The continued development of the cloud is having a significant impact on organisations’ attitudes towards outsourcing. According to research conducted by managed services provider Claranet, 73 per cent of organisations now use some form of cloud service, up from 62 per cent in 2012. The most significant growth was found in the mid-market sector, where 81 per cent of organisations now make use of the cloud, rising from 65 per cent in 2012.
Much of this growth is due to the increasing ability of the cloud to take responsibility for hosting both hardware and software, away from in-house IT teams.
“The flexibility of the cloud has resulted in an increased demand for outsourcing,” says Mahesh Venkateswaran, global head of social, mobile, analytics and cloud at outsourcing consultancy Cognizant. “Today’s XaaS [anything-as-a-service] offerings allow organisations to choose exactly which IT or business functions to perform internally and which they can better source from the cloud.”
The public sector has been particularly quick to spot the potential cost benefits of the cloud, helping it to tackle the challenge of reducing overheads while maintaining vital services, says Steve Shakespeare, managing director of Civica’s managed services division, including Luton Borough Council, which has recently outsourced its IT operations in a ten-year deal.
“They have an ambition to work in a smarter, leaner and more sustainable way by creating a flexible workforce that is able to deliver services from the most appropriate location,” Mr Shakespeare says. Using a private cloud, the council now hosts a range of applications, data and infrastructure in a virtualised environment, he adds.
In theory, the use of cloud technology should help the development of super-computing and big data as organisations can draw on almost unlimited resources as they require them. “Cloud is a fundamental delivery mechanism for big data,” says Andy Lancaster, cloud director at Dimension Data. “With such high data volumes being produced, organisations need a cost-effective solution to collate, store and analyse the data.
“This often requires large amounts of computing power, but sometimes only for short periods of a day, week or month. A high-performance cloud can help resolve this by providing the scalability required for increasing volumes of data, while also delivering the computing power needed for this type of use.”
The advantages of outsourcing to the cloud are compelling. First off, there’s the financial aspect. “There are very low costs in terms of capital expenditure to get up and running,” says Geoff Whitemore, head of innovation and portfolio at CGI UK. “When companies have made the step to the cloud they no longer have to worry about significant costs every five years to move to a new platform – that problem then becomes one for companies that operate the cloud infrastructure for customers.”
You’re not investing unnecessarily in hardware upfront; you’re simply paying to use what you need and costs are therefore more regular, making them easier to predict
There can be other costs in making the transition, however, such as those incurred in porting mainframe systems, which are often not considered in any initial decision, he adds.
Linked in with the financial equation is the ability to attribute costs to operational – rather than capital – expenditure, meaning no upfront costs or borrowings to appear on balance sheets. “You’re not investing unnecessarily in hardware upfront; you’re simply paying to use what you need and costs are therefore more regular, making them easier to predict,” says Piers Linney, co-chief executive of Outsourcery and Dragons’ Den TV star.
The cost argument remains compelling, but other issues are also coming to the fore, says Andrew Long, Europe, Africa and Latin America cloud strategy lead at Accenture. “The more notable benefits include risk reduction for delivering standard services, speed – simply getting the capability faster – and agility,” he says. “It is also true to say that a range of organisations can now get access to best-in-class services, which means that smaller organisations that had to rely on second-tier solutions now don’t have to.”
Aside from these practical considerations, the cloud is now helping organisations embrace the philosophy of outsourcing as the new way of working in a digital age, says Ananthakrishnan Sankaranarayanan, vice president, Europe, at Indian IT and telecoms firm Tech Mahindra. “Historically they had wanted to own and operate the services,” he says. “Then they wanted to co-own and then they wanted to outsource. Now they’d rather be just consumers than own any aspect of the IT lifecycle.”
There are strong business arguments in favour of this model, he adds, including only having to pay for what is consumed and enabling businesses to put together outcome-based contracting modules with customers with a degree of confidence.
However, the market is constantly evolving. Mick Briggs, head of IT service operations at Cancer Research UK, has recently overseen a move towards a “hybrid” set-up using VMware’s vCloud Hybrid Service, based around a software-defined data centre. “It gives us the ability to virtualise the entire stack – the storage, networking and the compute,” he says. “It’s effectively an internal cloud that is controlled and built internally, which allows us then to push it out to anyone compatible with that notion.”
Using this solution means the business can “drag and drop” internal applications on to the cloud, he says, and either retain them there or bring them back in-house at a later date. “The question is not in or out any more, which was the concept that always applied before,” says Mr Briggs. “As long as we retain the central control kit that allows us to build VMware, we could plug into multiple people’s clouds. It allows you to play the sourcing market much more freely.”
In the longer term, the cloud could have an impact on the nature of IT outsourcing more generally, says Andrew Brabban, director of application services, international business, at Fujitsu UK & Ireland. “Outsourcing has often been perceived as a barrier to innovation, being inflexible and slow to react,” he says. “Cloud has provided organisations with mechanisms to react more quickly to business change, while taking away some of the responsibility from the IT departments, giving them a platform to innovate and experiment, without the complexity and commitment that comes with an outsourcing contract.”
Yet there are issues that organisations thinking of outsourcing some or all of their IT infrastructure or applications to the cloud should consider and, as always, security is top of the list.
Kurt Hagerman, chief information security officer at FireHost, says that in some cloud environments security has been “bolted on”, almost as an afterthought. “There is an abundance of automated attack traffic out there that will exploit whatever vulnerabilities they come across on underprotected cloud environments,” he says. “Fairly routine attacks, like cross-site scripting and SQL injection, are still very popular as cyber criminals find these easy to orchestrate.”
Organisations also need to ensure they don’t sign up to onerous contracts they may regret further down the line. “Unless you are a large company dealing with a cloud provider that is used to large companies, you will find the legal terms to be both non-negotiable as well as often highly unreasonable,” warns Alex Hamilton, chief executive and founding partner of Radiant Law.
“You need to take a risk-based approach. What data are you comfortable uploading? What will you do if the supplier shuts down? Have you understood the pricing and what your long-term charges will be? If you upload any data that relates to people, then you need to know where the data is being stored and that you are complying with the Data Protection Act. Above all, be sensible and think it through.”
