Cloud at the tip of the iceberg

Take-up of cloud-based solutions in business process outsourcing is slowly gathering pace, but still has some way to go, writes James Silver


Beloved by “yummy mummies”, organic baby food presents complex supply chain challenges to its manufacturers and distributors. The journey from muddy field to sticky highchair is fraught with issues ranging from the difficulties of sourcing large quantities of organic produce from reliable suppliers to managing shelf-life so that expensive (and fancily-packaged) stock is not written-off.

With such finely-calibrated logistics, infant food manufacturers Organix turned to an outsourced cloud-based warehouse management system (WMS) solution to minimise waste and boost bottom line, through 360 degree visibility. “What we get [thanks to the cloud] is prompt access to ‘live’, accurate data which gives us flexibility around shelf-life management, as each of our customers has their own specific shelf-life requirement,” explains Hazel Lees, Organix supply chain controller.

The cloud-based element to Organix’s business was developed in conjunction with logistics firm Howard Tenens, whose WMS allows customers access to their data through web portals so they can log-on and check stock profiles, securely, at any time on desktops or tablets and smartphones.

“That gives them additional flexibility and the ability to react to any given circumstance,” says Jamie Hartles, head of commercial at Howard Tenens. “With any large IT rollout there needs to be an interface between the customers’ system and ours to allow for the seamless transfer of data - the order coming in and going directly into our WMS to start the processing. Historically, that’s been a costly exercise involving IT infrastructure. A cloud-based environment means that headache has gone.”

Cloud-based solutions are becoming more common in back-office processes such as HR

But while logistics firms are increasingly turning to cloud-based solutions, the vast majority of business process outsourcing (BPO) services in the cloud are rather closer to the “early adopter” phase, than a “tipping point” moment. Although Gartner reported that the Worldwide IT outsourcing market grew 7.8 per cent in 2011 year-on-year, with revenues totalling $246.6 billion (compared with $228.7 billion in 2010), it also pointed out that globally cloud-delivered BPO only accounted for approximately 13 per cent of the total BPO market worth $135 billion last year.

“This industry moves at a glacial pace when it comes to adopting new services and technologies,” says Cathy Tornbohm, vice president of research at Gartner, who authored a report on BPO and the cloud. “Cloud-based BPO is unproven in most markets, so organisations are approaching its use cautiously.”

Cloud-based solutions are, however, becoming more common in back-office processes such as HR. Northgate’s euHReka product for global HR service delivery, for example, is used by AstraZeneca and is claimed to have driven cost efficiencies.

Ms Tornbohm explains: “Cloud-based BPO is well-used in HR, especially for payroll, which is a highly-automated, standardised and a pay-as-you-go model. Essential cloud-based BPO is business services on demand, probably based on SaaS-type [software as a service] platforms that deliver more than the application’s functionality, as the provider takes on the risk of supplying the actual business process. This is growing in expenses, e-invoicing, payments services and other industry specific activity, but is unlikely to take off for full-blown finance and accounting for a few years due to the dependency on ERP [enterprise resource planning] across organisations,” she says.

Last year’s Amazon web services cloud outage, which caused huge disruption in the US to services, such as Foursquare and Reddit among others, has only added to the sense of caution surrounding cloud-based BPO, leading some to question its stability and security.

That’s not surprising, says Stanton Jones, analyst of emerging technologies at Information Services Group (ISG). “Concerns about scalability, reliability and security are based on two key reasons. First, cloud is focused on ‘what’ and not ‘how’. Cloud, especially platform and software services, abstracts the underlying infrastructure from the consumer of the service. This is a titanic shift for IT, legal and procurement organisations, as they have traditionally focused on ‘how’ rather than ‘what’. These organisations, typically the key technology buyers and decision-makers, are struggling to make this shift, which leads to even more ‘how questions’, ultimately delaying adoption of cloud services.”

He continues: “The second key reason so much confusion and concern exists is due to the fact that cloud services, by their very nature, are highly standardised. This is how suppliers create economies of scale by sharing infrastructure and software across hundreds or thousands of customers. Standardisation does not only exist in the underlying infrastructure, but also in contract terms, service levels and pricing. While customers are attracted to the idea of standard solutions and understand the benefits, it is difficult to implement on a large scale, because enterprises are accustomed to building or outsourcing solutions that meet their very specific needs.”

Mr Jones believes the industry is only “at the tip of the iceberg with cloud”. Buyers are still at the “kicking the tyres” stage on these new solutions, he says. “They are not yet buying on a large scale.”

CASE STUDY

Game on as Sega heads for the cloud

When games giant Sega set out to develop infrastructure, which would enable it to share new games with external testing studios around the world, it collaborated with telecoms services multinational Colt and virtualisation software company VMWare to create a hybrid cloud and scalability on demand - reducing games testing time by 70 per cent as a result.

“Sega had been game-developing using their own infrastructure and they had a few challenges, not least that, when it came to testing, they would send the games out on DVD to the game-testers and also allow [the testers] at times to come in to their secure network,” explains Joe Baguley, chief cloud technologist EMEA at VMware. “So they worked with Colt to use the vCloud essentially to have a huge on-demand testing environment which scales when they need it.”

The business impact for Sega included greater consistency and control of testing, as well as offering a safer testing environment, says Mr Baguley. “They saved a lot of money and improved their service because this greatly reduces their time to market in terms of how they can test and deliver games. They can now deliver better quality games, faster than their competitors.”