Cloud computingCloud computing is a much hyped but often misunderstood technology that is gaining traction in different industries around the world. Businesses are integrating the cloud into countless systems, from HR to finance. Full adoption and acceptance of cloud computing, however, are still far away.

A recent global survey by Knowledge@Wharton and SAP’s Performance Benchmarking team reveals that while the hype and excitement surrounding cloud computing is reaching a fever pitch, many businesses are still expressing concerns over cloud security and IT integration issues. The survey also shows that while many people agree that the cloud is revolutionizing business, they still do not fully understand how it works.

How will these tensions surrounding the cloud be resolved? How will the cloud transform businesses in the future? What kinds of benefits will the cloud bring, and is it worthy of the current hype? Knowledge@Wharton discussed those questions and the survey results with David Spencer, vice president at SAP, and Don Huesman, managing director at the Wharton Innovation Group.

An edited transcript of the conversation appears below.

Knowledge@Wharton: Both of you have spelled out of the value of cloud computing. But one of the counterintuitive findings in our survey showed that while many people believe that cloud computing is important, they don’t seem to understand much about it. Don, why do you think this is the case?

Huesman: I just mentioned the Gartner “hype cycle.” Gartner showed 2012 as the time when the hype slipped off the peak and headed towards “the trough of disillusionment,” which they think is a necessary phase for any type of effective technology before it reaches what they refer to as “the plateau of productivity.” And Gartner is predicting that to happen with cloud computing over the next two to five years.

Related to this “hype cycle,” I think that there is a tendency, particularly in the United States, to look for technical solutions to multi-dimensional problems and get very excited about the solutions, until we begin to see some limitations. Then we get very disappointed, until we eventually discover that there is still a decent amount of utility to take advantage of in these technical solutions. So, in this case, I don’t know that the first-mover advantage in this space is very strong because I think close followers can also take advantage of the new capabilities that are emerging.

Knowledge@Wharton: Dave, what’s your view?

Spencer: I think one of the reasons there is general confusion has to do with the fact that there are different definitions that are used when referring to cloud computing. For example, there is SaaS (software as service), there is a virtualization of an environment, there are also hosting environments. This leads to confusion because there are different kinds of cloud solutions. In fact, at SAP we try to describe it in terms of value across our customers’ entire enterprise, and even beyond. We talk about our cloud portfolio consisting of four main elements: apps, cloud platform, infrastructure/lifecycle management, for investment protection, and finally, the business network, which refers to networks of buyers and sellers doing business in entirely new, social ways, all enabled by cloud computing.

Knowledge@Wharton: Interesting. Perhaps this lack of understanding could be related to this finding from our survey: 18% of companies said they had extensively or completely adopted cloud computing, but half the respondents had minimal or no adoption. Could this general misunderstanding about cloud computing be related to the fact that not many people are using it?

Spencer: If I look at the customers that I represent, most have adopted some kind of cloud solution or at least have looked at it. Now, they may not have deployed it 100% because they may have started out using the cloud solution in smaller organizations or smaller businesses processes, but every day I see people looking at deploying some kind of cloud solution.

I think the other factor is that if you’re looking at larger organizations, they would have already made sizeable investments in their IT infrastructure, so quickly moving to a cloud solution may not be the best investment for them right now. What a lot of companies are looking at is called the hybrid solution, where they are taking select business processes and putting them into the cloud, while still leveraging their on-premise IT infrastructure at the same time.

Huesman: Dave has touched on an important point here. I think there is often resistance on the part of IT departments in some companies towards the concept of the cloud. This resistance is based on concerns about security, reliability, dependability and the robustness of the solutions that are being offered. But I think all those concerns are overstated. The current resistance reminds me of when the personal computer was introduced. Large companies resisted its deployment for a very long time until personal computers were being purchased by CEOs. At that point, the IT organizations had to figure out a way to integrate them successfully. I think we’re seeing a similar dynamic now where there is resistance for legitimate concerns, but that’s being trumped by consumerization.

Knowledge@Wharton: Do you expect to see CEOs in the cloud soon?

Huesman: Oh, I’ve seen them there every day.

Spencer: On my side, I can say that we run our business in the cloud 100%. Every single business process in the SAP cloud business unit, from travel to HR, is being run in the cloud.

Knowledge@Wharton: Dave, for those who are resisting cloud solutions, some of the biggest concerns seem to be around security and integration. In fact, 67% of survey respondents identified those two issues as the ones that concerned them the most. How do you deal with this?

Spencer: We try to address the security issue head-on to understand our customers’ exact concerns. Now, there are different privacy laws in different countries, which we’ve been able to satisfy. But there are some companies and government agencies that have very strict policies around what can be run on the cloud and what cannot. So, we try to address these issues. But at the end of the day, it really comes down to that fact that some people are just going to be cloud laggards. For those people who are going to be at the back-end of the curve in deployments, you just have to make sure they are comfortable when they’re ready.

Knowledge@Wharton: What do you think, Don?

Huesman: We were one of the first organizations at Penn to attempt to outsource our student email to a cloud service provided by Microsoft, but we had a bad experience early on. It was so bad that we had to move back to our previous system. That early mover experience leaves people nervous about making the move again. But now we’re at a point where outsourcing e-mail is something that can be done in a more reliable fashion.

These issues make IT directors and IT workers believe that it’s better to work through the late night hours to repair and reconfigure hardware and software services rather than wait on the phone anxiously hoping that someone else in another distant city is fixing the issue. It’s a different position to be in psychologically. It may also be a challenge for IT employees to be able to work in partnership with a cloud services company. Not all people will be ready for this shift. It’s certainly a period of transition in the IT industry.

Knowledge@Wharton: Dave, do you encounter some of the issues that Don just described? How do you deal with them?

Spencer: We deal with these issues every single day. We look at this as a true partnership: The clients working with SAP have to feel comfortable that they’re working with a responsive business that is going to continue to deliver innovation and improve security. Our customers want a business partner that can handle all aspects of the cloud. For example, SAP has to proactively deal with issues related to deploying business applications on personal mobile devices and controlling the data that’s out there. That’s one area where SAP is very advanced.

This is part two of a three-part series. Stay tuned for part three.