Devott Insight: the Cloud Computing Leads Service Outsourcing to a New Phase
Source:  View: 2763 Date: 2012-05-28

written by Sherry Sha

translated by Ryan Zhang

Cloud outsourcing, based on cloud platform, is an outsourcing service that is a collection of service resources (human, knowledge, infrastructure, etc.) and provides continuous human capital, intelligence and infrastructure. Cloud outsourcing creatively subverts the traditional model of service outsourcing, which brings great changes and impact on entire outsourcing industry and will produce a revolutionary effect to outsourcing industrial pattern.

Devott Service Outsourcing Research Center Deputy Director — Sherry Sha

Google launched “Google 101” in 2006 and put forward the concept and theory about cloud officially. Hereafter, Amazon, Microsoft, Hewlett-Packard, Yahoo, Intel and IBM respectively announced their own “Cloud Plan”. A variety of concepts like cloud security, cloud storage, internal cloud, external cloud, public cloud and private cloud constantly impacts on people’s brain. The cloud computing has a close relation to service outsourcing. Lu Zhequn, CEO of HiSoft, said that there is only intersection but confliction existed between cloud computing service and outsourcing service. He described cloud computing as “the highest level of outsourcing service”. In other words, the cloud computing is the most typical outsourcing service model.

Under the wave of cloud computing, the outsourcing service based on cloud platform and cloud model has emerged and gradually becoming the development trend of outsourcing industry. Devott defines this kind of outsourcing service as “Cloud-Powered Outsourcing”. On 11th October 2010, Devott published “Service on the Cloud – the White Book on Cloud-Powered Outsourcing Concept”. In this book, Devott firstly raised cloud outsourcing concept and comprehensively introduced how the service model of outsourcing companies are affected by cloud outsourcing era and what new opportunities are produced. Cloud outsourcing, based on cloud platform, is an outsourcing service that is a collection of service resources (human, knowledge, infrastructure, etc.) and provides continuous human capital, intelligence and infrastructure. Cloud outsourcing creatively subverts the traditional model of service outsourcing, which brings great changes and impact on entire outsourcing industry and will produce a revolutionary effect to outsourcing industrial pattern.

On the other hand, the emerging of cloud computing has a great impact on outsourcing. Recently, Gartner’s forecast on IT institutions and users in 2012 states that by 2015 the low-cost cloud service will erode 15% income the outsourcing service providers. Industrialized low-cost IT services is an emerging market force. It will change the general view on the pricing and value of IT services and reset the value orientation of IT, thereby eroding existing and potential outsourcing revenues.

Cloud computing has a close relation to outsourcing that destined to has a great impact on service outsourcing.

Cloud computing will firstly incurs the interests of division on the service outsourcing industrial chain once again.

Cloud computing’s impacts on service outsourcing include: innovate outsourcing model, help enterprise development, reorganize personnel structure and challenge governance relations (see table 1).

Table 1: Cloud Computing’s Impact on Service Outsourcing

1. Innovate outsourcing model

First of all, cloud era will bring a huge wave of integration to outsourcing industry. Medium-sized outsourcers will be merged and acquired by other larger-sized and more strategically positive outsourcers. Manufacturers would probably expand their size by merger or acquisition. The recent merger or acquisition occurred, such as HP/EDS, DELL/Perot Systems and Xerox/ACS, indicates that they have seen the future development trend of the outsourcing model. Secondly, Cloud outsourcing will bring new business models to outsourcing industry -- the Long Tail (see graph 1) can also be applied in outsourcing service: under the new business model, The companies no longer rely on the traditional 20% "quality customers" to earn profits, but many customers that had previously been overlooked or not worthy of being serviced. They are a large group in amount that enough to create considerable returns for companies.

Graph 1: The Long Tail Model

2. Assist enterprise development

Cloud computing enables company’s IT sector significantly enhance the hardware utilization and upgrade to huge capacity in a very short time that unnecessary to frequently invest in infrastructure, the new employees’ training or issue of software license. For example, Motorola currently has adopted 33 types of cloud outsourcing services. The test results shows that the convenience and cost savings of cloud computing are quite obvious. Applying cloud can save 1/3 to 1/2 of costs than normal expenditure on these applications for Motorola.
In the cloud era, SMEs may leap into the era of a full application. As long as engaging in the cloud, the informational basic applications and specialized applications that enterprises need would be met. In the next 3 to 5 years, more and more SMEs may be faster than large enterprises to walk through the clouds.

3. Reorganize personnel structure

The rising cloud computing will stimulate outsourcing companies’ demand for IT professionals, and produce the following changes and impacts on the demand for outsourcing talents:

1) Changes in the need of software and network design professionals. With the development of IT, management software is becoming more intelligent. The software in the future must be based on more advanced management philosophy, more advanced technological architecture and more collaborated management software. This requires the software and network design professionals to keep pace with the rapid development of cloud computing technologies.

2) Changes in the need of network operations professionals. Cloud computing makes the boundary between internet and enterprise application more ambiguous. The rapid development of SaaS requires operational professionals to learn more changes in latest technologies and market dynamics. The application developers will be required more to engage in SaaS development with rapid development, timely feedback, simple architecture and strong adaptation. The enterprises will demand more for operational professionals in cloud computing technologies in the future.

3) Changes in the need of software and network management professionals. To manage through information and technology, network and software is called cloud management. All of the management concepts, methods, and tools in the future should adapt to the characteristics of cloud computing era. Therefore, there is a great demand for professionals in both cloud computing technologies and cloud management to outsourcing enterprises.

4) Changes in the need of software and network application professionals. Cloud computing cloud computing enables all the managers to evenly utilize the latest information and technology at the first time to manage the organization. Both IT and traditional companies will produce an explosive demand for the professionals specialized in applying cloud computing technologies when the extensive application of network and management software becomes the basic management requirements.

4. Challenge governance relations

Service outsourcing is a bilateral governance model based on relational contract between the outsourcer and service provider. On the one hand, the core of the cloud is utilization by demand. Thus, the outsourcer can select flexibly the service they need. On the other hand, because cloud platform do not serve for only one client, when the client requires to change, the service requirements could be changed through elastic items of the agreement.

Cloud computing is to become the new momentum for companies

In 2011, IDC forecasted that 80% of companies’ newly added application development would be operated based on public cloud platform. By 2015, 20% of company’s expenditure in application would be invested in “cloud outsourcing”. Therefore, the purchasers of the cloud services will have to make dealings with more service providers and manufacturers, which increase the management difficulties in new service that should have been easier to be operated. In order to solve this problem, since 2012, cloud service providers will carry out the process integration management against dispersed cloud services, that is, cloud integration. By 2015, cloud services will no longer be the hot topic in the market, but regarded as a logical evolution of outsourcing service, that is, outsourcing 3.0. The cloud computing’s impacts on enterprises mainly reflects in the following points:

1. Facilitate enterprise on information to improve operational level

With the increase in requirements from business users, cloud computing no longer remains on the discussion of concept, but moves to the real technological application. The application, as the company’s informational construction, is gradually shifting to the cloud. More and more enterprises move their concentrations on how to cut their costs, improve business efficiency and protect enterprise security. The emergence of cloud computing will be a comprehensive solution to corporate distress. The use of cloud technology realized non-IT infrastructure based informational popularization. Users ask for services from cloud computing providers in terms of their demands. From customer’s perspective, effectively integrate resources advantage, enable users to enjoy more functions, enhance the enterprise operating efficiency and reduce overall system risks.

2. Improve the competitiveness of SMEs

Cloud computing brings convenience not only for large enterprises, but also creates benefits to SMEs. SMEs can acquire cloud technologies services in lower cost and carry out an easy expansion with business development. Cloud computing offers standard services, enables SMEs to acquire the most advanced management model at the time, and situate in a competitive position in information competition. It helps enterprises to concentrate more on industrial innovation, thereby significantly enhance their competitiveness.

3. Save the informational cost for enterprises

The dependence of various companies on the internet and IT equipment is increasingly deepening. By cloud computing, there is no need for companies to purchase a large amount of IT equipment with big money. Both large amount of data storage and computing could be realized through cloud server and cloud storage, which equivalent to that each user has a potential supercomputer. As long as accessing the network and a device can be connected to the network, the user could visit the data from anywhere at any time without any hyper hardware.

4. Change work model to improve work efficiency

If cloud computing is put into practice, the user terminal can finish all the management work through browser without operating systems and storage devices. All of the data and documents are stored in the computing cloud. Users can log in the computing cloud to finish their daily work from anywhere at any time, not just limited inside the company. Therefore, once cloud computing is popularized. The personnel can freely arrange their working location and time. This changes the traditional office model that could significantly improve the work efficiency.

5. Facilitate the standardization of enterprise management

Application software in the cloud services are provided by the operators responsible for the development. It generally just meets advanced and standardized business requirements. Each Chinese enterprise, especially SMEs, has different type of management model from each other. Since the cloud computing technologies are promoted, in order to improve competitiveness, adapt to the needs of market transaction and business communication, companies should change management philosophy and gradually adapt and accept standardized services.

6. Optimize the internal management to promote cultural integration

Organizational culture and sharing value are the essential guarantees for the effective implementation of corporate control. The applications of Cloud computing and internet provide a new way to strengthen the sharing values. Cloud concepts and technologies can integrate a variety of resources of organizations and provide various functions and services for internal and external users, especially for building enterprise management cloud that is offered a unified process, mobile office, knowledge sharing and management improving. These systems integrate with the organizational culture’s construction and form different kind of business community through mobile internet so as to fully integrate and share data and knowledge.

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