CW500: Cloud versus outsourcing – is it worth outsourcing any more?

All CIOs are in some way working with the cloud. This might be migrating entire IT infrastructures to a virtualised environment, allowing departments to use specific software as a service, or simply early stage evaluation

All CIOs are in some way working with the cloud. This might be migrating entire IT infrastructures to a virtualised environment, allowing departments to use specific software as a service (SaaS), or simply early stage evaluation.

CIOs met at the latest CW500 event at the Charing Cross Hotel to discuss this and how it is affecting traditional outsourcing strategies.

The speakers – Steve Briggs, head of IT sourcing strategy at the Co-operative Group; Mike Proudlock, IS programme manager at Tate Britain; and Stuart Wright, director of IT and Networks at Sega – each had different stories to tell when it comes to cloud journeys.

They all agreed, however, that the cloud is outsourcing. The Co-operative Group's Steve Briggs described it as “just another way of doing things". Most agreed that many businesses are actually using the cloud, although they might not be aware of it.

The Co-operative – traditional outsourcing with cloud on the horizon

A good place to start is The Co-operative’s outsourcing model, which does not yet include cloud services. The company epitomises an organisation that will be cautious about any transformation, never mind pushing IT into the cloud. 

We do not see cloud as the answer to everything, but we do see it as an option

Steve Briggs, The Co-operative

The Co-op is a heavy user of outsourced IT services. spending more than £200m with 531 suppliers, 12 of which are strategic. It’s diverse business of retail, banking and funeral services is today all under a single CIO. “For the first time in history, we have a single IT operation, led by a CIO who sits on the board,” said Briggs.

He said the outsourcing organisation will consider cloud, just as it does any other option: “We do not see it as the answer to everything, but we do see it as an option.” 

Briggs said the company is used to large outsourcing contracts, so if it moves to the cloud, where suppliers are different to traditional systems integrators for example, it will have to change its approach.

Due to the regulatory environment for the Co-op’s bank, as well as its 40-year-old legacy systems, migration to the cloud will not be easy, but he acknowledged that there will be cloud-based answers to the company's challenges in the market: “Somebody out there somewhere has the answer, so be open-minded.” The challenge is to find them, he said.

Tate Britain – drawing from experience

Talking about his experience with implementing and supporting cloud computing, Tate Britain's Mike Proudlock described how, as IT head at the Carbon Trust, he was given no choice but to harness the cloud amid a huge budget cut.

“In 2011/12 I led a £1m, one-year programme that moved the entire IT infrastructure into the cloud,” he said. This programme was delivered on time and under budget, and aptly reduced the organisation’s carbon footprint by 27%.

Despite this success, Proudlock would not recommend other companies to take the same approach and move their entire IT infrastructure to the cloud. 

He said the Carbon Trust was responding to very specific business challenges, after government cuts landed the organisation with an IT budget cut – from £5.5m a year to £1m, with VAT on top – while still having to maintain essential services.

At the time, the organisation had a traditional outsourcing model, with service delivery and datacentres outsourced. Proudlock's first port of call was the suppliers. The Carbon Trust told its main suppliers about the situation, but they came back by saying they could not provide the services it needed at that cost, so it was agreed that they would split and terminate the contracts.

The Carbon Trust did, however, get some money from the government for the transition. This funding only lasted until the end of the financial year, so by the end of the following March there would be no more money, and it faced a time constraint.

Blown out by the suppliers, Proudlock said the organisation began the task of looking at the total cost of ownership of systems, finding that when factoring in staffing, patching, maintenance and upgrades, the costs were a lot higher than expected.

“It caused interesting discussions with executives about what systems we actually needed,” he said. There were even discussions about turning the finance system off, although Proudlock was not sure how serious these were.

He said the organisation looked into doing things in-house, but found this has a lot of hidden costs – for example, the installation support, engineers and training required to roll out a new email system. The organisation eventually recognised the only way it could do it was by moving systems to the cloud. 

“Email and SharePoint was dead easy – off-the-shelf and a few pounds a month,” said Proudlock. But for other systems, it was not that easy. “CRM [customer relationship management] and finance really gave me a headache because they were specialist systems.” For these two, the company ended up with cloud-like services – in other words, private clouds.

It’s worth thinking about cloud, but be very clear what your objectives are

Mike Proudlock, Tate Britain

The CRM was the most frustrating, said Proudlock, because the organisation could not claim academic pricing for Microsoft Dynamic in the cloud. “We ended up with a hybrid version.”

He said only two applications remained on-premises, including the human resources (HR) system which only cost £1,000 a year. “Both were small and so cheap there was no point getting someone else to run them.”

We gained flexibility to scale and got away from the need to manage services.

Proudlock said the Carbon Trust, which is a small organisation, gained more clout when it came to negotiating with cloud suppliers. He described how if you have a problem with a multi-tenanted service, and its other users find out, the supplier will soon have no business: “Microsoft was hardly going to jump if we barked at it, but if you are a cloud supplier and have a business model that depends on all your customers being happy to buy your products [a problem for one is serious.]”

But there were challenges, such as systems not talking to each other, which took time to find solutions to make things work. Proudlock said some systems couldn’t talk to the cloud-based systems: “One supplier we used changed its advert from ‘this will work with Microsoft online’ to ‘this will not work with Microsoft online’ within 24 hours.”

So would he do it again? “Probably, yes, but I wouldn’t do it like that. There is no way I will change the entire infrastructure in 12 months again – I am still licking my wounds. But I was driven by a particular issue.”

Proudlock said integration is the biggest problem and the market has a long way to go to make this easier: “It’s worth thinking about cloud, but be very clear what your objectives are.”

Cloud computing in its purest form

Sega’s Stuart Wright described how the ability to scale computing power on demand is helping the company’s core business grow.

“We are interested in the cloud because computer games are changing. Today, generally, all games are online. We are providing a service to customers, with access to online functions like chat and gaming. The cloud is not just to provide great experiences to our customers, but to make the service reliable and cost-effective,” he said.

Sega uses the cloud to enable its customers to game, so it needs to host them. But it is difficult to predict how much capacity will actually be required, so the company requires automatic scalability to prevent it buying too much or too little capacity. “You have a good idea of the capacity needed for a new game after talking to sales and marketing teams, but you can never be sure,” said Wright.

My team used to have spanners and allen keys – now I just need to know how much capacity I need

Stuart Wright, Sega

In the past, the company had been very dependent on datacentres and the IT infrastructure, which are very expensive when you take into account all the building and equipment inside them, he said. But even then, it is not possible to predict how much capacity is needed, so changes will have to be made constantly. 

Passing the underlying infrastructure to a supplier enables the IT department to focus on IT development, he said. “When I got involved in IT, I did not want to get into air-conditioning – I am not interested in that. IT is changing. My team used to have spanners and allen keys – now I just need to know how much capacity I need.”

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