There is also a nice audio piece from my colleague Alexa Bona, addressing the negotiation side of cloud sourcing deals. Alexa and I co-authored five notes that are part of this project covering especially the contracting side.

 We also included some research around industrialized Low-Cost Services, a theme that we maintain since last year’s sourcing conference series and that addresses the fact that the continuous cost pressure in IT will lead to something that can be directly compared to the low cost airline industry.

Happy Reading!

Where is the business value for me?

This is a question that has at the same time “many“ and “no” answers. Many answers come from marketing and sales people of cloud solution providers: According to them, cloud solutions are flexible, high quality and cost effective. It sounds like a great alternative for sourcing executives. But key questions remain unanswered, e.g. “Where are the real risks?” and “How to I integrate cloud services?”.    Help and answers do not come from the cloud service providers. Processes, workflows, behavior and expectations of buyers have to adapted. This is often huge and long lasting effort. Therefore it is very hard for the buyers to understand the net value coming from the cloud.

In fact, I am writing this blog in train back from an event where I met 18 CIO’s – none of them believes that they can find real business value in the cloud today. They rather leverage utility solutions (often called cloud as well) as they are apparently more transparent, less risky and easier to integrate.

Considering the investment into cloud services that we observe, it is likely that the picture changes over time. It has to – if cloud providers want to sell into larger enterprise organizations. Until then, utilities  seems to be a great alternative.

It was those organizations experiencing problems that had established rigid, inflexible relationships with their vendors; tactical relationships (do just what I asked you to do). Quickly changing relationships like this is very though, and the possible scope of those changes is very limited. But good vendor relationships should work in good times as well as in bad times. And as those come and go and every time in a different shape, vendor relationships have to be open and flexible, strategic relationships (help me facing my challenges).

In well managed relationships between vendors and organizations, the economic challenges were faced collaboratively with a short term and a long term thought; allowing changes that helped not just meeting the short term requirements (cutting cost) but also preparing for the next crisis (increasing variability). This is how vendors reach trusted advisor status – and long term success.

The recent crisis has shown – the Ying-Yang of great relationships between a vendor and an enterprise is based on strategic thinking – not tactical thinking. Vendors that aim for long term trusted advisor level relationships have to say good-bye to multi year steady revenue guarantees. They need to allow prepare for more flexibility. And Enterprises have to implement strategic vendor management for that – facilitating a much better alignment between demand and supply.

According to the Apple keynote from 1998 (iMac launch) the „i“ stands for internet, individual, instruct, inform and inspire. Lets have a look:

Internet: Looking to the cloud world, the internet is a or the key element. More and more organiaztions look into leveraging cloud services within their IT value chain. And if not, they use the internet for their business and their operations as a source of information, a way to connect with partners for selling or buying. There is no way without the internet in today‘s sourcing world.

Individual: Individualism is a tough topic in the sourcing world. Organizations shift more and more responsibility to the end-user and the end-user itselft seeks for more individualism. The trend towards user-owned-devices is confirming this. On the other hand, there is a push to source much a high degree of standardization in IT as individualism ist costly. This means less individualism. „Yes and No“ is the answer to the question, if individualism is happening in the sourcing world.

Instruct: Is sourcing an instrument to instruct? Organiaztions need a lot of instruction and knowledge to source successfully and therefore sourcing without instruction is a bad thing. Many companies outsource their „instruction“ needs (training) for all kinds of activities.

Inform: Information is something that is sourced a lot around the globe. Organizations use free sources like wikipedia or sources like business information portals that charge for it. Controlling agencies buy satellite pictures from the net. Buinesses buy addresses for mass marketing activities. Companies buy information about the competitions. This list could continue for a couple of more pages.
 
Inspire: Is sourcing inspiring? For me as sourcing analyst it certainly is – but business use sourcing for value creation, problem resolution and innovation and not really for inspiration. It is a philosophical question if you could source the inspiration you need as a business and looking to that angle doesn‘t really help find the answer to the initial question.

All in all, internet, instruct and inform are full friends of the sourcing family. Individualism for 50% and just inspire doesn‘t really make it. So, „iSourcing“ based on the „i“ philosophy of Apple, matches today‘s sourcing to 70%.

The term iSourcing itself has been used already by many organizations (Google shows 6.270 hits and Bing 323). In there the „i“ often stands for innovation or international. So Trademark might be an issue – as always.

There is hesitation in accepting the few positive market messages shared in various industries. People believe more in the dark forecasts from economists and the governments in Europe. It seems wise to continue working on fighting the crisis but at the same time starting to prepare for the time after.

Lightning: It is interesting how fast the interest in cloud computing from buyers of outsourcing is growing. Every week I have discussions with organizations of all sizes about the viability of sourcing into the cloud. Is it ready to be an alternative? Well – examples like the Valeo deal of Cap Gemini and Google announced a few weeks ago are of significant size. Other enterprises are running successful pilots with cloud service providers. Things look promising, but then there is some disruptive lightning. This week I was talking with a service provider, who suddenly had to change their cloud based approach in a deal – as an international export law was preventing engineers outside Europe touching data inside Europe. We did not discuss all details – but this sort of lightning can be found in many places.

Thunder: While marketing and sales people, brochures and visionaries around the world bring the blue sky and the sun into the buyers life, there is also some ominous noise; the sound of thunder fed by scepticism. There is the thunder of those banging the maturity drum, which is still loud and hefty. While in some areas sourcers can leverage clouds already, there are other areas, which lack cloud based solutions. Another sound is the security sound. It has a high frequency and it is all around. It’s scary is that not all organizations can hear this high pitch – it is almost like the crisis put some earplugs into their ears. The last thunder sound is called integration. While cloud solutions can be bought easilty today, they still need to be integrated. An area where we currently see more questions than answers.

Heavy Rain: Not really. Clouds were born in a maturing industry – in a sense that provider/client relationships are based on solid service levels, reliable environments and based on value add. So not born by overheated atmospheres with electricity.  Cloud solutions which complement outsourced IT today have a good quality and maturity. But there is more to come as market gets more attractive. And it can start raining.

Solid sourcing strategies, which carefully integrate cloud based solution in the IT value chain, aligned to the real needs of businesses and a diligent cloud vendor selection can serve as an umbrella – as a protector for some of the risks which organizations face when thinking about sourcing into the cloud.

To name some of them: Organizations which limit their search to Tier 1 organization, may not find the best strategic option. Selecting one provider too fast – on the basis of a high level business case and a high level value proposition – will not enable the provider to give an accurate price and the number of assumptions which have to be made will inevitably lead to tough renegotiations later. These  renegotiations can also cause the privider to leave the table again and than the organization has to start from scratch. Another big risk is to leave out innovative new and economically very attractive solutions. The Speed Sourcing process also forgets to talk about the number one rule in contracting: Never leave any TBDs.

While I agree that there is a need for acting fast to save money and to shorten the time to benefits, the discussion should be led by considering the risk it imposes – organizations going down that road should balance the considered benefits with risks:

As an example, they could consider buying industrialized IT services, which are increasingly becoming a viable alternative sourcing option. These solutions come with a significantly shorter contract cycle. Predefined terms and conditions, standardized SLA’s and SoW’s allow a short time to contract. Of course this approach is not risk free – organiaztions lose their ability to full-stack-customization, but that is a very calculable risk.

I have a reasearch note in the works addressing this topic in more detail – which the topic deserves.

With the availability of new options on the market (e.g. utility computing, cloud services) the complexity of sourcing increases as these options are ADD-ONs to traditional ways of sourcing IT. In order to get sustaining value from these new options, organizations have to update and improve their sourcing competencies. Gartner clients can learn more about them, their benefits and can even assess their current competency level. Optimized competencies enable organizations to integrate new with traditional sourcing options in a lean and effective way.

Practical Multisourcing, especially in crisis times will also be a key focus on our sourcing summit in June in London. See you there.

I guess there is another question which has to be answered first: What were the good old times in IT? Was it when everybody had a job? Was it when companies spent – overspent – in IT? Were they the times when CIO’s came into the office at 6am to confront a disaster? Or is it times when you realized your vendor over-promised what he could deliver?

Why not thinking positive? Now – in the crisis – we in IT finally can proof that we are a much more than a costly business unit. That we are a contributor to cost optimization beyond IT! That – being at the center of information, business process and staff - we can wisely support and often lead large enterprise change programs. And finally that we (and this belongs to the people in sourcing) can optimize the business value chain and range of activities alongside efficiency and efficacy.

I believe – this “Yes we can!” story is the IT chance within this crisis.