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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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Cloud security and risk management

by Varad G. Varadarajan, Cognizant Technology Solutions

Are you ready to move to the Cloud?

Risk management and cost control are two key issues facing CIOs and CTOs today. Both these issues come into play in Cloud Computing, and present an interesting dilemma for IT leaders at large corporations.

The elastic nature of the Cloud, the conversion of Capex to Opex and the managed security infrastructure provided by the Cloud service provider make it very attractive for hosting applications. However, there are a number of security and privacy issues that companies need to grapple with before moving to the Cloud.

For example, multi-tenancy and virtualization are great technologies for lowering the cost of hosting applications, and the service providers that would like to use them. However, these technologies also pose grave security risks because companies operate in a shared infrastructure that offers very little isolation. They greatly increase the target attack surface, which is a hacker’s dream come true.

Using multiple service providers on the Cloud is great for providing redundancy, connecting providers in a supply chain or handling spikes in services via Cloud bursts. However, managing identities across multiple providers is a challenge.  Making sure data does not accidentally cross trust boundaries is another difficult problem.

Likewise, there are many challenges in the areas of:

  • Choosing the right service / delivery model (and its security implications)
  • Key management and distribution
  • Governance and Compliance of the service provider
  • Vendor lock-in
  • Data privacy (e.g. regulations governing the offshore-ability of data)
  • Residual risks

In my presentation at The Open Group India Conference next week, I will discuss these and many other interesting challenges facing CIOs regarding Cloud adoption. I will present a five step approach that enterprises can use to select assets, assess risks, map them to service providers and manage the risks through contract negotiation, SLAs and regular monitoring.

Cloud Computing will be a topic of discussion at The Open Group India Conference in Chennai (March 7), Hyderabad (March 9) and Pune (March 11). Join us for best practices and case studies in the areas of Enterprise Architecture, Security, Cloud and Certification, presented by preeminent thought leaders in the industry.

Varad is a senior IT professional with 22 years of experience in Technology Management, Practice Development, Business Consulting, Architecture, Software Development and Entrepreneurship. He has led consulting assignments in IT Transformation, Architecture, and IT Strategy/Blueprinting at global companies across a broad range of industries and domains. He holds an MBA (Stern School of Business, New York), M.S Computer Science (G.W.U/Stanford California) and B.Tech (IIT India).

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Seeing above the Clouds

By Mark Skilton, Capgemini

Genie out of the bottle

I recently looked back at some significant papers that had influenced my thinking on Cloud Computing as part of a review on current strategic trends. In February 2009, a paper published at the University of California, Berkeley, “Above the Clouds: A Berkeley View of Cloud Computing”, stands out, as the first of many papers to drive out the issues around the promise of Cloud computing and technology barriers to achieving secure elastic service. The key issue unfolding at that time was the transfer of risk that resulted from moving to a Cloud environment and the obstacles to security, performance and licensing that would need to evolve. But the genie was out of the bottle, as early successful adopters could see cost savings and rapid one-to-many monetization benefits of on-demand services.

Worlds reloaded – Welcome to the era of multiplicity

A second key moment I can recall was the realization that the exchange of services was no longer a simple request and response. For sure, social networks had demonstrated huge communities of collaboration and online “personas” changing individual and business network interactions. But something else had happened less obvious but more profound. This change was made most evident in the proliferation of mobile computing that greatly expanded the original on-premise move to off-premise services. A key paper by Intel Research titled “CloneCloud” published around that same time period exemplified this shift. Services could be cloned and moved into the Cloud demonstrating the possible new realities in redefining the real potential of how work gets done using Cloud Computing. The key point was that storage or processing transactions, media streaming or complex calculations no longer had to be executed within a physical device. It could be provided as a service from remote source, a virtual Cloud service. But more significant was the term “multiplicity” in this concept. We see this everyday as we download apps, stream video and transact orders. The fact was that you could do not only a few, but multiple tasks simultaneously and pick and choose the services and results.

New thinking, new language

This signaled a big shift away from the old style of thinking about business services that had us conditioned to think of service oriented requests in static, tiered, rigid ways. Those business processes and services missed this new bigger picture. Just take a look at the phenomenon called  hyperlocal services that offer location specific on-demand information or how crowd sourcing can dramatically transform purchasing choices and collaboration incentives. Traditional ways of measuring, modeling and running business operations are underutilizing this potential and undervaluing what can be possible in these new collaborative networks. The new multiplicity based world of Cloud-enabled networks means you can augment yourself and your company’s assets in ways that change the shape of your industry.  What is needed is a new language to describe how this shift feels and works, and how advances in your business portfolio can be realized with these modern ideas, examining current methods and standards of strategy visualization, metrics and design to evolve a new expression of this potential.

Future perfect?

Some two years have passed and what has been achieved?  Certainly we have seen the huge proliferation of services into a Cloud hosting environment. Large strategic movements in private data centers seek to develop private Cloud services, by bringing together social media and social networking through Cloud technologies. But what’s needed now is a new connection between the potential of these technologies and the vision of the Internet, the growth of social graph associations and wider communities and ecosystems are emerging in the movement’s wake.

With every new significant disruptive change, there is also the need for a new language to help describe this new world. Open standards and industry forums will help drive this. The old language focuses on the previous potential and so a new way to visualize, define and use the new realities can help the big shift towards the potential above the Cloud.

This post was simultaneously published on the BriefingsDirect blog by Dana Gardner.

Mark Skilton, Director, Capgemini and 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 Offshoring models and  contributed to the second edition of the Handbook of Global Outsourcing and Offshoring published through his involvement with Warwick Business School UK Specialist Masters Degree Program in Information Systems Management.

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