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The source in the cloud?

01 Dec 2009

Outsourcing has increased in popularity over the last year and cloud computing is changing the landscape.The doom and gloom of the global financial crisis has been well publicised, but less mention has been made of areas where business has improved. IT outsourcing is just one of these boom areas. Indeed, research firm IDC predicts that over the next five years, the total ‘IT serviced market’ will increase at a compound annual growth rate (CAGR) of 6.3% to $3.45 billion, with outsourcing expected to grow at 6.6% CAGR. It was dubbed “the most recession-resilient” of the three marcomarkets, with ‘consulting and system integration’ and ‘infrastructure’ growing at the more modest rates of 4.3% and 5.4% respectively.The outsourcing logicOf course, the recession is not the only reason that outsourcing has grown in popularity, but Gen-i’s Head of ICT Outsourcing, Australasia, Ron Murray says it has been a significant factor, noting “a marked increase” in enquiries in the last 12 months. “There’s been a bit of a bow wave and it will probably die down again given time, but I believe it will not go back to the old way, because this last financial crisis has fundamentally shifted the market,” he says.Another reason for the increasing popularity in IT outsourcing is the growing complexity in IT systems – IT is, in the words of Phil Martin CEO of SAS IT, getting more and more specialised and, at the same time, more diverse. Most businesses are not in the business of keeping up with the latest technology trends; rather they want to be able to focus on their customers and how best to make them happy, so many businesses are now choosing to hand their complex IT issues over to the experts by outsourcing. Martin says: “A business can’t keep growing capability and specialisations, and at the same time keep reducing staff numbers and costs in IT. Outsourcing provides a bigger shared pool of resources that can be mobilised when required. In essence you get a smaller piece of a lot more people, over a broader time frame, retain the IP that those people develop (which doesn’t happen with casual contractors), and can gain a far better outcome for the business.” An outsourcing evolutionAccording to those interviewed by IT Brief, previously the areas of IT most often outsourced included server infrastructure, desktop infrastructure and service desk facilities. Gen-i’s Murray has noticed a shift in popularity more recently, and it’s one that he does not attribute to the recession: “Data centre growth has been significant over the last few years, ostensibly driven by increasing and almost unstoppable demand and appetite for storage.”  As the mounds of digital data continue to multiply, clients simply don’t have the abilities, sophistication or capital to throw at computer rooms, he says. The solution was outsourcing and, Murray points out, once clients outsource their data centre requirements, that often leads to outsourcing of other IT needs too. Martin of SAS IT also believes that things have changed recently, and organisations want to outsource more than just the traditional desktop support and service desk requirements. For him, the shift to 24/7 operations has been a main driver of the change, since this has had “major cost implications for the IT department who have lost their backup windows”, traditionally done overnight. Advances in remote monitoring technologies and virtualisation throughout the data centre have made outsourcing these areas a much more cost-effective option. A successful outsourcing relationship will also be a long-term one, so the intellectual property that is developed over time will stay with the company, rather than being lost each time a contractor comes and goes. New wave in the cloudTalking of evolutions in the technology landscape that have changed outsourcing, cloud computing represents another major shift in computing and will have its own effect on outsourcing. When IT Brief asked if cloud computing was just outsourcing by another name, Gen-i’s Murray was convinced. “Absolutely,” he said, “I’ve been calling it that for the last couple of years.” For him it is just part of the “outsourcing continuum” with different delivery and commercial models, delivered over the network and on a pay-per-use agreement rather than through the more traditional way. Martin of SAS IT, however, was less convinced. “Yes and no,” he answered, “it depends on what you think the cloud delivers.” In his view, cloud computing sellers are trying to turn computing power into a commodity to reduce the price and achieve volume. “The trouble is that the more of a commodity that you make it, the less you want it,” he says. “I believe it’s taken it to a commodity level, and the reason it is inexpensive is the configurability is reduced and the human interaction and value is reduced to nothing, and it’s now a procurement capability to deliver computing resources. The Amazon.com environment is such that you tick your boxes, but if there’s not a box for your requirement you can’t tick it; it’s configurable without being personalised.”For Murray, however, the cloud represents the birth of a mixed model for outsourcing where the outsourcer might use cloud-based services as part of their solution: “Our initial impression is that it would be mixed, and that’s absolutely supported by all the global players at the conference [Interop] we went to in the States. It will continue to be a mixed model for quite some time – possibly five, even 10 years.” He stresses, however, that it has to be the right model for the customer, and that cloud computing will not replace traditional outsourcing. SAS IT’s Martin agrees that this model could work. “If it made sense, I wouldn’t have an issue with it. And that’s the whole thing, I guess, with the cloud environment. If it makes sense, it means you fit a profile that is very cost-effective,” he explains. He warns however, that cloud providers, such as Amazon.com are not committing themselves to anything contractually, unlike traditional outsourcing, where there are penalties and consequences associated with service delivery that does not meet the standard set out in the service level agreement. Added to this, he does not believe that you get the same level of tailored programme to suit your specific business needs.The futureWhatever the outcome of the recession and the evolution of cloud computing, outsourcing will remain a growing trend for the foreseeable future. As CIOs you’ll want to carefully scrutinise the options before you, ensuring that your chosen outsourcer can not only provide the outcomes you require (whether via the cloud or not), but also has the right cultural fit with your company. Those interviewed by IT Brief said the best thing you can do is be open and honest about the issues that face you and the goals you have in mind. A free and frank discussion is the best way to get the results you want in whichever area of the business you choose to outsource.