Will Cloud Computing Replace Traditional Outsourcing?


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It is widely debated as to whether cloud computing will replace traditional outsourcing. However, research suggests that a mix of cloud-based capabilities and outsourcing could be the solution to staying competitive.

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Will Cloud Computing Replace Traditional Outsourcing?

  1. 1. Will Cloud Computing Replace Traditional Outsourcing? Recently, there were predictions that traditional outsourcing would become obsolete in the near future and it will soon be replaced by cloud computing. However, an article published in Accenture’s Outlook Point of View opines that the change is likely to be “slower and less linear” than the dramatic predictions. Many other studies too show that it is unlikely that cloud computing will replace traditional outsourcing. Let’s look at the reasons supporting this argument. Outsourcing Will Continue to be Important One recent analysis predicted that the mid-tier Indian outsourcers will soon be acquired by larger competitors. Over the years, this argument has had two permanent aspects: - businesses want to adopt the newer technologies and methods of doing things, and feel that they will become obsolete if they don’t to stay competitive, they have to keep pace with these changes which are beyond their control Such exaggerated stories of transformation do not take the complexity and unpredictability of change into account. These transformational forces are not
  2. 2. invisible to clients and suppliers who actually have the power to adjust to shifting market activities. According to the authors of the article in Accenture Outlook, there would actually be a much longer-term trajectory of change where the focus would be on the outsourcing service providers who already have a major presence across the technology environment. The first reason for this is that even in technology marketplace, many clients have already invested heavily in IT and outsourcing. Second, most of the traditional suppliers are well aware of the implications of cloud services and are developing new ways to respond to them. These major players and vested interests in the technology marketplace can influence the course of events. Where Cloud Computing will Rule the Roost In addition to Google, other well known names in cloud computing include Amazon, Microsoft, Linode, RAPP and Netfix. Developers can park their apps (Java and Python) on the Google App Engine. Linode is loved by Linux users and offers fixed cost clouds or "virtual private servers" (VPS). For instance, Netflix runs one of the most popular video streaming websites on the Internet, almost entirely in the public cloud. Netflix allows you to watch movies any time, anywhere. The company has also open sourced several of the tools it developed internally. However, there are some forms of services that are actually suited to the capabilities of cloud computing such as those offered by the media agency RAPP. This agency uses the scalability of could computing to manage video streaming services for movie launches. Such video streaming services come with unknown processing demand. RAPP purchases only the cloud services they require. A successful movie launch would mean that thousands of people would want to stream the movie trailer and cloud computing permits them to scale their operations to meet this demand quickly. If the movie is not successful, they would not be paying for unused infrastructure.
  3. 3. Moving Forward with Outsourcing and Cloud Computing In the above mentioned example, the outcomes are rather unpredictable. However, most data processing organizations have outcomes which are stable and predictable. If they have any successful, reliable outsourcing arrangement, it is better to continue with it, rather than looking for cloud computing which can make things more complex. The cost effectiveness, the major advantage of cloud computing may get diluted with the emergence of new markets, applications and industries. For example, the exploding demand for mobile services and applications from 3 billion+ mobile phones has resulted in new demands for computing and storage. On the other hand, business process outsourcing plays an important role by improving partnerships with complementary suppliers, and opening up new markets and operating in new regions. The progress of cloud computing would depend on the successful management of the relationships between the service providers and clients, which may not be so easy to accomplish in the short run. In this context, cloud service providers should take a cue from outsourcing companies which invest time and effort to build lasting relationships with their clients. The cloud can unleash strong forces of innovation among existing and new players. But due to the challenges posed by IT and business services, a hybrid model of cloud-based computing and traditional outsourcing could be the ideal solution.