Cloud computing is taking the world of IT by storm. The promise it made of a flexible and cheaper IT is coming to realization. It is changing the way CIOs engage with their businesses and the way they contract for IT services. With the number of organizations hooking into the cloud, maximizing the potential of the service is crucial to success.
Understanding the cloud structure
The cloud is not simply another fantastic technical innovation, it is a working innovation that enables business and commercial operating models. It allows testing through pilots and experiments. It allows businesses to fail often in the pilot mode so they can succeed sooner in the real world.
With markets demanding agility, the cloud allows businesses to come up with new services without being locked into long term IT contracts. The business advantages therefore with the service can be listed endlessly.
The choice to opt into the new service however is not simple for a business owner. The risk, capability and commercial issues, especially issues like the level of integration that the company has to make across the distributed services make adopting the cloud not an easy task. The decision is further complicated by the constant ebb and flow in the market with regard to pricing, offerings and definitions.
With this understanding there are three simpler routes that can help CIOs maximize the benefits from the technology.
Standard services will use standard contract terms
Cloud services can be categorized into infrastructure-as-a-service, platform-as-a-service or software-as-a-service. When businesses are looking to contract for any of these services it is very often a standard and a leveraged solution. With time, the service provider’s contracts have come to adequately cover the earlier weaknesses surrounding the data and the security placement.
With these standard contracts, there is no need to crack the code again trying to draw up a new more comprehensive contract. The agreement will already have defined the exact scope of work and the exact level of performance expected from both parties.
The service to an extent has become almost a commoditized product making its adoption into new businesses seamless. Therefore, instead of focusing on the contract, businesses can focus on the additional services that they might require. They can also ensure that the contract specifies specifics such as “service wrap bolt-ons”.
Despite the standard contracts, both parties should ensure clarity regarding what is included in the contract and what is not a part of it. The agreed upon price should include all the components and pieces that are required to fulfill the job. Finding out the nuances during implementation is only going to slow down execution and therefore the business itself.
Move away from traditional outsourcing
With traditional outsourcing, the flexibility is limited and constraining. Cloud solutions freed from the outsourcing model use transparent pay-per-use pricing models. Non-scalable prices form the entire model should be eradicated to ensure flexibility. The prices associated with set-up and governance, usually onetime costs can be completely avoided with the cloud solution.
In order to avoid closeted traditional outsourcing costs, CIOs may look for the following.
- Swerve around fixed-term contracts entirely. Traditional contracts cannot be exited at any time, the exit would cost nearly as much as staying till the close of term. With cloud services exiting the contract at any time should not attract any big penalties and one should be able to leave with very little or no notice.
- The total deal values of cloud sourcing transactions are smaller and the transactions themselves are shorter in comparison to outsourcing deals in the past.
- These services do not attract customization costs. The services that benefit one company can be shared with many other clients by the service provider. The providers themselves stand to gain much more by investing in these customizations from their own pockets.
- The capacity management is the responsibility of the provider or supplier and contracts that are binding in order to consume a certain capacity are superfluous.
- The contracts should only specify the capacities in use. Suppliers can leverage economies of scale with cloud technologies and these savings should be given directly to the consumer.
A contract that advocates flexibility
Adopting the technology is a continuous change, a journey of sorts. The contract should support the changes and even help adopt the changes through the contract period. What a business requires today might not hold true for the future. The contract should therefore allow free movement between various cloud technology types in the future. A hybrid cloud solution will allow the integration of new services into the existing model.
When the contract does not embed the risks associated with traditional outsourcing, flexible business-led capabilities can be easily integrated. When most companies and businesses are relying on cloud as a strategic investment for the future, it is of paramount importance that the technology be flexible. An example of this use of cloud is the use of anonymized data for data warehouse type interrogation and testing. The CIO is increasingly moving into the zone of a broker rather than just a service provider.
The technological opportunities with cloud are innumerable, the potential pitfalls that can slow progress down are also just as innumerable. Understanding how exactly this technology is different from traditional outsourcing is the first step that businesses can take in order to avoid being trapped in the pitfalls. Perusing the contracts with a magnifier is also a good way to completely understand the agreement in all its fine print. Through these strategies then, businesses will be able to fully realize the potential that the technologies open up.