Outsourcing: cloud is changing the rules

Outsourcing engagements will increasingly consist of acquiring smaller chunks of services, versus multi-million-dollar handovers of IT operations.
Written by Joe McKendrick, Contributing Writer on

Something we've speculated here on these pages for some time is what service orientation (aka cloud) will do to outsourcing.

Goodbye, multi-million-dollar IT ops handovers. Hello, service-oriented micro-outsourcing

There's the scenario in which outsourcing engagements will collapse into smaller-size chunks, thanks to the fact that systems and applications are being chunked up via SOA and cloud.  Call it service-oriented micro-outsourcing.  (SOMO -- how's that for an acronym?) Thus, we'd have fewer multi-million-dollar megadeals, in which entire operations and application sets would be handed over to third parties, and more tapping into functionality, service by service.

In a new post at BusinessWeek, Arjun Sethi and Olivier Aries seem to say as much. "In the next five years outsourcing as we know it will disappear," they predict. Rather than turn to the large US, European and Indian service firms that have dominated the outsourcing landscape, they will be pulling services off of the likes of Google and Amazon, they predict.

And many more providers of services, I say.

The big outsourcing firms are full of brilliant people, and I know this shift is not lost on them. In fact, Sethi and Aries note that Google announced a partnership with Computer Sciences and Amazon announced a similar one with Capgemini. Microsoft, Oracle, IBM and SAP also are in good positions to be deliverers of cloud-based services.

Something that Sethi and Aries don't consider in their article:  the rise of what I call non-IT cloud providers: companies with impressive IT assets that aren't in the IT business, that build their own private service portfolios first for internal consumption, then extend these service offerings to their larger network of customers and partners -- and eventually perhaps even to the public.

After all, remember a few years ago, Amazon itself was an online bookseller with a large IT department.

The question is how far and deep enterprises will go to retrieve functionality -- will the bulk of it be cloud-based services, or will they look for bundled service packages that the traditional outsourcing companies can oversee for them?  This is the question of the day for the outsourcing market.

And, as Sethi and Aries put it:

"The outsourcing market is on the verge of experiencing its most massive transformation since the concept arose more than 20 years ago. For outsourcers, cloud computing creates an unprecedented opportunity to reshape how services get delivered. For clients, it opens up a new era characterized by the arrival of new players that are eager to build relationships and showcase their capabilities."

Editorial standards