Strategic IT sourcing in the cloud era

  • Many suppliers are struggling with how to deliver value in the cloud era.

  • Your value proposition must shift to serving as a true solution provider.

  • To take advantage of the cloud’s opportunities, you must embrace change.

“Your mess for less.” Usually these are dirty words in the world of strategic sourcing. Basically it involves the supplier taking over the customer’s IT operation and running it in pretty much the way it was run before. And thanks to scale and expertise, the supplier is able to cut cost from the operation to provide savings to the customer while still achieving an acceptable margin for themselves.

This option may take an operational mess off the customer’s hands but usually doesn’t deliver much in the way of innovation, improved service, or business value. It also may set up the supplier for significant customer dissatisfaction in the long run, not unlike what the business may have felt about its own IT department.

IT sourcing model advancements

A big advancement on this original sourcing model was the transformational sourcing model that has largely been the objective of most providers, and often customers as well, for more than a decade. This model is typically built upon a technological refresh and operational process reengineering: The client is migrated to the next generation of technology (e.g., platform, network, application). The supplier applies its expertise in terms of people, process, and tools to more professionally and efficiently manage the customer’s IT systems.




In this device-centric model, much of the value is delivered through the supplier’s ability to migrate the customer to new technology, and then to operate it efficiently for the term of the contract. They run the datacenter and the network and provision the servers, switches, and routers. They may also develop and maintain the applications that run across this infrastructure. Perhaps with the exception of strategic planning and in some cases technology architecture, they become the IT department for the customer with total control over IT operations.

When done well, the supplier delivers quality service and adapts that service to the evolving requirements over time, providing value to the customer in terms of cost savings and stable operations. While this model delivers value to the customer, especially during the early years, two challenges arise once the initial transformation is complete: finding ways to provide ongoing innovation, and changing business requirements that may redirect the initial deal objectives.

Delivering IT source value in the cloud era

Today, many suppliers are struggling with an even bigger challenge, which is how to deliver value in the cloud era. How do you migrate existing customers to the cloud and then offer compelling value once they get there?

So what’s so different in the cloud era? For one, much of the value delivered in the transformational model is readily available in the cloud, meaning the core technology transformation, as well as ongoing refresh of the platforms, is provided by the cloud provider (e.g., an IaaS, SaaS company). Additionally, cloud operations are also part of the cloud service, and while perhaps more generic than a tailored customer-specific solution, it provides significant value outside the control of the supplier. Being that device deployment and ongoing operations were historically two key aspects of value delivered by the supplier, are they still needed in this new cloud model, and if so where?

I’d offer that the answer is yes. However, the supplier’s value proposition needs to shift away from technology migration and core operations to being a true solutions provider. I’ll cover just how to do that and still offer value to your customer in my upcoming post, “8 ways to deliver IT source value to your customers.”

Learn more about managing growth and scaling your business’ possibilities with cloud services from AT&T.


Steve Caniano Networked Cloud Solutions Vice President AT&T About Steve