IT functions, such as help desks, tech support, and even data center operations, have a long and fruitful history of outsourcing- And why shouldn’t they? Outsourcing has enabled organizations to extend their in-house capabilities, without having to commit to long-term capital investments, apart from numerous other benefits. And although the transition to cloud computing is still in the pilot stage, the outsourcing industry is already feeling its impact as more and more of their clients are gradually shifting from traditional IT spending to cloud-based ones. The shift to cloud computing is also affecting supplier behavior and posing unprecedented challenges as individuals and industry migrate from traditional sourcing models.
The Beginning of the End?
According to research from Computer Economics, outsourcing delivery gradually began to include multiple cloud elements that constitute more than 10% of the scope of your average outsourcing contract. This figure is expected to double the average outsourcing scope over the course of the next 5-7 years, although it would differ depending on the client and workload. Today’s outsourcing clients’ spending patterns are a perfect example of this substitution effect.
Total Overhaul of Outsourcing Methodologies
Cloud computing has already redefined the role of numerous IT functions, but experts indicate that it will completely alter the very nature of outsourcing contract methodologies. Customers will chose short-term contracts over long-term ones, in order to have the flexibility to buy new and better s services. There will also be changes in the charge structure that current outsourcing services put on their services. Customers will gradually come to expect a cost structure that works on a “natural forecasting unit”, which might be linked to the buyer’s revenue items, or usage patterns.
Transition to IaaS Providers
Newer cloud-based IT outsourcing companies are feeling the heat of cloud computing, and have refocused their aim at enterprise-level infrastructure-as-a-service (IaaS). These services will rely more on innovations like private cloud hosting and off-site consulting. The major share of outsourcing companies that specialize in cloud solutions would be the best choice for customers, as a future-proof investment. Service providers themselves will cease to develop applications for non-core processes, as applications for most of them will be available on the cloud. The IaaS companies do have a few challenges though as security is paramount as important company information could be hosted on their private cloud. Encrypted cloud storage is extremely important as it could actually help a company in court. Zero knowledge cloud providers make a deal to have zero idea of a company’s information and all that can be given with a court order is no decoded junk. The user would have to give login information for anything to be accessed.
Challenges to Customers
The transition to cloud services isn’t just a testing time for outsourcing companies, but will also present numerous risks to outsourcing customers but also poses new areas of risk. Major organizations are already beginning to reply of start-ups for their emerging technology needs. Professionals employed in sourcing and supply management will face potential disruptions in service or changes in terms of service. The fabric of outsourcing agreements has only recently begun evolving towards low customer resource commitments.
How to take advantage of the Transition to Cloud Services
Outsourcing’s transition to the cloud offers considerable advantages to vector management professionals as they design the next-generation outsourcing contracts, with a certain degree of risk of course. Any customer looking to shift to the cloud can make the most if this transition by:
- Emphasizing on greater flexibility – Current outsourcing contracts are typically inhibitors for cloud services, which means customers should avoid committing to traditional long-term contracts. It is best to keep contracts for as short as possible because longer duration contracts will only succeed in creating long-term barriers to cloud adoption, with no justifiable reason.
- Keep track of key partners – The cloud ecosystem will continue to be a volatile one, with frequent acquisitions and unpredictable behavior among major ecosystem players. Shifts in vendor partnerships are also a reason for alarm. It is important to maintain visibility of your suppliers’ choices, so that you can reevaluate your own reliance on various infrastructure partners. This would include the creation of multiple contingency plans, just in case one of your vendors or outsourcing partners gets acquired, or shuts down.
- Review your charge back approach – Since cloud computing gives users access to new data consumption patterns; it can be instrumental in the enabling of various cost recovery systems. It would be a good idea to re-emphasize the importance of better visibility as cloud services are currently on a path of rapid growth, which is unpredictable and incoherent. This might also lead to inconsistent growth in consumption levels.
- Consider Multi-sourcing – At a time where outsourcing and cloud services are either going to compete with each other or converge into a seamless platform, the result is most likely going to be the emergence of a multi-provider ecosystem. This opens up some new and innovative possibilities in the field of contract creation. Outsourcing customers, for example, might be allowed to directly contract with mainstream cloud technology providers. Alternately, they could also be made to subcontract their services.
- Exchange commitments with concessions – Earlier, buying generic cloud service solutions was more of a take-it-or-leave-it concept. But the changing landscape has forced outsourcing suppliers to trade favorable pricing and similar concession methods, in exchange for customer loyalties. Knowing that your outsourcing partner is ready to flex their terms of resource volumes or capacity provisions will help you secure a significant price advantages.
So, it can be concluded that the era of IT outsourcing is not going to become obsolete, at least not yet, but cloud and outsourcing will hopefully seamlessly integrate with one another. Either way, it is going to have a large impact on the outsourcing industry. Outsourcing will continue to be a formidable player in the market, although the scale & terms of service and offerings will change considerably.