By Accenture
What if you could access information technology and business services as easily as homeowners access electricity? The utility metaphor is inevitable. It also explains why some might think that cloud technologies enable a kind of do-it-yourself approach to business services, eliminating the need for value-added outsourcing. After all, homeowners don’t need a personal contractor to integrate the coal companies, turbine manufacturers and engineers behind electricity delivery. They pay their bills and turn on a switch.
Companies already can simply provide a credit card number to a cloud IT provider and get computing capacity within minutes. They can contact a software-as-a-service provider such as salesforce.com and get ready access to robust cloud-based capabilities in areas such as sales, CRM and finance. With that kind of responsiveness and ready capability, will a CEO or CIO need a service integrator ― a traditional outsourcing partner ― anymore?
The answer is: yes and no.
The cloud is indeed simplifying some aspects of the IT and business services world. But it’s also making many others more complex. Some kinds of services might actually become almost as easy as turning on the lights. On the other hand, customers often need more than just raw power. The electric company isn’t in the business of providing advice about what appliances your home needs, for example, or about how all your fancy new electronic equipment works together.
From an IT perspective, the introduction of the cloud model actually means that CIOs now have to manage an even more complex, hybrid environment: externally provided cloud services along with their own internal systems managed in a cloud-like manner, as well as older legacy applications.
From a business process perspective, integration points between different functions and processes need to be carefully (and commercially) managed, since a utility cloud provider most likely will not have a perfectly clear sense of its client’s overall business goals ― to say nothing of the needs of the client’s customers.
For example, a business process involving the billing of a range of telecommunication services, may involve a number of IT systems. Some of them may be based on the cloud (e.g. CRM) and some of them may be hosted in a legacy platform (e.g. a 10-year-old Midrange platform) within the internally managed Data Center. In the event of managing an important incident causing the disruption of the billing cycle, the IT department will need to work with many different external providers as well as the Data Center Manager.
Unless the coordination among all these parties is working like a Swiss clock, the CIO will have a really difficult time explaining the reasons of the problem to his customers and business peers
Given the host of other challenges companies face with cloud services ― security, data integrity and service availability chief among them ― the service integration and coordination role played by outsourcing providers isn’t going away anytime soon.
Indeed, the ability to advise companies on the proper design of their business models based on multiple service providers, and to help them harness the potential innovations arising from the interaction of these providers, will in all likelihood result in a totally new era of outsourcing for providers ready to meet the challenge.
The idea that a cloud-based model will inherently simplify services is also a dubious proposition, even at the basic level of procuring raw computing power. Yes, an organization can easily acquire storage and run applications by renting server capacity.
But from an enterprise perspective, that means that IT executives now must manage multiple external cloud providers and an internal IT environment that is in all likelihood a hybrid between traditionally run services and others run in a cloud-like manner, as well as various legacy systems that cannot readily be given up to the cloud.
Finally, and most important, there’s the not inconsequential matter of service integration, which will become considerably more complex as the number of providers increases. At the moment, such integration is not part of the business model of most utility cloud providers.
It is important to understand what integration is all about in the traditional outsourcing model, versus how it will look in a cloud-based environment. Today, integration is really about getting multiple vendors, across systems and functions, to work together to manage basic services in a common and consistent way. If an application goes down, the company providing the desktops needs to be able to work easily with applications providers to solve the customer’s problem.
In an environment where companies are sourcing business and IT processes on the cloud, however, the greater integration challenge will be integrating data consistently across multiple services and then understanding the end-to-end business process that’s being serviced so that a company can be confident that its employees and customers are being served properly.
Take a common financial process like order to cash. In a cloud or software-as-a-service environment, a company might use five different cloud-based services to run that end-to-end function. But from the company’s perspective, all executives really want to know is how quickly they can get from order to cash, and how the speed, efficiency and cost of doing so can be influenced in a positive way. At this point, monitoring and managing that integration—keeping in mind the ultimate business goal of the service—is a capability well outside the comfort zone of most cloud providers and retained IT organisations.
The role of outsourcing is changing dramatically and will continue to do so as companies increasingly rely on the cloud for IT processing and business services. We are, in fact, entering a period when the cloud will hasten the emergence of multiple classes of outsourcing services and providers. At least three service categories are likely to emerge. And at this point in the evolution of the industry, it is possible to identify some of the key success factors that will be in place for each one.
The first category of Outsourcing providers specialise on IT utility services such as compute or storage services. As suppliers of IT power or basic business process functionality, the value proposition for utility providers will focus primarily on efficiency and cost.
For example, we worked with a large logistics company responsible for shipping hundreds of millions of items around the world every year, each with a unique barcode. Those barcodes represented hundreds of gigabytes of data that had to be managed each month.
As part of its quality control processes, the company wanted to be able to readily identify errors such as different items accidentally being assigned an identical barcode. That meant a fairly massive undertaking in terms of the storage and computing power needed to perform that kind of analysis.
When a cloud solution was implemented for the company, it involved 150 servers at a total annual cost of $131,000. By comparison, if the company had attempted to implement the same capability within its own IT department, it would have required the purchase of a $4 million high-end server. In addition, the processing power of the cloud solution was truly remarkable: The Company was able to process an entire month’s worth of data in 4.3 minutes.
The second category of cloud or outsourcing companies will be niche providers with deep expertise in particular functions such as sales, HR and customer support, enabling them to command a premium for their services. To use the utility analogy, while the first category is made up of the electric companies, this category is the company that provides the refrigerators, dishwashers, and home theater and audio equipment you need for the home.
For the business function provider, the value proposition will be to make sure your company gets a business function (the “appliance”) that is properly configured for your needs—in other words, not just any old refrigerator but the one that fits in your kitchen space and holds the amount of food that’s right for your family’s needs.
The third type of outsourcing provider will be one that recasts itself as a “business design” consultant in addition to serving as an aggregator and integrator of critical services. That is, such a company will help its clients become “cloud enterprises” _ organizations that are more dexterous and agile because they can adapt their very business design on the fly. Offering this kind of business capability will require an outsourcing provider to develop a higher level of sophistication in integrating its own and other services and in managing them seamlessly.
This novel kind of relationship between provider and client will draw on distinctive leadership skills and pioneering contractual relationships where risks and benefits are shared more equally. Achieving such relationships takes time and commitment ― a commitment that is unlikely to be achieved in a commoditized, cloud–based contract but that can leverage those commoditized value points integrated into an overall solution.
New game, new rules for infrastructure outsourcing. Clearly, there are many unknowns in this new cloud-based outsourcing environment.
Will infrastructure outsourcing utility providers be able to make the jump from what we might call “consumer grade” services to something that is truly robust enough to be enterprise grade? Will software companies be able to make the jump to being true service providers? Will Service integrators be able to manage the new complexity and encourage the kind of trusted relationships with clients necessary to act as their business designers or re-designers?
What is clear is that this is a new game that cannot be played successfully under old rules. This is another evolutionary shift in the relentless way that value migrates in an industry. What was innovative becomes commoditized, leading ― for those who intend to keep playing the game ― to another era of innovations.
Most important, perhaps, is to begin to understand what it means to operate in a multisourced environment, where the different components need integrating, not just once in a while but constantly.
This article was provided by Accenture Korea.