Differences Between the Cloud and Traditional Outsourcing

Differences Between the Cloud and

Traditional Outsourcing

Chris Tiernan

Managing Partner

Grosvenor Consultancy Services LLP CIPS Harrow 20 January 2015

[email protected]

Grosvenor Consultancy Services LLP

• Founded 1989

• Has advised >200 private, public & charity sector organisations on contracting for and managing IT & service suppliers: www.grosvenorconsultancy.com

• Outsourcing & off-shoring have had mixed successes:

– costs & quality

– innovation & agility

– many services taken back in-house

Topics

• What’s new in the world of cloud?

• How does cloud change the underlying economics of IT service provision?

• Creating business value

• The business case for cloud

• IT budget implications

• Cloud vs traditional outsourcing on a page

What is really new with cloud?

Massive investments in public use datacentres

Mainframes

Mainframes

Physical Servers

Mainframes

Physical Servers

Virtual Servers

Fixed and variable costs

Fixed = 1000 Variable = 100

Total cost

Fixed = 1000 Interface = 50 Variable = 100

Multiple interfaces

What has remained the same?

• Business dependence on IT services

• The need to go to the market & do due diligence on prospective suppliers

• The need to justify IT expenditure

• The need for high quality contracts

• The need to manage suppliers

• The need for service management, particularly problem and change management

Creating enterprise value

Customers

Donors

For-profit Not-for-profit Commercial companies Membership bodies Government bodies Charities Protection rackets Services for members, citizens & beneficiaries Tax payers Profit for shareholders

Effect on costs

• Procurement  • Contracting  • Transition/implementation  • Supplier management  • Service management ? • Service provision ? • Benefits realisation  • Exit ?

• Increased user productivity and additional business or services arising from new cloud capabilities which are exploited by users to create additional value

• Freed up space for IT equipment

• Reduced equipment maintenance costs

• Reduced electricity costs

• Reductions in software licences (?)

• Reduced IT support personnel costs

• Capex or leasing avoidance for new equipment

Cloud business case benefits

• Seeking out cloud solutions, verifying functionality & suppliers’ competencies

• Contract drafting & negotiations, including dealing with security, data protection & business continuity matters

• Establishing new ways of managing service provision, e.g. subscription management & performance data extraction from portals

• HR time & redundancies &/or re-training costs for IT personnel no longer needed

• P&L write-offs for redundant equipment

• Contract termination costs for maintenance, support and software licences

• Any additional network capacity & links needed for good performance

• Advice and guidance to connect to cloud vendors

• Costs associated with moving data to the cloud & often cleaning & re-structuring it

• Arranging for support from any intermediaries, e.g. for helpdesk and service changes

• Creating vendor independent “wraps” to enable portability between vendors

• Creation of interfaces to link different cloud solutions to pass & synchronise data between them

• Reorganising the way users & others will work in future

• Retraining users & time spent becoming familiar with new ways of working

• Catering for lost functionality, e.g. creating bespoke facilities

• Lost business, poorer service and correcting mistakes during business change, re-training & familiarisation

• Subscriptions & payments for peak loads, if needed

• Service monitoring & management, e.g. claims for poor service

• Management of suppliers & interfacing between

them, e.g. for problem resolution & effecting changes

• Maintenance of interfaces

• Support for service management & guidance on use of cloud solutions

• Upgrades needed to remain compatible with cloud systems when vendors change them

• Lost productivity & business from IT capabilities lost through standardisation

Traditional outsourcing

typified by:

• Transferring staff

• Transferring assets

• Supplier has key management roles

• Longer term contracts

• High expenditures

• Comprehensive service level agreements

• Desire to create “partnership”

• Certain roles kept in-house

• Strategy (business & IT)

• Specifying requirements

• Supplier selection & management

• Setting standards

Cloud typified by

typified by:

• Transferring staff

• Transferring assets

• Supplier has key management roles

• Longer Short term contracts

• High expenditures Subscription based

• Comprehensive Minimal service level agreements

• Desire to create “partnership” Utility

• Certain roles kept in-house

• Strategy (business & IT)

• Specifying requirements

• Supplier selection & management

• Setting standards

Financial effects

•

Budgets

• Lower capex - higher opex

• Depreciation issues reduced

• Variability & predictability of budgets

• Potentially more user accountability

•

Business cases

• Just as much to consider

• Financial ratios, e.g. ROCE

Cloud sourcing

• New leading suppliers & host of others – Traditional outsourcers’ business models

– Cloud service providers’ business models

– Hybrid “broker” business models

• DIY IT architecture

• Multiple suppliers & interfaces

• Contracts are not contracting

Contracting for cloud

• Vendor contracts can be too simple

• Who do they serve?

• Definition of services

• Multiple suppliers & interfaces

• Key obligations of each party

• Dealing with problems

• Consequences of changes

Conclusions

• Cloud offers new solutions

• IT Governance & management essentially unchanged

• Key management practices must not be discarded

• Not always cheaper & can be more expensive

• Skills profile of IT function needs to be adjusted

• More suppliers & interfaces to manage

For more information:

[email protected]

Downloadable papers from:

www.grosvenorconsultancy.com