View Points on ‘The New World of Cloud Powered Outsourcing’

In one of the Sandhill research’s Opinion columns , Mr.S.Sadagopan of  Mahindra Satyam has given his perspectives about the ” The New World of Cloud Powered Outsourcing”.  On a perusal of this column, Here are some of my own viewpoints on his perspectives.

1.Firstly , he says about “Outsourcers Building Cloud Infrastructure” and adds that “IT service providers should get into a mode of investing massively in creating/provisioning an infrastructure that their outsourcing customers can leverage sooner rather than later. This translates to an investment cycle from the service provider side as IT service providers invest heavily in capacity, virtualization, globalization and automation. With these investments, service providers begin to get positioned as players that are able to offer capabilities that can transform the way organizations access and use IT services.

View Point :

a) Most of the IT service providers with exceptions to a few companies like say IBM,Unisys and Wipro have never run IT infrastructure businesses ,building and managing datacentres and supporting clients from different locations . Hence , the synergies are less and by doing so,there is a risk of losing focus in their core business. This applies more to outsourced IT service providers around the world.

b ) Predominantly most of the Outsourced IT services providers in India for instance except a very few with diversified business in IT like the Tata group (TCS,Tata Telecom) ,haven’t demonstrated records of building such IT Infrastructure businesses. So the chances are less or nil that they can build global (cloud) datacenters for global clients in other geographies and establish them. The time is too less for some one from this industry to realistically become a matured player in the market.

2. Secondly he says Contracts can move back to the Cloud the basic premise of this is , A variety of suppliers are engaged to provide “Horizontal Services,” say service desk management, server and storage management, etc to a client and  enterprises typically award their outsourcing contracts as application management services and infrastructure management services. Such distinct buckets of services, typically get awarded as separate contracts with different service partners say to Partner A and  Partner B . He then adds,This separation of service lines creates significant challenges to embracing a cloud-based service model because both application and infrastructure management services typically come together in the cloud and normally would get supported by a single service provider.

Viewpoint :  The premise that a company moving its enterprise apps. to the cloud have to rely upon the ‘Cloud service provider’ for both the Application and Infrastructure management almost does not exist in the present industry. Amazon or Rackspace or Terramark or Savvis or GoGrid for instance today provide only the infrastructure management and doesnot have anything to do with developing,maintaining or supporting a PHP or JEE or ROR based enterprise application or even doing a SQL Server based database administration and management related to the application. Infact, even the Cloud management vendor/Service provider such as RightScale doesnot do any Application level management.

The other viewpoint is that a number of other Infrastructure management services itself doesn’t exist in all the the cloud services per se. For example, Custom server provisioning,Disaster management,Data backup services,Advanced systems monitoring ,reporting and management etc leaving a lot of scope for IT service providers to continue to provide such disablement and implementation services. So the chances of these aspects acting as a barrier to cloud adoption and Contracts moving back to the Cloud are less or can be nil for now unless we see signs of Cloud service providers also entering the Software and App.management on the cloud in the future.

3. ‘Rethinking the Outsourcing Model’ , on which he says that  many buyers today have a range of IT services contracts spread across multiple service providers and under such arrangements that contracts get optimized at the tower level (vertical). He adds their contract normally assumes managing a predetermined set of IT applications – wherein they can show productivity benefits over time owing to repeated usage and therefore reduce their costs on a running basis. Such arrangements could come in the way of cloud adoption but an environment migration might not have been envisaged in the original contract.

View Point : Was not able to connect the context of a buyer awarding the contracts to different service providers and ‘Cloud powered outsourcing’. Also, his stating  ‘that an environment for migration to the cloud that emerges as a change in an ‘un-anticipated’ manner’ should be understood as affecting the long term viability of an outsourced managed services contract . If I presume in this way, Yes. Moving the IT to the Cloud is bound to bring unanticipated changes especially to long term “Managed Services” outsourcing contracts of Outsourcing services providers.

4. Implications on Vendors? : He opines that ,it becomes clear that client interests would be better served by leveraging cloud computing. Through this fundamental change, they may engage service providers in a more mutually preferred basis. How? The simple answer is by not refocusing on the way programs get outsourced by towers along AMS/IMS but by bundling infrastructure and applications together into a single contract along functional areas with common measures of performance and drive better cost structure and operational efficiencies.

Viewpoint : One has to understand basically that the IT Architecture and operations with a Cloud service provider is vastly different from the traditional IT set ups companies of various sizes have today. Cloud is ondemand, elastic and has a lot of automated IT set up and operations efficiencies to the extent that when a buyer moves to the cloud 50% of his traditional IMS (Infrastructure management) model gets invalid. Secondly, a Buyer will more likely subscribe to the professional services support of the cloud provider than with the IT Services firms because the Internals of the Cloud Infrastructures is not known to them. So there are a few possible scenarios a) IMS contracts may not get bundled at all with AMS b) IMS may be a smaller part of AMS ,bundled, may not be very significant like how we see in managing traditional data centers today c) IMS contracts may even be awarded to another provider including smaller players as the complexity and rigor of providing IMS on the cloud may be less than what it is today and hence carries a low risk to the buyer who can decide to award to other 3rd parties. The correlation of bundled IMS+AMS services providing a better cost structure to the buyer then becomes less significant.

To Summarize the View Points , The chances are least that we are going to see outsourced IT providers getting in to the game of Cloud services and aligning it with one or more of their core servics business. Organisations of different sizes will embrace cloud and outsourcing of the IT services after they have moved to the cloud will continue to exist driven by various business and technical requirements. The scope of  such services and contractual terms may get realigned as an impact of this change and IT Service providers ,especially the outsourcing companies should anticipate this and embrace it in a positive manner. Infact they should try to explore newer opportunities emerging from this landscape and look at ways of capitalizing it in their business.

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