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Cloud and sourcing: Understand the shifts in risk and value


charlesbetz.jpgBy Charlie Betz


Charlie Betz is research director for IT portfolio management at Enterprise Management Associates (EMA) and author of the white paper, “Business Intelligence for the Business of IT.”


When you adopt external cloud services, do you understand what are you actually sourcing differently? This question has been on my mind as I’ve been writing my last few posts about the commoditization of IT and the CIO’s evolution into a supply chain manager. There’s a tendency to look to the outsourced cloud and think that by adopting it you’ve dealt with the commoditization of IT and are getting more efficiencies, end of story. But there are some things – I’ll call them IT thought processes – that only get more important as you move up the cloud ladder. Value and risk considerations shift, and it’s important to understand how this plays out.


The three stages of cloud

The National Institute of Standards and Technology, NIST, has categorized three types of cloud. So let’s look at them as sourcing options. (Note that “cloud” is not the same as the sourcing approach. You can run internal cloud services as well, but the combination of cloud with an outsourced ownership model is arguably getting the most attention.).


  • Infrastructure as a service (IaaS): This is the most basic form of cloud. With IaaS you’re saying you don’t want to own and operate the lowest levels, the most commoditized, most systematized levels of the stack. (And to get back to my earlier blog post on Alan Turing, he predicted that these levels would become very systematized). But you still need to own and operate your own middleware (for example, a relational database). So if you choose IaaS, you still need to have a database analyst (DBA), for example.
  • Platform as a service (PaaS): With PaaS, perhaps you’ve decided you don’t want to own and operate the relational database at all anymore. But you probably still need a DBA (or perhaps a data analyst, a somewhat different person than a DBA) working at a higher level of abstraction to define what tables you need. Of course, some will say you can get away from that if you go into software as a service.
  • Software as a service (SaaS): Now you don’t need to worry about infrastructure, middleware, databases, or anything, right? Well, not quite. Say you move to and get a canned application that meets 80% of your needs. But there can be a lot of money in that other 20%, so you wind up going outside and hiring developers to customize what you need. Even if you don’t do this, don’t customize at all, you find that the sheer complexity of understanding the data after a few years of operating the outsourced SaaS application starts to require increasingly technically savvy people – and so, even though you may have reduced headcount earlier, these folks start to come back in.


You can’t outsource value

No matter where you are with your cloud adoption, you’re still going to seek competitive advantage, you’re still going to customize, configure and build stuff. The bottom line is you’re developing non-trivial complexity that someone’s going to have to take stewardship of for the benefit of your business. And you’re going to need some sharp people to deal with it.


You may not own and operate your computers anymore, you don’t even have own data center, you’re not even worried about the database anymore. But now you’re now worried about the API. Or you’re worried about some massive rulebase you’ve compiled that embodies the most critical aspects of your business strategy. And if you want to innovate and you want to do new things that differentiate you from your competitors, you’re never going to get away from that API, or that rulebase.


It’s the same with big data. You can outsource the data center, you can outsource the platform, you can dump terabytes of data into some outsourced, cloud-enabled big data provider. You still need somebody who’s savvy enough to know what query will provide you the necessary intelligence for you to optimize your next marketing campaign. You can’t (at least, shouldn’t) outsource that. You need to understand where value lies, and you need to understand your demand.


Risk will shift but never truly go away

Just as you can’t outsource value, I would argue that you can’t outsource risk. Of course, you can outsource certain risks. If you have a caterer come in and make you dinner, you outsource the risk of you cutting yourself on a kitchen knife. But you’ve now replaced it with a different risk: You wanted a meal and you’re now depending on someone else to make you that meal. The larger risk is that they will injure themselves with that knife to the point that they can’t provide you the meal. And so you don’t really get away from the risk of cuts in the kitchen. Instead you become concerned with “How well does this caterer have the resources and procedures to deal with the occasional kitchen accident?”


As IT clears away some of the plumbing issues that have distracted us for so long, risk and value remain. These are what make material differences to the business. And it’s the thinking behind these that can’t be automated and can’t be outsourced. Recognize that and think about how they relate to your business in order to make the most of commoditized IT.


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