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Weighing the Advantages

By Jack Singh and Charles Arnold  |  Posted 02-11-2009 Print

The cloud emerges as a serious contender for companies interested in IT outsourcing.

Less complexity

In traditional ITO contracts, statements of work can be thousands of lines long - a you-do-this-I'll-do-that breakdown of tasks to be performed either in-house or by the service provider. In cloud computing, on the other hand, the software, labor, processes and facilities are all bundled together in the provider's cloud. If it's in the cloud, then it's the provider's responsibility - case closed. So instead of taking many weeks to negotiate statements of work and financial responsibility, both parties can instead focus on the solution and its business benefits.

Traditional ITO can also be a pricing nightmare for buyers, as it's virtually impossible to get an apples-to-apples comparison. If you're spending $3.50 per terabyte of storage versus someone else's 50 cents, it might be because you have hardware, software and labor costs built into your rate. In cloud computing, conversely, everyone is buying the same thing, so pricing is more transparent. Buyers can compare such metrics as price per named user, price per concurrent user, charge per controller, or SPECint for processing power.

Reduced dependence on geography and labor arbitrage 

ITO relationships have long wrestled with questions about location and service quality - and the culprit has often been offshoring, since it simply takes time for a new, low-cost market to mature. That's exactly why, for example, a medical device manufacturer recently ruled out China as an ITO delivery location. The company wants to minimize its dependence on that market's lifecycle. 

But cloud computing takes some of the location concerns out of the equation. With cloud computing, labor arbitrage will become notably less important versus automating the right business processes through outsourcing. Today, for example, you might have your computer systems in a data center for Asia-Pac, and the people managing those systems are located in the control room of the data center. As such, geography, assets and people are all linked.

In cloud computing, however, the data center location is less important, and the people can be anywhere as long as they can manage the cloud. That gives you much more flexibility in determining the location of IT personnel and assets.


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