Scott Feuless posted a blog post
Procurement’s Cloud Challenge
Most of the public discussion on the impact of cloud on our day-to-day work has thus far been on how management and provisioning of infrastructure is changing or on how new possibilities for application delivery are now available, including faster IT delivery with new functionality at a lower price point. But there’s another important change occurring right now, and it involves the way IT services are procured. As the demand for cloud-based resources moves from the business units to central IT, Procurement teams are scrambling to accommodate the new realities that come along with it. There are a number of reasons for that:Requests for Proposals may not always be appropriate for cloud services. Public cloud providers tend to keep their costs down while meeting customer needs by offering service catalogs that are very broad but also very standardized. Dictating to them what they “must” do and how they must do it isn’t something they can always comply with – custom solutions break the business model. Customers are better served by simply describing their objectives and asking providers to describe the proposed solution that meets those objectives. The trick is getting the providers to respond with enough details to enable a proper evaluation of the alternatives.Pricing of competing offerings cannot normally be directly compared. You can’t just look at published pricing for server instance x from one provider and compare it head-to-head with a similarly configured instance from a different provider. TSpecifics like whether the instance is on shared or dedicated hardware, the length of commitment, which OS version it comes with, which data center it’s located in and performance characteristics all vary and can affect the price. Bandwidth, data transfer, IP addresses, management options and security options also vary and may or may not be bundled into the price. The same holds true for cloud storage, where performance characteristics, in particular, can vary widely. In these situations, the only effective way to compare cloud solutions is to develop a sample configuration and ask each provider to price it. This must be done as part of the business case for the service.Everything depends on the application. Each application that goes to the cloud has different requirements for the underlying infrastructure, with different usage profiles, security requirements, recoverability requirements, etc. A provider that gives you the most cost-effective solution for one application may give you the least cost-effective solution for another. Some specialized applications may not even run properly or be fully supported on all public cloud infrastructure, so practical choices may be limited. That means that pricing a single sample configuration will be insufficient for determining any long-term provider strategy. Different configurations for several different workload classes will need to be priced before settling on a comprehensive provider strategy.Complexity has moved from the bidding process to the selection process. Evaluating responses to an RFP is relatively straightforward, since the RFP forces proposals into a tight structure that can be easily compared. That’s what the Procurement team is used to. When there is no RFP, competing solutions may meet customer objectives in very different ways. The evaluation of each of those solutions must take into account numerous factors like compliance, security, elasticity, portability, governance, support, scalability, availability, recoverability, functionality, cost and more. Doing so requires expertise with a consistent cloud service evaluation framework, and Procurement teams currently do not have that expertise.Negotiation is a completely different exercise than it has been in the past. Providers do not typically negotiate on the features and functionality of their cloud service. Public offerings are under significant market pressure to provide value for money, and that pressure is the best negotiating tool. If a provider does not offer something you want, vote with your business and use a different provider, letting them know why you made your choice. If that happens enough, they will change their standards. Terms and conditions, including SLAs, also tend to be simplified, favorable to the vendor and rigid, but ISG does see some movement in negotiation if the customer represents enough potential spend to get the provider’s attention.Given these challenges, Procurement cannot go on fulfilling their mission in the usual ways with the usual tools. New methodologies and tools are available now and are evolving quickly, and Procurement teams will have only limited success if they continue trying to use old approaches to procuring these new services. Scott Feuless is a Principal Consultant with Information Services Group (ISG).See More