The pervasiveness of the Internet and Internet technologies, virtualization, hardware commoditization, standardization and open source software has given rise to cloud computing as a lower-cost, flexible information technology (IT) resource that can automatically adapt to business demand. But, like other technological advances in the past, cloud computing brings opportunities, as well as challenges in the areas of security and privacy, data management, integration and service quality.Succeeding will involve overcoming six key challenges:For many companies, security is a concern—namely, how enterprise data is safeguarded in a shared third-party environment. Since their core business is based on securing customer data, major cloud providers have made significant strides in this area. But it will be important that manufacturers continue to carefully evaluate providers and remain cognizant of the potential for security issues.Second, a problem can surface around data, including data location, compliance and integration. Current cloud solutions require data to be stored in the cloud. This approach assumes that a company only relies on one or two providers at a time. Yet,the market is still fairly fragmented, with hundreds of cloud-based providers, most specializing in a specific vertical market segment. Although consolidation among providers is inevitable, user companies will probably still end up using multiple clouds. As a result, they will have to deal with data scattered across clouds, as well as the data residing behind their own data-center firewalls. Such fragmentation of data represents huge integration challenges and highlights the importance of developing a comprehensive enterprise architecture.The third challenge involves service-level guarantees. Many enterprise applications require certain levels of service. In the traditional on-premise setting, these requirements are easier to satisfy because the IT department is on-site. But this is not true for the cloud. Application providers, which have control over the running environment, cannot guarantee response times because the data has to travel through the Internet. Despite steady progress by cloud providers, a lack of service-level guarantees will hinder migration of critical enterprise applications to the cloud.Legacy applications are another challenge. In general, they do not adapt well to the cloud. Such systems are often critical to core business functions, but today’s cloud infrastructure may lack the service level to support them. Moreover, many legacy applications are tightly coupled to the underlying system software and hardware. Without costly redesign, they cannot benefit from the virtualization and parallelization features of the cloud.The fifth obstacle concerns the purchase of cloud-based services. Using pay-as-you-go IT services should be highly attractive from a procurement standpoint—moving payment and authorization processes from capital expenditure to operating costs. But the procurement of cloud computing and the concept of what an enterprise agreement looks like in a cloud environment can be sticking points that will not be resolved overnight.Finally, the inherent elasticity of cloud computing can make it more difficult to track the enterprise software licensing associated with it. Companies should seek licensing models that address the portability of licenses, so that they can be moved to run in the cloud. They also should measure software use by the hour, develop tiered licenses to handle upgrades of support levels, and include budgeting that supports ongoing upgrades.Leveraging the cloudDespite these challenges, cloud computing offers industrial manufacturers a highly competitive tool in a profoundly challenging business environment. Companies that can tap into the right cloud capabilities will have the ability to launch new products and enter new markets faster, increase productivity and innovation, and attract top talent—greatly aiding high performance.James Robbins, [email protected], is a senior executive for Accenture, a global management consulting, technology services and outsourcing company.