By Robert L. Scheier
The term “Great Awakening” sounds almost spiritual, and for good reason: It’s the term historians use to describe periods of religious revival in U.S. history.
IDC analysts used the term repeatedly in a February 9 Webcast on “Predictions 2012: Disruption Ahead in the Global Services Market” in which they forecast that 2012 will be the year outsourcing customers, and providers, take the big leap of faith and move to the cloud big time.
“Cloud-based HR systems are having a disruptive effect,” said Lisa Rowan, Program Director, HR, Learning and Talent Strategies at IDC. “The big services firms are seeing the SaaS model gain a lot of traction in HR and considering how they are going to respond.” Proprietary cloud-delivered applications will help lower costs, and will “become the norm” for mid-market customers, she predicted.
Traditional HR BPO providers are now also competing with software vendors who have acquired providers of cloud-based HR software, said David Tapper, IDC’s Vice President of Outsourcing and Offshore Services, citing SAP’s acquisition of SuccessFactors and Oracle’s acquisition of Taleo.
Service providers, likewise, “are starting to get serious about the cloud and starting to respond to competitive pressures, to transform their traditional infrastructure hosting model into an automated, self-service type of cloud model,” said Melanie Posey, VP, Hosting and Managed Network Services.
Tapper said IDC surveys even show a precise level – 42 percent savings, or a two-year payback – as the trigger at which customers will “rip and replace” their existing infrastructure with a cloud offering.
From my recent talks with IT executives, this sounds a little premature. Yes, the cloud is big and getting bigger, but it’s more a vaguely defined model of computing than a specific “yes” or “no” technology choice. It means virtual servers, storage and networks providing elastic, pay-as-you-go services over the Web. But beyond that, you’re into religious wars over definitions and (more importantly) tough choices about what form of cloud to use when.
The IT decision-makers I speak to are, frankly, unconvinced the cloud is secure. That 42 percent savings won’t mean much to a CIO if their cloud-based Web storefront crashes two hours after your Super Bowl ad played. A board of directors won’t be impressed with the lower IT costs, or even the “best practices” embedded in a cloud-based HR application, if a hacker breaks into it and publishes your candid assessments of job candidates.
Then there’s the question of how one calculates the 42 percent savings. Does that include assessing and managing a cloud vendor? Is it for a private cloud within your own data center, a public cloud at a supplier or a hybrid? Does it assume the same uptime and performance as your own data center? And what about disaster recovery and business continuity?
On both the IT and business process outsourcing side, service providers need to move beyond the current model of growing their businesses by adding increasingly expensive staff. Off-the-shelf, cloud-based business process as a service (BPaaS) that can be inexpensively sold to multiple customers is one answer. To compete with software vendors offering, say, HR software over the Web, they may need to offer specialized consulting services or even get out of “me too” areas where they can’t add value. And in some areas like testing, cloud-based “pay as you go” servers may soon be a cost of entry for service providers.
But with all the various cloud models (public, private, hybrid) and delivery channels (Infrastructure-, Platform-, Software- and Business-Process-as-a-Service) to choose from, service providers and customers will pick and choose carefully where the cloud makes sense. Instead of rushing forward in a “Great Awakening” they’ll make some coffee, look out the window and see how their neighbor’s doing before joining the parade.