staff has the relationship and “service-level audit” skills to shift to a cloud-centric strategy.
  • Align key business objectives with cloud computing investments.

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