cloud, 3rd generation outsourcing and what it means

7/30/2019 Cloud, 3rd generation outsourcing and what it means

1/4

Love this PDF? Add it to your Reading List! 4 joliprint.com/mag

Walter Adamson

Cloud, 3rd generation outsourcing andwhat it means

Virtual Ark ExecutiveCEO & President Mar-ty Gauvin recentlydescribedCloud Com-

puting as the 3rd Generation of outsourcing, andits a useful way of looking at it.

Marty called the 1st generation your mess for lesswhich is an apt description and pinpoints how ser-vice providers made their money.

The 2nd generation was selective sourcing, so-metimes called strategic sourcing although it wasanything but - more on this below.

And cloud is the 3rd generation, and its potential,in part, will be shaped by the previous generations ofoutsourcing and the previous generations of peopleon both sides of the deals.

Heres my take on the big picture evolution of out-sourcing.

1st Generation - Your mess or less

This is the period 1970 to 1990. Martys descriptionexactly ts the perfect qualied opportunity for aservice provider seeking a 1st generation outsour-cing contract. The more complexity and the moremess the more the service provider can truly save,and hence better margins, and hence the desire foras long a contract as possible.

This was a golden era for both EDS and IBM in par-ticular. IBM had a huge amount of government bu-siness and the Space Program, and EDS led in large-scale outsourcing for the commercial sector. Bothhad fabulous methodologies and top gun project

directors and managers. In the US CSC was strongand DIGITAL had a strong core SI group with soundmethodologies (later destroyed by Compaq), Accen-ture built a global presence around BPO, and ICL

had some general outsourcing business in the UK(which formed the nucleus of Fujitsus later moveinto the sector), while current day players such asHP, Fujitsu, DiData had no material presence norcapability.

The successes were many, although the failuresattracted the media attention because it has to beremembered that the Outsourcers were the enemyof the techos at all levels, from CIO down. The ITmedia wrote for the IT folk and stories about out-

sourcing failures caused a lot of glee in the IT sewingcircles. The reality was that companies that had amess got less of a mess for a lower price, they gotbetter service levels, and in most cases benetedfrom economies of scale.

The failures were legend and well known, if notover-reported. The tenure of these reports was uni-versally IBM / EDS / CSC screwed up whereas thetruth is that the headlines should have universallyread Company managers fail to manage - again,with one major exception which I will discuss. Thefundamental issue in the failures was that compa-nies abrogated their management responsibilities,they threw out the baby with the bathwater. Throughpoor judgement, lack of understanding, and an ob-session with cost-reduction as the principle goal theywillingly destroyed their own abilities in IT strategy,architecture, performance management and didntenhance their contracting and commercial skills.

Some outsourcing rms played up to this, to theirdiscredit, with the full knowledge that the customer

July 21, 2010

http://ww

w.walteradamson.com/2010/07/cloud-3rd-g

eneration-outsourcing-and-what-it-means.html

Page 1

Posted on July 21, 2010 at 04:39 PM in Cloud
http://joliprint.com/maghttp://www.walteradamson.com/http://virtualark.com/http://virtualark.com/http://virtualark.com/http://virtualark.com/http://www.virtualark.com/BLOG/tabid/79/EntryId/7/Hear-Marty-Gauvin-introduce-3rd-Generation-Outsourcing.aspxhttp://www.virtualark.com/BLOG/tabid/79/EntryId/7/Hear-Marty-Gauvin-introduce-3rd-Generation-Outsourcing.aspxhttp://answers.oreilly.com/topic/1757-what-is-cloud-computing/http://answers.oreilly.com/topic/1757-what-is-cloud-computing/http://www.virtualark.com/BLOG/tabid/79/EntryId/7/Hear-Marty-Gauvin-introduce-3rd-Generation-Outsourcing.aspxhttp://www.virtualark.com/BLOG/tabid/79/EntryId/7/Hear-Marty-Gauvin-introduce-3rd-Generation-Outsourcing.aspxhttp://virtualark.com/http://www.virtualark.com/Portals/0/logo.gifhttp://www.walteradamson.com/http://joliprint.com/http://joliprint.com/mag


2/4


Walter Adamson

Cloud, 3rd generation outsourcing and what it means

was destroying their ability to manage the contractand wanting to take advantage of this. I think thatit is an unfortunate fact that EDS was worst in thisregard, the UK Internal Revenue Service contractbeing their ultimate Waterloo.

Customers also often complained about lack of in-novation from the outsourcers, but hey suck it up! Ifyou understand anything about commercial reality

then you cant back people into a nancial cornerand expect spontaneous investment during the tailend of a contract cycle. Its easy to build in an intel-ligent business innovation contract component, butyou have to have an intelligent customer!

2nd Generation - Revenge o the geeks

This is the period 1990 to 2010, and heres the settingof the time around 1990 - rstly bad news is biggerthan good news and 1st generation outsourcing had

a groundswell of bad news, and I wont argue thatthere were lots of candidates, even though I assertit was overall a generally successful era for thoseclients that had competent management skills.

Secondly, outsourcing wasnt going away, which initself became even more threatening to the geek ITmanagers, and public service IT managers, and whothen fueled the re of the horror stories. Thirdly,the fatal aw that many of the 1st generation dealswere led by the clients CFOs or accountants whotook an uninformed cost-cutting approach providedthe platform for the revenge of the geeks.

That revenge was so-called selective sourcing. Thegeek CIOs and IT managers got control back, the1st generation Fear Uncertainly and Doubt worked,without doubt! The nancial guys lost their rolein outsourcing precisely because most were out oftheir depth.

Having wrested control back the geek teams an-nounced selective sourcing. Selective sourcing was

simply bundling up slices of technology and gettingbids from small guys as well as the large outsour-cers and parceling things out in technical packageswhich the geeks understood. Im talking about thehelp desk or the servers or the network etc. Ithas little bad press, because why would the IT presspromote bad things about the geeks being in control?

Its certainly generated huge growth for the smaller

and mid-tier outsourcing rms - the reason beingthat its all commodity stuff and while the big guysshould have been able to compete on scale often thegeek terms and control conditions meant that thebig guys just had too much overhead and high coststo be able to win the small commodity chunks ofwork. Smaller players were more exible whichwas really just a feint for Ill replace your peoplewith my cheaper people.

This period is sometimes called strategic sourcing

which is only a sick joke as it is anything but stra-tegic. It is completely tactical, and mostly lackingin accountability and almost always lacking in anyconnection to business KPIs. The Pharmaceuticalindustry is an industry where outsourcing is widelypracticed across many activities. They have globalbenchmarks which show that the top performingcompanies incur management costs of about 5%of an outsourcing contracts value, and the poorperformers about 25%. An IT group with multiplesourcing contracts incurs these overheads but inthe IT world they are almost universally hidden,

just one of the hidden secrets of the geeks revenge!

The post-2000 boom in commodity hosting serviceshas been a positive outcome of the long journey ofoutsourcing, however overall Id characterise this2nd Generation as the lost generation for businessin gaining the business benets of outsourcing.

Note: there was a version of this 2nd Genera-tion called Out-Tasking a term coined byJohnChambers CEO of Cisco in about 2001. That was

July 21, 2010

http://ww



Page 2
http://joliprint.com/maghttp://www.walteradamson.com/http://blogs.cisco.com/tag/john+chambershttp://blogs.cisco.com/tag/john+chambershttp://blogs.cisco.com/tag/john+chambershttp://blogs.cisco.com/tag/john+chambershttp://blogs.cisco.com/tag/john+chambershttp://www.walteradamson.com/http://joliprint.com/http://joliprint.com/mag


3/4


Walter Adamson


really a very business-based selective approachto a kind of BPO, and it had a lot of merit, andstill has a lot of merit as an outsourcing option.Unfortunately in the big scheme of things it israrely adopted.

3rd Generation - Cloud - Like the misty

rain that alls sotly, but oods the river

This is the period 2010 to potentially 2030! Withoutgoing into what cloud is and isnt and whether it isthe same old thing relabeled (which it isnt!) thisgeneration of outsourcing varies from the past ina few key ways. Before I note them Ill just say thatI am not talking about private cloud here, whichbesides being an oxymoron is just a sales ploy tocapture the last retreat of the geek CIOs of 2nd ge-neration outsourcing. Thats the subject of anotherpost. Im talking about cloud as access to resourcesthat a customer does not own - what is sometimes

called public cloud.

The three differentiators which I see, in contrast toprevious models, are:

1. Technical and service agility - more rapidprovisioning and less commitment to infras-tructure;

2. Business agility - less constrained bycontracts, by IT, and by capital;

3. Logistics agility - one manifestation beinginstant geographic coverage.

So in a nutshell cloud is much less in terms ofcontracts, constraints and capital, and much morein terms of speed, scale and service levels.

How does the past efect the uture?

The 3rd Generation is going to ride on the back of acollapsing 2nd Generation, and in fact be propelledby it. In one of the great ironies the fact that the

geek CIOs won control of the 2nd Generation willaccelerate their undoing by the 3rd Generation.

There will be a last gasp Fear Uncertainty and DoubtFUD campaign, aided and abetted by the privatecloud sales teams who will be desperate to maketheir last sales and will back the geek CIOs to thecorporate hilt. However I predict that over the frst 5years of this potential 20 year 3rd Generation phase

we will see a general collapse of these efforts. Thereare a number of reasons:

Cloud economics are undeniable and unob-tainable by 98% of inhouse operations;

2nd Generation selective sourcing hassliced and diced outsourcing into commodi-ties which are easily compared to cloud pri-cing and service levels on that basis alone2nd Generation cannot win;

As cloud moves up the platform stack and

interoperability, integration and migrationoptions open up then it becomes even har-der to resist;

The competitive edge of rms who adoptcloud will expose those CIOs who are re-sisting, and in particular the fallacy of theprivate cloud.

Whats the greatest constraint to all this - the FUD ofprivacy and security. Always the rst question andthe greatest friend of the geek CIOs. Its the samequestion thats been around since the 1st Generation,and will take the same time, pain, and frustrationto move through the issues with those customerswho are worth the effort.

The 2nd Generation CIOs and IT Managers havetrained their business owners to believe that theyhave to live with all the enabling IT and to put upwith a host of cumbersome necessities. Cloud, overtime, will wipe those fallacies away.

July 21, 2010

http://ww



Page 3
http://joliprint.com/maghttp://www.walteradamson.com/http://www.walteradamson.com/http://joliprint.com/http://joliprint.com/mag


4/4


Walter Adamson


On our side are people, and the fact that the linebetween consumer and corporate IT is blurring,perhaps with lightening speed due to social media,but with perhaps a 5 year lag generally in terms ofreshaping expectations of IT and IT managementwithin frms. The private experience is universallydominated by cloud, take out Outlook, which meansthat in the end the FUD wont work! The result willbe that IT Governance will continue to evolve in a

natural way to embrace specic cloud issues - itsno drama!!

My conclusion is that while the 1st Generation cap-tured a small business base, and the second a widerbase albeit with fewer business benets, the 3rdGeneration is set to capture a massive businessbase and in the process will rewrite the IT Mana-gement/CIO world not to mention the channels anddistribution world.

Gartner projected in March 2009 that sales of cloudcomputing services would almost triple over veyears, from $56 billion in revenues in 2009 to $150billion in revenues in 2013. I dont know the exactnumber but thats probably about 10% of the avai-lable market, and I can see it really taking off fromabout 2015.

Those business which get there frst, and those ISVsand service providers which adopt the quickest willbe the winners. This IS the biggest revolution in 20years. As Dr Strangelove said, stop worrying andlearn to love it!

http://xeesm.com/walter

Related articles by Zemanta

July 21, 2010

http://ww



Page 4
http://joliprint.com/maghttp://www.walteradamson.com/http:///2010/07/cloud-3rd-generation-outsourcing-and-what-it-means.htmlhttp://www.zemanta.com/http:///2010/07/cloud-3rd-generation-outsourcing-and-what-it-means.htmlhttp://www.walteradamson.com/http://joliprint.com/http://joliprint.com/mag

cloud, 3rd generation outsourcing and what it means

Documents