EquaTerra Position Cloud Computing Feb2009 6002

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Get to what matters.

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, [email protected]

Europe/Asia Pacic

+44 (0) 845 838 7500

[email protected]

Americas

+1 713 470 9812

[email protected]



































EquaTerra Position Cloud Computing Feb2009 6002

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