Post Trade Forum: Cloud computing and SaaS

Thoughts on the outcome of the debate on cloud computing and SaaS

In my pursuit to understand cloud computing without frills, I found the document on NIST portal (http://csrc.nist.gov/publications/drafts/800-145/Draft-SP-800-145_cloud-definition.pdf) very informative and truly amazing; followed this up with ‘Gartner Highlights Five Attributes of Cloud Computing’ (http://www.gartner.com). In this backdrop the ‘POST TRADE’ forum’s forthcoming debate is very predictable.  Let us look at the basics, first things first as it goes.  The brief preamble is followed by what in my opinion will be the trend in the discussions by the esteemed panel.

Preamble:

In times such as these, when global economy is on an edge, one way to show performance is by improving operational efficiency.  The best way to do this is by rationalizing IT spend and investment. Over the years investment in IT has been phenomenal with little relation to or involvement by the business leaders. The 'alignment to business' piece was missing or was not articulated strongly enough. Rightly so, the business leaders are now asking the CIOs / CTOs for tangible benefits.  These folks  (CIOs /CTOs) are shuffling their feet to come out with appropriate answers. Quite difficult though. Outsourcing in all its form was the first step to rationalise the investment.    

Outsourcing is a great idea to improve the bottom line and continuous to be. The decision to outsource is generally at the corporate level and a collective one at that. The word ‘out sourcing’ that started as a God’s given gift, is now as we all know, an anathema; seen as a primary cause for unemployment by transferring jobs to less developed countries; perhaps will be a cause for social revolution if one were to occur.  President Obama is talking about Buffalo rather than Bangalore. In the UK the elected representatives are humorously asking the employees on dole to move to Mumbai.  So what is the best way to ‘outsource’ without creating a flutter in thought (or a social revolution)?  Cloud computing is the answer.

The trend in the discussions:

I foresee the debate in the POST TRADE forum to be more tilting towards cloud than ever before.  I was tempted to respond to the debate questions published in the agenda. This blog are my thoughts:  

The questions here are the ones available on http://www.post-tradeforum.com/ExternalEvents/posttradeforum/ptforum2.pdf

1. What are the pros and cons of outsourcing?

(This is more for setting the context. There are reams of information on this topic)

Primarily,

Pros:  Economy in operations; expert person skills at lower cost; leveraging benefits across time zone; reaping technology advantage;  Focus on core competencies

Cons: Loss of control over information; Compliance with source country regulations; Quality of deliverables; cultural and language issues;

1. Is internalisation a false economy?   

Yes. Internationalisation leads to increase in costs-IT infrastructure, skilled person power, data center ownership and maintenance, not easily scalable and extensible, risk of obsoleteness.  While expenditure from accounting perspective may be classified as capital and revenue; in magnitude it is huge.

There is no alternative in an internalisation model.  This per se does not make economic sense.

1. Is there a security weakness in an outsourced model?

Yes. There indeed is security weakness. This is not restricted to outsourcing alone. It is equally risky in an internalized economy.  The comfort leads to complacence.

1. Are there risks in outsourcing?

Yes. Loss of control over data; security; compliance to regulations; cultural; these can be mitigated with policies and planning.

1. Are Cloud Computing &SaaS providing out sourcing solutions that firms should implement?

Yes. This is the only way to implement an outsourcing solution. Cloud computing model of outsourcing is standardized with well-defined actors (cloud consumer, cloud provider, cloud auditor, Cloud carrier and cloud broker) roles and responsibilities. There is a significant and critical dependency on the PaaS and IaaS components in cloud reference architecture.  The suggested approach will be a community cloud.   (NIST cloud computing reference architecture version 1 dated Mar 30, 2011)

1. What can and what can’t be outsourced?

All back office routine activities are potential candidates to be on cloud.  For example, development, testing, HR, payroll, accounting etc.,

1. Is there a clear business case for outsourcing back office processes?

Yes. Internalisation versus SaaS model matrix on key dimensions of costs, skilled resources  and operational efficiencies will give the necessary data points for a business case.

1. Is outsourcing now a compelling solution for FS firms because of new regulations and risks of non-compliance?

Yes. Regulations, compliance will now be clearly divided. In a community cloud the cloud consumer will demand demonstration of compliance from cloud provider from SaaS perspective.  That leg of compliance from business perspective will be the responsibility of the cloud consumer.

1. Is off-shoring bad for business?

No. It is a necessity in the changing global economic model. Cloud computing is one other out sourcing model.

It will be interesting to read readers opinion on what they perceive  will be the outcome of the TRADE FORUM debate on the 29th of September.