Is Cloud The New Outsourcing?

Is moving to the cloud the new IT outsourcing? And are we making all the same mistakes?

Jim Fowler, CIO of [entity display=”GE Capital” type=”organization” subtype=”company” active=”false” key=”ge-capital” natural_id=”fred/company/102574″]GE Capital[/entity], said in 2014 that “We’ve gone too far from an outsourcing perspective.” GM announced in 2012 that they would reverse their outsourcing decision and change from 90% outsourced, to 90% insourced. A new wave of insourcing was coming, we were told.

And yet today we see companies announcing a wholesale movement of IT systems into the cloud. Australian real-estate listing site Domain is doing it. The Guardian recently announced they are moving everything to AWS after failing to stand up their own private cloud solution based on OpenStack.

Are we repeating the mistakes of the outsourcing movement, by swapping in the word cloud?

Maybe. It all hinges on the decision process behind outsourcing, or moving to cloud.

At the core of a decision to outsource is an understanding that there’s little value to the organisation of performing a function itself. The classic example is of office cleaning; virtually no organisation has their own full-time office cleaning staff. Instead the work is performed by people from another firm who contract for the work. This is classic division-of-labour, comparative advantage stuff.

The decision to outsource IT follows the same logic: why do this ourselves when someone else can do the same job, only cheaper, and possibly better?

Joey D’Antoni, Principal Consultant at Denny Cherry and Associates Consulting, told me that “in my experience, the organisations that are best suited to outsourcing have rigid, defined processes. That’s very uncommon, especially in places that are trying to cut costs.”

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