IT Outsourcing Reaches the Automation CrossroadsBy Michael Vizard
By Michael Vizard
Long a source of controversy, IT outsourcing has reached a crossroads at the outset of 2014. On the one hand, cloud computing has made it easier to not only outsource IT, but also entire business processes. On the other hand, the rise of IT automation may make the need to outsource IT completely unnecessary.
The degree to which a business wants to embrace one or both of these trends will depend on how strategic its internal IT organization is.
Cloud computing is the most disruptive force in IT outsourcing today. Instead of signing outsourcing contracts that span five or more years, Craig Wright, a principal of Pace Harmon, an IT consulting firm that specializes in outsourcing, says the average outsourcing contract is now in the range of three to five years. What's changing, says Wright, is that a lot of those outsourcing contracts involve multiple cloud service providers that are being asked to bid on process workloads as either primary contactors or subcontractors.
While it's conceivable that one day reverse auctions in which cloud service providers bid to process workloads for a defined period of time might be the norm, Wright says the practical reality of dynamically switching between cloud service providers makes such an approach currently impractical. What is becoming more common, says Wright, is that organizations are distributing workloads through a finite number of cloud service providers.
But a finite number of cloud service providers gives CIOs the option of running part or all of an application workload using external data centers whenever they see fit while at the same time providing the ability to play one cloud service provider against another. In effect, that level of flexibility is increasingly turning the internal IT organization into a broker of IT services.
For a lot of businesses, that outsourcing decision is being driven more by the need to rapidly respond to changing business conditions than the actual cost of delivering IT, says Wright. "In a lot of cases it's really all about the speed to market," he says. "They need to flexibility to change their IT profile as the business needs."
While cloud computing has become a flexible way to enlist IT services in an era where the capital needed to fund IT infrastructure acquisitions can be scarce, increased usage of IT automation is changing the fundamental economics of IT. Organizations today can run IT operations on a level of unprecedented scale using only a handful of people. Not every organization has mastered that capability, but organizations such as PayPal clearly show what's possible.
"We definitely want to own the IT," says Ryan Granard, vice president of global cloud services at PayPal. "Leveraging automation allows us to run IT at scale while at the same time introducing fewer things like configuration errors."
Granard says he doesn't preclude using outsourcers. But, for the most part, PayPal relies on outsourcers to acquire knowledge about how to manage emerging technologies, which over time the company operationalizes on its own.
Given all the cultural issues associated with managing outsourcing projects across multiple organizations, it's quite possible that in an era of increased IT automation, the outsourcing of IT, especially across multiple geographies and time zones, is more trouble than it's worth.
Of course, the providers of IT sourcing are among the most proficient companies in the world when it comes to leveraging IT automation. They routinely use automation to effectively deliver IT services at a cost that an internal IT organization relying mainly on manual processes won't be able to beat.
But as IT automation technologies increasingly become mainstream in 2014, it's apparent the decision to outsource IT is becoming more complex. As in PayPal's case, IT is an integral element of the services being delivered. As IT becomes more integrated within digital business processes, the percentage of organizations where IT has become too strategic to outsource is certainly going to rise. However, that doesn't necessarily mean there won't be more outsourcing of noncritical functions in the years ahead. But it does mean that the factors driving those decisions will go well beyond the IT labor-arbitrage game that has tended to characterize most IT outsourcing decisions up until now.
About the Author
Michael Vizard is a contributing writer for CIO Insight.