Transforming your business operating model for outsourcing and off-shoring with strategic Cloud Computing

By Mark Skilton, Capgemini

Strategic planning has traditionally been a game of numbers and decision scenarios. The make-versus-buy-versus-alliance-versus-acquisition process has remained the tool of the trade in building options to improve capital efficiencies or revenue contribution and gross operating profit. Many non-core and some core services may be moved to a buy-in model or to a shared service that reduces operating costs. Alliances have been forged with outsourcing and out-tasking of IT and business services to further improve the conditions of business performance. These are well-established practices, but how does Cloud Computing change this strategy?

A consideration that is now growing in many markets is how outsourcing and off-shoring has been affected by the emergence of Cloud Computing as a kind of alternative option to hosting services.

Traditional hosting of services involves on-premise and off-premise choices of key network, storage, computer software applications and business services. Typically this includes the movement of technical and staff resources to an off-premise model managed by a third party. This may further include a shift from on-shore to off-shore locations of these services, which is driven by the desire for operational cost improvements, as well as access to managed resources and skills.

Cloud Computing is also a shift to a kind of outsourced model and off-shore model which may be either located on-premise or off-premise, and may offer a private, community or a public Cloud service. But how does this actually alter the balance of strategic choice in a business and its chosen markets? Cloud Computing is a business operating model shift, as well as a technology transition.

Cloud changes the competitive dynamics of a market because it changes the competitive barriers to entry and choice. Some examples of key business driver shifts brought about by Cloud Computing can include:

Cloud impact on GOP Operating Profit

  • Lowers cost of asset ownership reductions – asset investment can be shifted from a “one” to “many” model
  • Lowers barriers to provisioning — self-service provisioning enabling a new kind of on-demand purchasing
  • Lowers collaborative barriers, enabling convenience to exchange ideas, brokering and business transactions

Cloud impact on revenue contribution

  • Increases speed of change to transform business activities because you can take new products and services to market faster or can expand into new markets faster
  • Increases revenue share through new products and services provisioning, and rapid market entry, to sell commodity or custom products and services

Cloud impact on risk and cost of ownership overhead

  • Increases access controls and certification security risks
  • Increases the compliance and audit costs and risks from movement of services on- and off-shore to specified or unspecified locations
  • Increases cost of knowledge acquisition and learning to manage Cloud
  • Creates changes in lock-in and impediments to portability and interoperability, as a commitment to Cloud platforms may come with associated conditions of service and limits on accessibility to move and change providers

Cloud Computing is a very direct challenge to current outsourcing and off-shoring models in a number of fundamental ways, which are huge opportunities and areas that need to be managed and their risk assessed in the strategic planning process.

  • Self-service changes the “window” to request management of services. In outsourcing, these may be facilitation through portals, service desk and service account communication; but in Cloud, self-service means that direct contact and ownership can be done remotely. It may also mean that different consumers and buyers of Cloud services may not necessarily contact the IT provider directly.
  • On-demand collaboration services changes the way sourcing and selection of services are achieved. Online catalogues of predefined services and options to seek out other Cloud services and solutions alter the scope and range of sourcing solutions. These are no longer just constrained to the particular outsourcing or multi-sourcing situation. Contractual conditions and alternative sourcing and innovation strategies are introduced due to the influence of Cloud Computing models.
  • Cloud Service management changes the way ITSM help desk and service monitoring work with Cloud Computing. The role of the service desk changes as it is no longer only considering the requests, issues and problem resolutions; it also needs to be aware of the catalogues and availability management of the Cloud environment to answer service level requests and changes. It moves from a request service to a demand-and-supply management service.

Self –service enables business and IT users to select the Cloud-hosted services needed to expand or change as their business needs change, rather than go through a provisioning cycle with local or central IT.

On-demand collaboration service model improves the quality of support as Cloud-hosted services are defined through a catalogue and an account management process, enabling business and IT users to get better visibility and control of usage and requests. Conversely, it enables variations and maverick buying to be monitored to encourage the development of further common IT service reuse and specific development of new capabilities based on actual usage demand patterns. Hitherto, commercial contracts locked customers and vendors into longer-term contractual solutions, limiting options for change. Cloud Computing catalogues and services aim to create a looser coupling between buyers, consumers and users of IT services.

Cloud service management changes the concept of request-and-response service into a marketplace driven perspective of services.

The shifting onshore/off-shore model

Cloud Computing changes the concept of outsourcing and off-shoring as a physical exchange of services into one of virtual services whose location becomes a “one to many” paradigm, which may be a combination of internal and external marketplaces.  To illustrate this point, consider the following scenario:

Current information technology hardware and software assets and staff skills may be typically consolidated into a business unit or regional data centers which are connected by a corporate network.

A small, central, corporate IT function may coordinate policy and strategy, which is largely distributed down to the many operating companies and individual IT functions to meet local market and business service requirements. Currently, controlling the data center access for the business units and selected partners for security and certification is essential to controlling data center service operations and compliance regulations.

The usage and development of the business applications and infrastructure are focused onshore by business unit, region and individual business operating company. Large-scale corporate systems such as ERP, CRM and SCM and secure certified systems are developed in each data center and may be replicated across other regional data centers. Significant investment in virtualization has typically already been completed or is in progress, and is used to addressed the operational efficiencies of the data centers while the external business market environment forces continue to change rapidly with marketing product launches and demand changes within each market and region seasonal competitive pressures.

Moving to Cloud Computing can potentially redefine the need for each region and business unit to develop certain types of IT service onshore. Common services hosted in a secure Cloud data center provide the possibility to move to an off-shore shared model for many business units. Individual market and business unit agility is still essential for competitive response, but this can be supported by targeting Cloud Computing services for specific business activity needs. The off-shore move also enables service management and capabilities to be invested in shared regions to further improve the operating model organizational efficiency.

Mark Skilton, Director, Capgemini, is the Co-Chair of The Open Group Cloud Computing Work Group. He has been involved in advising clients and developing of strategic portfolio services in Cloud Computing and business transformation. His recent contributions include the publication of Return on Investment models on Cloud Computing widely syndicated that achieved 50,000 hits on CIO.com and in the British Computer Society 2010 Annual Review. His current activities include development of a new Cloud Computing Model standards and best practices on the subject of Cloud Computing impact on Outsourcing and Off-shoring models and contributed to the second edition of the Handbook of Global Outsourcing and Off-shoring published through his involvement with Warwick Business School UK Specialist Masters Degree Program in Information Systems Management.

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