Outsourcing and the Cloud

Until now, most of the discussion about the benefits of cloud computing and its variants such as software as a service (SaaS) have centered on the time and money manufacturers and other businesses can save by replacing on-premise data centers and traditional software licensing models with Web-enabled services that are paid for on a subscription basis.

This is essentially an argument for reducing IT costs, and it’s one that may make sense for many companies, assuming they can satisfy themselves that cloud environments are reliable and secure and that cloud-based applications deliver an acceptable level of industry-specific functionality.

But is all the noise about cloud computing really just about shaving a few bucks off the IT budget? If so, should manufacturing line-of-business and C-suite executives pay much attention to the whole discussion? Don’t they have bigger fish to fry, such as innovating business strategies and making sure that core business processes — especially those that directly touch customers — are running as smoothly and profitably as possible?

It turns out that cloud computing may, in fact, play a role in helping manufacturing executives streamline business processes, not just bring down IT costs. Several business process outsourcing service providers — particularly Indian BPO service providers —are fast-tracking initiatives

intended to combine outsourcing services and cloud computing.

Under the traditional model, when companies outsource business processes such as end-to-end order management or human resources management, the supporting technology — data centers, applications, etc. — doesn’t change much. The applications may be moved to a third-party data center, but they’re still owned and paid for by the manufacturer.

Now outsourcing providers such as Wipro Technologies and Infosys are exploring ways to combine BPO services with cloud-based infrastructure and applications. That would enable customers to outsource entire business processes — the people and the supporting technology — and pay for all of it according to how much is used.

Infosys seems furthest along on this path. Recently I met with Chandrashekar Kakal, Infosys’ senior vice president and global head of its enterprise solutions group, to discuss what the company calls its Infosys Business Platforms. The company is building a series of business process-specific platforms — hardware, applications, and industry-specific extensions — that will be cloud-based and used exclusively to support Infosys’ BPO offerings. So far, Infosys has built three such platforms. They support procurement and HR management processes as well as processes that are specific to publishing and media businesses. Infosys plans to add more, including multi-channel order management, according to Kakal.

This approach would seem to make sense for both Infosys and its customers. Customers could outsource entire business processes and pay based on how much they use. The cost of the procurement BPO service — including supporting technology — would be based on total spend, for example. So costs for the customer would be controllable, predictable, and scalable (assuming Infosys is able to design its platforms in a scalable fashion).

And the approach allows Infosys to offer an all-in-one BPO service while keeping its own costs under control. The company plans to use third-party data centers to reduce up-front capital investment. At the same time, Infosys gains operational flexibility, with the ability to deploy cloud-based applications from one location while Infosys staff provide outsourced business processes in another.

Of course, such a new business model will raise all kinds of technical and business challenges. Under the pay-for-service pricing model, for example, how can Infosys afford to write big up-front checks to partners such as Oracle and SAP for the applications on which the new Business Platforms will be based? Infosys has managed to negotiate new pricing models with its large enterprise application providers, Kakal says.

Another question is what customers will do with the investment they’ve made in software and data centers once they sign up for this type of all-inclusive, cloud-enable BPO? In the old days of outsourcing, providers would often compensate customers to cover the sunk cost of those assets. Will companies such as Infosys be able to do that under the new pay-for-service model? Infosys is working on that, Kakal says.

Assuming Infosys and other outsourcing providers can answer such questions, cloud computing could very soon become a topic of interest among line-of-business and C-level execs, not just IT executives.