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Getting Value from the Cloud

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There are more options for purchasing Cloud-based supply chain software applications than ever. The key is realizing the value and savings promised by Cloud vendors.

Open any business publication and an IT or supply chain manager is likely to find an ad like the one from Microsoft Cloud claiming: “This Cloud opens doors of opportunity.”

The promise of the Cloud, according to Micro­soft Cloud, is that it frees up cash by reducing “the need for infrastructure and management.” Costly licensing fees and implementation costs are replaced by subscriptions; gone is the expense associated with maintaining on-site servers and managing upgrades; and everyone is always work­ing with the latest version of the applications.

But, when it comes to the reality of sourcing Cloud services for procurement professionals, is it really as simple as replacing existing appli­cations with Cloud applications? What are the questions a supply chain organization should consider to get value from the Cloud? And, what are the steps that a supply chain manager can follow to better direct their Cloud sourcing dollars in order to gain superior value?

Those are some of the questions we sought to answer in a recently concluded CAPS-sponsored study on sourcing Cloud-based services. The purpose of the study was to develop clarity on what organizations can do to successfully source Cloud services. The topic emerges as one of the most pressing issues for CPOs and CIOs as their organizations prepare to invest millions of dollars in Cloud-based services. Gartner, for instance, recently predicted that the public Cloud services market is expected to be more than $200 billion in 2016. The present study was commissioned at the behest of CPOs who are members of CAPS. In particular, the study focused on understanding the challenges of Cloud sourcing efforts, detailing the risks and their mitigation strategies and offering a framework for streamlining Cloud sourcing efforts of the organization.

We interviewed executives from six large firms that had annual revenues between $20 billion and $200 billion. Participant firms spanned several industry segments including technology, manufacturing, aerospace and defense, and energy. The interviews were a mix of on-site and telephone interviews. The target population was predominantly procurement teams and in some cases, these teams were complemented with members from the IT or legal groups. On-site interviews were typically conducted with a team of personnel that was closely involved in the Cloud sourcing process. Phone interviews were based on a single contact in two instances, and multiple contacts in IT and procurement groups in others. Finally, participating firms included not just Cloud buyers, but also Cloud suppliers.

The research effort began with a set of questions based on an extensive review of the research already published in this area. The questionnaire was also guided by feedback we received from several senior procurement managers. In addition, one of the authors participated in a CAPS focus group event to gather insights from participating companies. We traveled to firms’ locations to meet with teams of executives; firms also generously contributed documentation on a non-disclosure basis, on request. Our questions focused on several key areas, including an understanding of the current and future IT environment in the firms; understanding the key aspects behind supplier selection and performance monitoring in Cloud sourcing efforts; and assessing the risks and mitigation strategies of Cloud sourcing efforts across the different stages.
Backdrop of Cloud sourcing efforts

Organizations move their IT to the Cloud for one or more of the following reasons. On the internal side, they adopt Cloud to lower the cost of their IT infrastructure or to improve the ability to scale their business—often globally. On the external side, they may be forced to move to Cloud services by software suppliers that are increasingly migrating their on-premise solutions to the Cloud. In the process, organizations are discovering that sourcing Cloud services is complex—especially compared to traditional sourcing efforts—for several reasons.