IT outsourcing has been a part of many large companies' IT strategy for the last decade. The main driver has been companies looking for  competitive advantage by reducing their IT costs, and helping them focus more on their core competencies.

In these traditional outsourcing contracts, a company typically signs a large multiyear deal (4 - 7 years) with an IT services provider which will take over and manage specific functions of the IT infrastructure for the company.

The contracts are very detailed and focused on cost reduction and operational efficiency, controlled by financial measures to ensure the delivery of the right quality, of the then current known requirements. However, studies show that the most common complaint about outsourcing relates to degradation of service quality.

But in today's world these agreements can end up hindering a company's ability to compete and survive in a period of recession and changing markets conditions, and there are already predictions by analysts that in the next five years, traditional IT outsourcing as we know it, will have disappeared.

The Cloud is now here, providing new options and capabilities, and as the Cloud business model matures, clients will have a new and cost-efficient way to consume IT services, just like they did when the traditional IT outsourcing model was adopted years ago.

Many large enterprises and Service Providers are now looking into adopting these Cloud principles. The Enterprises have already started consuming Cloud services, especially from the new service providers with specific IP and vertical Software as a Service (SaaS) offerings that are entering the market e.g. Salesforce.

The traditional Service Providers have also launched a number of initiatives around Cloud services, but often these initiatives have been driven by technicians and architects, focusing on building the technology needed to deliver cloud services, primarily Infrastructure as a Service (IaaS). However, these initiatives have often been lacking the full picture, leaving out key components on how they efficiently should: define, deliver, manage, charge and measure quality of these new Cloud services. Handling these components using their traditional processes will not be able to provide the agility and efficiency needed to compete in the Cloud arena.

Many technology vendors are focusing on providing and developing the technology components needed by the IT Solution Providers to deliver the cloud services, and that part of the market is maturing fast. However, the biggest challenge for adoption of cloud services within the traditional Service Provider is not their technical abilities, but the need to turn their whole delivery model "up-side down", going from visiting the customer IT environment and understanding the infrastructure and negotiating the functions which the Service Provider will manage, to now defining their capabilities and services from which the client has the option to pick and determine how much to buy. they also need to provide new predefined services like Cloud integration and Cloud data migration to help the clients leverage their cloud services. 

This transformation of the outsourcing business creates an unprecedented opportunity for Service Providers to reshape how services get delivered, and those that understand the full picture, and not only focus on technical abilities, are likely to not only provide the new Cloud services to their existing customers, but they will be able to offer a realistic outsourcing option to many smaller and mid-sized companies for the first time.