The Confluence of Outsourcing and Cloud

June 27, 2012

In the past few months, our commercial teams have heard a lot of talk about two financial technology topics – outsourcing and cloud computing.  We also see lots of activity in the press about these topics, but the coverage varies wildly in terms of how these topics are defined and where people believe these industries are heading.

In a recent Waters Buy-Side Technology article titled “Outsourcing and Cloud Are NOT the Same Thing”, Anthony Malakian clearly articulates the difference between outsourcing and cloud computing.  To sum, he argues that cloud computing is a tool and outsourcing is a strategy, which often involves cloud computing.  The article then explains why the semantics over definitions matter – we highly recommend that you read the entire Waters piece.

We agree with Waters that outsourcing and cloud computing are different, but how exactly?  When you add the term “software-as-a-service” to the conversation, definitions get even blurrier.  We think it’s easiest to think about cloud computing in two distinct ways:

  • Software as a Service (SaaS) – this involves the end user accessing a remote product or e-commerce service over the internet or through an internet-enabled portal.  The most common example of SaaS is web-based email services, such as Gmail, but it can apply to all types of software.
  • Infrastructure as a Service (IaaS) – this service is for firms who want to maintain control of their software environment, but don’t want to maintain any equipment.  IaaS providers provide the hardware needed for a firm’s operation, and the firm can put whatever software they want on the hardware.  This is often referred to as “hosting” or “facilities management”.

There are two types of cloud models firms can use to obtain the services above, which can be blended depending on a firm’s specific needs:

  • Public cloud model – Also known as a shared cloud, services are provided with no control over the underlying technology infrastructure.  This is attractive because it reduces complexity – for example, this model requires no testing and deployment.  It also tends to be cheaper.  However, many financial services firms avoid this model because of security, data and regulatory concerns.
  • Private cloud model – Also called an internal or enterprise cloud, this model involves deploying software in a hosted data center or within a company’s intranet.  To oversimplify, firms using private clouds do not share resources or information with other organizations.

We believe one of the reasons this topic causes confusion is because there are many cloud models that involves both software and hardware in various configurations, and the definitions above are not necessarily mutually exclusive.

The term outsourcing adds an additional layer of complexity to the discussion.  As explained by Waters, outsourcing by definition means engaging with a third party (such as PORTIA), to provide a service.  So if you rely on a vendor to manage your hardware in either a public or private cloud, you are outsourcing.

In the financial technology industry, outsourcing is often used as a catch-all term by vendors to refer to “business process outsourcing” (BPO), which involves an investment firm outsourcing all or parts of their operations to a vendor.  This almost always requires that the vendor use software and hardware to manage the process and this is where cloud computing comes in – SaaS, Iaas, or both.  But in the case of BPO, the investment firm is paying for the management of the process and any technology management benefits are secondary to that goal.

In May, we attended the TSAM North American conference by Osney Media and outsourcing and cloud computing were discussed at length.  Here are a few of our takeaways from the conference:

  • Investment firms are both interested in these offerings and confused by the variety of offerings provided by technology vendors
  • The financial services industry has been a laggard in cloud computing and outsourcing, due to many factors related to regulatory requirements, data control issues and economic conditions over the past few years
  • There is a consensus that outsourcing and cloud computing provides more value than just cost savings, but that cost savings is often the driver for examining these solutions
  • Both of these offerings will grow more rapidly than the overall financial technology market
  • Investment firms want to work with technology vendors who will truly partner with them, not just provide a black-box service or standard solution that doesn’t meet their operational needs

At PORTIA, we provide completely customized outsourcing services for the middle-to-back office – ranging from basic hosting (IaaS) in dedicated or shared environments to full business process outsourcing.  We work with clients to understand their complex, operational needs and develop solutions that specifically address their challenges.  Contact us to learn more about how we outsource middle-to-back office functions, and where we see outsourcing and cloud computing offerings evolving to meet the needs of investment firms.

–          Munther Haddad, Vice President, Global Implementation and Outsourcing Services


One Response to “The Confluence of Outsourcing and Cloud”

  1. I agree outsourcing and cloud computing is really have a big differences but both useful,in Finland i can say it is one of the key of all IT companies.


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