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Cloud Computing

Need to align strategic sourcing with cloud service delivery!

I believe the current practices are not adequate to manage the dynamics of cloud computing services. It does not mean you cannot purchase or subscribe to a popular SaaS CRM offering. However, your selection may not be an optimum choice.

Why? Because there is a misalignment between procurement processes and the cloud service delivery model.

The procurement processes are designed to purchase a product with a small market place for a long term lock-in. Cloud services give you wider option and provide the flexibility of short term subscription. Unless the sourcing is tailored to manage the market size, provide flexibility in sourcing, allow for rapid market research the benefits of cloud computing delivery model cannot be utilized by the organization.


Let us take an example of Project Management software or a CRM software. Most of us will know few “market leading” offerings in this space. If you are going to purchase, you may get 3 quotes from these vendor and enter into contract.

In the market place you have much wider choice.  (please see: http://kloudax.net.au/category/service/crm/ for CRM options and  http://kloudax.net.au/category/service/projectmanagement/ for PM tool options).

Of course, you may not use your Capex. You may use your Opex to “rent” these services.

To convince yourself and others, you may not enter into a 3 year contract. You will settle for an annual contract.

It is highly likely that you will continue with the existing vendor after one year than switch to new vendor.

There are 3 reasons for this:

Status-quo Bias: human brain’s preferred state is “status quo”

No process drivers: your existing procurement/sourcing process does not call for periodic evaluation

Cost overhead: the cost overhead associated with market research and switching is high

Status-Quo bias:

Wikipedia describes status-quo bias as “an irrational preference for the current state of affairs”. (http://en.wikipedia.org/wiki/Status_quo_bias) If our example, if you are subscribed to a CRM cloud service, you will likely to continue with the same subscription, even if there is a better product available in the market.

No process drivers:

The procurement process encourages you to get into long term commitment for the “right product”.

This is a fundamental mismatch between cloud service delivery and sourcing. As the cloud market is expanding rapidly, there is more competition driving the prices down. What you have purchases as “best in breed” may not be the same after one year. However, your organisation will never know that.

Unjustifiable cost:

Even if your organisation wants to evaluate every year, the overhead for performing market research, selecting another provider and switching the current services is very high.

I want to hear your views:

I would like to hear your views about the problem statement – the mismatch between sourcing and delivery. Please respond with your comments.

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About Murali Ramakrishnan

Murali is the Managing Director of the boutique consulting firm "Process-Symphony". Process-Symphony specializes in IT enabled business process orchestration. http://www.process-symphony.com.au http://www.kloudax.net.au

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