Is Cloud Computing Outsourcing?

Business Handshake in front of a GlobeIs cloud computing just another way of saying cloud outsourcing? No, not for the majority of examples but there are some interesting exceptions. But let’s not get ahead of ourselves.

This is perhaps one of the most popular and heated questions online in the last year. People from all aspects of IT and all industries opining on both sides of the question “is cloud computing outsourcing.” I have done my best to contribute to this debate but only now decide to offer the topic here as part of a series of posts on outsourcing, managed services and a few closely related topics including the likely impact from cloud computing, budget pressures, and risk management.

Defining of Cloud Outsourcing

In order to answer respond to the question is cloud computing outsourcing, I believe you have to begin with defining IT outsourcing and cloud computing. I will spare you the definitions of cloud computing which you can find in earlier posts. It is more important we begin with the crux of the matter – sourcing. Sourcing is a procurement process involving the locating, selection and engagement of a vendor for goods or services.

Defining of IT Outsourcing

Inarguably, although not commonly thought of or called out, sourcing is one of the primary functions in IT and a key responsibility of every CIO’s. So much so it surprises me how little attention it gets. CIO’s are always dealing with questions of whether to buy or build; in-source, out-source or co-source; using vendor A or vendor B; on-shore, near-shore or off-shore and many more decisions. IT is an incredible diverse set of IT procurement decisions related to sourcing – what to buy, who to buy from, or to just do it ourselves.

Sourcing has been around for as long as there has been procurement and it is certainly not limited to IT outsourcing. Higher education frequently considers sourcing decisions and specifically outsourcing decisions around food service providers, bookstores, facilities management, campus security, payroll, payments processing, brokerage and investment management, audit and compliance, legal representation and so many more.

So when does sourcing become outsourcing? I believe most people understand institutions large and small will always have things they really could self-perform and must use outside resources. I also believe most people start thinking of outsourcing when the procurement is for labor related functions that might ordinarily be done in-house. And, it is almost universally accepted that if something was done in-house by employees and is then moved to an outside party or service provider – it’s outsourcing.

So let’s try some sourcing examples and you decide – Outsourcing or Not:

  1. You have a staff attorney but often use outside counsel for specific issues.
  2. You develop some custom web applications in-house but more often contract out for bigger projects or buy commercial software.
  3. You send payroll to an outside party for processing, direct deposit and W-2’s..
  4. You process all electronic payments through a third-party.
  5. You use a third-party for employee and student criminal background checks.
  6. You ended your self-funded health benefits and now purchase commercial insurance and benefits administration.
  7. You hired one of your VAR’s to help with the implementation of the new storage system you purchased through them instead of doing it yourself.
  8. You use an external service for emergency and disaster notifications.
  9. You use a web service for student assessments.
  10. You use a third-party for off-site vaulting of back-up and paper records.

A few of the examples offered here and many others that I am sure came to mind I suspect you see how sourcing functions that can be, or have been, done in-house are increasingly outsourced without so much as a concern or even the recognition as outsourcing.

Cloud Outsourcing

Cloud computing in so many ways is about looking to outside parties to purchase a service. The analogy often used is like buying electricity or phone services instead of self-performing. Sure some colleges have their own power plant but most don’t. So we look to the cloud for student scholarship clearinghouse services, financial aid, contact management (CRM), social media sites, and so on. IT Outsourcing or Not? Cloud outsourcing or Not?

If you move student email to Google or Live@edu is that cloud outsourcing? Well it is definitely a sourcing decision that could be done in-house, but if it doesn’t eliminate jobs, most don’t view it as outsourcing let alone cloud outsourcing. That’s where we find so much of the debate. When we see SaaS applications being discussed the concern about cloud outsourcing seems to be less energetic. NOTE: I do not put ASP, application hosting or managed hosting services in this debate since they are traditional forms of outsourcing and are NOT cloud computing.

But when the debate focuses on IaaS and sometimes PaaS solutions that’s when things heat up and lots of IT folks assert cloud, IaaS especially, is cloud outsourcing. Why? Because if all the systems and infrastructure move to the cloud the fear is the jobs will follow. This is not unlike the fears surrounding collocation and ASP/hosting from a few years ago.

But this line of reasoning, although sensible and straightforward, fails to address the salient point of cloud outsourcing – is it going to be on-premise or off-premise thereby affecting jobs. The default position is cloud is off-premise since most is, but not all cloud solutions are.

To challenge your thinking a bit consider a scenario where your university gets its ERP or LMS from the central state system IT department. Is that IT Outsourcing or not? What if state office builds a government cloud or community cloud for various IaaS services – Is that cloud outsourcing or not? What if you extend the capacity of your on-premise private cloud to a smaller school nearby, partner agency, or tenants in your research park – are you a cloud outsourcing provider or not? Rent time on someone else’s HPC….you get the point.

I have already hinted at some of the exceptions. They are the scenarios involving the actual transferring of work done in-house to a cloud provider. Eventually this may even be viewed as a technological advancement more than a matter of cloud outsourcing. Just as when we all stopped running our own pager systems and educational television broadcast networks in favor of commercial options. Today, nobody thinks of those as outsourcing.

I realize this may not be a very neat and tidy topic. Perhaps because it is so dynamic or because each of us have a different frame of reference. I just know if you decide to sell your surplus property through eBay or Craigslist you’d have a hard time convincing me that is outsourcing. You would also have a hard time convincing me that using AWS or Azure for student projects or for user developed applications is anything other than smart sourcing using a cloud service – not outsourcing.

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8 Responses to Is Cloud Computing Outsourcing?

  1. Nice write-up. I just came across your website and would like to tell you that I have certainly appreciated reading your posts.

  2. Pingback: Is Cloud Computing Outsourcing? | The Higher ED CIO « Outsourcing Yes

  3. David Barber says:

    Interesting consideration of the cloud, outsourcing and sourcing concepts. I believe that there is only a weak distinction to be made between outsourcing and sourcing when outsourcing is viewed as reducing in-house positions because the work is transferred to an outside entity. The distinction is weak because sourcing IaaS or other services indirectly leads to reduction or shifts in internal staff positions. An example of this indirect change is moving from in-house servers to the Amazon EC2: even if you still have a system administration staff they are no longer going to be doing hardware administration. The conclusion I draw from your post is that perhaps we should abandon consideration of “outsourcing” and, as IT managers, should just focus on sourcing. We need to make strategic decisions about the functions we need to perform and how best to provide them, sometimes the best way to provide them will be what is typically considered outsourcing. Focusing on sourcing is likely to lead to a more complete consideration of the alternative ways available to provide a needed capacity.
    Thanks for your interesting blog post.

  4. David, That’s a very thoughtful comment. I will expand on this idea in the next post but your conclusion is right.that as CIO’s we can’t afford to get too bogged down in Cloud as Outsourcing. There is an inevitability of Cloud and so many existing cloud services we need to begin dealing with cloud as we would any sourcing decision.

  5. mikail says:

    Great post. Shows how MUM has their own strong foundation in the education field. I am inspired of it.

  6. Pingback: Outsourcing v3.0 – The Era of the Cloud | The Higher ED CIO

  7. We provide cloud computing services.

  8. Pingback: 6 Models for Outsourcing | The Higher ED CIO

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