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Old IT Sourcing Dilemma is Exacerbated on Cloud

publicado por Alfredo Saad

Figura - Old IT Sourcing Dilemma is Exacerbated on CloudAn old IT outsourcing dilemma, relative to the “single provider” versus “multiple providers” models of implementation, has its decision factors strongly exacerbated on cloud scenario. As will be discussed, on a cloud scenario we can sometimes find tens of providers coexisting, not always peacefully, resulting in a turbulent and unstable IT environment.

We will initially perform a SWOT analysis concerning both alternatives in a traditional IT outsourcing scenario. Then we will analyze the variables, typically found on cloud scenario, which transform the profile of the “old” dilemma, bringing to consideration, in a radical fashion, new risks and opportunities.

1 – A SWOT Analysis of the “old” IT outsourcing dilemma

Single Provider

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Multiple Providers

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Strengths– Contracting process simplified

– Single point of accountability in case of problems or bad performance

– Lower contract management costs

– Increasing efficiency and quality, as the provider becomes progressively aware of the customer environment, resulting in a growing economies of scale

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– Competition among providers tend to bring benefits to the buyer organization

– Model privileges the most qualified provider on each expertise area

– Substitution of a bad performance provider for one of the other current providers, minimizing risk of impact on the buyer’s business

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Weaknesses– Reduced customer bargaining power

– Potential progressive financial unbalance of the contract against the customer

– Contracting of new providers is discouraged

– Optimum quality level difficult to achieve, as no provider will be the better option for all segments of the contract scope

– Change of providers is discouraged as the buyer business may be at risk during a complex and possibly turbulent transition

___________________________

– Accountability identification made complex in case of problems or failures (and their recurrence)

– Highly skilled customer team needed to manage and integrate multiple contracts and conflicts among providers

– Skilled resources of the providers may be moved to contracts which generate bigger revenue

– Each provider has only a partial view of the customer business and its priorities

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 Opportunities– Strategic partnership may raise the relationship to higher hierarchical levels of both buyer and provider organizations, through a risk & reward process

– Provider may become a profound connoisseur of the customer business, playing a relevant and effective role on customer operations

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– Bigger flexibility on the relationship with each provider

– Bigger pressure over each provider concerning an optimum performance

– Competition among providers stimulates a better services quality

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Threats– New investments by the provider due to technological refresh process are discouraged

– Customer dependence of the provider requires a strong and effective governance process

– Impact over customer business in case of provider difficulties on its market (market-share loss, merger with or acquisition by other providers, business strategy reorientation, etc)

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– Difficult services integration among providers

– Gray areas on contractual scope may bring overlaps or gaps difficult to solve

– Lack of motivation of some providers due to the low revenue of their contracts, due to the dispersion of services among multiple providers

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2 – New variables, typical of a cloud scenario, which exacerbate the “old” dilemma

In a full IT outsourcing scenario, the adoption of the cloud alternative makes impracticable the single provider option. This is due to the fact that for each of the service lines available on cloud (IaaS, PaaS, SaaS, BPaaS, etc), there is a huge list of providers, each one with unique features offered. This fact induces the multiple providers option, as it allows that, in each segment, the best-of-breed provider be selected, maximizing the intended benefits of cloud. In practice, this option becomes mandatory, as it is virtually impossible that one only provider has all the better skills required for all service lines, all geographies and all features required by the buyer organization.

As a result, the concept of “multiple providers” on cloud scenario shows up as radically different from the concept on a traditional IT outsourcing. For this last one, the number of providers rarely surpasses a limit of, let us say, 5. Frequently this number is 2 or 3 and it is kept stable after the initial selection process.

On cloud scenario, frequently this limit surpasses 10 and is not rare that it involves tens of them, depending on the complexity of the buyer organization and scope coverage of the cloud environment. Yet more, this number tends to a continued increase, as a natural consequence of the new services and facilities made available almost daily in the young and not fully matured cloud services market.

As we can easily imagine, the customer governance over tens of providers in a growing cloud environment is a task much more complex than the administration of a small number of providers in a stable traditional outsourcing environment. As a consequence, we can infer that, in general terms, the “weaknesses” and “threats” earlier identified in the SWOT analysis become exponentially exacerbated on the new scenario.

 

Some aspects become more and more relevant as the number of providers increases. Their adequate consideration is critical to effectively achieve the intended benefits of the cloud. Some of them are:

  • Services catalogue and self-service web portal
    • The diversity of the available services on cloud market through hundreds of providers, or tens of providers if we think about a specific buyer environment , makes it mandatory to have a services catalogue, continuously updated, aiming at giving visibility to its user community about the offered services
    • It is desirable that the requisition of such services be made through a web portal which consolidates, with a standardized format, all services made available to the customers by the cloud providers of the organization and the conditions to request them, their prices, etc
  • Access control
    • Aiming at assuring that the services request is made only by those authorized users, an identification and access control process must be in place for each request
    • Policies, rights and obligations which the user community must adhere to must be maintained, according to the circumstances and conditions agreed and authorized, including those concerning the rules of compliance, security and external regulations
  • Provisioning and automation
    • In the “pay-as-you-go” model, which typifies the cloud scenario, cost control is a vital issue and, as such, the provisioning and de-provisioning of resources must be made with agility and as automatically as possible
    • It is also important to assure that only the exact amount of resources needed is requested and configured as a way to avoid waste
  • Billing, chargeback and resources utilization measurements
    • The detailed demonstration by the providers about the correct amount of resources requested by the buyer organization is an important initial step to the cost control process in cloud scenarios
    • The right allocation of the incurred costs in cloud services, according to the internal account structure, that is, detailed by business area, by geographical sites, by subsidiary company, etc is a mandatory element towards an effective cost control, based on the real business priorities
    • A third kind of information that must be collected concerns to the identification of the biggest consumers, the most used apps, the peaks and valleys occurrence and its periodicity, etc; such data will subsidize many decisions which aim at promoting an efficient utilization of resources
  • Diagnosis on availability downtimes and performance of services
    • Such diagnostics may become a very complex task due to the dispersion of responsibilities among the providers, which tend to focus their analysis merely on technical aspects and not the consolidated impact over the customer business
    • The buyer organization itself, through its cloud contracts management team, will have to manage and integrate the priorities of the actions taken by each of the providers, aiming at supporting the most critical requirements of its business
    • Such activity will also have to take care of the integrated adjustment actions to minimize the reoccurrence probability and to promote a continuous proactive attitude
    • Also the service level agreements negotiated with each of the providers must coherently interrelate to give a holistic visibility about the resulting impact over the customer business when they are not achieved

Do you agree with the concepts here presented? Enrich the discussion with your comments.

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A versão em portguês deste artigo, também publicada aqui no site TI Especialistas, pode ser acessda através do link http://www.tiespecialistas.com.br/2015/07/um-velho-dilema-da-terceirizacao-de-ti-radicalizado-na-nuvem/

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Autor

Alfredo Saad has been acting on IT area since 1970, taught more than 100 lectures in Brazil and abroad (USA, France, Portugal, Chile, Argentina & Uruguay). He has been acting on IT Strategic Outsourcing Services area since 1997. He negotiated and managed, as Varig's IT Technology Manager, the contract signed with IBM (1997-2004). In 2006 he published the book "IT Services Outsourcing" (Brasport Publishing House). He managed (2006-2009), as an IBM Project Executive, the South American section of Michelin's global outsourcing contract. 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.

Alfredo Saad

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