How exactly will Cloud impact outsourcing?

How exactly would Cloud impact outsourcing? An honest answer would be: nobody knows! The key events are still unfolding, critical players still shoring up their plans and customers still largely clueless. Any conclusive sounding answer would be premature. 

 A recent article in Computerworld reports on Cloud computing’s threat to traditional IT outsourcing industry. It talks about how the rise of Cloud computing and on-demand services are eating into the application infrastructure maintenance of outsourcing vendors.

 It offers no data to quantify the threat posed by Cloud or to know by when it would strike down the outsourcing industry. To be fair, it is premature to seek that data. But the general drift of the article is reflected in its headline: Cloud computing shakes up traditional IT outsourcing.

Computerworld is not alone in anticipating this disruption. Of course, cloud is a game changer for most segments of the IT industry, including outsourcing. But there are many who do not take an alarmist view of the developments. They may argue, Cloud computing stirs up traditional IT outsourcing, would have made a more accurate headline.

 There is urgency in the outsourcing industry to respond to cloud, but no panic. There is a consensus that cloud is on ascendance and will deliver computing power and services in ways that will be contrasted with traditional IT. There are also certain cloud-based strategies which are cutting across the vendors. But nobody is expecting a meteor to drive digital dinosaurs into extinction.

 Outsourcing is tied to inefficiency in enterprise IT. You cannot use complex software without customizing or without routine maintenance. The more expansive your infrastructure, the bigger team you need to keep lights on. The outsourcing business powered by labour arbitrage co-exists with to this traditional IT world.

Noted Indian offshore vendor Infosys released its annual results this week. In the last fiscal year 39% of its revenue came from application development and maintenance, 26% from consulting and package implementation, 7.2% from system integration and 7.2% from infrastructuremanagement.

 The key question before vendors like Infosys is what would happen to these revenue streams when cloud transforms the traditional ways of setting up IT infrastructure and running apps.

The various pieces of cloud computing are being assembled and customers are taking baby steps towards it. But it is unlikely that legacy IT will vanish overnight. As Computerworld article takes note, the mainframes are far from gone.

 Enterprise IT is inherently complex. Hooking up a couple of hundred or thousand users to a system that runs from a server will need expertise, planning, execution and maintenance. As cloud gains momentum, consulting and integration opportunities would also gain traction. There are outsourcing vendors who already promise to cut the time you will need to migrate to AWS or Azure.

 Outsourcing vendors are also getting into cloud play. The larger ones such as IBM are trying their hand at various layers of the cloud – from infrastructure to apps. The smaller ones, for example, the Indian vendors who habitually shy away from spending on infrastructure, are mostly focusing on app layer, to offer platform-based solutions

They are tying up with packaged software vendors to offer their products as SaaS, which  come bundled with contact center or business process executives to take care of management issues. Wipro’s ‘simPlify’ solution which was launched nearly a year ago has become an industry standard for outsourcing vendors to follow.

simPlify, a HR solution, brings together Oracle’s PeopleSoft software, Hewitt’s domain experience and Wipro’s business process outsourcing capabilities. Customers in over 20 countries can outsource their HR and payroll processing functions to this multi-tenant cloud-based service and pay as they use.

Other outsourcing vendors have launched similar solutions. Early feedback suggests that customers, unwilling to let go of legacy investments are yet to bite. Despite the deafening buzz, cloud will take time displace traditional IT fully, if it does ever

The outsourcing vendors have grown acquiring capabilities across domains and industries. To survive in this industry you need to offer solutions that are agile, best-of-breed, outcome oriented, integrative and cost-effective. With these capabilities they can be expected to do well on cloud as well.