“Change is the only constant,” said Heraclitus, an ancient Greek philosopher. Present-day IT and Business Process Outsourcing is continually influenced and transformed by various economic, political, social and technological factors. As outsourcing evolves, new business models emerge and drive change. Cloud computing is a key technology chapter happening right now that has the potential to define the way outsourcing would be done in the near future.

Traditional outsourcing started with labor arbitrage. It leveraged economies of scale, provided bottom-line benefits and moved jobs offshore. Over the past two decades, it has evolved into transformational outsourcing with value provided through business consulting, rationalization of applications and infrastructure, cost benefits, and so on.

With the advent of Cloud computing, new players have emerged and vendors and IT outsourcing providers alike are seeing radical changes in their operational models. Cloud computing  is an evolutionary model of computing by which computing resources such as applications, platforms and infrastructure are provided and consumed as abstract, on-demand utility services accessed over a network.

Cloud computing is a variety of things:

• Business model (to provide various services without incurring capital expenditure)
• IT architectural style
• Computing paradigm
• Natural evolution of programming styles
  • Client/server
  • Object-oriented
  • Service-oriented
  • And now Cloud computing
• Extension of the network cloud, internet or LAN/WAN, to include servers and storage
• Elastic, on-demand and scalable
• System with core management functions such as Fault, Configuration, Accounting, Performance and Security Management built in.

Clouds can offer three basic services:

• Infrastructure as a Service (IaaS)
• Platform as a Service (PaaS)
• Software as a Service (SaaS)

Infrastructure as a Service (IaaS):

Infrastructure components, such as physical or virtual servers, storage and network resources, are provisioned and provided as a service over LAN/WAN. The Cloud takes care of provisioning and management of the infrastructure. IaaS provides flexibility on the choice of Operating Systems, Platforms, etc.

Platform as a Service (PaaS):

The infrastructure and platforms are abstracted in the Platform-as-a-Service model. The Cloud exposes an API or provides a web-based service through which applications and data are deployed. PaaS might result in vendor lock-in and loss of heterogeneity.

Software as a Service (SaaS):

SaaS provides applications alone as utility, multi-tenant services. SaaS users benefit from foregoing the complexity and cost of building and maintaining custom-built applications. However, the underlying structures in SaaS cannot be programmed or customized and are rigid in nature.

There are different types of clouds:

• Public Clouds: Internet-based Clouds such as Amazon EC2, Microsoft Azure, Google App Engine, Force.com, Sun Open Cloud, etc.
• Private Clouds: Clouds built inside existing data centers using virtualization and management products such as  VMWare vSphere, OVM/Open QRM, 3 Terra AppLogic, Ubuntu /Eucalyptus,  etc.
• Hybrid Clouds : Built private but can extend to utilize public clouds
• Community Clouds: Interconnected private clouds of partner organizations

Opportunities and challenges

Cloud Computing presents several opportunities and challenges in the outsourcing business. Some of the future scenarios could be as follows:

The Hybrid Enterprise Data Center

Operational efficiency and increased utilization of distributed infrastructure is made possible by the adoption of cloud computing.

Vendors would start offering private cloud solutions for optimizing the existing infrastructure. However, new procurement for hardware could get delayed. Hardware vendors would target marketing directly to public cloud providers. A new form of IT services retailing is emerging with:

• Public cloud providers playing the role of retailers
• Hardware vendors playing the role of suppliers or wholesalers
• Customers choosing and paying for only what they use

For this, infrastructure outsourcing providers would have to develop new skills to build and manage private and public cloud infrastructure and platforms. Traditional outsourcers would have to work with new public cloud providers and establish commercial contracts. High level of infrastructure automation would have to be performed in the areas of monitoring and management, leading to a reduction in manual work.

Traditional hosting providers have already started offering cloud hosting services and are transitioning from traditional hosting solutions. They would have to guarantee SLAs and satisfy QOS requirements, which most enterprises demand for their workloads.

Application development and management

Cloud platforms would bring in a new way of architecting software and modeling data, and pave the way for a newer family of programming languages. They would remove the IT barrier for entrepreneurs and allow for more solutions to reach the market quickly.

Developers and testers would no longer be tied to their desktops. Mobile workforce and telecommuting would soon become viable as organizational policies would evolve to adopt cloud solutions. Already, most of the code development and maintenance in offshore outsourcing companies is performed by connecting to the customer desktop clouds.

Services such as code analysis, build and test automation, continuous integration, auto deployment and self provisioning of applications in production would be provided by the clouds. This would result in improved user productivity and lesser project slippages.

Software, be it ISV-provided or custom-developed, might be used on a pay-as-you-use utility basis, though there is little movement currently from software vendors toward offering licensing models for utility-based pricing of software.

Business process outsourcing

As with any BPO operation, reducing manual labor and increasing productivity would be the key challenges that could be addressed by adopting cloud computing.

The benefits of cloud computing would be leveraged in decreasing the processing time for data-intensive business processes, automation in document or image processing, and publishing.

Most call center and CRM applications may not undergo disruptive changes as they are already on a SaaS-based operating model.

BPO organizations would eye cloud sourcing for achieving non-linear growth and focus on operational cost reduction with new business models.

Innovative products and services

Business applications and ideas, which are usually put on the backburner for lack of infrastructure or high effort involvement, would benefit. Innovative ideas can be very quickly developed into workable applications and rolled out in a SaaS model.

Cloud computing really helps where there is multi-tenancy and a demand-supply model. Companies with in-house IP and solutions would want to effectively move them to a public cloud model and improve top line from new markets.

New products and services would be tailored and delivered over the cloud and cloud management software and services would gain ground. Presently there are not many standards on interoperability between various Cloud computing solutions. But the rise of open standards would accelerate cloud adoption along with solutions to improve security, large data movement, etc.

Cloud computing represents an interesting shift and evolution in the outsourcing industry. It could truly evolve into a pure utility-based model delivering benefits such as:

• Cost-effective computing with minimal or no capital expenditure
• Efficient utilization of resources and increased automation
• Scale-as-you-grow, pay-as-you-go model
• Capacity on demand (applicable to retailer scenarios where more capacity is required only for the peak seasons)
• Flexibility, mobility and anywhere IT
• Reduced total cost of ownership
• Shorter time-to-market
• Business-focused IT

In the near term, enterprises that have adopted aggressive virtualization would build and use private clouds. In the longer term, as security, lock-in and data movement concerns are addressed effectively, public clouds would become widely accepted.