Has Cloud Delivered on Outsourcing Promise?

June 15, 2016 5:51 pm | Updated 4 months ago.

Cloud and Outsourcing

Over the past decade, Cloud Computing has not only received overwhelming support from media and the business community; it has also received an endorsement from several governments including Australia and the USA. The US Federal Government had projected annual savings of over $ 20 Billion, approximately 25% of its IT budget for 2011 by embracing cloud computing technologies. Over 80% of global CIOs have embraced Cloud Computing to gain a competitive advantage in growing their business.

Cloud computing, which essentially is a mode of deploying IT resources – Infrastructure, Applications and Data from one or more vendors virtually over the internet, was seen as an alternative to traditional outsourcing and ultimately replacing outsourcing to a very large extent. To its credit Cloud Computing, enables the users to consume IT services in a self-service fashion independent of location – onsite or offshore, based on its need. The users pay only for the services consumed, without having to incur significant capital expenses. The users can also use the cloud environment to provision services in all three modes – infrastructure as service, platform as service and application as service.

While the business community has embraced Cloud Computing with lot of expectations, in recent years it is experiencing some significant concerns with cloud computing, especially compared to the flexibility offered in traditional outsourcing:

The major concerns are:-

  • Strategic:

    Risks perceived in the strategic decision to embrace Cloud Computing are:

  1. Differentiated Solution (USP): Businesses can not differentiate themselves as the competitors will have access to same technology.
  2. Audit: The services availed in the cloud environment may not meet the specific audit requirements of the business
  3. The quality of Service: The reliability and quality of service may not be adequate to meet the demands of the business users and certain compromises may need to be done.
  • Technical:

  1. Data security: While most cloud environments provide very high level of security, the fact still remains that the environment is a shared environment and the level of security may not be adequate for certain segments of data.
  2. Disruption in service: The backup, redundancy, and disaster recovery procedures may not be adequate as provided by the service provider.
  3. Breach of security and privacy: In addition to data security, the critical business application may have stringent application security and privacy needs that may not be provided in the cloud environment.
  4. Interoperability: The cloud environment may not meet the heterogeneous technology roadmap planned by the business for innovation and growth. Customers also need to think thru how to integrate the solutions availed using cloud technology with other solutions developed in-house or by other vendors including other cloud-based
  • Financial:

  1. Increased supplier power due to vendor lock-in: The customer has very little room to renegotiate the cost or the other terms in the event of the services not being delivered to its satisfaction.
  2. Costs related to data breaches and service interruptions: with increased usage of Cloud Computing, the customers are beginning to realize the impact of some of these costs relating to security breaches and service interruptions, that may not have been factored in while computing the cost of using the cloud environment.
  3. Transition Costs: While the cost for using the services in a cloud environment is on a pay per use basis, the onetime cost for transitioning into the cloud environment needs to be taken into consideration.
  • Legal:

  1. Inflexible contracts: Typically the service and application providers on the cloud have a standard contract or agreement that they would like all their customers to sign. Such contracts, therefore, may not have the flexibility to include the clauses that a specific customer would like to include.
  2. Inconsistent regulatory frameworks, privacy laws, and transparency of jurisdiction: As the applications and the services provided over the cloud are independent of the location of the customer, the regulatory framework and the jurisdiction may not be fully in line with what a specific customer may want.
  3. Third party access to data: Customers need to understand that by putting their application and data in a cloud environment, they are effectively giving access to these to a third party. The customers, therefore, need to carefully assess the sensitivity of such information.
  4. Breach of contract: Customers need to think thru and have some plan in place if indeed there is a breach of contract by the service provider.

It is, therefore, being realized now that Cloud is not the answer to all IT issues that a Business may have.

It is D2E Consulting’ opinion that in future the IT infrastructure will consist of some outsourced systems with some outsourced to offshore locations, some in-house systems and, of course, some cloud services based on the business case. Cloud services will be used more and more to automate more basic IT roles, while the most complex ones will see traditional outsourcing and the most business critical ones will possibly be done in-house.