Nearshore Americas

Hybrid Cloud Starts to Change the Economics of IT Outsourcing

Many vendors still have ” significant gaps in cloud delivery platforms and skillsets”

By Dan Berthiaume

Infrastructure delivery based on the cloud has the potential to deliver enterprise-level value and flexibility that could lead to disruptive adoption by IT outsourcing customers. By improving utilization and eliminating excess capacity, Everest Group is among several leading industry groups that advise cloud infrastructure models can deliver significant cost efficiencies, particularly “hybrid” models combining the usage of public and private, dedicated clouds.Hybrid Models Change ITO Economics

By using a hybrid model of cloud-based IT outsourcing, customers can maintain their “base” computing hours in a private, dedicated cloud, shifting base workloads to low-usage “valleys” whenever possible and maximizing private cloud utilization.

During peak load times, users can shift workloads to the public cloud, leveraging the on-demand pay-as-you-go flexibility of public clouds to only pay for the time used and eliminating spend on unused peak capacity. As a result, Everest Group estimates potential infrastructure cost savings of 30% or more compared to traditional delivery methods.

Perceived Constraints Prevent Cloud Shift

Despite its massive potential to provide savings and flexibility, the cloud has not yet become the standard platform for IT outsourcing. Everest Group identifies three key perceived constraints that are unnecessarily preventing wider adoption of cloud-based IT outsourcing: contractual, incentive alignment with existing ITO vendor, and market immaturity.

In terms of perceived contractual constraints, many IT outsourcing customers assume their contracts limit services that can be outsourced to other providers. In addition, IT outsourcing customers often believe their workloads don’t meet the revenue minimums of cloud-based providers, or that cloud solutions cannot meet necessary service levels or regulations.

In reality, Everest Group says most IT outsourcing contracts do not have exclusivity clauses and that the demand of most users will exceed the revenue floor of a cloud-based service contract. Furthermore, cloud-based services provide engineered outcomes which will meet service levels and vertically-oriented clouds are designed to meet necessary regulations.

Another perceived constraint to wider adoption of cloud-based IT outsourcing is an assumption that existing vendors can easily and quickly migrate their services to the cloud. However, Everest Group finds that many legacy vendors face a 30 to 40% revenue hit on client cloud migration, and that there are significant gaps in cloud delivery platforms and skillsets among these vendors.

Furthermore, despite a widespread view of the cloud services market as being immature, Everest Group analysis shows cloud solutions are currently being used across a variety of enterprise use cases, including core areas such as transactional applications.

The Road to the Cloud

Of course, migrating legacy IT outsourcing services to the cloud is not something that can be accomplished overnight. Everest Group advises customers seeking a cloud migration to develop an overall three-to-five-year roadmap that includes a supporting business case and plan. The roadmap should ideally lead to a hybrid private/public cloud model and clarify goals and objectives while identifying portfolio-based priorities for workload migration to the cloud.

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In addition, the roadmap should identify ways to improve workloads and infrastructure that will not be migrated to the cloud and leverage remote infrastructure management. Ultimately, the roadmap should define the desired future state of the IT environment while specifying the path that will be traveled to get there. The journey may not be short or easy, but the end result is worth the effort.



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