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Cloud Computing
The Marketplace Is Getting Ready. Are You?
Got your head in the clouds? For once in business, that
might be a good thing. That’s because cloud computing
– essentially the use of the Internet to deliver business
applications and data storage – is emerging as the
next big wave for IT organizations. And given the costpressure in the current economic climate, it’s a waveworth catching. It promises less infrastructure and capital
investment, more reliability, more scalability, and access
to applications and information from virtually anywhere at
any time. That adds up to a compelling value proposition
for IT organizations and, potentially, a new landscape forIT outsourcing.
Cloud Basics
First, what exactly is cloud computing? You’ll get a different answer depending
on whom you ask, but it’s basically the housing of information and applications on
huge collections of servers connected by the Internet. By using such a “cloud,” you
could conceivably access your organization’s systems from anywhere using virtually
any Internet-ready device – with no need to load software onto your computers,
or station IT personnel in data-center locations, or otherwise build your own IT
infrastructure.
The evolving concept of cloud computing is an amalgamation of existing
technologies such as software as a service, platform as a service and grid computing.
At the consumer level, for example, cloud computing is the basis for Google Docs, a
Web-based suite of applications that saves les to Google servers instead of personal
computers, or Apple’s iDisk, which enables users to buy online storage space
for photos, movies and other personal les. In business-to-business applications,
meanwhile, companies such as Salesforce.com use cloud technology to provide
software across the Internet, eliminating the need for customers to install, run and
maintain programs on their own computers.
So if cloud computing is already happening, then what’s the big deal? Why is
everyone talking about cloud computing as the next wave to catch? It’s because
major IT players, foreseeing an increased need for Internet-based computing models,
Cloud Advantages
As companies strive to cut costs in a
volatile economic climate, the cloud
can be one of the best options for
weathering the storm – and coming out
on high ground when the roily waterssubside.
Instead of investing in IT infrastructure,
cloud-computing customers will typically
lease space – or buy capacity from – on
a service provider’s cloud. That paradigm
drives benets such as:
Minimized capital expenditure•
Access to systems regardless of•
location or device
Multi-tenancy (enabling a pool•
of users to share resources and
cost)
Reliability/redundancy for•business continuity
Scalability•
Energyefciencythrough•
shared infrastructure
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are betting on it big-time. Giants such as Google and Amazon are investing billions
in their clouds, and Tier 1 service providers like CSC, HP and IBM are building their
cloud computing capabilities. With that kind of investment, the prospect of cloudcomputing is hard to ignore. It’s also hard to ignore in hard economic times. How
can you not consider a way to cut costs and reduce investment while improving
reliability at the same time?
In a world of clouds, after all, you conceivably could get rid of your capital-intensive
data centers, opting instead to store information on someone else’s cloud. Clouds
also enable you to run applications – from off-the-shelf software to strategic
business tools – on the Internet instead of on individual desktops. And when it comes
to redundancy, disaster recovery and long-term reliability, cloud computing is clearly
the way to go: The Internet has never gone down, and capacity can be scaled up or
back as needed.
Clearing the Air in IT Outsourcing
In short, cloud computing enables you to buy infrastructure as a service, paying only
for what you use versus investing in your own. And as service providers build up their
capabilities, cloud computing stands to change the landscape of IT outsourcing. At
the very least, cloud services are going to become a more prominent part of service
providers’ offerings. That bodes very well for buyers – in the form of less complexity
and more clarity in outsourcing deals:
Clearer statement of work.1. In traditional ITO, you may keep some computers
and software licenses while buying some processes and labor from a service
provider. The statement of work, as a result, is often thousands of lines long,
detailing what’s in scope and what’s out. In cloud computing, on the other
hand, the hardware, software, labor, processes and facilities will all be bundled
together in a cloud. If it’s in the cloud, then it’s the provider’s responsibility.
Case closed. So the weeks spent negotiating statements of work and nancial
responsibility can instead be redirected toward nding the optimal solution
and planning the serv ice properly.
Less risk with multiple providers.2. Cloud computing can also streamline
relationships involving multiple providers. In one common scenario, your
helpdesk vendor may provide a trouble ticketing system, but that system must
also be made available to the provider managing your data centers. As a result,one provider’s delivery of services is dependent on another provider’s system.
Even worse, your data center provider may insist on using its own system, in
which case you’ll have two different sources for trouble ticketing. In cloud
computing, however, your helpdesk vendor has a trouble ticketing system
that’s written for the Internet, which means anyone can use it. That minimizes
risk for all parties involved and improves service delivery to you.
Easier implementation.3. IT service providers usually tell buyers they already
have infrastructure in place, but in reality, they almost always have to build
additional capability to accommodate a customer’s processes. In data
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migration as part of the transition of services, for example, your provider
may need to create an environment enabling your data to sync up with
theirs – which can add time and cost to the outsourcing project. But in cloudcomputing, the environment – a.k.a. the cloud – is already built. In addition,
your use of that cloud can easily ramp up or down, which will suit your
organization well if you’re yet to nalize your strategy or if you have a lower
overall risk tolerance.
More transparent pricing.4. Despite the benchmarking clauses in many ITO
contracts, today’s buyers inevitably invest time and effort comparing their
outsourcing price to others in the marketplace, only to nd that their deal
is unique. That’s because it’s virtually impossible to get apples-to-apples
comparisons in IT outsourcing. For example, if you’re spending $3.50 per
terabyte of storage versus someone else’s 50 cents, it’s probably because
you have hardware, software and labor costs built into your rate. In cloud
computing, conversely, everyone is buying the same thing, so pricing is more
transparent. You can compare such metrics as price per named user, price
per concurrent user, charge per controller, or SPECint (a measurement of
processing power).
Much less dependence on geography and labor arbitrage.5. Historically,
many ITO deals have grappled with questions about locations and service
quality, and the culprit has often been offshoring. When a service provider
moves operations to a low-cost location, after all, there’s a life cycle involved
in that location. In the early days of India as an offshore market, for example,
there was a lot of corporate resistance to outsourcing. Over time, it became
more accepted, but with that maturation came increased demand for
outsourcing, which has resulted in such challenges as increased competition
for labor and other resources, higher salaries and potentially lower tax rebates
from local governments. So today, if a serv ice provider wants to set up shop
in, say, China, then it faces that whole life cycle all over again, which creates
concerns for buyers – in the form of cultural acceptance and cost.
Cloud computing is not a panacea for offshoring, but it does offer a viable
alternative, because It takes some of the location concerns out of the
equation. With cloud computing, labor arbitrage is going to become notably
less important against the backdrop of modernizing the business. Today, for
example, you may have your computer systems in a data center for Asia-Pac,
and the people managing those systems are located in the control room of
the data center. As such, geography, assets and people are all linked. In cloud
computing, the data center location is not important, and the people can be
anywhere as long as they can manage the cloud. That distributed model gives
you much more exibility in determining the location of your IT personnel and
assets.
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Remediation: Getting Ready for the Cloud
Cloud computing holds great promise for IT, but a requisite rst step is ensuring
that your applications can run on a cloud. Most manufacturing applications and
homegrown software, which often drive some of a company’s most protable
business processes, simply weren’t written with clouds in mind. Therefore, for cloud
computing, you need two sets of labor – one to manage the cloud and one to
remediate your customized applications so they can run on it.
This remediation will be a labor-intensive activity, so traditional logic might have you
looking for the lowest-cost labor market. Not so fast. In this case, the applications at
hand are often the ones closest to the core business, the strategic assets that drive
competitive advantage. Most organizations, therefore, won’t want this knowledge
in the hands of a remote processor in China or India. Preferring to keep these
applications close to the vest, companies are more likely to use their own people toreengineer software for the cloud. Of course, many companies won’t have hundreds
of remediation engineers available, so they’ll still need to outsource the work, but
they won’t offshore it. Instead of sharing trade secrets with processors across the
globe, they’ll keep the information where they can see it.
As such, EquaTerra believes that with cloud computing, the industry once renowned
for sending jobs overseas may start to bring jobs back home.
Conclusion: Is the Cloud For You?
Cloud computing is coming, and it’s a viable option for reducing costs and improving
reliability. Therefore, as service providers build up their capability, you should
denitely consider cloud computing services as part of your ITO transactions. But
that doesn’t mean you have to get onboard today. Indeed, if cloud computing were
as simple as plugging in and playing, then everybody would be doing it.
Instead, start thinking in that direction and see what makes sense for your business.
As a rst step, take a look at your business-critical applications, consider how they’d
work on the cloud and determine what’s involved in making them Internet-ready.
This will help determine your business case for working with a cloud computing
service provider. Some examples:
If you have a slate of business applications as part of an Enterprise Resource•
Plan, those are likely to run well on a cloud, which could help reduce yourinfrastructure costs and improve employees’ accessibility to company tools.
Keep in mind that just because an application can be remediated doesn’t
mean it should. Your doohickey application for tracking employee phone
numbers could probably run on the cloud, but that won’t help your business
case.
Cloud computing can be a way to turn some back-ofce processes into front-•
ofce processes that drive the business. For example, by put ting your factory’s
ordering system on the cloud, you can turn an invisible support process into
Cloud computing is
a good option when …You’re running modern Internet-•
enabled applications
You want variable costs due to•
varying levels of consumption
You’re trying to reduce capital•
expenditure for data processing
Cloud computing is not
a good option when ...
You’re running applications that•
weren’t written for the Internet
You want permanent or inexible•
parameters on IT spend
You have signicant sunk cost that•
will affect your business case
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a consumer-facing process that gives customers more control over what they
buy from you.
If you’re a small business or you’re just starting up or spinning off, then it may•
make sense to go straight to the cloud, making all of your applications Internet-
ready right out of the gate. Running everything on the cloud, you can minimize
your IT infrastructure by using a provider’s data center, equipment and labor.
Depending on your business, you may see the cloud as a way to handle sudden•
spikes in computing demand. If shifting all applications to the cloud is cost-
prohibitive, you might use the cloud on an overow basis.
Finally, if you’re a very Internet-oriented company with lots of Web applications•
facing customers and suppliers, then most of your applications were probably
written for a public network, and it probably makes sense to start movingeverything toward the cloud.
Remember, however, for all its promise, cloud computing today is still an emerging
technology, hovering at about a 3 on a 10-point maturity scale. And it’s not without
limitations. Though the model touts anytime-anywhere access to applications,
for example, both Google and Amazon have had some reported glitches in cloud
uptime. And while the cloud can resolve some concerns about location, the physical
presence of data will always be a consideration when privacy laws prevent some
information from leaving a certain country.
Still, as service providers work through these hurdles and invest in their clouds,
cloud-computing services will gradually become a salient part of the IT landscape,
and EquaTerra is ready. Sourcing advisory is going to be less about labor arbitrage
and deal-making and more about industry and functional expertise, deep business
process design skills, and smooth interactions among buyers, their supply chains and
their customers.
And just as the marketplace is getting ready for cloud computing, you should too.
Be prepared to consider it in an ITO relationship. Keep it on your radar screen, think
about how it could change your business, and start assessing the cloud potential of
your critical applications. In other words, go ahead and keep your head in the clouds
– and feel good about it. The clouds on this horizon could serve you well.
Related Reading
Cloud an Outsourcing Option in Troubled Times
http://www.cioinsight.com/c/a/Outsourcing/Cloud-an-Outsourcing-Option-in-Troubled-Times/
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Copyright © EquaTerra 2009. All rights reserved. The prior written permission of EquaTerra is required to reproduce all or any part of this
document, in any form whether physical or electronic, for any purpose. 6002_022009.
About EquaTerra
EquaTerra sourcing adv isors help clients achieve
sustainable value in their IT and business processes .
Our advisors average more than 20 years of
industry experience and have supported over 2000
transformation and outsourcing projects across more
than 60 countries. Supporting clients throughout
theAmericas,Europe,andAsiaPacic,wehavedeep
functional knowledge in Finance and Accounting,
HR, IT, Procurement and other critical business
processes.EquaTerrahelpsclientsachievesignicant
cost savings and process improvement with internal
transformation, shared services and outsourcing
solutions.
www.equaterra.com
Contact Us
If you would like to know more about EquaTerra please contact us.
For details of all our locations visit www.equaterra.com/locations
If you have questions about this paper, or would like to learn more
about how EquaTerra can help your organization address the po ints
and opportunities discussed, please contact:
Charles Arnold, Managing Director, Information Technology,
+1 847 607-4975, charles.arnold@equaterra.com
Europe/Asia Pacic
+44 (0) 845 838 7500
infoeuapac@equaterra.com
Americas
+1 713 470 9812
infoamericas@equaterra.com