Sourcing on cloud compared to traditional outsourcing: 6 Differences
publicado por Alfredo Saad
In cloud, the definition of the sourcing strategy, as well as its implementation, shows distinct characteristics as compared with those of traditional outsourcing.
The comprehension of these differences and their appropriate handling are some of the determinant factors that make a cloud implementation project in the organization succeed. It should be kept in mind that sourcing activities, such as provider(s) selection, contract negotiation and its governance, are important components of such implementation.
Here we will discuss 6 of these differential characteristics of the sourcing activities in both cases, concisely seen on the table below:
CONTRACT SCOPE
Traditional Outsourcing >>> Static
Few scope changes along contractual lifetime
Compatible with “make & sell” business model
Review cycle of contractual requirements: month / years (long and frequently pre-planned)
Complex contractual renegotiations result when eventual scope changes are needed
Cloud >>> Dynamic
Led by client’s mutant business requirements, mainly applications such as
customer-facing apps through mobile devices
employees’ mobility apps
Compatible with “sense and respond” business model
Review cycle of contractual requirements: hours / days / weeks (short and frequently randomic)
CONTRACT DURATION
Traditional Outsourcing >>> Long
Typically 5 to 10 years
Duration defined by the depreciation of assets dedicated to customer organization, to assure economic viability of the contract
Cloud >>> Short
Typically 1 to 2 years
Experimental periods of time to launch pilot-projects
No assets to depreciate
PROVIDERS MARKET
Traditional Outsourcing >>> Few
Small number of qualified providers
Frequent adoption of only one provider (sole sourcing)
Cloud >>> Many
Market is still fragmented, immature, volatile, non standardized and not much transparent
New providers emerge everyday
On specialized and innovative niches
Possible risks to be evaluated
Solutions that do not use open standards making it difficult to migrate between providers (vendor lock-in)
Mergers and acquisitions that may alter provider strategy
Lack of technical and financial solidity of provider, provoking its sudden exit from the market
Emphasis on …
… definition of a solid sourcing strategy
… management of multiple providers, focusing on their integration
… compatibility among services and applications of all providers under contract
FLEXIBILITY OF CONTRACTUAL TERMS AND CONDITIONS
TraditionalOutsourcing >>> Low
Possible alternatives are pre-defined in the contract
Complex renegotiations arise when additional flexibilization is needed
Cloud >>> High
Contractual provision to permit agile modifications on …
… Services
… Volumes
… Resources
… Scope …
… including real-time provision through web portals
IT ACTION FOCUS
Traditional Outsourcing >>> Cost Reduction
Efficient allocation of IT resources
Cloud >>> Outcome for Corporation
CIO – Corporation C-Level aiming at
Minimize time-to-market
Increase market-share
Reach new markets
Maximize revenue and profitability / reduce costs
Launch innovative products and services
CHARGING AND QUALITY MECHANISMS
Traditional Outsourcing >>> Based on profile of technical resources
Charging based on volume of consumed resources
Quality assurance mechanisms associated to pre-defined technical deliverables not directly related to the business activities of the customer
Cloud >>> Based on risk & reward mechanisms
Risk sharing, leading to innovative mechanisms
Empiricism, transparency and partnership on client-provider relations
Charging and quality assurance mechanisms associated to business activities of the customer
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A versão em português desse artigo, com o título “Sourcing na nuvem em relação ao outsourcing tradicional: 6 diferenças” foi também publicado aqui no site TI Especialistas. Para vê-la acesse o link abaixo:
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.