'Co-sourcing': Cloud fosters collaboration

23 May, 2012

Few innovations in modern information technology have proved as controversial as the cloud.

JP Rangaswami, formerly chief scientist for BT and now fulfilling the same role at Salesforce.com, a cloud software provider, has a radical view of its potential.

He says: "It solves the problem of risk transfer. If we have solved the problem of providing a chief information officer with a service without the need for capacity planning, then we have solved the problem of risk transfer".

But Vineet Nayar, chief executive and vice-chairman of HCL Technologies, an India-based services company, takes a different line. "In my view, the cloud is overrated. Every time we [the IT industry] hype up a technology or hype up a trend and try to create a market out of something, the CIO is inundated with requests from the board in terms of 'Why are we not on the cloud?'," he says.

And Pat Philips, practice director for Canada-based professional services group Xceed and a former CIO at the UK Metropolitan Police, takes a middle course: "It [cloud computing] is something we have been doing for many years.

"The bit that makes it different from outsourcing is that in the past a company's IT would have been hosted in a specific data centre. Now connecting up all those hosts makes better use of the infrastructure."

Steve Salmon, principal adviser at the CIO advisory practice of KPMG, the consultancy, agrees there is plenty of hype and confusion around the cloud concept. He comments: "From a sceptical standpoint, many leading cloud and traditional outsourcers are just re-badging existing services into cloud products simply to avoid appearing to be left behind".

It was ever thus. But, as Mr Salmon makes clear, the cloud model differentiates itself from a legacy outsourcing approach, making the most of open standards to provide stronger interoperability across platforms – not only from the same vendor, but from competitors.

This interoperability, what Mr Rangaswami would call "fungibility", is the key element that sets cloud computing apart from its predecessors in outsourced computing services.

Eric Blum, chief technology officer, Europe, Middle East and Africa, for BMC Software, a US group, describes the change as a move from outsourcing to out-tasking.

Mr Blum says large organisations are using cloud management technology to make the shift from large outsourcing contracts secured with a single supplier to multisourced delivery, possibly involving dozens of vendors. These he says, put a renewed emphasis on financial performance, quality of service, security and regulatory compliance.

Mr Nayar of HCL agrees: "It is important to recognise that outsourcing as we know it is dead. 'Co-sourcing' – or working alongside businesses as part of an outsourcing relationship – is the only way to go. Customers have to be in control of their destiny."

So is it a win-win situation for everybody?

As Mr Rangaswami points out, the use of cloud services relieves CIOs of the responsibility for capacity planning – an activity which in good times can leave the CIO a hero but in bad times, with unwanted expensive hardware and software licences, the villain of the piece. "The risk has been shifted from the buyer to the vendor," he says. "I never had that in 32 years in computing."

Furthermore, IT services to support new business developments can be turned on at the flick of a switch, saving costs and cutting the time to bring new products to market.

But what about the software and services companies that have in the past depended on licence fees for their revenues?

Mr Philips of Xceed believes the coming of the cloud is beneficial for companies such as Microsoft. "At present, it has little control over what people do with its software. Now it will have control over its licences – although the price points will have to change."

However, according to Mr Salmon of KPMG, the impact on traditional software licences has been a big challenge for the largest providers, "and it has not been solved in many quarters.

"Some of the larger organisations have accepted that they need to be players in the cloud and, as a start, they may see a drop in traditional revenue numbers – but that is preferable to some of their products and services becoming obsolete."

The fact remains that no company has, as yet, moved all its IT to the cloud. Most big companies have large enterprise resource planning (ERP) software suites installed and will not want to upset the status quo.

Mr Philips of Xceed says: "Companies are not coming to us saying 'we want to move on to the cloud'. They are saying 'we have a particular business problem and what in your view is the best way to address it?'"

He adds: "The fear is [and here he echoes Mr Nayar] that people will not be in charge of their destinies. They will lose their data centres and their hardware. It is a leap of faith ... but the rewards are potentially extremely significant."

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