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Will the Cloud computing displace traditional IT outsourcing?

Browsing through the web last week I found an article with quite a strong title “The end of outsourcing?!”, written by my friend and fellow IT outsourcing expert. In the article he argued about the prediction made by the head of the outsourcing practice at consultancy A.T. Kearney. In its report “The End of IT Outsourcing As We Know It” Mr. Arjun Sethi states: "In the next five years, outsourcing as we know it will have disappeared." Well, I would say rather bold prediction, especially taking into account recent predictions about the “upcoming golden age of outsourcing”, nevertheless let’s try to find out the probability of such prediction.

There have been much said about the future of IT outsourcing lately. From the Cloud dominance to global shift in delivery and governance models to reverse sourcing and protectionism. Myself, I conducted several works and started a number of discussions here in LinkedIn with the relation to the Cloud computing and its potential affect on IT outsourcing industry. While I saw many experts predicted growing trend for pay-per-drink model there wasn’t concordance and obvious verdict for the shift inside the industry anytime soon. Of course there are some obvious benefits of this model, such as costs, agility and focus which can provide a whole new set of opportunities for both business and individuals. But for the corporate sector, bread and butter of IT outsourcing, all they don’t outweigh security, reliability and ownership of proprietary systems yet. Moreover, investments made by corporations into the existing infrastructure slow down adoption in the sector.

In his forecast, however Mr. Arjun Sethi associates massive reconfiguration of IT ousourcing industry, that according to him should take place in the nearest future precisely with the rise of the Cloud computing. The new era will be driven by Google, Amazon and bunch of new players, while powerhouses such as HP, Accenture and Xerox are in peril to lose their leading positions, and boutique Indian outsourcers poised to disappear at all. Well, it is quite truth that we are moving away from large multi-year full stack contracts towards more specialized, smaller service agreements, but with the current massive consolidation many of those specialized providers will be under umbrella of those big ones.

I also agree that the Cloud brings huge opportunities for highly-configurable systems that might fit needs of many sectors and industries, but standardization which, according to Sethi will feature the revolution in industry is unlikely. Although, today all major software houses and providers include cloud computing offerings in their portfolio, most of them just contemplate their core offerings with the Cloud options, even Microsoft - the company that announced a company-wide refocusing on cloud computing still fully relies on its software installed in physical assets. It will take more than a year or two or even three to change their model.

Although cloud computing experienced a phenomenal growth during last years, it's still in its infancy in corporate sector - cash cow of IT outsourcing industry. No doubts it will grow, grow fast, especially in SME sector, but it will take a good amount of time to make this transition to fully based pay-per... model. And still much should be done before we can signify the new era - meanwhile, forgive for my prejudice I don’t see end of traditional outsourcing.

Will be glad to know other opinions. Please join the conversation in Linkedin, click here.