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Blog Digital Transformation

Cloud Sourcing Is Gaining Momentum

Digital transformation entails topics like cloud, cybersecurity, big data, and digital ecosystems and requires completely new strategies for IT sourcing.

IT departments have transformed over the last few years. They are now more integral than ever to a company’s competitiveness and profit. Furthermore, they are responsible for digitalization projects. Many companies have finally realized the value of IT departments at the dawn of the digital era. Now, topics like cloud sourcing and new IT architectures dominate the corporate agenda, and the IT department plays an invaluable role in the implementation of both of them.

Especially in infrastructure, providers like Amazon Web Services (AWS), Microsoft, IBM and Google have developed sustainable solutions and consequently gained market shares. Additionally, more and more companies are operating applications in the cloud while still storing business-critical data in their own data center. Especially IoT models benefit greatly from hybrid models.

Hybrid cloud scenarios are the future of IT architecture. For example, SAP and Microsoft are working closely together to create Hana on Azure. However, hybrid cloud deployments are complex and require more orchestration than cloud implementations.

What is the primary motivation for cloud sourcing?

According to a Luenendonk study, half of all companies migrate processes and data to the cloud because they think they are more secure there.

However, the most important reason for companies to migrate IT processes to the cloud is stability. 60 percent of respondents said that reliability of cloud solutions was their primary motivation. 54 percent think that flexible and scalable operations are an important reason to consider cloud sourcing.

Respondents also indicated that speed and quality for developing business models were deciding factors. Microsoft Azure as PaaS tool is one of the most popular tools for software developers. However, AWS also has a broad offering for developers.

PaaS tools offer software developers a treasure trove of design options for the user interface. 44 percent of respondents therefore indicated that they use the cloud to guarantee quick time to market.

Cloud sourcing strategies

What are popular cloud sourcing strategies? Traditional sourcing starting in the own data center will remain important to companies. Especially when it comes to ERP and CRM applications, many companies prefer to keep their business-critical data grounded.

Nevertheless, 73 percent of respondents indicated that they had a cloud strategy for their application landscape. What these sourcing strategies entail is different for every company.

29 percent only want to migrate new applications to the cloud. 23 percent also migrate some of their existing application landscape to the cloud. Furthermore, 19 percent of companies want to migrate their entire application landscape.

Because of the increasing number of digitalization projects, companies’ requirements for IT sourcing are changing fast. Respondents believe that the most important change concerns globalization and changing customer requirements.

Furthermore, the demand for external service providers is changing as well. 55 percent of respondents said that they will need less service providers for their IT department than before. This is not only true for traditional systems and legacy IT, but also for cloud operations.

However, 45 percent said they are actually working with more IT service providers than before. That’s because of increasingly complex hybrid cloud and sourcing scenarios.

Respondents also indicated that it’s becoming increasingly difficult to find a suitable service provider for digitalization topics like IoT, customer centricity or AI. 38 percent complained that service providers were not able to meet their digitalization needs.

Service providers become strategic partners

This is especially troubling as it is becoming ever more important that IT providers support customers in developing new digital business models. Experience and innovation lacking in companies are two main reasons for this development.

It’s also becoming more common for companies and service providers to enter a strategic partnership. For example, they often create joint ventures which focus on developing and advertising digital business models.

One example of a joint venture would be the cooperation between Bosch and BCG for developing and advertising a digital platform for renting electric scooters.

Conclusion

IT and cloud sourcing are changing rapidly thanks to digital transformation.

Sourcing by Design, meaning considering cloud sourcing strategies early on in strategy and product development, is becoming more important. Consequently, companies have to build up their own IT know-how as sourcing is an important topic in every digitalization strategy.

On the one hand, traditional sourcing services, like contract negotiations or provider monitoring, will become almost obsolete. On the other hand, focusing digitalization products on operational excellence and digital customer experience will become crucial.

Source:
E-3 Magazine February 2018 (German)

About the author

Mario Zillmann, Luenendonk

Mario Zillmann is a partner of Luenendonk and an expert in management and IT consulting as well as outsourcing.

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