Outsourcing or Automation? with cloud adaption
With the surge in cloud computing supply leaders are facing yet another dilemma -"whether to structure their business processes around cloud model for increased efficiency or achieve cost reductions through outsourcing in a traditional way". It is a known fact that once you outsource your processes it's extremely difficult to introduce changes in the process embedded into underlying technology and in all probability you will be registering only a small incremental benefits through offshore enablers and productivity tools. On the other hand cloud services on a building block of standardization expect organizations to fundamentally change their processes especially in the non-core area eventually resulting into extremely low TCO due to multi-tenancy effect. While this omnipresent impasse of 'standardization' vs 'flexibility' is not new to the supply leaders, the challenge is aggravated due to cost efficiency pressure on a long term basis and so most product vendors have launched or are launching cloud services at a fraction of traditional cost (as an OPEX pay-as-you-go cost) with committed business outcome.
It is said that that computing is the ultimate form of automation and so cloud computing can't sustain alone on 'standardization' and 'resource sharing mechanism'. For example take a case of datacenters which are surprisingly buzzed with lots of people covering activities like application upgrade, patch application, network monitoring, uneven network load management or surge in web traffic which requires manual interventions. The typical role of system administrator is to apply patches, run programs and install server which would take days if not weeks to implement. Unless until cloud service providers re-architect their solution with increased automation coupled with cost effective components it is not possible to achieve the much needed efficiencies. Another area of focus is technology capacity and support. It is often noted that legacy IT system are actually a patchwork that is inherently inefficient and so firms spend substantial part of their budget simply on keeping the processes running. And because most of these legacy systems can't respond quickly to change in consumption or usage and so the organizations over provide resulting in large overcapacity resulting into extremely low utilization. Cloud computing has a huge a potential to address this aspect also.
While the benefits of outsourcing are pretty established and well known, supply leaders can't overlook the emergence of cloud services which is fast getting matured and so need to craft a balanced strategy to take advantage of it with a well thought out business model in a new realm of cloud computing.
Comments
This is not an either/or decision as the title implies. Cloud services offer a proven reduction in time and cost for many IT functions such as development & testing. Outsourcers need to embrace and advise where cloud improves their efficiencies and outcomes, and not see this as competitive in any way, but as innovation for their business model that helps deliver higher value of service to clients with faster delivery, better quality of deliverable and lower overall cost.
Posted by: Brad Johnson | July 8, 2010 5:40 PM
Brad, thanks for your comment. While I agree that the cloud services have a lot to complement the outsourcing but it's difficult for business leaders to take a decision in a situation where cloud services would eventually be overhauling the entire process and technology layer. And this need to be done in a phased manner which means embracing the cloud has to be done first before the process is outsourced to the service provider considering the revamping challenges involved with the outsourced processes.
Posted by: Gurjeet | July 12, 2010 9:21 AM