Will Cloud Services lower the demand for offshoring?

In a recent news article published  by ‘The Hindu’, Mr John McCarthy, Vice-President and Principal Analyst, Forrester has said that “cloud computing with its ease of set up and cost benefits “could become the “politically correct alternative to offshoring.

While both cloud services and offshoring offers low cost IT service options , the chances of the Cloud services becoming an alternative to offshoring in a broader sense is less at present in my opinion. However, the possibilities of some of the offshore services being replaced by Cloud services as an alternative in the future may be potentially high. Now, Lets look at some of the drivers of this…

A significant % of IT offshoring work (might be 80%) today is on developing and moving the *non-core* ,*non-mission critical* related work to a low cost,resource rich destinations around the globe. This applies both to all kinds of organizations such as Corporates/Enterprises and Independent Software Vendors. Software development and maintenance including enhancements,defect fixes,testing,quality assurance,Less critical 2nd and 3rd level  support and less mission critical remote infrastructure management. All these are human resource intensive activities and most of this is not going to be addressed by a cloud service as an alternative immediately. Rather , most of these work will continue to exist as organisations may continue to enhance,fix ,deploy ,support and manage it from the cloud through the same offshore service providers.

However , the same non-core ,non-mission critical departmental software applications weighing high on the offshoring model now such as in HR,Accounting,Marketing lead generation,Intranet ,Internal Procurement,and other such areas has the potential to get realigned with specific SaaS business services offering flexible and pay-per-use options, which is increasingly becoming available. It is to be noted that way back in 2008 itself, Workday , a SaaS vendor was making large deals for large companies like Flextronics to move their HCM (Human capital management) operations on the SaaS model with several thousands of licenses. It is to be noted that typically the non-core work volumes for many of the offshore IT services companies are high and losing such volumes to SaaS alternatives can be a game changer!

Advances  in Infrastructure as a Service (IaaS) also has the potential to lower the possibilities of organisations moving their remote infrastructure management services to offshore destinations  simply because the *complexities and the change management* associated with infrastructure management is lowering. Also combined with this is the emergence of smart ,new generation  tools offered as an online service that are lowering the need for such work significantly. Companies like Cloudswitch and Appzero are providing tools that makes moving complex software applications across the cloud environments a breeze without much manpower and IT skill requirements!

This is the tip of the iceberg of what is emerging. Not in the very near future, Offshore service providers heavily weighing in their value propositions on cost and human resource based models might feel the heat as Cloud Services in one or more forms such as SaaS ,PaaS or IaaS becomes an alternative to Offshored IT services.

Therefore the possibilities of Cloud services lowering the Offshoring drivers and demand is quite high.  Its high time for Offshoring service providers to go to their drawing board to replan their designs of embracing this change in positive ways!

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One Response to Will Cloud Services lower the demand for offshoring?

  1. Pingback: View Point :Cloud computing may be more harmful to IT cos than anti-offshoring moves | Cloudshoring IT

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