Philip Ng

Hot off the heels of the first part of my series on cloud computing and IT outsourcing comes the second installment of my 3-part series that focuses mainly on IT outsourcing. 

Outsourcing, Multi-sourcing, then what? 

In the past, outsourcing was equated to facilities management. To illustrate, Eastman Kodak was (arguably) the first company to outsource all of their Information Systems operations to a third-party service provider. The underlying reason was cost-related. Outsourcing was a way for Eastman Kodak to reduce head-count and to save substantial sums of money. It also provided cash injection in return for the outsourced assets. 

But, that was in the past. 

Today, outsourcing has evolved into something that has a broader and more strategic function. The situation has evolved to an extent where a company can literally outsource its entire IT infrastructure (and most of the business processes that are attached to it) in just a matter of months. 

A better way to describe this function is sourcing. 

Outsourcing is a surrogate function while sourcing is a strategic one. Through sourcing, a vendor (or a team of vendors) provides the IT infrastructure or specific products and services that can advance a company’s strategic business goals. Companies can also gain access to the latest technology that showcases the best available applications or the most powerful global network infrastructure. 

A new model for a new world 

As the pace of cloud computing quickens, companies are searching for innovative ways to access information, enter new markets, gain new sources of revenue, meet sustainability commitments and improve user accountability. I believe in the need to use language that reflects the evolution of outsourcing to multi-sourcing, and ultimately to a new model that embraces the new world of cloud computing. By meeting its current needs with a guaranteed access to new technology and best-of-breed services, it is a comprehensive approach to meet an enterprise’s cloud computing goals.

In the business of IT outsourcing, the impact of how providers empower customers is usually underestimated. These following points enumerate the essential things that need to be addressed: 

• The ability to do things that customers would not be able to do effectively if left to their own resources.
• The ability to compete aggressively in a rapidly changing cloud computing environment.
• Access to the latest and most effective technology and solutions available.
• The ability to stay focused.

The 3 Cs of multisourcing

Capacity, Coverage, and Capabilities – Online consumers are demanding 100% availability and reliability which impact the fundamentals of scalability, availability, security, data integrity and manageability. The key to transitioning to the new form relies on how companies are working together to provide business solutions that meet the increased demands of the marketplace. 

To further illustrate, I will go through the three current models of how cloud computing business goals can be met through IT outsourcing and its modern day variants. 

1. Single-source

Single-source providers typically provide all of a company’s IT needs. They are usually very large enterprises and it is becoming increasingly difficult for them to keep up with current technological developments.

2. Multi-sourcing

Here, a company contracts with best-of-breed vendors separately and manages the process in-house. While there may be obvious advantages to having the best technology and services, this model can be difficult and costly to manage, disregarding of the capability of the service provider. The client assumes the prime contractor’s role, thus, inadvertently, taxing limited internal resources and increasing the risk of failure.  Ironically, the procurement officer who initially opted for this model due to price considerations, might be the same person complaining later on the lack of bargaining power, which otherwise would have be made available through the consolidation of suppliers.

3. Prime Contracting

This is a variant of multi-sourcing or best-of-breed, where one of the outsourcers manages the other external service providers and serves as a single point of accountability to the customer. This model is power-based and event driven where the prime contractor oversees the work of subcontractors and relegates them to a subservient role. However, the ensuing relationship is short-term and is not beneficial to customers in the long run. 

The Fourth Model 

I believe that there is a fourth model that is now emerging. It is the Consortium model and I think that it is best suited to meet the growing needs of customers in a cloud-enabled business environment. This model combines best-of-breed and prime contracting, but the difference lies in vendors being equal partners, who do not work in an ad-hoc situation. They are expected to leverage the capabilities of the partners, reduce level of risk, and sustain the long-term benefits to clients. Through the implementation of this model, the result is a win-win scenario for everyone. The eventual key to success is working in a partnership where there is open and clear communication, respect for confidentiality, great management and a solid track record. 

Stay tuned for the last installment of this three-part series!

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