Traditional X Cloud Outsourcing – Six Differences

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Alfredo Saad Alfredo Saad – IT Outsourcing Consultant

In cloud, the definition of the sourcing strategy, as well as its implementation, shows distinct characteristics as compared with those of traditional outsourcing.

The comprehension of these differences and their appropriate handling are some of the determinant factors that make a cloud implementation project in the organization succeed. It should be kept in mind that sourcing activities, such as provider(s) selection, contract negotiation and its governance, are important components of such implementation.

Here we will discuss 6 of these differential characteristics of the sourcing activities in both cases, as seen below:

1 – CONTRACT SCOPE

Traditional Outsourcing >>> Static

  • Few scope changes along contractual lifetime
  • Compatible with “make & sell” business model
  • Review cycle of contractual requirements: month / years (long and frequently pre-planned)
  • Complex contractual renegotiations result when eventual scope changes are needed

Cloud >>> Dynamic

  • Led by client’s mutant business requirements, mainly applications such as
    • customer-facing apps through mobile devices
    • employees’ mobility apps
  • Compatible with “sense and respond” business model
  • Review cycle of contractual requirements: hours / days / weeks (short and frequently randomic)

2 – CONTRACT DURATION

Traditional Outsourcing >>> Long

  • Typically 5 to 10 years
  • Duration defined by the depreciation of assets dedicated to customer organization, to assure economic viability of the contract

Cloud >>> Short

  • Typically 1 to 2 years
  • Experimental periods of time to launch pilot-projects
  • No assets to depreciate

3 – PROVIDERS MARKET

Traditional Outsourcing >>> Few

  • Small number of qualified providers
  • Frequent adoption of only one provider (sole sourcing)

Cloud >>> Many

  • Market is still fragmented, immature, volatile, non standardized and not much transparent
  • New providers emerge everyday
  • On specialized and innovative niches
  • Possible risks to be evaluated
  • Solutions that do not use open standards making it difficult to migrate between providers (vendor lock-in)
  • Mergers and acquisitions that may alter provider strategy
  • Lack of technical and financial solidity of provider, provoking its sudden exit from the market
  • Emphasis on …
    • … definition of a solid sourcing strategy
    • … management of multiple providers, focusing on their integration
    • … compatibility among services and applications of all providers under contract

4 – FLEXIBILITY OF CONTRACTUAL TERMS AND CONDITIONS Traditional Outsourcing >>> Low

  • Possible alternatives are pre-defined in the contract
  • Complex renegotiations arise when additional flexibility is needed

Cloud >>> High

  • Contractual provision to permit agile modifications on …
    • … Services
    • … Volumes
    • … Resources
    • … Scope …
    • … including real-time provision through web portals

5 – IT ACTION FOCUS

Traditional Outsourcing >>> Cost Reduction

  • Efficient allocation of IT resources

Cloud >>> Outcome for Corporation

  • CIO – Corporation C-Level aiming at
  • Minimize time-to-market
  • Increase market-share
  • Reach new markets
  • Maximize revenue and profitability / reduce costs
  • Launch innovative products and services

6 – CHARGING AND QUALITY MECHANISMS

Traditional Outsourcing >>> Based on profile of technical resources

  • Charging based on volume of consumed resources
  • Quality assurance mechanisms associated to pre-defined technical deliverables not directly related to the business activities of the customer

Cloud >>> Based on risk & reward mechanisms

  • Risk sharing, leading to innovative mechanisms
  • Empiricism, transparency and partnership on client-provider relations
  • Charging and quality assurance mechanisms associated to business activities of the customer

Alfredo Saad has been acting on IT Strategic Outsourcing Services area since 1997. In 2006 he published the book “IT Services Outsourcing” (Brasport Publishing House). Risk Manager of all IBM Strategic Outsourcing contracts in Brazil (2009-2014). From March 2014 on, he has been acting as an independent consultant, lecturer and writer on IT Outsourcing as the principal of his own company, Saad Consulting.

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