How Cloud Computing could Impact Outsourcing

IT-related organizational functions like technical support and data-centers have been successfully outsourced by organizations for over a decade now. Right from helping the organizations to maximize their in-house capabilities, outsourcing has always been beneficial for organizations and has played a vital role in saving long-term capital investments. However, with the advent of cloud computing, the long-time outsourcing-driven organizations are eyeing the advantage of transitioning their IT functions to the cloud. This shift from traditional IT-outsourcing to cloud-based infrastructure could leave a major impact on the outsourcing industry. With the migration, various aspects like supplier behavior and technical challenges faced by organizations could be affected.


As more and more outsourced functions being included under the scope of the cloud-based service, the number of functions that would totally or partially get migrated as cloud-based has been steadily increasing. Experts believe that in next 7-8 years, more than half of such functions would totally become cloud-based and would lead to a complete overhaul of IT functions that are currently being outsourced. This has also affected the spending patterns of existing outsourcers, with many of them setting aside the substantial amount of their outsourcing budgets to be utilized for transition purposes.

Revamping of Outsourcing Methodologies

Having changed the primary tasks of several IT functions, cloud computing is projected to change the ideology behind the outsourcing contract method. The novel methodology could now offer customers the option to leverage the short-term benefits of the contracts, giving them more flexibility to purchase latest services that would be superior to the existing ones. Even the current impetus placed on their services by outsourcing service providers would be altered to suit the need of the customers. They would be enabled to bargain for a cost structure that is much more functional, as it would be based on the practical evaluation and forecasts of critical functions. The cost structure will also be inherently connected to the customer’s usage patterns and will also take into account their revenue items.

Switching to IaaS (Infrastructure-as-a-Service) model

When the senior management team of a company is looking to scale up the operations, it would never want to end up in a situation that has infrastructural disruptions. If the management wants the IT infrastructure to keep pace with the competitive pressures faced by the organization, then IaaS is a good bet. It can help them access the latest innovation and respond to the competitive demands. With virtually limitless scalability, it can offer them a drastic reduction in the costs through the pay-as-you-go model. As far as compliance and security are concerned, it is on par, if not better, than what businesses could expect from their outsourcing service providers. When the aspect of scalability is available on-demand, it offers the companies the option to maximize or minimize the operational functions with minimal difficulty. This flexibility can help them respond to changing opportunities in the market and cater to the immediate requirements. The agility is quite beneficial when it comes to building an experiment-based or developmental environment, and is also vital when dismantling them as there is no direct effect on cost. With IaaS, businesses can leverage the agility offered by the service providers to create the best infrastructure for a short period and make the best use of it.

Identifying the benefits of the transition
While the transition to the cloud-based services offers significant advantages, there is a considerable dilemma over what it means to the vector management professionals who’d design the next-gen contracts. Companies seeking a smooth transition can make the most if it by following the various aspects that are listed below.

  • When businesses are trying to figure out whether cloud services would eliminate the need for outsourcing or if both can be merged into a cohesive platform that utilizes the best of both, it could possibly lead to the evolution of a multi-provider ecosystem. This could promise amazing new alternatives for the cloud technology providers when it comes to providing customized contracts. They could negotiate with companies of all sizes to optimize the solution that caters to the specific needs and at prices that would add value to their deliverables.
  • The flexibility offered by the cloud service are one of the ideal reasons enterprises would not want go for a long-term commitment on outsourcing. With short-duration contracts, companies can leverage the advances in the IT solutions that come with the cloud-based services. Moreover, with access to innovative patterns in data consumption, Cloud-based solutions can enable several cost recovery operations.
  • Previously, when businesses opted for specific cloud solutions that were bought on a take-it-or-leave-it basis, the providers didn’t feel the need to negotiate with their customers. But with the changing landscape where more and more companies are seeking cloud-based services as a complete package. This has created the need for the suppliers to offer better concessions and favorable pricing in exchange for customer loyalties. When companies know that the service providers will allow them to bargain based on capacity provisions or on terms of resource volumes, they can secure a considerable price advantage. This will help them to further reduce the cost of transition and help maximize the returns.

While it may be too early to deduce the course taken by major IT outsourcers, it can be safely assumed that cloud-based services are bound to leave a major impact on the outsourcing industry. Even if IT-outsourcing continues to hold its significance, the terms of service and the proportions of solutions involved are about to change considerably.

Key Takeaways
  • While outsourcing has always been beneficial for organizations and has played a vital role in saving long-term capital investments, businesses are looking at more lucrative advantages offered by Cloud computing. 
  • When the aspect of scalability is available on-demand, it offers businesses an option to scale their operational functions with minimal difficulty. 
  • The flexibility offered by Cloud computing can help organizations to respond to the latest opportunities in the market.