Outsourcing taboo?

Mention “outsourcing” in the accounting community and the first thing that comes to mind is sending tax preparation to India. To some that is a good thought, yet many others have an immediate and negative reaction.

However, since the invention of fire… oh, and the abacus… CPAs, themselves, have successfully convinced businesses that outsourcing their accounting and tax compliance functions is a good thing:

“Take advantage of our experts.”
“We do this all day long.”
“We have the credentials.”
“It’s too risky to do it on your own.”

These are all good points, and I agree completely – hence I use an accountant, and thus my own company uses a CPA firm to do its taxes. We couldn’t possibly compete with our CPA’s experience and, most importantly, I couldn’t do my day-job if I tried.

The paper-based to Internet-based transition is a perfect example of outsourcing’s advantages. As with tax research, technologies of all kinds are following suit. It’s pervasive. Software is being web-enabled. Servers are being virtualized. Networks are moving to the cloud (see Jason Conger’s article Is Cloud Computing just a fancy name for Virtualization?). And the younger generations are thankful for it. They get it. They want it. And they don’t understand why we’re resistant to the change.

What is the cloud?

Firms today are moving toward the inevitable – the cloud – a model where technology help desk, hardware, software, and management can be completely outsourced. No more servers, fewer IT people, improved productivity and more time to focus on the business.

If India just popped into your mind, you can rest easy. Few, if any, US-based hosting providers are opting to offshore their IT talent, so we needn’t worry about our precious client data traversing the globe to lands far far away. Plus, learning about the provider’s operations is a straightforward piece of the due diligence process.

Remember when the “web” became the catchy new term for the up-and-coming Internet? Well the “cloud” lives on the web and it’s the new hip way to refer to a cornucopia of outsourced web-based technologies. The cloud is best defined as a “pay as you go computing web-infrastructure, leveraged for economies of scale.” You will often hear the cloud referred to as SaaS (Software-as-a-Service), PaaS (Platform-as-a-Service), and even IaaS (Infrastructure-as-a-Service). Wikipedia is a great resource for learning more about each.

What can be put in the cloud?

All of your software will eventually live in the cloud- tax, practice management, engagement/trial balance, document management, QuickBooks™/Peachtree™, the aforementioned tax research, Microsoft Office™ collaboration tools (email, shared calendars, tasks). Nearly everything will go into the cloud; it’s just a matter of time.

You’d be surprised how many firms have already moved there. Small firms with two employees, large firms with hundreds of employees and everything in between. Multi-office firms and firms who need remote access are especially good candidates because everything is securely accessible via the web… from the cloud.

What does this mean for all of us?

In short, all of our technology will eventually live in the cloud, and we will be better for it. This transition will allow us to focus on what we do best in our businesses, leaving the rest for people who focus, and are experts, on what we don’t care to do or are not good at. Technology is a cornerstone to most of our businesses in terms of success — we can’t live without it. But ask yourself why you started your business to begin with. If ‘technology management’ or ‘technology services’ isn’t core to your firm’s purpose and mission, then it likely falls squarely into the ‘headache’ category. Aside from the distractions related to doing technology well, there are inherent risks to consider. Security, reliability, performance, compatibility, redundancy, and obsolescence are just a few that come to mind.

As a profession, accounting firms can no longer be a pioneer on the outsourced technology/hosting front. The good news is that many firms have made the transition successfully and they’re asking themselves why they didn’t go there sooner. Their client data is far more secure in a SAS-70, type II data center than it ever was in their closet at the office. These firms now live in a world where they spend little, if any, time planning for technology upgrades or future IT expenditures, working on IT staffing issues or fretting over security concerns.

Just as in most successful transitions to outsourced services in the past, we are much better off after the change if we can just get ourselves to start the move in that direction. Of course, there’s always the alternative of walking uphill, in the snow, barefoot. Think fancy three-ringed binders on beautifully ornate book shelves.

By the way, has anyone seen the tax binder containing Revenue Code KGF 6386 Z9 C644 1979? It’s not where it should be!  Hello?

What is Cloud Computing?

The term “Cloud Computing” comes from the symbol usually used to depict the Internet on network diagrams. That term would lead one to believe that some portion of their computing environment “lives” on the Internet (and that assumption would be true).  This type of computing environment is quite a departure from most computing environments today where all computing resources are owned and/or operated within an organization’s LAN/WAN infrastructure.

So, Cloud Computing is some type of service.  Cloud Computing can be a service for a single piece of software (like Google Docs), a single component for software (like Microsoft SQL Data Services), Virtual Servers (like Amazon EC2), etc.  The main advantage to Cloud Computing is the service provider takes care of all the capital expenditure (CapEx) and a percentage of the operational expenditure (OpEx) depending on the type of service.  For example, Google Docs takes care of 100% CapEx and 100% OpEx, whereas Amazon EC2 takes care of 100% CapEx but maybe 25% OpEx.

What is Virtualization?

Virtualization is another hot topic today.  A lot of people think virtualization means server virtualization, but the truth is virtualization is a very broad topic.  There are many types of virtualization including server virtualization, application virtualization, desktop virtualization, operating system virtualization, presentation virtualization, etc.  (I will cover the various types of virtualization in a future article).  But, for the purposes of this article, we will focus on server virtualization.

A virtual server is basically the same as a physical server based on outward appearances.  Virtual servers perform the same functions as physical servers.   In fact, it is nearly impossible to distinguish a physical server from a virtual server when logged on to the server console (unless you start to go look at drivers).  The key difference between physical servers and virtual servers is that virtual servers are not installed on the physical hardware (they are hardware agnostic).  Virtual servers are installed on something called a hypervisor.  This hypervisor allows you to run many virtual servers on a single piece of physical hardware (there are a lot of other benefits to server virtualization, but for the purposes of this article we will focus on hardware independence and consolidation).

So, Cloud Computing doesn’t need Virtualization then – right?

Well, technically, Cloud Computing doesn’t require virtualization.  But, in order for Cloud Computing to be a practical service offering, you need the economies of scale and automation capabilities of virtualization.  Otherwise, the cloud service provider would need to manually provision services per client with dedicated hardware.

Nicholas Carr draws a nice analogy in his book titled Does IT Matter? Up until the last decade of the nineteenth century, most manufacturers relied on water or steam power to operate their machinery.  These power systems were large, complex, and expensive.  Around the turn of the century, construction of central power stations in cities brought the operating benefits of electric power to small manufacturers.  These small manufacturers couldn’t afford to build their own infrastructure, but they could afford to purchase power in small quantities from a utility.  Eventually, all manufacturers converted to using power from utility companies.  Electric power is now a commodity instead of a competitive advantage.

Look for these topics in future articles:

• Types of Cloud Services (*aaS)
• Types of Virtualization
• Offline Computing in an Online World
• Virtualization and Service Oriented Architecture

The most common virtualization technologies are:

Server virtualization — a mature technology that continues to gain momentum. A single host server can run multiple other servers on the same hardware without conflict. The host machine may or may not have its own operating system installed.

Application virtualization — technology designed to reduce application conflicts and improve manageability.

a. Some sources consider Citrix as a form of application virtualization since it allows fully functional applications to be delivered to users almost anywhere. Citrix is more commonly referred to as Presentation Virtualization.

b. Software streaming is the most recent and most popular method, which allows applications to run without being physically installed on the host operating system by being “streamed” to the workstation or server. Similar to how video streaming works on the internet, an app is delivered to a user over a network on demand. The workstation treats the application as if it was installed locally.

Desktop virtualization — also known as VDI, or Virtual Desktop Infrastructure, runs desktop operating systems inside virtual machines. Users access the desktops remotely from a PC or thin client. Users benefit from the ability to remotely access their familiar corporate desktop from any location.

Storage virtualization — allows different types of storage devices, possibly in different locations, to be pooled together into what appears as a single storage device.
One of the strongest benefits of virtualization is business continuity and disaster recovery. Virtualization allows for easier migrations both with systems and software. Other possible benefits of virtualization include reduced downtime for maintenance, whether planned or unplanned, on both physical systems and software, lower capital expense, and more efficient use of hardware resources. Most of the challenges stem from having a more intricate IT infrastructure that requires more elaborate IT management. Virtualization adds complexity and new challenges like support issues, configuration, licensing assurance, backups, and/or security. One thing is for sure, virtualization technology is not plug-and-play. If implemented properly, virtualization will greatly enhance an organization’s business agility. The key to success is gaining a complete understanding of the environment, the need, and the goals, and then matching a virtualization solution to solve those issues.

In conclusion, virtualization is definitely something to consider. Virtualization is not going away, and it’s only becoming more and more prevalent. If you weren’t familiar with any of the virtualization types mentioned above, you’ll certainly hear more about them in the future and can expect subsequent articles with a more in-depth look into each one. Currently, server virtualization is the most prevalent type. It will be a few more years before the other types are quite as popular in the accounting industry. It’s possible for almost any of the virtualization technologies to cooperate well with Citrix, especially because Citrix is offering unique solutions for server, application and desktop virtualization right now like XenApp, XenDesktop, and XenServer.

If you have any questions about the different virtualization technologies and how they may help your organization, please contact Xcentric at info@xcentricgroup.com or (678) 297-0066.