Cloud computing spells the end for traditional IT outsourcing

The traditional IT outsourcing industry will be dead in five years, AT Kearney's Arjun Sethi predicted in a recent interview with CIO.com. The culprit? Cloud computing services. Sethi's vision of the future of the IT services industry is quite clear, but he's unsure of the specific implications this industry transformation poses to traditional IT outsourcing customers.

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The traditional IT outsourcing industry will be dead in five years, AT Kearney's Arjun Sethi predicted in a recent interview with our sister site CIO.com. The culprit? Cloud computing services. Sethi's vision of the future of the IT services industry is quite clear, but he's unsure of the specific implications this industry transformation poses to traditional IT outsourcing customers.

To determine the buy-side effects of "the end of IT outsourcing as we know it," CIO.com talked to Kevin Campbell, group chief executive of technology for Accenture and former head of its outsourcing group. According to Campbell, the cloud-based future state holds great promise for outsourcing customers in all sectors, seamless customer connections for retailers, electronic health records that follow you everywhere, low cost government-provided IT services, if only IT departments can meet the not insignificant challenge of integrating services in the new "cloud-sourced" environment.

CIO.com: We hear a lot about how cloud computing is shaking up the IT services market, but not as much about what that means for the traditional IT outsourcing customer. Why is that?

Kevin Campbell: The cloud is still emerging and all its related implications haven't been thought through. Organisations are still trying to understand what the cloud is. There is much discussion about how the cloud will affect sourcing, and while there are plenty of schools [of thought], all outsourcers are looking at what their role in the cloud might be, how it will change their relationship with customers and what opportunities it will present.

In your opinion, will the market rapidly develop cloud services capable of displacing traditional outsourcing?

It's already happening. The question is about delivering services at scale. Everyone we're talking to has cloud as part of their IT strategy, and many organisations are already piloting solutions and thinking about next steps. We expect the cloud to have a significant effect on the market within the next three to five years.

Who are the true early adopters, those already using cloud services for mission-critical applications or infrastructure?

We're not seeing Global 2000 companies running their financial or ERP systems in the cloud. This doesn't mean that what's out there in terms of cloud services isn't important. But for critical applications, applications that can't go down, it's about having the ability to work around system outage issues.

We are seeing especially strong interest in the pharmaceutical, financial services, high-tech and telecommunications sectors and demand for the entire cloud services lifecycle across all our geographies.

What are the risks of early cloud adoption?

The risk most often discussed is security. The bad guys keep getting more sophisticated and creative. The potential exposures and the implications to the rest of the infrastructure are also becoming better understood.

However, many of the innovators in the cloud space are not accustomed to dealing with enterprise [needs]. They either come from the commercial world or start-up worlds, and they don't have a strong understanding of enterprise requirements such as service levels or uptime demands. But the market's understanding of the enterprise will mature over time.

Cost reduction and capital outlay avoidance are driving cloud adoption. Are customers of cloud computing services reaping those benefits yet?

Accenture defines cloud services as those that cost at least 40 percent less than current services, have minimal upfront costs, are paid for as you use them, and are ready when you need them.

There are a lot of cloud-like solutions and things with cloud-like characteristics in the market. In fact, outsourcers have worked for years to try to provide utility-like services. But the real key is delivering one-to-many usage and a standardised approach. If you can deliver that, clients are realising significant benefits.

What are the biggest benefits that the cloud will bring to traditional IT services customers?

The promise of the cloud is that organisations will be able to focus on tools and their usage rather than the laborious process of building and constructing applications.

In retail, clouds will seamlessly alert customers about desirable products and services from anywhere, on any device. Banks will be able to reconfigure business in real time by dynamically sourcing services, credit approvals for instance, from several service providers. Governments will use clouds as a low cost way to provide IT services to non-governmental organisations, community organisations or start-up businesses. Electronic health records, expected to be in widespread use by 2014, will be able to travel with patients between doctors, hospitals, pharmacies and insurance providers.

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