Procurement’s Cloud Challenge

To date, most of the hype about how the cloud affects our day-to-day work has been on the management and provisioning of infrastructure or on the new possibilities for application delivery. An important change that hasn’t gotten the same attention involves the way IT services are procured. As the demand for cloud-based resources moves from the business units to central IT, procurement faces new challenges.

Here are the Top 5 realities that procurement teams are facing:

1. Requests for Proposals may not always be appropriate for cloud services. Public cloud providers keep their costs down while meeting customer needs by offering broad, but standardized, service catalogs. Meeting specific demands with customized solutions would break the business model. Customers are better served by describing their objectives and asking providers to propose a solution to meet those objectives with enough detail to enable a proper evaluation of the alternatives.

2. Competing offerings cannot be compared apples to apples. You can’t simply compare the pricing for server instance x from one provider to a similarly configured instance from a different provider. Bandwidth, data transfer, IP addresses, management and security options all vary and may or may not be bundled into the price. The same is true for cloud storage where performance characteristics, in particular, can vary widely. Instead, develop a sample configuration and ask each provider to price it as part of the business case for cloud solutions.

3. 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 and recoverability requirements. A provider that gives you the most cost-effective solution for one application may give you the least cost-effective solution for another. Price different configurations for several different workload classes before settling on a long-term, comprehensive provider strategy.

4. Complexity has moved from the bidding process to the selection process. Procurement teams evaluate responses to an RFP in a relatively straightforward way, since the RFP forces proposals into a tight structure for ease of comparison. When there is no RFP, the evaluation of competing solutions must take into account compliance, security, elasticity, portability, governance, support, scalability, availability, recoverability, functionality, cost and more. Procurement teams need expertise with a consistent cloud service evaluation framework.

5. Negotiation is a different animal than it used to be. 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 enough customers vote with their business, a provider will change its standards. Terms and conditions, including SLAs, also tend to be simplified, favorable to the vendor, and rigid, but ISG has seen some movement in negotiations if a customer represents enough spend to get the provider’s attention.

Procurement cannot go on fulfilling its mission in the usual ways with the usual tools. New methodologies and tools are available now and are evolving quickly. ISG can help. Contact us to discuss further.