From Information Systems Outsourcing to Cloud Computing

Introduction

Outsourcing is a business term to describe a mechanism in which a company utilizes services provided by another company, normally through a contract, to fulfill some of its required business resources or functions. Outsourcing is commonly practiced by business organizations, as it is believed that it can cut costs and simplify management. For service providers, outsourcing gives them a long-term source of revenue.

Nowadays most business organizations outsource some part of their business operations. One of the most common is information systems (IS) outsourcing. This may range from computer maintenance, website development and maintenance, e-Business to the whole IS function (Dibbern, Goles, Hirschheim, & Jayatilaka, 2004). Actually, IS outsourcing is an old story which started as early as 1963 when Frito-Lay and Blue Cross & Blue Shield outsourced their data processing jobs to Electronic Data Systems (Lacity & Hirschheim, 1993). In fact, Eastman Kodak outsourced the whole of its IS functions to IBM, DEC and Businessland in 1989, 25 years ago (Gupta & Gupta, 1992). In the early stages of IS outsourcing, the issue being addressed in business organizations was whether they should outsource. Over time, the issue was no longer on whether to outsource or not to outsource, but how much to outsource (Lee, Huynh, Kwok, & Pi, 2003). This indicates that IS outsourcing has been adopted by many business organizations.

The advancement of Internet technology, especially the Web as well as high-speed and broadband access to the Internet, enabled a new computing model, “cloud” computing. The new model allows organizations to outsource some components or whole of their IS in the cloud that can be controlled and utilized from anywhere with a web browser. With this model organizations do not need to purchase hardware and expensive software licenses and surely they do not need to worry about software and hardware maintenance, which is normally a large portion of the total ownership costs of an IS to estimate the overall cost (direct and indirect) of an IS in a given time frame. Cloud computing vendors normally offer a pay-per-use method for their services, making cloud computing services like paying utilities. Perhaps cloud computing is the realization of McCarthy’s dream of utility computing, a package of computing resources that can be rented or subscribed just like other utilities (Garfinkel, 2011).

What makes the cloud computing system different from conventional computing systems? In conventional computing systems (mainframe, client-server or personal computer systems), most of the computing resources owned by an organization normally reside in the organization’s premises. The organization has to manage these resources to make sure they can be utilized to support the organization in attaining its goals. The organization incurs all costs in owning these resources, which may include investment, operation and maintenance costs. In contrast, an organization does not need to own most of the computing resources in a cloud computing system. Instead, the organization utilizes computing resources offered by a provider and accesses the resources as needed. The organization only needs to own client devices (low cost terminals or thin clients) to utilize the computing resources through the Internet. Consequently, the organization does not need to bear the burden of all the costs mentioned previously. Of course, the organization needs to pay the provider for using the resources with a pay-per-use method of payment.