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Assessing the Coming Impact of Cloud Computing on Outsourced Solutions

What will be the speed of adoption of outsourced cloud computing solutions over the next five years? How will the cloud evolve and change outsourcing arrangements? How can buyers of outsourcing services optimize their cloud opportunities and manage the risks?

Outsourcing Center interviewed industry executives about developments in outsourced cloud computing solutions. In this article we share their insights.

Although cloud-enabled services are certainly not simple solutions for every technology challenge, Gordon Coburn, Chief Financial & Operating Officer at Cognizant, says they are “maturing rapidly and present game-changing business opportunities when properly deployed and woven together with traditional application, infrastructure, and business process delivery modes.”

Peter Bendor-Samuel, CEO and Founder of Everest Group, an advisory firm on global services, says the cloud will be as disruptive an element during the next five years as labor arbitrage was during the past five years because of the following reasons:

  • It changes the price and terms of competition among service providers.
  • It makes services on demand, which providers can dynamically string together.

“The cloud clearly will be cannibalistic in terms of the existing service model. It may also open new green field opportunities. It will be one of the defining issues – if not the defining issue – in outsourcing for the next five years,” states Bendor-Samuel.

Rate of adoption

For buyers of outsourced solutions, the opportunities through cloud computing include moving application management from a capital expense to an operating expense and freeing up needed capital for initiatives that will grow a business. Kevin Schatzle, President of Allied Digital Services, predicts that the impact of cloud solutions will be so substantial that in five years 50 percent of U.S. companies will have no capital expenditures tied up in IT assets or technology.

Deepak Patel, CEO, Aditya Birla Minacs believes cloud computing will experience an accelerated rate of adoption at the enterprise level and “will enable outsourcing service providers by giving them an excellent platform to achieve non-linear growth.”

Robert Pryor, Executive Vice President of Sales, Business Development and Marketing at Genpact, believes there will be little impact from cloud-computing models during the next two years but believes the cloud will likely have a “profound impact” on outsourcing arrangements over time through Business-Process-as-a-Service (BPaaS) offerings.

Joanne Olsen, SVP, Oracle Cloud Services, says the large software and hardware providers that are already entrenched in very large customer companies will drive even greater adoption of cloud computing as they begin to roll out the next generation of hardware and software engineered to work together.

HP predicts there will continue to be an explosion of interest in the cloud, despite some lack of understanding by buyer organizations over the next five years. “Enterprises will need consulting assistance in planning, selecting, and integrating cloud services in their portfolio. Cloud computing will change significantly as it matures during this time frame,” says Charlie Bess, HP Fellow, HP Enterprise Services.

Don Schulman, General Manager, Global F&A and SCM, IBM, points out that standardized BPO-related cloud solutions can succeed where BPO offerings have not always been available or accessible to small and medium-sized enterprises. “It’s important that potential clients of every size understand the advantages of a cloud-based service delivery model and whether it’s right for them. The provider can then work with a client to help develop the optimal BPO strategy for their particular organization and industry.” (Read Upcoming Decisions around Opportunities and Risks in Outsourced IT Solutions for more insights.)

Cloud computing’s evolution over the next five years

Wipro believes most companies will go with their existing service providers for cloud / Software-as-a-Service (SaaS) adoption or migration. “Right now, companies are mainly testing the cloud through discretionary spend, shifting non-critical IT services and applications to the cloud,” says Deepak Jain, Senior Vice President & Global Head of Technology Infrastructure Business at Wipro Technologies.

Jain says trusting a third party with large-scale on-premise ERP implementations and critical processes and data requires “a tremendous leap of faith.” Despite this fact, he notes that buyers’ budget allocations for cloud are increasing and there are strong indications of companies migrating traditional services to the cloud.

Cognizant believes the evolution of cloud solutions will take two distinct steps. The first will be a better, faster, cheaper way of delivering current IT solutions. An example today is Google Apps with corporate e-mail platforms. The second step, says Coburn, will come “when we can do new things with the cloud model at a business level. This will occur when organizations use social computing on the cloud in a business context, enabling particular platforms of collaboration around specific business problems.” Another way it will evolve is the varied adoption for public clouds versus private clouds.

Abid Ali Neemuchwala, Global Head, TCS BPO Services, points out both cloud models work extremely well in certain circumstances but, in other cases, can prove limiting.

Bess at HP predicts the less risky “private” (network-based) cloud route is the direction that many large organizations will take over the next few years because of concerns around security, data integrity, and compliance.

V K Raman, Head, Domain Services, TCS BPO Services, points out most of the cloud coverage is currently around infrastructure and application clouds. He says “it is essential that service providers add the business element to the mix by delivering enterprise processes on the cloud.”

Schulman at IBM predicts this type of service delivery model will see rapid growth in adoption rate “as companies increasingly find value in comprehensive, standardized platforms across processes.” This demand will lead to an accelerated pace in developing BPO cloud and Business-Process-as-a-Service offerings.

In the past, providers needed to modify technology to fit each particular client environment. But that’s all changed. Schulman says today IBM is investing in configurable models that enable clients to use the very latest technology available on a cost-efficient, on-demand basis within a cloud environment. As a result, BPO providers become innovation partners with clients, helping them to transform their businesses and drive sustainable value.

Cloud consequences

To take advantage of cloud functions, Bendor-Samuel at Everest Group says buyers will need to step up to more accountability around control and architecture. Accountability shifted to the provider segment in the existing outsourcing model. “This accountability shift is a consequence that buyers will have to grapple with as they move some of their services to the cloud,” he says. “While the cloud offers potentially much cheaper, much more flexible services, buyers will have to take on more accountability for the architecture.”

Bendor-Samuel brings up other consequences. The contracting vehicle will be different as there won’t be long-term contracts. Standardization will be very high in the cloud, as opposed to the current services model where there is a lot of customization in both the service and the contractual responsibility. “The question to buyers will be: ‘Do you want it?’ – not ‘How do you want it?'”

Continuing, he says it’s like being on an airplane and being asked, “Will you be having dinner with us, Mr. Bendor-Samuel?” “If I ask: ‘What are my choices?’ their answer will be: ‘yes or no.’ Buyers need to understand the cloud model is highly standardized, designed to be plug and play, just in time. That’s what allows it to be dramatically cheaper in terms of the components.”

Kevin Karcher, Product Marketing Director, ITO, HP Enterprise Services, points out other consequences. “For many cloud services, there are concerns of security, data integrity, and compliance.”

Jain at Wipro predicts a consequence of cloud computing will be change in the compliance strategy because of the underlying data segregation and access control issues. “Cloud security will require the development of security solutions that can be mapped to multiple compliance requirements and at the same time protect customer resources.”

He adds that, considering the cloud has yet to evolve completely, adopting cloud computing solutions is not without risks. “Buyers need to weigh and take precautions against risks such as information security, data segregation, compliance issues, and the lack of investigative tools.”

Kohli at Wipro also warns that customer centricity and industry specificity will result in higher costs to buyers (as providers will need to offset increased expenses and maintain their margins).

There’s a good consequence, too. The new technologies and approaches that fall under the umbrella of cloud computing will enable outsourced solutions not previously feasible. As Coburn at Cognizant explains, “service providers are working on new offerings that could unlock new levels of business value by implementing next-generation service delivery models based on a cloud-computing backbone.”


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