This blog is an excerpt of a longer interview with Barry Briggs for an upcoming book by QS Advisory
titled, “Emerging Models of Infrastructure Outsourcing.” Please contact Oksana Bukiy
for more information about the book.
Some momentous changes are happening in the technology front which is going to impact the way companies engage their IT. There would certainly be a rethink about the issue of outsourcing of various functions falling under the scope of IT.
The magnitude of the shift to the cloud would have a major bearing on how we will do IT over the next few years. There are several reasons why. Delving deeper into the value proposition of the cloud, we can explore how this impacts outsourcing.
There is an opportunity to outsource key services such as email, collaboration tools etc. to cloud service providers, better known as SaaS (Software as a Service) providers. There are good reasons for doing so. Few businesses differentiate their business model based on email.
There are many good reasons besides economies of scale for an IT department to move its management of email services to a large third party that can keep email services up to date, patch levels, maintain software provision levels up to date and so on. So it turns out that, services such as email, collaboration, CRM etc. are a natural fit for the cloud. Microsoft has a wide variety of software services on this platform as of today and is planning to offer more.
On the other side too, there is a PaaS (Platform as a Service), a development platform where we offer applications, standard or custom, to live in the cloud. It has the same sort of value proposition as SaaS in the sense that the platform itself is the operating system and the hardware is managed by the third party leaving customers free from the worry of data center costs, system maintenance and other day-to-day level of operations which is handled by the cloud providers.
What it means is a couple of things. Staffing of IT departments will see a shift of work. There will be, over time, a shift in the types of skills that IT departments look for. Going forward, IT will focus less on low-level operations functions such as upgrades, patches and so on because these sorts of activities will be handled mostly by the cloud providers. IT department FTE’s will be increasingly focused on providing business solutions, such as optimizing business processes, implementing new application features and, in general, closely supporting business goals.
Outsourcing – Changing equations in the partner ecosystem.
The move to the cloud has a lot of implications when we think about outsourcing and the partners Microsoft does business with. Whether it’s Microsoft IT or any other company of global scale, the transition to the cloud does not happen overnight.
As companies move to the cloud, there are a number of technical issues they should consider. For example, identity management and integration on both sides of the firewall are key areas where third party integrators and partners can help shape strategy and provide implementations. This is a great opportunity for third party integrators and partners to provide added-value service for our customers as they make this transition. And over time there are a lot of such services that these providers can add into the cloud running, monitoring and maintaining SLAs. This is a tremendous opportunity and happens once in every 10 or 15 years. It tends to revitalize the whole industry. This is one such moment.
Consumption based pricing vs. fixed pricing
Time-sharing or subscription computing is an old concept and has existed since the 60s. It is neither a new nor an unusual concept. It is far more cost-effective for our buyers than the classic model. This new model of computing is beginning to acquire the shape of any utility service like electricity or water. Pay per use is the new norm.
The significance of this cannot be lost as most of the IT function that we have today are more seasonal in nature. Let us take performance reviews, as an example. Microsoft has a whole suite of internal applications for salary planning, career development etc. This suite of applications gets only used twice a year. Once in Jan-Feb when we do our mid-year career development, which fits with the fiscal year that ends in June and the other time, is over the summer when we do final performance reviews and salary adjustments. So it’s a very seasonal application and the load on this application is variable. It makes perfect sense economically to scale down in the period when the application is not being used significantly and scale up during extensive utilization period and only pay for the scale up use.
There are two ways an IT department manages this. One is that when the load is coming for the seasonal application, significant amount of investment is made in both personnel and hardware. The other way is to provision permanently to accommodate for absolute demand thus underutilizing the resources for most part of their life. There is no return on that investment.
With an environment like Windows Azure, you have a notion of dynamic and elastic scalability. You not only dynamically allocate the capacity required to do the job, you also are billed accordingly. You just pay for the capacity you need, on that basis. This is very much the utility model like electricity; it resonates very well with our customers when we talk about it. We believe that it is an efficient model and the response of our customers seems to validate that.
Will the need for outsourcing go away?
Certainly not. For a lot of reasons, it does not make sense to believe that cloud computing will have adverse effect on outsourcing. For certain commodity IT functions like e-mail, collaboration, CRM, and also maybe ERP in some cases, commodity software can do the job. As I mentioned earlier, the transition of traditionally on-premise commodity functions such as these to the cloud does provide some opportunities for consulting firms.
More broadly, as we think about business processes, there are some which are commodity of course, but there are others which are core. Core business processes are those upon which companies competitively differentiate; they make a company’s value proposition unique. It is these processes then that companies will continue to choose to customize – whether on or off premise. I believe that the economics, and the time-to-market of the cloud platform make it an excellent choice for companies and a great place to host these core business processes.
So there are great opportunities in creating applications for the cloud, and focusing on innovation and competitive differentiation there. As we have mentioned, however, there are also many tactical areas in which outsourcing vendors can help accelerate companies’ migration to the cloud. The process of transition from a departmentalized IT model that, owned their own data center to a cloud model is a significant one and will need a few years to reach fruition. Companies need support of getting there in terms of taking advantage of technologies that Microsoft is providing.
As we have said earlier, identity management i.e. building the directory and access systems that can authenticate and authorize users on both sides of the firewall is an area where customers could outsource to third party vendors. Identity management is one such example.
And finally, on the other end of the spectrum, companies will be looking for guidance on which applications and business processes to move first – both the “why” as well as the “how” aspects of it. There are a lot of opportunities in terms of strategy engagements. Providing thought-leadership is one such area where outsources can continue to expand the breadth of their offerings to their clients.