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The next generation of outsourcing: Gartner

CIO Staff | May 3, 2011
CIOs must take steps to manage risk and unexpected costs during the Cloud sourcing revolution, says analyst.

The IT services market is being turned on its head, thanks to the rapid uptake of Cloud computing and increased offshoring activities. And CIOs must take action to manage the inherent risks and unexpected costs of moving to Cloud services, according to Gartner.

The analyst firm has released a special report that examines Cloud sourcing issues. IT services are worth an estimated $820 billion worldwide and the next few years will determine the impact of Cloud-enabled outsourcing on traditional outsourcing.

Gartner uses the term 'Cloud-enabled outsourcing service offerings' to describe solutions that are developed, bundled and packaged as outsourcing service offerings and which use one or more Cloud computing technologies within the overall architecture. The services can be delivered directly by a Cloud provider or via a service aggregator - but the market still has a way to go, and CIOs must understand the inherent risks.

"Cloud service sourcing is immature and fraught with potential hazards," Gartner research vice-president, Frank Ridder, said. "The hype around Cloud computing services has increased interest, as well as caution, for CIOs trying to determine where, when and if Cloud services can provide valuable outcomes for their businesses."

CIOs have often found their organisations locked in by traditional IT services, fighting with rigid delivery or hesitation to change, Ridder said. It can lead to a lack of innovation and solutions that fail to scale, he said.

Cloud computing, on the other hand, has been sold to the market on the basis of scalability, cost-efficiency and pay-per-use pricing models. The terms and conditions of Cloud contracts, however, are relatively immature.

Ridder said organisations must understand the short- and long-term implications of Cloud services, on the demand and supply side, as well as on the sourcing life cycle, which includes four crucial elements:

  1. sourcing strategy
  2. vendor selection
  3. contracting
  4. management and governance.

"The life cycle is a critical area to plan and manage, regardless of whether organisations source their IT services through internal or external resources," Ridder said. "Our forecasts indicate that organisations spend 53 per cent of their IT services budget on external services, and that spending is growing 3.9 per cent per year, while new categories of services are experiencing double-digit growth."



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