Conclusion: Transitioning to hybrid Cloud might include migration from the current outsourcing contracts and some in-sourced activities to IT-as-a-Service models. The rationale is to accelerate efficiency gains realisation in a timely manner. One of the Procurement Manager’s options is to seek a service broker (e. g. prime contractor) to efficiently undertake the migration without disrupting the current business operations.

IT Procurement Managers should:

  • Establish governance arrangements underpinned by an effective organisational structure, tools and processes to select the service broker
  • Request the acceptance of the transition plan to become a prerequisite to contract signature
  • Manage the new contract until the business objectives are met

One of the migration critical success factors is a detailed transition plan covering the service provider selection and setting the foundation of a healthy relationship between both parties throughout the contract duration.

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Conclusion: IT organisations wishing to maximise the ROI of as-a-Service contracts must transform the relationship management role from contract focus (i. e. whereby the mindset is to create a win/lose scenario) to a value focus whereby business benefits are realised. This demands building advanced skills in negotiation, communication and consulting. It is also necessary to extend the Relationship Manager’s role to one which ensures as-a-Service policies are developed, security policies are adhered to and external providers’ deliverables are synchronised with those of internal service providers.

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Conclusion: With the migration to complex hybrid sourcing strategies, traditional IT organisations based on ‘plan/build/run’ models will not be suitable for acquiring Cloud services in an increasingly changing market. This is due to a vague understanding of service total cost of ownership and limited contract negotiation and management skills. IT organisations wishing to rely on external services must evolve to ‘plan/procure/govern’ structure to emphasise strategic service planning and hire specialised service providers’ governance skills. This shift should ensure mutual trust and respect between parties, well-defined service levels and clear roles and responsibilities. IBRS estimates the cost of the governance structure and services to be 3 %-7 % of the annual contract value. This must be considered during the business case preparation.

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Conclusion: IT-as-a-Service is an initiative launched by IT organisations to fix an IT problem, whilst digital transformation is another initiative launched by business lines to fix a business problem. However, fixing both problems remains an enterprise’s critical issue. Hence, organisations wishing to remove the duplication between the two programs should unify both programs and ensure sufficient funds are available to implement the unified program in a timely and cost effective manner.

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Conclusion: While IaaS and PaaS adoption has been increasing, most IT organisations are hesitant to migrate their legacy systems to public SaaS. This is primarily due to the applications being highly customised resulting in a significant effort being required to retrofit existing systems to migrate them to public SaaS architecture in the Cloud.

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Conclusion: There are distinct differences between traditional outsourcing, managed services and as-a-service contracts. Traditional outsourcing and managed services are input-based contracts with a fixed price based on the number of the supplier team members delivering the service, service levels that do not reflect business operations and significant financial penalties when exiting for convenience.

As-a-service contracts are outcome-based contracts, priced on a consumption basis, measured by service levels that reflect end-user experience and no exit fees.

IT organisations should analyse the advantages and disadvantages of each alternative whilst formulating their sourcing and Cloud migration strategies.

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Conclusion: One of IT organisations’ objectives must be to reduce the total service cost of legacy applications by migrating them to a Cloud environment. However, achievement of the desired success largely lies in limiting the scope variations of Application-as-a-Service contracts and controlling the hidden cost drivers. This requires leveraging the lessons learnt in containing outsourcing cost and establishing flexible contracts in the legacy environment. Failure to do so may extend the legacy system lifetime and leave IT organisations with no alternative but to absorb the increased cost of application management on an ongoing basis.

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Conclusion: The Total Cost of Ownership (TCO) was created two decades ago to provide visibility of the total cost of IT assets. It was targeted at IT organisations running an in-house mode of operations. While TCO can provide a good understanding of the internal IT asset cost, it could not estimate the cost per service because the IT budget was never based on service delivery. As a result, it was neither adequate to buy external services nor sufficient to assess the value that an IT organisation can bring to the business lines. IT organisations should adopt the Total Cost of Service (TCS) model to accurately estimate services’ internal costs, benchmark the external services cost and justify the services costs in terms of business imperatives.

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