Why Outsource? Provider Cloud Platforms May be Among the Answers

Prospective clients will often ask, “Why should I outsource?” According to ISG’s most recent service provider surveys, cost and quality account for over two-thirds of the rationale for sourcing. Other lesser known drivers exist as well, including:

• Moving to cost allocation vs. direct consumption model
• Shifting from discussions on “how” the service is delivered to “what” is delivered
• Requesting services from a standardized service catalog
• IT’s inability to standardize the environment
• Reducing the need to procure hardware and speed up the provisioning cycles
• Accessing specialized skills or technology that do not exist internally

What I find really interesting about these drivers is how closely they are beginning to map to the strategic reasons IT service providers are building cloud-based “platforms.”

A platform is really a foundation — a foundation where existing components and services can be plugged in or where new components and services can be created. In general, these emerging platforms expose three key capabilities:

• The provider’s unique services (e.g., a proprietary infrastructure-as-a-service offering)
• Third party products that the provider manages for the customer (e.g., a mobile device management application)
• A capability to allow other third party providers to sell their services directly to the customer (e.g., offsite tape vaulting services)

The key differentiator with these platforms over their legacy brethren is the delivery model. By bundling these services into a self-service provisioning portal, re-working licensing agreements to offer these products on a pay-as-you-go basis, and by introducing role-based security, workflow and automation, these platforms essentially become a one-stop-shop that could provide both the CIO and the entire organization with a slew of benefits. Benefits that look a lot like the drivers for sourcing listed above.

These platforms give the CIO the ability to provide a safe, compliant and cost-effective place to turn the business loose without many of the restrictions inherent in more traditional sourcing arrangements and without the complexity of integrating dozens, if not hundreds, of disparate services. Imagine the CIO who can tell his business units: “Here is the playground. For your more strategic projects, run whatever servers you want and build applications in whatever language you want, as long as you do it within this platform; for commodity services like mail and backup, use the ones built into this platform. And, you’ll only be charged for what you use.”

Will these emerging platforms really become a one-stop-shop for large enterprises? Given the size and complexity of today’s multi-national and global clients, I think it’s highly unlikely. But they do create a beachhead upon which the CIO can operate — a “foundation” if you will.

Forward-thinking IT leaders and service providers are realizing three things:

1. CIOs need a target cloud operating environment. Cloud and the “X-as-a-Service” mindset are rapidly tearing down traditional IT frameworks. CIOs are desperately looking for a place to turn the business loose, but need to ensure that this location is secure, transparent and cost effective.
2. Businesses are outpacing the prescriptive “replicate this environment” approach: By the time the customer has fully documented requirements for the current state, the future state is upon them, and they’re outdated before the contract is signed. Today’s emerging cloud platforms allow the business to experiment for new workloads while providing stable, well-known commodity services, like email, as a subscription.
3. Creating platforms enables non-linear revenue models: IT providers know that adding people adds capacity and therefore revenue. However, this model is linear, and it’s difficult to sustain over long periods of time. Platforms create non-linear revenue streams due to the economies of scale created by dramatically increased automation. Savvy IT and procurement leaders are sensing this and are waiting for unit prices to drop as providers add more scale.

I think these emerging platforms are helping to re-validate the reasons to source. However, rather than the prescriptive, “your mess for less” approach, we’re starting to see glimpses of more solution-oriented approaches. The democratization of IT — enabled by cloud— is a key reason this shift.

About the author

Stanton helps enterprise IT and sourcing leaders rationalize and capitalize on emerging technology opportunities in the context of the global sourcing industry. He brings extensive knowledge of today’s cloud and automation ecosystems, as well as other disruptive trends that are helping to shape and disrupt the business computing landscape. Stanton has been with ISG for more over a decade. During his tenure he has helped clients develop, negotiate and implement cloud infrastructure sourcing strategies, evaluate and select software-as-a-service platforms, identify and implement best-in-class service brokerage models, and assess how the emerging cloud master architecture can be leveraged for competitive advantage. Stanton has also guided a number of leading service providers in the development of next-generation cloud strategies. Stanton is a recognized industry expert, and has been quoted in CIO, Forbes and The Times of London. You can follow Stanton on Twitter: @stantonmjones.