The arrival of the cloud – Apocalypse for IT departments?

[Disclaimer:This is a rant, or my opinion on a specific subject. You may agree with
me,you may disagree with me (use the comments) but these are still my opinions
and no one else’s…]

In recent weeks Microsoft has announced that it will be providing access to several
of it’s products as managed services. In other words, if you own a company that is
interested in one of Microsoft’s products yet you don’t want to mess around with the
design, setup, deployment  and maintenance of the product you can purchase it as a
service.

Among the services announced we can find:

  1. Microsoft Exchange
  2. SQL server
  3. SharePoint
  4. Office Communication
  5. Office Live Meeting

http://www.microsoft.com/presspass/press/2008/mar08/03-02AllSizeBusinessesPR.mspx

Is this new?

Microsoft is calling this service – The Cloud. The Cloud is an unknown location that
provides services without any concern to your location. So is this something new?

In my opinion this isn’t new notion, it is an old one repackaged and marketed with
a catchy name. So where have we already encountered this- outsourcing.
Outsourcing is a trend that has been moving in and out of view every once in a while.

Outsourcing

The main motivator to outsource is that as a business you shouldn’t have to
mess around with anything except your core business: let the professionals take care
of “less important” stuff such as IT services, you concentrate on your business.

The question is how does this affect your business and what is the definition
of core business?

Hoe does this affect your business: Advantages/Disadvantages of outsourcing

There are many advantages to outsourcing:

  1. You do not have to deal with something that is not in your field of expertise
  2. You bring in the experts, you can have the IT personnel located at your facilities or the
    outsourcing companies facilities. You can host the hardware needed for the IT services
    at your facility or at the outsourcing companies facility-flexibility at it’s best.

  3. You have a lower headcount -Your headcount is lower, you have to pay less salaries
    and benefits.
  4. Your expenditures are lower -errm…in my personal opinion this is a myth. In most
    cases with outsourcing your expenditures actually grow. You pay a lot more for the
    service but due to some creative bookkeeping it might seem that it lowers costs (you
    have a lower headcount…).
  5. You set the level of service you would like to receive by clearly defined Service
    Level Agreements (SLAs) –
    You define an SLA for every existing service you can think
    of(more about those that you don’t think of later…).
  6. You harness the power and experience of companies that are experts in the
    field that you are outsourcing –
      Since the company you hire is an expert in the field
    that you are outsourcing they will always have better resources then yours to deal with
    the issues that arise.
  7. Scale your outsourced operation according to your growth – If the company grows
    you can easily get additional support on the other hand there is no problem reducing services.
  8. You are free to terminate the outsourcing contract and move to a different company
    or bring the service back in-house-
    Since you are bound by contract you have the
    freedom/flexibility to move to a different company whenever you like…

At first sight outsourcing appears to be the greatest invention of all times. Yet before you
run out into the street and start waving flags consider the disadvantages as I see them:

  1. You do not have to deal with something that is not in your field of expertise
    This is the plug and play approach to the subject, consider what happens if your hardware,
    data and business logic is with the company that is the expert. Consider what happens
    if that company is sued or brought to bankruptcy. Your data is still your data, but if it will
    take litigation to access it, consider your company functioning without IT services during the
    proceeds(and I am not talking about keyboard replacements but about the inability to access
    e-mail, data, or any other IT based service).
  2. You have a lower headcount – Even though you have a lower headcount there are people
    out there doing the work for you. These people feel no loyalty to your company (they work
    for the outsourcing company), they do not understand or care about your companies goals
    (they might be working shifts, their next shift might be with your competitor). In my opinion in
    a successful company every employee should understand their role and how this role helps the
    company reach it’s goals.
  3. Your expenditures are lower – They aren’t. In most cases you will pay more for the
    outsourced service then you pay for an in-house solution. The reasoning is that you utilize
    the power of a company that has more expertise then an in-house solution thus you should
    pay more. Bottom line though is that you pay more.
  4. You set the level of service you would like to receive by clearly defined Service
    Level Agreements (SLAs) –
    In utopia this actually does work. In the real world if you need to
    recover a file/email that has been mistakenly deleted, or you need to urgently terminate an
    employees account due to criminal activities you (just as the outsourcing company) are bound
    to the initial SLA. Not much to do about it. You can renegotiate the SLA but it will be too
    late for preventing the usage of the account you needed terminated or the recovery of the
    file that you needed urgently.Now if you forgot a service or you want a new one it’s a whole new
    ball game, negotiation and obviously extra costs…
  5. You harness the power and experience of companies that are experts in the field that
    you are outsourcing –
    Now this one is somewhat problematic, based on my past experiences the
    method that outsourcing companies use is to have large teams of average people that act as foot
    soldiers and for every such team they have a few experienced people that are considered
    experts/Tier 2/subject matter experts (I have encountered situation in which the ‘experts’ were
    outsourced from a third company…). The problem is that these experts are usually needed by
    several companies at once and are not available on the spot. In addition to that these experts are
    not familiar with your environment as they do not live it on a 24/7 basis thus they may or may not
    provide you with good solutions.
  6. Scale your outsourced operation according to your growth – Sounds good in theory yet when
    implemented you need to keep in mind that the people designing the solution have a double loyalty:
    on one hand they want to provide a professional solution that will solve the problems you are facing
    yet on the other hand they are employed by an outsourcing company that has it’s own interests.
    The designer (who is employed by the outsourcing company) is torn between loyalties…or is he?
    Going larger means more money and going smaller means still having to pay since you are contract
    bound.
  7. You are free to terminate the outsourcing contract and move to a different company
    or bring the service back in-house-
    Sounds simple enough, yet after investing vast amounts of
    money,designating operational procedures, moving data centers you will not be able to easily terminate
    contracts for several reasons: your own dignity and image inside your company will be damaged,
    admitting  that you were wrong is not simple.
    In addition to that once you are dependent on the outsourced service moving it back (or to a different
    company) is technically difficult since it is a long and costly process.
    Lastly, most outsourcing contracts are defined for a few years without an exit clause.

The definition of Core Business

So what is that elusive core of your business? Who is part of the business and who isn’t? Who simply supports
while others drive? In my opinion this is a relatively hard question to answer. For the sake of this discussion
I would like to purpose an example: I would like to realize my old dream of owning a company. Our
product is a device (that can be connected to a computer…dah!) that enables computers to create a specific
atmosphere by creating smells. This will revolutionize the gaming world, imagine playing Crysis while being able
to sniff out your enemies!

This device is part hardware and part software. I would like to have my company to build this device, market it,
ensemble it and sell it. Which parts of the company would be considered core business and which parts
would be considered supporting roles that are outsourceable?

  1. The idea – sounds impossible to outsource,but is it? Aren’t investors outsourcing for ideas when they
    look for opportunities in startup fairs?
  2. Management – Since all I can do is come up with wacky ideas for companies I would need a
    solid managerial staff. I wouldn’t want to hire them because I would prefer to have proven and
    experienced managers that come from a company with a strong record-so lets outsource the managers.
  3. Marketing – Same as management, why hire people, simply buy the service they provide from a good
    marketing company.
  4. Finance – I can’t balance a checkbook, so I need someone from the outside. I can’t really tell a good accountant
    from a bad one,so lets outsource that too.
  5. Developers – These guys are the technical professionals that will make my device workable. Technical
    professional should not be part of the company, they can be outsourced-I simply need the solution not
    the people.
  6. Manufacturing – That’s a no brainer, lets offshore it (cheaper).
  7. IT – Don’t really see the value of having them onboard as everyone else is outsourced and they are in the
    same group of professionals that provide a service I need-I can do without the people.
  8. Facilities – Not sure that I even need it. I can do my business over the Internet with a webcam.
  9. Client support – That’s a no brainer, lets offshore it (Cheaper. Is it?).

So considering such an operation, what percentage of success would you give it? Would you change it?
Which roles should remain in-house?
Where is the boundary between core and a supporting role?

My major issue with dividing the business this way, is that you lose the employees loyalty and identification with
the brand that you are trying to market. Once you move the employee outside of the “Core” group and you outsource
him, you are essentially telling him that he is not part of your brand and business so you really shouldn’t be that
surprised when he is not willing to run the extra mile for you.

Back to Microsoft’s announcement

So we started out with Microsoft’s announcement which in my opinion simply takes a different
spin on outsourcing. Instead of calling it outsourcing Microsoft calls it ‘Services from the cloud’. You have
to admit that it sounds a lot better…

Up until now a large number of companies have been in the field of providing managed service but
with Microsoft’s move into the field the rules may change and potential clients that were undecided on wether
to take the plunge might be convinced to do so considering that Microsoft offers the service.

 

Wrapping it up

To summarize, a few years ago (as part of a project to outsource an IT department) one of my managers
said that he perceives IT as a service similar to electricity or water. You have a an outlet and you connect to it.
When I asked him how does he intend to deal with the fact that he will have no flexibility(set SLAs) he answered
that flexibility in an outsourced IT department should be similar to a water faucet,you want more pressure you turn
the faucet one way you want less you turn it the other…

I can’t really say which way is the correct way, I do hold an opinion which is quite obvious from what I wrote
here and even though IT is a supporting role to the business (as such it is regarded as infrastructure) more
thought should be given before deciding to outsource.

In the last few years there has been some decline in how IT is perceived. IT is no longer perceived as a critical
ingredient to a businesses success but as something that is there and has to be functioning flawlessly
all the time. IT can not dictate how things should happen, the business dictates the method and IT implements
and as such a lot of companies have decided to outsource (some have already gone the other way after
failing to outsource IT and user support). Nevertheless, in my opinion, IT still holds a critical role in each businesses
success as it holds the role of enabling a business to become what it is. Outsourcing it might be a huge mistake.

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