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Why cloud won't kill IT outsourcing or consulting

Boris Renski and Victoria Livschitz | Nov. 8, 2010
Transformation and a shift in the balance of power will occur in the IT outsourcing industry as a result of cloud adoption. However, it is unlikely to eradicate such a viable part of the IT industry.

The Myth About Self-Service SaaS

The top level of the cloud stack--applications--is by far the oldest and most established. Only recently branded as cloud, the software as a service (SaaS) concept has been around for a decade, with pioneers like and NetSuite paving the way to widespread adoption.

How can this dynamic play against traditional outsourcing vendors? Implementation, upgrades, and the hosting and support of enterprise applications like CRM, ERP, HCM etc. are significant revenue sources for IT outsourcing vendors. Some revenue derived from these services will suffer significantly from cloud expansion, particularly those attached to servicing lower levels of the enterprise application stack--middleware and physical application infrastructure. However, demand for implementation, support, and customization will remain.

There is a common misconception that SaaS automatically implies self-service, that any SaaS application is like, where you sign up for an account on a Web site and you are good to go.

The truth of the matter is that 90 per cent of enterprise applications simply cannot be designed as self-service. Because enterprises compete largely through innovation in business processes, these processes continuously evolve and differ, with no effective way to completely standardize them.

Eventually, all enterprise applications have to wrap around the business process of a particular organization; not the other way around. So, custom implementation, development, and ongoing support of each particular implementation will indefinitely remain an abundant feeding ground for IT outsourcing vendors.

The largest component of "outsourcing", by far, is professional services. It may take the shape of systems integration, IT managed services, business process outsourcing, or something else. In all of these outsourced services, there is a predominant human component. And, while cloud affects the software delivery model, it does not represent an advance in automation of human labor-based business processes. Cloud may change the availability of on-demand IT services and the location of the infrastructure, but it is not going to make the outsourcing business disappear.

Victoria Livschitz is founder and CEO, and Boris Renski is executive vice president, of Grid Dynamics, a professional services company that is an authority on cloud computing deployments and enterprise systems scalability.


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