Can Cloud transform Outsourcing?

What I detest most about recessions is when firms put all their focus on short-term cost-reduction measures and take their eye off the ball with initiatives that can reap much more lucrative efficiencies over a longer period.  I am somewhat hopeful this recession is a little different: shaving a few percentage points off the bottom-line is unlikely to make a huge difference when your very survival is at stake, and several companies are exploring more radical, longer-term strategies that will lift them above the depressed morass.  Moreover, many smart executives are seeking to tie themselves to longer-term projects that give them added job security and enhance their own roles in changing times. 

Cloud computing has all the attributes and potential to support a global outsourcing environment with lower infrastructure costs, lower energy costs from eliminating hardware boxes, and much better scaleability to provide computing resources to meet demand in an unpredictable global market.  My view is that we are in a global delivery continuum, where many organizations will originally evolve from crude BPO environments (a lot of lift and shift), explore SaaS delivery to optimize that environment, and ultimately dabble with SaaS apps that be deployed in a Cloud "plug-in" model.  A flashy diagram will likely ensue, but that's the nuts-and-bolts of how this continuum will eventually play out.  Bottom-line, those service providers which persist in a labor-arbitrage-only service model and ignore the benefits and cost-efficiencies of SaaS and Cloud, will get left behind.

Cloud-computing"I just knew the mainframe would make a comeback", said an excited industry veteran on Cloud computing recently. He's actually right, but the difference in today's world, is we are creating the applications and the development environment to run real business applications in a cloud environment.

We're not there yet, but smart organizations need to start exploring service provider relationships where Cloud is on the horizon.  Cloud computing is not only rapidly emerging as an infrastructure option that is relatively inexpensive; it is also becoming a buyers' market.

Cloud has come a long way since being a small blip on the radar in 2007 when the likes of Microsoft, HP, Google

, and IBM teamed up with universities in developing virtual data centers. Much as software as a service (SaaS) did earlier in this century, Cloud will revolutionize the delivery of technology. The key question now is whether this economic downturn will derail its development.  In the very near-term, it's adoption will likely be impacted as many firms put anything "discretionary" on the back-burner, but as the fog clears (or the clouds part…), Cloud will surely be at the forefront of new investment plans for companies seeking more computing bang for their buck.

Cloud providers have invested millions of dollars to offer data centers where users enter a massive shared data center to access Web based applications. The robust infrastructure of the providers allows users to scale server needs and data storage capacity up or down as needed. Fee structures are commonly based on usage or as a monthly subscription, often with no upfront expense, contract or commitment. Without a commitment, the risk of buyer’s remorse is minimized. Like SaaS business models, fees are carried as an expense. This is a very appealing value proposition in a tight economy – especially tying elements of Cloud and SaaS delivery into a BPO model, where the savings from lower-cost labor and increased process efficiencies can be combined.  These three delivery vehicles for business services are going to become increasingly intertwined as business move towards these lower-cost on-demand models – not solely for getting their software applications services on a cheaper, more scaleable model, but also to get these support functions delivered a business services on-demand.  I hate to keep going back to the payroll analogy, but if you can get your business support functions delivered in a way that works on a global basis, provides the data your leadership needs in an integrated fashion – and at lower cost that you can do internally, then that is the future.

Cloud business offerings come in a timely fashion. Data storage requirements are ballooning as a result of increasing automation, blogging and Web 2.0 adoption. Data storage capacity is particularly critical for customer facing organizations. By using a cloud provider, an organization can alleviate capacity problems rapidly without an up front expenditure of scarce funds and avoid having to invest in continually building out the data center.

The value proposition also embraces many other appealing elements of SaaS:

 * Economy of scale – one to many

 * Continuous infrastructure upgrades 

 * Performance monitoring and management 

 * Robust redundancy and disaster recovery  

 * Improved network reliability 

 * Increased application security

Moreover, in many cases energy costs for computing hardware can account for up to 60% of ongoing maintenance costs. Outsourcing service providers can significantly decrease the cost of their services by adopting green datacentersto underpin their Cloud delivery, which have much lower running costs. Hence, going Green with service delivery should not be an added cost-burden to outsourcing service providers – it will provide a cost-advantage.

Cloud is by no means a silver bullet to alleviate the challenges of all organizations, but it does represent a weapon that can be quickly added to the mix of the arsenal for many. Large enterprises may have sufficient resources internally to accommodate routine business requirements. But should a need arise to quickly ramp up a business unit or product line; cloud becomes a valuable arrow to have in the quiver to quickly enable agility. For companies of any size that have a seasonal business or product lines, having this capability is very valuable to accommodate peak demand periods without having in-house servers sitting idle at other times. Touch-wood we'll start emerging from this economic slump in the coming months ahead, and companies need to be ready to scale-up their support infrastructures in a smart fashion to respond.

Not unlike SaaS, cloud has produced niche providers that specialize in empowering their clients to take advantage of the new environment. For example, application development has seen the emergence of providers offering a myriad of tools for developers to work within the cloud environment. By utilizing cloud, developers are able to tremendously reduce the time of server configuration and reduce the internal disruption throughout the R and D process all the way through to the proof of concept.

Increasingly, on into the future, buyers will reap the benefits as more major providers enter the market. Many established providers with robust infrastructure, skilled staff and a legacy of delivering high quality service are finding their traditional markets saturated with competition. Cloud provides a logical emerging market that offers opportunities for growing their business. The scramble to offer more benefits at a lower price could well rival the marketing wars we see today in the automotive industry. This can only result in brighter prospects for organizations seeking cloud cover in an economic storm.

Outsourcing for the sake of cheap labor will generate some savings in the short-term, but these costs will quickly spring back if you don't follow-through with improved processes and technology that allow for a global operating model.  Simply shipping out your mess for less is never going to make much of a difference to your bottom-line, and will often end up costing you more in the long-haul. Bottom-line, when you move into a global outsourcing model, you have to transform the way your business deploys its technology platforms and business processes if you are to generate real cost-efficiencies.  Embracing the new developments in SaaS and Cloud are sure ways to make an outsourcing experience work on a continual basis.

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One Comment

  1. Posted February 27, 2009 at 11:13 am | Permalink

    I do belive the cloud will enable outsourcers to improve their ability to provide more visibility and transparency to their clients as well as allow them to open new markets.

    There is a very interesting proposal to help solve both needs: http://www.etask.it

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