The cloud and outsourcing: Horses for Sources speak

Last week, Horses for Sources, an analyst firm specialising in outsourcing ran a webinar on the links between what is happening in the cloud, what business wants from cloud technologies and what this means for the outsourcing community.

Much of the presentation was given over to an interpretation of the results coming out of an extensive survey that HfS ran in conjunction with the London School of Economics. The key message is that business is driving change (no news there) but that there has to be a way to overcome IT's fear of being further marginalised as a contributor to business value.

In order to get over the impasse, HfS suggests:

That's all very well but I had two questions:

• What incentives are needed in order to get IT to play ball?
• What kinds of business would naturally collaborate to bring value to cloud outsourcing?

As a follow up, I called Phil Fersht, co-founder HfS to talk through these issues (see video above.) He says the momentum will likely come from the mid-range customers that might consider using - say - NetSuite for outsourcing financials. I'm inclined to agree but would go further.

Most people associate outsourcing with offshoring to the Indian mega firms like Wipro and Satyam. That would be a mistake. Outsourcing can take many forms. In the mid-range for example, it is not unusual to see professional services firms in the accounting arena acting as book-keeper proxies for owner managed businesses in particular. There you tend to find that technical resource to accurately maintain books and records is thin on the ground. Cloud services could readily be developed out of that model.

Elsewhere, Phil says that IBM, Accenture and Workday are in the early stages of talking about human resource outsourcing. Workday is naturally reluctant to expand on this topic. If those discussions come to anything then it represents a game changer at multiple levels. Many companies believe their HR processes are in some way unique. That doesn't jibe with what we're seeing in the related world of talent management where standard cloud solutions such as SuccessFactors and Taleo are making solid progress.

In summary, cloud based outsourcing is a new opportunity. While the concentration of attention will be on how the mega vendors respond, I sense we will see the emergence of a different kind of outsourcing service. It will have less emphasis on development and testing (where the big bucks are earned) and more emphasis on the smart application of technical expertise to support non-core activities that could go as far as providing analysis services.

That would require the emergence of a different type of outsourcing firm. As a side note, it would allow internal IT to become much more business value focused while at the same time putting a smile on the CFOs face as these services should be capable of delivery at lower cost than is the case today.