Chief information officers (CIOs) should take steps to manage inherent risks and unexpected costs during cloud services adoption.
This is according to research company Gartner, which says cloud computing and offshoring are becoming mainstream, and are quickly changing the IT market.
During the next few years, the firm says, market dynamics will determine whether cloud-enabled outsourcing will be the demise of traditional outsourcing; whether it will lead to the convergence of services and products currently marketed as a service, or whether it will result in next-generation outsourcing.
Gartner research VP Frank Ridder says cloud service sourcing is immature and fraught with potential hazards.
“The hype around cloud computing services has increased interest as well as caution for CIOs trying to determine where, when and if cloud services can provide valuable outcomes for their businesses.”
Ridder points out that cloud computing is driving discontinuity that introduces exciting opportunities and costly challenges. “Organisations need to understand these changes and develop realistic cloud sourcing strategies and contracts that can reduce risk.”
He says traditional IT services often find organisations locked in, fighting with rigid delivery or hesitation to change when engaged in traditional IT services deals. Innovation seldom materialises and solutions fail to scale, and service providers often struggle with their profits.
In the new cloud services scenario, however, flexibility, agility and innovation are design principles and, over time, service providers will succeed in delivering on these principles, he explains.
“The market also expects scalability, cost-efficiency and pay-per-use pricing models from cloud services solutions.”
Although cloud services already provide these, service providers manage their risks through terms and conditions that are still immature. However, Gartner believes that solutions and their commercial terms are maturing quickly.
To avoid the potential pitfalls and hidden costs of cloud sourcing, Ridder says organisations need to ensure they understand the short- and long-term implications of cloud services, on the demand and supply side, as well as on the sourcing life cycle itself.
The services sourcing life cycle includes four crucial elements: sourcing strategy, vendor selection, contracting, and management and governance, he adds.
“The life cycle is a critical area to plan and manage, regardless of whether organisations source their IT services through internal or external resources.”
Gartner's forecasts indicate that organisations spend 53% of their IT services budget on external services, and that spending is growing 3.9% per year, while new categories of services are experiencing double-digit growth.
Cloud-driven business and IT services include all types of solutions that are developed, bundled and packaged as outsourcing service offerings for which the business or IT service provider uses one or more cloud computing technologies within the solution's overall architecture, Gartner explains.
These services can be delivered directly by a cloud provider or via a service aggregator for the delivery of pre-engineered and configurable business solutions in a timely and cost-effective manner, the research firm points out.
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