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Management ServicesManagement ServicesManagement ServicesInfrastructure Infrastructure Infrastructure
Management ServicesManagement ServicesManagement Services
RIM Comes of AgeBen TrowbridgeAlsbridge
Emerging Models in IMSAmit SinghAvasant
Global Sourcing of ServicesCliff Justice KPMG
Stan LepeakKPMG
Benchmarks Go StrategicKathy RudyCompassManagementConsulting
Achieving Innovation in IMSRobert McNeillHorsesforSources
Pricing the CloudScott Feuless CompassManagementConsulting
Stanton JonesTPI
INAUGURAL ISSUE NovEmbER 2011
International Financial Outsourcing Center
To Combine the Global Resources and Facilitate the
2011 the West Lake, Enlightenment and DiscussionDiscovery, Transformation, Reaction, Share
Integration & Improvement of Global Service Capability
For Your Attention
Sponsors:
Ministry of Commerce of the People’s Republic of China
Ministry of Industry and Information Technology of the People’s Republic of China
Ministry of Education of the People’s Republic of China
Host City :
Hangzhou People’s Government
Official Promotion:
Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau
Contact: Tel-8610 85863613 Fax-8610 59081093 [email protected] Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center
International Financial Outsourcing Center
For more details, please click: http://www.great-idea.com.cn/hangzhou/hhtz.htm
http://www.great-idea.com.cn/hangzhou/
International Outsourcing Business Development Summit
Date: October 24-26, 2011
Venue: Zhejiang Narada Grand Hotel, China
Demonstration City of ChinasourcingHangzhou
Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also
one of the 21 software industry base cities in mainland China. It has currently formed the several industries including
telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.
The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at
460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises
have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the
key software enterprises name list of the national strategic planning.
In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team
to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in
Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352%
compared to the same period of last year (2008).
Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end
outsourcing industry, Hangzhou now is creating to become the financial delivery center.
Hangzhou, ChinaA City of Financial Delivery Center
International Financial Outsourcing Center
To Combine the Global Resources and Facilitate the
2011 the West Lake, Enlightenment and DiscussionDiscovery, Transformation, Reaction, Share
Integration & Improvement of Global Service Capability
For Your Attention
Sponsors:
Ministry of Commerce of the People’s Republic of China
Ministry of Industry and Information Technology of the People’s Republic of China
Ministry of Education of the People’s Republic of China
Host City :
Hangzhou People’s Government
Official Promotion:
Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau
Contact: Tel-8610 85863613 Fax-8610 59081093 [email protected] Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center
For more details, please click: http://www.great-idea.com.cn/hangzhou/hhtz.htm
http://www.great-idea.com.cn/hangzhou/
International Outsourcing Business Development Summit
Date: October 24-26, 2011
Venue: Zhejiang Narada Grand Hotel, China
Demonstration City of ChinasourcingHangzhou
Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also
one of the 21 software industry base cities in mainland China. It has currently formed the several industries including
telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.
The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at
460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises
have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the
key software enterprises name list of the national strategic planning.
In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team
to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in
Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352%
compared to the same period of last year (2008).
Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end
outsourcing industry, Hangzhou now is creating to become the financial delivery center.
Hangzhou, ChinaA City of Financial Delivery Center
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Inside the Expert’s Mind
Welcome to the first edition of this series called as Vox Artis.
Vox Artis, a Latin phrase, translates to ‘the voice of the expert’. In all the older civilizations, men of knowledge were highly respected. They spread their knowledge through the oral tradition; they spoke with individuals and to the crowds to spread their ideas.
‘Thought leaders’ as we call them now, still hold a lot of influence for the conceptual insights, analytical perspectives, practical ideas, and futuristic possibilities, they enlighten the world with. At Global Services, Vox Artis is a channel for experts in global sourcing of services to present their views. It is a program delivered in multiple media formats- online/ Web, digital, print, webinars, conferences, and more. It is intended to provide a 360-degree view on specific topics.
In this first issue of Vox Artis, we present six cutting-edge articles from accomplished sourcing advisory companies like Alsbridge, Compass/ TPI, Avasant, Horses for Sources, and KPMG. Management of IT infrastructure is one of the oldest areas in IT services, yet it has witnessed many changes even in the past decade. Newer models of engagement and delivery have led to specialization in the market and changes in the vendor landscape. The increasing adoption of cloud computing is also a key dynamic shaping this market. The collection of articles here present a multi-sided view on how things are and what the possibilities are in the area of infrastructure management services.
Feedback on this issue is highly appreciated. Our next topic, scheduled for release at the end of the month, is on ‘Building and Sustaining Excellence in Global Services’. This happens to be the theme for Global Services Conference 2012 in March 2012 at NYC. In that sense, the next Vox Artis is a compilation of ideas, many of them by speakers themselves, ahead of the conference. Do let us know if you would like to participate.
Ed Nair EditorGlobal Services
Ed
itor
’s N
ote
RIM Comes of Age
8Ben TrowbridgeAlsbridge
Emerging Models in Infrastructure Management
14Amit SinghAvasant
Global Sourcing of Services: Easier Said Than Done (Well)
22Cliff JusticeStan LepeakKPMG
Benchmarks Go Strategic
30Kathy RudyCompass Management Consulting
Achieving Innovation in IMS: Eight Strategies to Consider
38Robert McNeillHorses for Sources
Pricing the Cloud
46Scott FeulessStanton JonesCompass Management Consulting,TPI
TABLE OF CONTENTS
Ben Trowbridge is founder and CEO of Alsbridge, an award-winning sourcing advisory and benchmarking firm changing the way companies buy and manage hardware, software, IT infrastructure services, application services, business processes and cloud computing. As CEO of Alsbridge, one of the Inc 500's fastest growing companies in America in 2010, Ben has revolutionized the way companies source technology and business processes. Ben is renowned for his forward thinking and collaborative approaches to deal structuring and sourcing techniques that have redefined the solution development, contract negotiation and implementation process.
Ben Trowbridge CEO
Alsbridge
November 2011 www.globalservicesmedia.com 9
RIM Comes of AgeOutsOurcing infrastructure ManageMent: it’s tiMe
The information technology infrastructure outsourcing market continuestoevolve.Asfirmsscourthelandscapeforwaystofocusontheircorecompetenciesandmaintaintheircompetitiveedge,moreandmoreemphasis
isbeingplacedonwringingcostsoutandaddingvaluetotheITspend.Althoughsometimesexaggerated,thepotentialsavingsthroughtheoutsourcingofITinfrastructuremayrangeashighas20to30percent.OneofthemostsignificantvaluedriversinIToutsourcingisRemoteInfrastructureManagement(RIM)-theoff-premise,oftenoff-continent,managementofITinfrastructure.
RIMcanincludebehindthescenesactivitiessuchashardwaresupportandmanagement,oritcanincludemanaginguser-facingservicessuchasnetworkmanagementordesktopsupport.TherangeofITfunctionsforRIMincludes:
◆DataNetworks(WAN/LAN)◆Desktops/laptopsandrelatedperipherals◆E-mailsystems◆Mainframeplatforms◆ Servers◆ Storageplatforms◆Usersupport◆VoiceNetworks
Infrastructure Management Services
10 www.globalservicesmedia.com November 2011
Generally, RIM can be undertaken as a partial service, only permitting the providertomanageormonitoraportionoftheITfunctions.Thisprovidesanopportunityfortheclienttotesttheexperience.OncetheclientissatisfiedwiththeirlimitedRIMexperience,theycancontemplatemovingupthesourcingmodeltofullserviceremoteinfrastructuremanagement.
FullserviceRIMinvolvestheclientretainingtheirITassetsbuthandingoverthemanagementoftheirITinfrastructuretoaproviderorproviders.TheconfigurationoftheRIMscenariodependsontheclient’sspecificbusinessdrivers,internalcapabilities,andstrategicITdirection.
RIM EvolutIon and MatuRIty
With the continued advancement of telecommunications and wide area networkinfrastructureinbothNorthAmericaandEuropeoverthelast15years,domesticdeliveryofRIMhasbeenacommonoperationalmodelinmostFortune1000companies.Typically,domesticremoteinfrastructuremanagementisperformedina“lightsoutdatacenter”environment.Itislightsoutinthesensethatthereislimitedornoon-sitepersonnelstaffingthedatacenterandliterallythedatacenteroperatesatmosttimeswiththelightout.Remoteoperationsstaffbothmonitorandmanagetheinfrastructurefromadifferentbuildingorevenadifferentcityandstate.Theremotefunctionalityallowstheoperationalactivitytobeperformedinaseparatelocationfromtheclientordatacenter,oftenusinghighlyleveragedorpooledresourcestomonitorseveralinternalorexternalsites.
ITorganizationsaredeployingandmanaginginfrastructureservicesincompliancewiththestandardsoftheInformationTechnologyInfrastructureLibrary(ITIL)andotherqualitymetrics.QualityimprovementsandprocessstandardsareacceptedasvitalRIMoperationalpractices.Processmaturityhasfacilitatedtheeffectivedeploymentofanoffshoredeliverymodel.Workproductsareclearlydefinedandcanbeassignedtotraintheteamsoffshore.
TherapidevolutionintechnologiesandITarchitectures,theeconomicimpactanddrivetoreducecosts,andthematurityoftheoffshoremarketispositioningRIMservicesasthenextwaveofopportunityforoutsourcersofalltypes.
StatE of thE RIM MaRkEt and InduStRy
The prospect of reaping the cost saving, productivity gains, and business modelflexibilityderivedthroughtakingadvantageofoffshoreIToutsourcingcertainlyisafactorintheglobalizationofoutsourcing.TheITindustryismovingtowardaremotedeliverymodelinwhichservicesareincreasinglydeliveredbyvendorswithoperationsinlow-costlocations.
Thebanking,financialservices,andinsuranceindustriesareleadingRIMoffshoringgrowth.Theseindustries,oftenreferredtoasthe“financialservicesindustry,”havebeenearlyadopters–usingremotesoftwareprogrammingresources–ofoffshore
November 2011 www.globalservicesmedia.com 11
outsourcing in the area of application development and support. In addition, thefinancialservicesindustries’necessityforhighlysecure,24/7availability,highlyreliableandstablesystemshascreatedopportunitiesforglobalRIMproviders.RIMserviceprovidershaverecognizedtheopportunitytoofferfollow-the-sundeliverymodels,highlydistributedandflexiblemonitoringandsupportmodels,andinthosecaseswhereautomationhasnotreplacedlaborarbitrage,laborcostsavings.
TheindustriesthatareslowtomovetowardglobalRIMarethosethathavethelowesttransactionvolumes,suchasmediaandentertainmentandprofessionalservices.Otherindustries,suchasaerospaceanddefenseandthepublicsectors,facevariousdegreesofgovernmentregulationsthatinhibittheiradoptionofglobalRIM.Thehealthcareindustryhasconcernswiththedatasecurityandintegritybeingprovidedinforeign,nondomesticlocations.Healthcarealsohasmuchmorecomplicatedrevenueandcostrecoverybusinessmodels,whichhassomeinfluenceontheadoptionofglobalRIM.
ThebodyofourresearchindicatesfinancialservicesandinsurancefirmsareundersignificantpressuretoreducecostsandincreaseefficiencyandproductivityoftheITinvestment.Assuch,theycontinuetoembraceoutsourcing,andmostrecently,RIMservices,inavarietyofglobalconfigurationsandlocations.
RIM dElIvERy analySIS
Target TowersAstheresultofyearsofdomesticandregionalRIMexperiences,typicallyinmanagingandsupportingtheoperationsofdatacenters,servers,LAN/WANfunctionality,andtoalesserextent,endusercomputing(EUC),manyofthetasksperformedwithintheinfrastructuremanagementtowerscanbedeliveredfromanoffshorelocation.Thisisparticularlytrueforthefinancialservicesindustry,whichhasembracedRIMoffshoringbecausetheyhavelittleneedfortraditionalbackupmediahandling.Insteadtheyareadoptingafullyredundantmultiplelocationstoragestrategy.Thisislargelyduetotheirdisasterrecoveryrestorationtimeframerequirements,whichrequirehighavailabilityandfastrecoverytimes(minutesnothours).Thisisnowprovidedbydisk-to-diskandmedia-lessbackups.
However,someactivitiesremainthatmustbemanagedbyaproviderorbythebusiness’internalITstaffinthelocalpremiseordomesticlocation.Theseactivitiesincludethephysicalserverprovisioningandhardwarerepairs.Activitiesrequiringquickresponsetimesanddirectcustomerserviceintervention,suchascomputerbreak/fixorrefresh,mayberequiredtoremainatthecustomersite,retainedasathird-partystand-by,orbepartofthebusiness’internaldomesticITstaff.
MatureproviderscontinuetoexpandtheirflexibleRIMoffshoredeliverymodelofferings.Thesematureorfull-serviceproviderscanoperateafullservicetowerremotelyorincludelocal,domesticstaffaugmentation.Theproviderscanalsojointlysupportatowerwithadomesticcustomerstafforathirdparty.
12 www.globalservicesmedia.com November 2011
dElIvERy CountRIES
India is the leading location for providing RIM services. India appears as thedominantgloballeaderinIToffshoringbothfromtheperspectiveofbeingthepreferredlocationtohostRIMservices,andfromtheperspectiveofbeingthehomecountryofmanyoftheleadingRIMproviders.IndiahascapturedthemajorityoftheglobaloffshoremarketandispositionedtobetheleaderinRIMoffshoring.Indianprovidershavetheoffshorematurityandexperienceandhavecreatedasignificantandrapidlygrowingcustomerbase.Theyhavebeeninvestingintheoffshoretools,processes,andinfrastructurenecessarytomanagethegrowthofRIM.TheinvestmentisbeingusedtopositionIndiaformajorRIMmarketpenetration.ChinacontinuestoemergeasapotentiallymajorplayerinIToffshoring.ProvidersareinvestinginChinaaspartoftheirglobaldeliverybase.NetworkoperationcentersarebeingestablishedandbeginningtosupportRIMclients.
InEurope,theMiddleEast,andAfrica,EasternEuropeancountriesarepositionedascentersforRIMdelivery.PolandandHungaryrepresentcountriesthatarebeginningtoadvanceintotheRIMmarketplace.Theyhaveparticularlystrongexperienceinmultilingualhelpdesksupport.
MexicoandLatinAmericaofferanearshorealternativeforRIMservices.Mexico hasanofferingthatismaturingandatime-sensitivecustomerbase.InfosyshasrecentlyannouncedplanstodevelopanetworkoperationcenterinMonterrey,Mexico.ArgentinaisalsobeingdevelopedasaRIMservicealternative.CertainprovidershavechosentooffermainframeandAS400towersupportfromcountriesthathavetheskillandexperiencebasedonlegacyuse,suchasBrazilandArgentina.Dependingonthecriticalityofthebusinessprocess,providersmayopttoprovidemainframeandAS400supportfromhighercostcountriessuchastheUnitedStatesandAustralia.
valuE PRoPoSItIon In dEPloyIng RIM
Cost SavingsEvenbeforethearrivaloftheglobaleconomicdownturn,seniorbusinessleaderswerebeingchallengedtoincreaseprofitabilityandefficiencyandtodriveoperationalcostsdown.Theallureofoutsourcinghasalwaysincludedtheprospectofcostreductionthroughefficienciesandlaborarbitrage.Notsurprisingly,theincreasinginterestinRIMservicesisessentiallyduetotheprospectofreducingoperationalcostsandincreasingproductivityinoneITfunction.Offshoringofinfrastructuremanagementlabortypicallyrealizesasavingsof5to20percentcomparedwithU.S.laborrates.Butdonotassumethesesavingsareinstantaneous.RIMservices,aswithoutsourcingingeneral,typicallyprovideagradualsavingcurveasdeliverymaturityisattained,usuallywithinthefirsttwoyearsoftheengagement.
oPtIMIzatIon and StandaRdIzatIon
Current network and infrastructure centers in offshore locations provide rigorousstandardsoffullredundancy,highavailability,anduncompromisingdatasecurity.
November 2011 www.globalservicesmedia.com 13
The support is provided across multiple client environments.The deploymentofqualitystandardssuchasSixSigma,ITIL,andthoseoftheInternationalOrganizationforStandardization(IOS)havefosteredacommonunderstandingoftheworktobeperformedwithinatypicalITtowerfunction.RIMservicesprovideanopportunityforselectingtherightservicemixtobedeliveredfromtherightregion.Theinfrastructurecanbemanagedfrommultiplelocationsasaglobalmonitoringandsupportmodelisdeployed.Thefollow-the-sunapproachcanbeadaptedforavarietyofbenefits,particularlyhighavailabilityofthesupportedsystemswhich,inessence,providescontinualuptime.TherewillcontinuetobeadvancementsintheproductsandtoolsusedtomanagetheinfrastructurebeingsupportedbyRIM.
RISk dISCuSSIon
When considering the risks and benefits of engaging a provider, or providers,todeliverRIMservices,theriskscanbeconsideredfromtwoperspectives.First,onemustconsidertheorganizationalrisksassociatedwiththeinternalcustomer’ssatisfactionwithRIMservices.Ingeneral,themajorconcernsidentifiedbyseniorbusinessandITexecutiveswithrespecttooffshoringincludesecurityanddataprivacy,languageandaccentsneutralization,high-levelbusinessandindustry-specificknowledge,internalpoliticalperceptions,andthelackofperformancemetrics.Theseconcernscanbemitigatedthroughastrongprovidermanagementandgovernanceprocessthatassurestheseissuesareaddressedwellbeforeanyserviceistransitionedtoaprovider.Externalissuessuchaspoliticalstability,governmentregulations,culturalalignment,andproductivityassociatedwithremotelocationsshouldbeaddressedbytheprovideraspartoftheirstandardserviceprofile.
ThebenefitsofRIMservicescanbemuchbroaderthansimplyfinancial.Additionally,choosingaproviderwithabroadrangeoflocationsandalargeanddiverseskilledlaborpoolcanincreaseflexibilitytorespondtothechangingneedsofitsinternalbusinesscustomer’sneeds.Ideally,newskillsandcapabilitiescanbedeliveredbyaqualifiedproviderbyvirtueoftheprovider’srangeofservicesandknowledgedevelopedthroughRIMservicedeliveryoveralargepoolofdiverseclients.
SuMMaRy
Remote infrastructure management comes of age in the era of the flatteningglobe.Withthevirtualeliminationofglobalconnectivityandbandwidthissues,businesscentersinthedevelopedworldcanconnectwithserviceprovidersinlow-cost,emergingmarkets.RIMglobalprovidersareharnessinglarge,well-educated,andinexpensivelaborpoolstobuildglobalcentersfromwhichtheycanmanagealmostanyaspectofITinfrastructuresupport.ThosebusinessesengagingtheseglobalproviderswillbothenjoylowercostsandpotentiallygreaterefficiencyandflexibilityinthesupportoftheirglobalITfunctions.RIMhasarrived,andthereareamultitudeofprovidersreadyandwaitingtodeliverit.
Amit is a Partner with Avasant LLC, one of the globally top ranked sourcing advisory and management consulting firms. Amit is one of the key leaders of the firm in strategy consulting, M&A and global shared services optimization practices. He possesses significant international management consulting experience and has a deep understanding of the outsourcing industry. He has more than 17 years of management and consulting experience with some of the best names in the industry before becoming a founding member of Avasant, including Gartner, PriceWaterhouseCoopers and Patni Computers. Amit's experience spans strategy, shared services restructuring, implementing multi-sourced services and governance processes and enterprise level change & risk management.
Amit Singh Partner
Avasant
November 2011 www.globalservicesmedia.com 15
Emerging Models in Infrastructure
Management
Infrastructure Management Services
BaCkgRound
IT Infrastructure has traditionally been the bastion of stable managementmodels.WhileITapplicationmanagementwentthroughadramaticshiftinlandscapeduetoevolutioninprogramminglanguagesaswellasincreasing
offshoredeliveryviability,ITInfrastructurebusinessstayedvirtuallyunchangedforseveraldecades.However,therapidpaceoftechnologygrowthhasnowledtoemergenceofseveralnewmodelsofITInfrastructuredeliveryandconsequently,managementpractices.WhilethetraditionalApplicationDevelopmentandMaintenanceoutsourcingisinmaturityphaseasnotedbydiverseandlargebuyerindustries,demandforRIMservicesisestimatedtofurthergrowbyatleast25to30percentp.a.inthenext3years.
ThispaperexploressomeoftheemergingmodelsforITInfrastructureoutsourcingandthereasonsthereof.
16 www.globalservicesmedia.com November 2011
IMPaCt of EConoMy on InfRaStRuCtuRE SouRCIng ModElS
The current economic downturn has already lasted since 2008 and there is astrongpossibilityoftherecessioncontinuinginto2012.Duetoconstanteconomicchallengessignificantchangeshavebeenobservedinthenatureofdeploymentinnewaswellasexistingdeals.Thefollowingarethekeychangestoinfrastructuresourcingthatwehavewitnessedduringthisturbulenttime:
◆Changes in Demand–Clientsarenolongerasmuchinterestedinlookingforasinglesolutionthatmeetsallinfrastructureneedsastheyareinidentifyingbestofthebreedsolutionsthatcanofferflexibilityinserviceprovisioningandcankeepupwithtechnologychange.Alarge,monolithicinfrastructureenvironment,ifitishardtochange,isnolongerviewedfavorablyinthisenvironment.
◆End-Customer Requirements–TheITinfrastructurerequirementsaremoreandmoredirectlytiedtobusinessrequirementsandarefocusedonbeingpreparedfortheconstantchangeinbusiness.Theinfrastructureisbeingaskedtobemuchmoreagileinsupportingbusinessusersthanhasbeenthecasetraditionally.Thespeedandcostofactivitiessuchastosetupmailboxes,provideremoteaccesstoworkingenvironments,enablinglargescaledatatransferandprovidinginterconnectivitytomyriadmobiledevicesaresomeoftheexamplesofcustomerrequirementsdrivingemergingmodelsinITinfrastructuremanagement.
◆Consolidation & Virtualization –TherehasbeenaconspicuoustrendtowardsconsolidatingandvirtualizingITenvironmentinthepastseveralyearswithaviewtomanagingcostsaswellasupgradingfromlegacysystemsthatcouldnotallowformodulargrowthandseamlesssharingofenvironmentsacrossapplications.Thisstep,asoneoftheessentialelementsofleveragingcloudbasedsharedinfrastructuretechnologiesiscurrentlyoneofthekeyfocusareasofanumberoforganizations.
Sourcing Maturity Lifecycle
Ad
op
tio
n ADM
BPO
InnovatorsEarly
Adopters Mainstream
ITO
Laggards
GlobalSourcingMaturity
“For which of the following IT function do you currently use offshore resources?”
Software maintenance
Custom applicationdevelopment
Package appimplementation
Remote infrastructuremanagement
Help desk
Consulting work
Enterprise network
None of the above 17%
15%
19%
20%
26%
39%
47%
48%
November 2011 www.globalservicesmedia.com 17
◆Nature & Scale of Services – The traditional models of physical businesslocationsbeinghard-wiredtodatacentersareevolvingrapidlytoprovidinganITenvironmentthatcangrowandchangetosupportamultitudeoffixedandmobiledevices,forexample,multiplestudiesarepointingtowardstheTabletbeingtheplatformofchoiceformanyindustriessoon.Inreturnforflexibility,thereisagrowingrealizationandacceptanceofusingsharedinfrastructureformanyofthenon-criticalapplications.
◆Cost–ITInfrastructureisthenewfrontierforcostreductioninmostoftheITdepartmentsacrosstheglobe.TheongoingrecessionisputtingenormouspressureonCIOstodomorewithlessandITinfrastructure,withnormallythelargestbudgetofallITdepartmentsissquarelyinthesightsofcostcutting.Atthesametime,thematurityofRIM(RemoteInfrastructureManagement)modelaswellasincreasedautomationisnowmakingitpossibletoreduceaswellaseliminateconsiderableinfrastructureandmanagementcosts.
kEy EMERgIng ModElS
The new and emerging models are based on leveraging cloud technologies.Essentially,Cloudcomputingistheprovisionofdynamicallyscalableandoftenvirtualizedresourcesthatisdeliveredasaservice.Thepicturebelowshowsthekeyelementsthatdefinecloudcomputingbasedinfrastructureserviceprovisioning:
Economic Element• Pay-as-you-go• No Capex
Architectural Element• Simple enviroment• Responsive to demand• Secure shared resources
Strategic Element• Focus on more core competencies, what you do best
UtilityPricing
CLOUDCOMPUTING
ElasticResources
ManagedServices
Automation
VirtualizedResources
Self-Service
SecureMulti-Tenancy
3rd PartyOwnership
18 www.globalservicesmedia.com November 2011
Mostoftheemergingmodelsinthecurrentinfrastructuremanagementworldfollowacombinationofthecharacteristicsshownabove.
Ingeneral,thenewmodelscanbecategorizedasfollows:
◆ Supplier Services–ThisisthesupplysideofthecloudcomputingmarketplaceandconsistsofITandbusinessconsulting,systemsintegration,outsourcing,andotherservicesusedtodevelopandsupportcloudservicesandinfrastructure.Theseservicesincludesoftwarecomponents,suchasapplicationplatforms,informationmanagement,systemmanagement,developmenttoolsandothersoftwareusedtoset-upandoperatecloudservicesandinfrastructure.Theyalsoincludehardwarecomponents,suchasservers,storageandnetworkinghardwareusedtobuildcloudservicesandinfrastructure.Thismarketisoneofthelargestcomponentsoftheeco-systemtodaywithaprojected2012marketsizeof$44B,withaCAGRof23percent.
◆End User Services – Thissegmentcomprisesofend-userservicesbeingprovidedfromcloudcomputing,mostnotablytheInfrastructureServicesandBusinessServices.Theyaredescribedbelow:
◆ Infrastructure Services – InfrastructureservicesincludePaaS(PlatformasaService)andIaaS(InfrastructureasaService).
◆PaaS – PaaSconstitutesofcustomersusingprogramminglanguages,toolsandplatformstodevelopanddeployapplicationsonmulti-tenant,sharedinfrastructurewithabilitytocontroldeployedapplicationsandenvironmentswithouttheneedtomanageorcontroltheunderlyingresources.TheexamplesincludeGoogleAppEngine,RightScale,Joyent.
◆ IaaS – IaaSreferstotheusageofprocessing,storage,networks,othercomputingresourceswithabilitytorapidlyandelasticallyprovisionandcontrolresourcestodeployandrunsoftwareandserviceswithouttheneedtomanageorcontroltheunderlyingresources.TheexamplesincludeAmazonWebServices,RackspaceandAkamaietc.
ThemarketsizeofInfrastructureservicesisprojectedtocross$30Bfor2012,withaCAGRofmorethan45percent.
◆Business Services – ThesecompriseSaaS(SoftwareasaService)andBPaaS(BusinessProcessasaService).
◆ SaaS –SaaSreferstocustomersusingapplications(E.g.,CRM,ERP,E-mail)frommultipleclientdevicesthroughaWebbrowseronmulti-tenantandsharedinfrastructurewithouttheneedtomanageorcontroltheunderlyingresources.ItisdefinedasuseofanInternetbrowsertoaccesssoftwareapplications,eliminatingtheneedtopurchase,install,runandmaintainthe
November 2011 www.globalservicesmedia.com 19
programsoninternalsystems.TheexamplesincludeGmail,Salesforce.com,NetSuite,Hostanalytics.
◆BPaaS-Customersconsumebusinessoutcomes(E.g.,payrollprocessing,HR)byaccessingbusinessservicesviaWeb-centricinterfacesonmulti-tenantandsharedinfrastructureswithouttheneedtomanageorcontroltheunderlyingresources.TheExamplesincludeCorefinoandADP.
ThemarketsizeofBusinessservicesisprojectedtocross$52Bfor2012,withaCAGRofmorethan25percent.
AnothertermthatisemergingisXaaS(EverythingasaService).Thefollowingdiagrambroadlydefinesitscategories:
Ingeneral,thesemodelspromisesignificantbenefitsfromleveragingtheglobalgrowthofcomputationalandnetworkgrids.Someofthekeyperceivedbenefitsareasfollows:
◆Agility-Cloudplatformsimprovetime-to-applicationdeploymentbyprovidingtheoptionofdevelopinganddeployingnewapplicationsonexistinginfrastructureasquicklyasdesired.Incomparison,traditionalplatformscantakeuptothreeorfourmonthstoprocure,install,andconfigure,manytimesstallingtheapplicationdeploymentprocess.
◆Predictability of Costs-CloudcomputingallowsorganizationstoalignITbudgetswithapplicationdemandbyhostingcustomerandpublic-facingWebapplicationswithcloudproviders.Organizationsjustneedtopayfortheresourcestheyuse,hourbyhour.
XaaS –Everything as a
Service
Provision of application serviceswith added multitenant elasticity asa service
Provision of applicationmiddleware, including applicationsservers, ESB, and BPM (BusniessProcess Management)
Based on application streaming &virtualization technology, providesdesktop standardization, pay-per-use, management, and security.
Provision of networkcommunication, billing, andintelligent features as services toconsumers.
Management of hardware andsoftware required for deliveringvoice over IP, instant messagingvideo conferencing, for both fixedand mobile devices
APaaS –Application Platform as a
Service
AlaaS –Application Infrastructure
as a Service
DaaS –Desktop as a Service
NaaS –Network as a Service
CaaS – Communicationsas a Service
BPaaS – BusinessProcess as a Service
SaaS – Software as aService
PaaS – Platform as aService
laaS – Infrastructure asa Service
Broad term thatembraces aN the
models discussedhere.
20 www.globalservicesmedia.com November 2011
◆Managing Demand Variability-Cloudcomputingprovidesamechanismtomanagepeaksindemandfordatacentercapacity,computing,storage,andnetworkresources.Asanexample,organizationscaneasilypushbigbatchjobsintothecloudinsteadofdesigningandbuildingITinfrastructurefortheabsolutepeakdataloads.
◆Lowering CapEx Budgets-Cloudcomputinggivestheabilitytodelivernewapplicationswithouthavingtobuygear,raisingthefirm’scapitalexpenditures.Applicationdevelopmentanddeliverycanallbeperformedandmanagedviaoperatingexpenses.
◆Collaboration & Sharing-Cloudcomputingallowsorganizationsarelativelyinexpensiveandeasilyaccessiblewaytoshareinformationbyhostingdataonpubliccloudsratherthanopeningtheirorganization’sfirewalltomakeitavailabletoexternalparties.
Atthesametime,manyoftheemergingmodelsarebeingtestedintherealworldandasrisksgetidentified,organizationswillhavetoplanrequiredriskmitigationstrategies.Someofthekeyrisksincludethoserelatedtodatasecurityandprivacy,compliancewithlocalandfederal/internationalregulationsandguidelinesaswellasevolvingbusinesscontinuity/disasterrecoveryscenarioswiththenewmodels.
Fromaservicedeliveryperspective,thefollowingdiagramdemonstratesthedeploymentmodelsbeingusedbyorganizations.Itislikelythatmostorganizationswilldeployamixofthesemodels:
DeploymentModel
Private(Internal)
Enterprise ServiceProvider
ServiceProviderServiceProvider
Shared
Select Multi-Tenant
VPN NetworkPublicInternet
Pay as you go
ServiceProviderServiceProvider
Shared
Pay as you go
PublicInternet
Multi-Tenant
ServiceProviderEnterprise
EnterpriseTenant
EnterpriseTenant
InternalEnterpriseNetwork
VPNNeteorkPublicInternet
TraditionalTraditional or pay as you go
Dedicated
Enterprise
ServiceProvider
EnterpriseTenant
InternalEnterpriseNetwork
Traditional
Dedicated Dedicated
PrivateManaged
PrivateHosted
CommunityHosted
PublicHosted
Private Cloud Hybrid Cloud Public Cloud
Premise
Run / Manage
Infrastructure
Community
Access
Payment
November 2011 www.globalservicesmedia.com 21
As organizations look to deploy these models, it is recommended that they spendtimeindevelopinganenterpriselevelcloudroadmap.Thefollowingsectionidentifieskeyrecommendedsteps:
kEy StEPS foR CREatIng an EntERPRISE Cloud RoadMaP
◆Define the cloud opportunity, establish direction, assess the application ofcloudtechnologywithintheenterprisecontext,assessthedeploymentoptions,frametheserviceprovidermarket,andplantheroadmapforcloudservices.
◆ Identifyandbuildabusinesscaseonthevaluethatcloudcomputingcandrivetotheenterprise.
◆DocumentandeducatetheITorganizationonhowcloud-basedservicesfitwithinthecontextofexistingtechnologyplansandsourcingstrategies.
◆Evaluateinternalskillsandcapabilitiesaswellasproviderserviceofferingsandcapabilities.
◆Assesstherelativecost,architecture,andskillsimpactedbyapplyingcloudtechnologiestocorebusinessapplications.
◆ Frametheriskandanorganization’sreadinessfortheadoptionofcloudtechnology.
◆UnderstandthemanagementframeworkneededfortheenterprisetomanageCloudServices.
◆ Lastbutnottheleast,discusswithpeersandseekexpertassistanceasyouembarkonthisjourney.
Cliff Justice US Shared Services and Outsourcing Advisory GroupKPMG
Stan LepeakDirector, Research,
Shared Services & Advisory
KPMG
Stan Lepeak is Director of Research for Advisory
Services at KPMG. He specialises in business
process and information technology (IT) services and
outsourcing market trends; outsourcing and shared services execution and
management best practices; and the globalization of
the business services and outsourcing markets. He
was formerly MD and the Leader of EquaTerraís
global research practices (KPMG acquired EquaTerra
in February, 2011) focused on trends, issues and futures
in the global information technology and business
process outsourcing markets.
Leads one of the world's largest and most comprehensive shared services and outsourcing advisory businesses for KPMG LLP. Has 20 years of relevant experience across a wide range of disciplines, including operations, global shared services and global outsourcing. Industry expertise includes: Energy (Oil & Gas), Financial Services, Healthcare & Pharmaceuticals, Manufacturing, Human Resources, Consumer Food and Packaged Goods, Technology, and Utilities. Prior to joining KPMG, was Managing Director of EquaTerra, and led its services globalization advisory practice. Prior to EquaTerra, Cliff was Managing Director of neoIT and specialized in offshoring strategies.
November 2011 www.globalservicesmedia.com 23
Global Sourcing of Services: Easier Said
Than Done (Well)
Infrastructure Management Services
KPMG recently released the results of its 2Q11 Sourcing Advisory Pulsesurveys,whichprovideinsightsintotrendsandprojectionsinend-userorganizations’usageofsharedservices,outsourcing,andglobal
third-partybusinessandITservices.Whilethesurveyfindingsrevealmanyinterestingtrends,onekeyfindingwasthatalthoughmanyorganizationsarelookingtomovetoamorematuremodelforservicesdelivery,fewhaverealizedthisgoal.
gloBal SouRCIng: thERE’S a WIll But not alWayS a SkIllEd Way
While the use of near and offshore captive and third party services is nothing new,theKPMGsurveyfoundthatthescopeofthisusagecontinuestoexpand,bothfromtheperspectivesofwhatservicesorganizationsarewillingtotakeoffshoreandalsointermsofthenumberanddiversityofdeliverymodelsandserviceprovidersutilized.
24 www.globalservicesmedia.com November 2011
Formostlargerfirms,globalsourcingtodayisamulti-pointprocessacrossmultiplegeographies,utilizingmultipleserviceprovidersandemployingmultipleservicedeliverymodels(e.g.,internallyrunoperations,localsharedservicescentersandoffshorecaptivecenters,onshore,nearshoreandoffshoreoutsourcing).Whilethis“extendedglobalenterprise”modelcanbettersupportorganizations’globalservicesneedsandhelptoimproveoperationalcompetitiveness,itisalsoprovingincreasinglycomplextosuccessfullydesign,deploy,operateandoptimize.
Buyersundertakingglobalsourcingeffortsnaturallyexertmuchfocusonselectingwhichserviceprovidertoemployandfromwhatlocationstosourceservices.Thisassessmentprocessshouldincludeaclearandrealisticassessmentofabuyer’sownmaturityandsophisticationrelativetosourcingandmanagingglobalsourcingefforts.
Acommonrootcauseofproblematicorunderachievingoffshoreoutsourcingeffortsisadisconnectbetweenwhatabuyeristryingtoaccomplishandtheskills,experience,andresourcesitpossessestosupporttheseefforts.Theseskillsinvolveselectingprovidersandlocations,accountingforandmanagingrisk,andgoverningagrowingnumberofsourcingeffortsspreadacrossmultipleprovidersandlocations.Yetoftenitseemsthatmanybuyerorganizations’globalsourcingambitionsoutpacetheircapabilitiestosuccessfullyundertakeandmanagetheseefforts.Ormoresimplytheglobalsourcing“eyes”arebiggerthanthecapabilities’“stomach.”
Inthe2Q11Pulsesurvey,KPMGpolledleadingthirdpartybusinessandITserviceprovidersanditsownsourcingadvisorstoassessbuyermaturityandsophisticationrelativetovariousglobalsourcingskills.Respondentswereaskedtoranktheirperceptionofbuyerskillsonaone-to-fivescale,whereonerepresentsveryimmatureorunsophisticatedandfiverepresentsverymatureorsophisticated(seeFigure1).Resultsshowthatoverallthereisroomforimprovementacrossalloftheseglobalsourcingcapabilitysets.
KPMGadvisorsdidnotscorebuyersabovethemidpointonanyofthefiveskillsetsassessed.Thehighestscoregivenwas2.65forserviceproviderselectionandassessingserviceproviders’globaldeliverycapabilities.Serviceprovidersweremoregenerousintheirperceptionofbuyers’skills,scoringthisattributeat3.32.
Theskillrankednexthighestbyserviceproviderswasservicedeliverygeographiclocationassessment(e.g.,wheretosourcefrom,onshore/offshore,whichcountries),scoredat3.21,whileforadvisorsthesecondrankedskillwasassessingandaccountingfordata,dataprivacyandintellectualpropertyrisk,scoredat2.61.
Therewasconsensusontypicalbuyerchallengesinmanagingandgoverningmultipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.,scoredthelowestbybothserviceprovidersandadvisors.
November 2011 www.globalservicesmedia.com 25
KPMGadvisorsinthefieldofferedadditionaldetailsonwhysomebuyersstrugglewiththeirglobalsourcingefforts.OneUS-basedpartnerwhoworkswithfirmssourcingback-officebusinessfunctionsgloballymadethefollowingobservation,“Clientsdon’tconsiderthegreatercomplexityofenvironmentsinwhichanoffshorecaptiveorthird-partyprovidersoperate,andthereforedon’taccountforgeopoliticalrisk,economicconditions,etc.”
Addressingandmanagingriskinglobalsourcingwasacommonlycitedweaknessindentifiedinmanybuyers’accounts.Asonesenioradvisornoted,“Clientsaregaininggreaterfamiliaritywithutilizingoffshoreproviders’capabilities,butremainriskaverse.Despitethis,little(oratleastnotenough)attentionisgiventomanagingrisk.Governanceandrelationshipmanagementcapabilitiesareoftenweakcomparedtothescopeoftheglobalsourcingefforts.”
AseniormanagerintheUSwasmoreblunt,orrealistic.“Lookthesefolksarenotidiots,butrarelyaretheyexcellentateachandalloftheseglobalsourcingactivities.”
Figure1–BuyerGlobalSourcingMaturity/Sophistication
1.00 2.00 3.00 4.00 5.00
Serviceproviderselection/assessingSP'sglobaldeliverycapabilities
Managingandgoverningmultipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.
Assessing/accountingfordata,dataprivacyandintellectualpropertyrisk
Assessing/accountingforgeopoliticalandserviceproviderrisk
Servicedeliverygeographiclocationassessment(e.g.,wheretosourcefrom,onshore/offshore,whichcountries,etc.)
1=Veryunskilled/unsophisticated,5=Veryskilled/sophisticated
Advisors ServiceProviders
26 www.globalservicesmedia.com November 2011
EvolvIng toWaRdS a gloBal SERvICES PoRtfolIo aPPRoaCh and ModEl
As buyers’ appetites to source more services globally continues to grow, so tooshouldtheircapabilitiestosourceandmanagetheseefforts.Thisisattheheartoftheextendedglobalenterprisemodelandmaturityframework.
Thefirststeptoaddresstheshortcomingsoutlinedaboveistorecognizeanddefineeachchallengeandapplyadequateandskilledresourcestoovercomethem.Thisisamultidisciplinaryeffortthatextendsleadingpracticesrelatedtosourcing,selection,transition,outsourcinggovernance,andmulti-providermanagementtoaccountforadditionalchallengesandnuancesintroducedfromincreasedglobalizationofserviceefforts.Asthescopeandcomplexityofbuyerglobalsourcingeffortscontinuetogrow,thiswillremainanongoingchallenge,withthebarforleadingpracticecontinuallybeingraised.
Onemeanstoimproveglobalsourcingcapabilitiesistotakemoreofaportfolioapproachtomanagingglobalefforts.Thisneedwillcontinuetogrowasglobalsourcingbecomesmorepervasiveandaccountsformoreofanorganization’sglobalservicesfootprint.However,tightlycoordinatingandmanagingsourcingeffortsgloballyisstillagoaltowhichmostorganizationsaspire.
Figure2-Management&GovernanceModelsforExistingGlobalSourcingEfforts
35%
53%
7%5% 15%
58%
9%
18%
Independentlyofothereffortsalreadyinthefield
Bygeography,businessunit,functionalarea,etc.
Byanenterprisesourcingcouncil
ByanenterprisesourcingCenterofExcellence
Advisors ServiceProviders
November 2011 www.globalservicesmedia.com 27
Inthe2Q11Pulse,58percentofserviceproviderspolledand53percentKPMGfirms’sourcingadvisorsindicatedthatwhentypicalbuyersaremanagingexistingglobalsourcingefforts,theyaregroupedandmanagedandgovernedbygeography,businessunit,functionalarea,etc.(seeFigure2).Thisisthemostcommon,historicalapproach,andisadequatefordealsandeffortsthatdonotoverlapkeyfunctionalareas.
Howevertoday,thisapproachtomanagingmultiplesharedservicesandoutsourcingeffortscanoftencreatefragmented,difficulttomanage,andunderoptimizedfunctionalandprocesssilos.Amoreholistic,functional,andthoroughprocessisoftenrequiredinthesemorecomplexsourcingenvironments.
Fewerthan10percentofserviceprovidersandadvisorsindicatedthatexistingeffortsaremanagedandgovernedbyanenterprisesourcingcouncil,whichcanprovideamoreholistic,coordinated,anddetailedviewofglobalsourcingeffortsandtheirperformanceandcostlevels.
Thestoryisbetterfornewsourcingefforts,with15percentofadvisorsand27percentofserviceprovidersindicatingthatbuyersareattemptingtosourceandmanagetheseeffortsglobally(seeFigure3).
Figure3–Management&GovernanceModelsforNewGlobalSourcingEfforts
18%
55%
27%37%
48%
15%
Independentlyfromothereffortsbeingsourcedoralreadyinthefield
Bygeography,businessunit,functionalarea,etc.
Sourcedandcoordinatedglobally
Advisors ServiceProviders
28 www.globalservicesmedia.com November 2011
One common challenge to managing sourcing efforts globally is the fact thattheyareoftensourcedlocallyfromfunctional,budgetary,approvalandexecutionstandpoints.AsaKPMGUKmanagernoted,“Giventhesensitivityofsourcing(andexcludingtheexecutivesponsorship,oftenneweffortsarerunfromprojectteamswhohavebeensplitoffandactindependently,thenoncesourcedandasrequiredthereisaglobaland/orregionalengagementfromoperationalteamsandsubjectmatterexperts.”
Asprocurementgroupsgetmoreactiveinsourcingglobalservices,however,theycanactasaunifyingforce.AsoneKPMGmanagerintheITsourcingpracticecalledout,“Sourcingisstilltypicallybyfunction-usuallypursuedbydifferentorganizationsforIT,F&A,andHR,etc.Thecommonthread,however,isincreasinglythecentralizedprocurementorganization.”
ConCluSIon
Many buyers today still view global sourcing as a series of discrete options andcapabilities(e.g.,internalservices,sharedservices,offshorecaptives,ITO,BPO)ratherthanacontinuumofintegratedservicemodels.Thisissimilartothelegacyperspectiveofviewingoffshoreoutsourcingasapoint-to-pointinitiative(forexample,fromtheUnitedStatestoIndia)insteadofanintegratedsuiteofglobalservicedeliverycapabilities.
TherealitytodayisthatorganizationsshoulddevelopaholisticstrategyandoperationalmodeltosupportthetotalityoftheirbusinessesandITservicesoperations.Thisincludeshowtosourceandmanagethesecapabilitiesaswellashowtocontinuallyimprovetheiroverallefficiencyandeffectiveness.
Whileleadingorganizationshavemadeprogress,forexample,ingoverningtheiroutsourcingeffortsasaportfolioviaaportfoliomodelascitedintheabovePulsesurveyresponses,oftentheseeffortsaredisconnectedfromthemanagementofinternalretainedoperationalsystemsandfunctions,aswellasthestrategyandexecutionofsourcingofnewinvestments.Inshort,buyers’capabilitiestosourceandmanageadiverseservicesdeliveryportfoliohaveoftennotkeptupwiththeirsourcingambition’sscaleandscope.
Introducing The World's Foremost
Expert on outsourcing
Vox Artis, a Latin phrase that literally means voice of the expert, is a resource of cutting-edge insights by experts in global sourcing of bussiness and technology, the resource is intended to be a knowledge repository and is oriented to help practitioners make actionable decisions. The voice of experts is delivered on various subjects and in multiple formats such as e-book, pdf, microsite, webi-nars, webcasts, expert round tables and more.
An initiative by
For queries, write to us at [email protected]
As Global Consulting Director for Compass, Kathy Rudy oversees client engagements and ensures the quality of Compass deliverables across all geographies and service lines. She has extensive experience in a variety of industry sectors. Kathy has over 17 years of experience in information technology management and operations, project management, and business process analysis. Her areas of expertise include performance management (including Balanced Scorecard, Service Catalogue, and Service Level Agreement development), as well as process maturity assessments, with an emphasis on the ITIL and Cobit frameworks. She also has extensive experience in service level management, service desk and desktop environments, sourcing and offshoring operations, and program and project management.
Kathy Rudy Global Consulting Director
Compass Management Consulting
November 2011 www.globalservicesmedia.com 31
Benchmarks Go Strategic
cOMparative analysis as an OutsOurcing gOvernance MechanisM
Infrastructure Management Services
Benchmark analyses of outsourcing arrangements are an acceptedmanagementtechniqueappliedtogaugethemarketcompetitivenessandqualityofaprovider’sservices.Inoutsourcedenvironments,benchmarks
havetraditionallybeenappliedaspartofacontractuallymandatedexercisetoassessexistingpricingandservicequalityinthecontextofcomparableindustrystandards.
Traditionally,outsourcingbenchmarkshaveoftenbeenusedstrictlyasanegotiatingtooltodriveshort-termadjustmentsinpricingwithindiscreteservicetowers.Asaresult,they’veoftenbeencharacterizedbycontentiousconfrontationsbetweenclients,serviceproviders,andthird-partyproviders,andhavedeliveredrelativelylimitedvalueintermsofenhancingthesourcingrelationship.
Increasingly,theroleofthebenchmarkinoutsourcingagreementsisevolving,astop-performingclientorganizationsandserviceprovidersusebenchmarksasagovernancemechanismtoidentifyimprovementopportunitiesacrosstheenterprise,assessalternativesandmodelscenarios,anddesignandimplementtransformationalchangeinitiatives.
32 www.globalservicesmedia.com November 2011
RolE of BEnChMaRkIng
Broadly speaking, an outsourcing contract benchmark can be defined as an analysisofthecostandqualityofoutsourcedservicesinthecontextofmarketstandards,industrypeers,andgloballeadingpractices.Dependingonthetermsoftheclause,theresultscanbeusedtoadjustprices,orasaninputtofurthernegotiation.Inadditiontofocusingsolelyonassessingservice providerperformance,benchmarkscanbeaneffectivewaytoidentifyoperationalconstraintswithintheclientorganizationthatinhibitoptimalperformanceandpreventserviceprovidersfromleveragingtheircapabilitiesandtools.
Becausebenchmarkinitiativesoftenfindagapbetweenoutsourcedpricesandmarketrates,theyrepresentathreattotheserviceprovider’srevenuestream,therebymakingthem,bydefinition,problematictothevendorcommunity.Moreover,mostclausesonlymandateadjustmentsifpricingistoohigh–ifthevendordeliversservicesbelowmarketrates,theyarenotcompensated.Asaresult,iftheexerciseisfocusedstrictlyonpricing,it’salose/losepropositionfortheoutsourcer.
Anothercomplaintvoicedbyserviceprovidersisthatabenchmark’sfindingsmayprovideaskewedperspectiveofpricing.Manylong-termoutsourcingcontractsarepricedsothattheproviderdiscountsservicesdramaticallyintheinitialyears,andthenrecoversthosecostsatthebackendofthedeal.Whileaproperlyconductedbenchmarkwilladjustforthefinancialengineeringoverthelifeofthecontract,abenchmarkconductedlateinthecontracttermmaynotadequatelyaccountforthevendor’searlierinvestment.
Becauseofthesefactors,serviceprovidershave,overtheyears,employedanumberofstrategiestoavoidorderailbenchmarkinitiatives.Insomecases,theydemandunrealisticallyprecisecomparatorrequirements,orchallengethevalidityorrelevanceofthecomparativedata.Inothers,theyofferupfrontdiscountsinlieuoftheanalysis.Whilesuchactionsareperhapsunderstandableinthecontextofthebusinessissuesatstake,they’veoftenservedtofuelacrimonyduringthenegotiationprocess,ultimatelytothedetrimentofthelong-termrelationshipwiththeirclients.
a tRadItIonal BEnChMaRk SCEnaRIo
The negative characteristics of a “traditional” outsourcing benchmark can includeanexclusivefocusonshort-termadjustmentstopricingwithinindividualservicetowers,andanexclusionofbroaderoperationalconsiderationsoropportunities.Further,thefindingsoftheanalysisserveasanegotiatinghammertodriveconcessionsfromtheprovider.Theonustoreducecostsandfindsavings,moreover,issolelyontheprovider,whiletheroleofthird-partyadvisorsistobea“badcop”whoroughsuptheserviceprovidertoextractpricingconcessions.
Considertheimplicationsofthisapproachinthefollowinghypotheticalsituation:
November 2011 www.globalservicesmedia.com 33
a benchmark analysis finds the client organization is paying above market rate forstorageservices.Adheringtothetermsoftheclause,theserviceprovideradjustspricestoalignwiththemarket.Facedwithdecliningrevenue,theproviderbringsinless-experiencedandlower-coststaffinanunsuccessfulattempttomaintainmargins.Qualityplummets,whiletheunderlyingproblem–theclient’sinadequatedatamanagementandstoragestrategy–remainsunaddressed.
a ChangIng RolE
As lessons are learned and the sourcing market matures, benchmarking isincreasinglybeingviewedasawaytoaddresslong-termbusinessrequirementsandimprovetherelationshipforallparties.Bybaseliningexistingperformancepriortoanewsourcinginitiative,benchmarkscanidentifyopportunitiesanddefineactionsforbothpartiestodriveimprovement.Benchmarksalsogiveserviceprovidersabetterunderstandingofclientenvironments,enablingmoreeffectivesolutions,moreaccurateproposals,andbetterassuranceofdealprofitability.
Morespecifically,clientsarerecognizingthatshort-termpricingadjustmentsintheirfavorcanbepyrrhicvictoriesthatproveultimatelytobecounter-productive.Clients alsoincreasinglyacknowledgetheirresponsibilitytochangeinternalprocessestoachieveimprovement,ratherthanrelyingsolelyonthevendor.Moreover,theseprocesschangesarefocusedonfindingwaystoallowthevendortoleveragetheircapabilitiesandprocessesandtools.Thischangeinmindsetiscritical,asitopenstheopportunitytoachieveeconomiesofscaleacrossmultipleenvironments–ratherthandeliveringuniqueandcustomservicestoeachcustomer,theoutsourcerisnowinapositiontodrivestandardizationacrossitsportfolioofclients,tothebenefitofall.
Asorganizationsfocusonimplementingvirtualization,cloud,andtransformationalchangeinitiatives,benchmarksarebeingappliedtoidentifyactionsneededtodrivechange,andtoquantifytheimpactofthoseactions.By,forexample,definingthecurrent“asis”statealongwiththefuture“tobe”state,abenchmarkcanshowwhatchangesinarchitecturewillbeneededtosupportacloudsolution,andoutlinetheoptimalapproachtoimplementingthosechanges.
StRatEgIC BEnChMaRk ChaRaCtERIStICS
In contrast to the negative characteristics of the traditional benchmark initiativedescribedearlier,a“strategic”benchmarkcanbeseenasonewheretheresultsoftheanalysisprovideabaselineforlong-termplanningandimprovement,includingtransformationalchange.Ratherthanservingasanegotiating“hammer,”thefindingsfacilitateconstructivedialogueaimedatdrivinganimprovementprocesswherebothpartiesassumeresponsibilityforchange.Ratherthanbeingapointofcontention,referencedataaretransparenttoallparties,andthethird-partyadvisornowbecomesanobjectivebrokerwhoensurestransparencyandmeaningfulanalysis.
34 www.globalservicesmedia.com November 2011
Consider too how a strategic benchmark can be applied to the scenario of above-marketpricingforstorageservices:inadditiontohighprices,thebenchmarkanalysisrevealsuniquebusinessrequirements,obsoletedataprocesses,andcostlylegacysystems.Inthiscase,thebenchmarkchartsaroadmaptowardafuturestatealignedwithbusinessneeds,wheretheclientinvestsinreplacinglegacysystemswithstreamlinedstorageplatformandamatureinformationmanagementstrategy.
Tofurtherillustratethepotentialbenefitsofbenchmarking,twocasestudiesofrecentCompassclientengagementsaredescribedbelow.
CaSE Study: MIndIng thE gaP
A global manufacturer executed a contractual benchmark clause and engagedCompasstoassessthemarketcompetitivenessandqualityofITservices,andtodefinehowbothpartiescouldacttoimprovetheclient/vendorrelationship.
Theanalysiswentbeyondasimplecomparisonofexistingcontractpricesagainstprevailingstandards.Rather,theclientsoughtanindependentviewofeachparty’srolesandresponsibilitieswithintheagreement;acomprehensiveassessmentofcosts,resourceutilization,andservicequality;andrecommendationsonhowtoenhancethestrategicvalueofthepartnership.Thescopeoftheanalysiscomprisedtheapplicationandinfrastructureserver,storage,desktop,andservicedeskenvironmentsintheAmericas,Europe,andAsia.Indefiningthecomparativereferencegroups,adjustmentswerecalculatedfordifferencesinorganizationalsize,complexity,serverconfiguration,laborcosts,andcurrencyfluctuationsrelativetotheclient.
Thebenchmarkanalysisrevealedthattheserviceprovider’scontractualpricingwasclosetoathirdbelowmarketstandards.Thisraisedaredflag,asserviceproviderstypicallycompensateforlowpricesandunprofitablecontractsthroughavarietyoftactics,includingaddingchangeorderchargestoanyactivitynotspecifiedintheterms,replacingskilledstaffwithlower-costpersonnel,reducinginitiativetoimproveservicequality,andminimizinginnovationandproactiveuseofmanagementtools.Asaresult,servicequalityoftensuffers,asdoestherelationship.
Inlightoftheseissues,theclientwasurgedtoconsideranumberofstepstosteertherelationshiptowardamoremutuallybeneficialstate.OnewastoimproveassetmanagementtoenhancetheaccuracyofinvoicingaswellastheeffectivenessofSLAs.Anotherwastolinkmetricstoservicedeliveryimprovementinitiatives–by,forinstance,trackingandanalyzingserveroutagestounderstandrootcausesandimpactonusers.AnotherrecommendationwastoenhanceSLAsandimplementanappropriateserverrefreshcycletoboostreliabilityandreducesupportcosts.
Anotherkeychangeinvolvedadjustmentstopricingstructurestolinkcostdriverstovendorrevenue,therebyfacilitatingdemandmanagementtobenefitbothparties.Increaseduseofvirtualizationnowresultsinhardwarecostsavingsfortheclientaswellasincreasedrevenuefortheserviceprovider.
November 2011 www.globalservicesmedia.com 35
Finally, both parties undertook a series of initiatives to improve operations to reducecostandcomplexity.Theseincludedexpandinglockdownpolicies,simplifyingbillingprocesses,andincreasinguseoftheHelpDeskasawaytoidentifyrootcausesofproblemsandreduceend-usereffort.
CaSE Study: dEfInIng govERnanCE StRuCtuRES
Prior to renewing its IT outsourcing contract, a major global restaurant chainengagedCompasstoanalyzethequalityandpricingofservicesprovided,andtoassesstheserviceprovider’sglobalcapabilities.Whilesatisfiedwiththevendor’soverallperformance,theclientsoughttoidentifygapsandtomoreclearlyarticulatetheirobjectivesandexpectationspriortonegotiatingacontractrenewal.
Servicedeliverywasassessedinamarket-orientedcontext,identifyingaseriesofimprovementopportunitiesrelatedtopricing,governance,andinnovation.Thescopeoftheanalysisincludedmainframe,midrange,andWintelservers,aswellasstorage,network,desktop,andservicedeskenvironmentsintheAmericasandAsiaPacificregions.Inanalyzingservicesmovedoffshore,adjustmentsweremadeforgeographicvariationsinlaborratesandfacilitiescosts.Whileoverall,thepricingoftheagreementwascloseto7percentbelowmarketrate,significantgapswerefoundinindividualservicetowers,withtheclientpayingmorethan60percentabovemarketratesforstorage,andalmost45percentbelowmarketrateformidrangeservers.
Recommendationsfocusedonaddressingtheinconsistencyinpricingidentifiedinsomeservicetowers,andonrestructuringresourceunitstoconnectcostdriversmoredirectlytovendorrevenue.Gapsinserviceexpectationswouldbeaddressedbystreamliningstaffingprocedures,re-assessingescalationandresolutionprocesses,andrenegotiatingSLAs.Finally,tighteningIDchangeSLAsfrom5businessdaysto1to2days,andstandardLANIncidentSLAsfrom8hoursto4hours,wouldalignservicedeliverytoindustrynorms.
Inadditiontodemonstratingtheabilitytoprovidequalityservice,theclientinitiallyselectedtheserviceprovideronthebasisofculturalfit;assuch,theclientexpectedahigherdegreeofresponsivenessandflexibility.Ironically,thisculturalfitcontributedtofrustrationsintherelationship.Toaddressthis,agovernanceassessmentwasinitiatedthatrevealedalackofalignmentinthemanagementstructureoverseeingtherelationship.Specifically,reportingstructureshadseniorexecutivesfromonepartycorrespondingwithlowerlevelpersonnelfromtheotherparty,resultingininefficientandineffectivedecisionmaking.Anotherissuewasthedilutionof“dealknowledge”overtime.And,poorcommunicationregardingtheserviceprovider’scapabilitieslimitedinnovation.
Governancerecommendationsincludedensuringthattheclient’sretainedteambeproperlyalignedwiththebusinessandinvolvedinstrategydiscussions,streamliningresponserequestprocedures,takingamoreproactiveapproachinmanagingpriorityrequests,andimprovingcommunicationprocessesonvendor
36 www.globalservicesmedia.com November 2011
capacity.Acapabilitiesassessmentfoundthevendorwaseffectivelydevelopingtheglobalreachandcapabilitiestheclientrequired.
Toenhancethelong-termpartnership,theclientinstitutionalizedcommunicationofITperformancemeasures,andtookstepstobetterdefineitsexpectationsoftheserviceprovider.
Morespecificrecommendationsincludedrefiningrequestprocedurestoensureresponsiveness,implementingtoolstoimproveutilizationreporting,andinstitutingmoreformallyscheduledclient/vendormeetingsthatfeatureaction-orientedoutcomesandpublishedresolutionsteps.
Followingtheanalysis,theclientandserviceproviderformedajointteamtoreviewrecommendations,prioritizeactions,andbuildaframeworkforimplementationandmeasurementofsuccess.
* * *
Astheseexamplesillustrate,abenchmarkanalysisgoesfarbeyondanassessmentofpricing,andthebenefitsandoutcomesofaneffectivebenchmarkinitiativearefarmorevaluablethanshort-termadjustmentstocontractualterms.
Traditionallyviewedasauseful(iflimited)tactictoadjustthepricingofoutsourcedservices,benchmarksareevolvingtoassumeanintegralrolewithinsourcingadvisoryandgovernance.Specifically,businessorganizationsarefindingthataneffectivebenchmarkanalysisprovidesacriticalfactualandquantitativebasisuponwhichtodefine,assess,andvalidatetheirlong-termoperationalstrategiesandchangeplans.
As VP Research for HFS, Robert provides research and consulting services to both end user organizations and services providers focused around sourcing strategies and best practices. Prior to HFS, Robert was VP Research/ Consulting for Saugatuck Technology, VP Strategy/ Marketing for SaaS vendor Service-now.com, a management consultant with Deloitte Consulting advising organizations across North America on IT and business process sourcing strategies and a Principal Analyst with Forrester Research. He is a contributing author of a book produced by the Institute of Directors in the UK on software asset management.
Robert McNeill VP, Research
Horses for Sources (HFS)
Contributing Authors:
Esteban Herrera, COO, SVP Research, HfS Research
Tony Filippone, VP Research, HfS Research
Phil Fersht, CEO, HfS Research
November 2011 www.globalservicesmedia.com 39
Achieving Innovation in IMS: Eight Strategies to
Consider
ExECutIvE SuMMaRy
In a period of uncertain business cycles influenced by a potential “DoubleDip”globalrecession,corporateprioritieshaverapidlychangedjustwithinthepastfewmonthsastheyexploresmarterwaysofworking,newgrowth
opportunitiesinnewmarkets,andbetterwaystomanagesprawling,capital-intensiveheterogeneousinfrastructures.Providersofinfrastructuremanagementservicesneedtoinnovatetheirofferingstokeepupwiththesenewdemandsoftheirclients-andanumberoftechnologicalandsourcinginnovationscanprovidetheITorganizationwithnewoptionsthatcanbeimplementedtoday.Thisreportfocusesonthetopwaystoinnovateinfrastructuremanagementservices.
Infrastructure Management Services
40 www.globalservicesmedia.com November 2011
EIght StRatEgIES to InnovatE youR InfRaStRuCtuRE ManagEMEnt StRatEgy
Some CIOs shy away from introducing innovation due to a laser-focus on achievingoperationalstabilitywithintheirITenvironment.Thisstrategywillincreasinglyfailtosatisfythebusinessasorganizationswantinfrastructurethatprovidesthemincreasedagilityataloweroperatingcostthatisincreasinglyavailablefromexternalservicesproviders.Innovationisaboutrealizingnewmethodsforachievingbusinessbenefits,andITorganizationsneedtoinvestinnewsourcingoptionsthatwillprovidethisimpacttotheirusers.Basedonexhaustiveresearchwithmanyorganizationsandserviceproviders,HfSResearchhasidentifiedtheeightwaystoinnovateinfrastructuremanagementservices:
1.Design outsourcing contracts that promote change and innovation.Letsfaceit,ifyouneedtochangeandneedtodotoitquickly,externalproviderscancutthroughorganizationalobstacles(e.g.,politics,lackofskillsandcompanyculture).However,if you outsource what you have and ask the provider to do it exactly as you do it today, then you are not going to innovate. On the other hand, if you give the outsourcer license to introduce innovations (best practices, continuous services improvements and radical innovations),
What IS InnovatIon?
Innovation within the context of delivering outsourcing services takes a variety offormsincludingtransformation,bestpractices,continuousprocessimprovement,newtechnologies,businessbenefits,effectivepoliciesandachievementofthebuyer’sdesiredfuturestate.But...whatisitreally?HfSbucketsinnovationinthreeareas:
1.Best Practice Implementation.Referstoproviders(eitherinternalorexternal)bringingwhattheyhavelearnedfromdoingsimilarbusiness“outside”,judgingwhetheritisthebestwaytodoit,andimplementingitonbehalfoftheirclients.Riskismoderate,butfailurecanbeexpensive.Thereturncanrangefrommoderatetosignificant,dependingonthestartingpoint.
2.Continuous Improvement.Referstoprovidersimplementingminormodificationstoexistingprocessestomakethemperformbetter,withoutregardforwhatisdone“outside”Riskisminimalandfailureischeap.Returnsaregenerallysmall,butcanaddupovertime.
3.Real Innovation.Referstotryingthingsthathaveneverbeendonebeforeinsideoroutside.Involveshighestlevelofrisk-takingandthepotentialforfailureissignificant.Returnscanbeverysubstantialiftheinnovationsucceeds.
November 2011 www.globalservicesmedia.com 41
service providers can be a source of rapid innovation. Organizations impacted by radical, fundamental shifts to their industry economics, are more prepared than ever to admit they need to look outside of their current organization boundaries to keep their business operations cost-competitive. In addition, buyers need to be careful when setting up the relationship at the onset—it is counterproductive to talk about constant change and frequent innovation and then design a contract that effectively locks both sides into an intransigent environment. Withnewgrowthcomingfromoutsideoftraditionalmarketsorganizationsneedtoreinventtheirinfrastructurestrategiesorfaceaninabilitytoexecuteagainstbusinessneeds.
2.Head to the Cloud for cost, speed and scale.CloudComputingisrefashioningthecost,quality,speedandflexibilitybywhichbusinessescanaccess—andsupplierscandeliver—servicestosupportbusinessneeds.Companiescontinuetosufferfromsignificantinternalresourceandbudgetconstraintswith,onaverage,70to80percentoftheITbudgetstillspentonIToperationsandmaintenance,leavinginsufficientresourcesfornewprojects.Organizationsarebeginningtoleveragepublicclouddatacentersandprivatecloudalternativestoproviderapidscalinginresponsetobusinessneedswherededicatedinfrastructureprovestoocostlyandprovisioningflatlytakestoolong.Cloud-basedinfrastructure--availablefromAmazon’s AWS,Rackspace, Savvis (CenturyLink), and Navisite, for instance--allows for
Exhibit 1. Threat of “Double Dip” moves more IT infrastructure to the Cloud
Q.In your opinion, how will a "Double Dip" Recession impact your organization's impetus to pursue the following PRODUCTIVITY measure over the next six months?
Source: HfS Research September 2011; Sample: 157 Buy-side Organizations
Re-engineer existing
businessprocesses
Re-engineer existing
businessprocesses
9% 11% 16% 10%17% 17% Don’t know
Major decrease
Major increase
Minor increase
Minor decrease
No change
1%1%
1%1%9%
7%14%
33%
37%
11%
38%
32% 20%
22%
29% 24%
11%12%13%
46%32% 46%
51%
24%Bu
y-si
de
Org
an
iza
tion
s
Move business support funtions
into sharedservices(Finance,
Procurement, HR and other ops)
Move ITinfrastructureinto the Cloud
Move ITsupport
functionsinto shared
services
Invest inAnalytics
capabilities
Subscribe toCloud Business
Servicesplatforms (i.e.PaaS, SaaS)
42 www.globalservicesmedia.com November 2011
therapidprovisioningofinfrastructureandprovideshardwareelasticityinanon-demandmanner.AsCloud-basedservicesmature,ITorganizationscanreducetheirrelianceonon-premisessoftware,hardwareandinternaladministration.OurSeptember2011researchshowsthatwhile38percentoforganizationswillnotchangetheirstrategyrelatedtouseofCloud-basedinfrastructurebroughtaboutbytheprospectsof“DoubleDip”recession,45percentoforganizationswillmoveinfrastructuretotheCloud(seeExhibit1).ToITexecutivesandCIOs,theCloudisatechnologyandbusinessenabler.Iftheycanmasterthesenewinnovationseffectively,thentheycanreducethecostsofprovisioningtechnologyandthetimetodeliverprojectstobusinessunitswhileplanningfornewerandmoreinnovativesolutionsforbusinessunitstodeploy.
3.Seek better IT automation – Time to “Tool Up”.Inlargeinfrastructures,CIOshavetocontendwithtoolsthatmaynotbewellintegrated,multipledatabasesthatstoreinformationandweakreporting/analyticsthatrequireheavycustomanalysisjusttofigurewhatisgoingon.ManyITprocessesarefragileastheydependtooheavilyonpeople.Withtherelativelyhighadoptionofservicedelivery/managementprocessessuchasITILCIOshavetheopportunitytoautomateservicesmanagementprocessestherebyreducedependencyonmanualbasedprocesses.ITorganizationsmust“toolup”toimproveproductivityandtransparency.SavvyCIOsaredevelopingthemselvesintoCloud-enablersbyhoningtheirsourcingandserviceintegrationskills–andbetterautomationisrequired.AwholenewcadreofsoftwarevendorsthatenabledeploymentofCloudinfrastructureisgainingcertainlyVCtractioninthemarket.CompaniessuchasEucalyptus,Abiquo,CloudKick (Rackspace),Sensible Cloud, Enomaly, Enstratus,Rightscale,Cloud.com (Citrix), Platform Computing, ServiceNow,HP Software,BMC,Dell, IBM, and Microsoft are all gettingintotheacttryingtoacceleratetheimplementationofaninfrastructure-as-a-service(IaaS)cloudinacustomer’sdatacenterandwherepossibleintegrationwithPublicCloudsuchasAmazon’sEC2.ProcessmanagementandorchestrationbecomemoreimportantasthebusinessrequiresfasterprovisioningofITrequests.Automateddiscovery,mappingofapplicationandservicedependenciesandorchestrationofinfrastructurecomponentsandtaskshasbecomea“musthave”forIT/businessandcloudservicemanagementorganizationsasthebusinessdemandsincreasedautomationofcommonlyrequestedservices.
4.Scrap installed legacy software in favor of SaaS based IT management.SaaS-basedITmanagementisoneoffastestgrowthsegmentsinenterpriseITasadvancementsintechnology.SaaSpromisescustomersreducedcoststoupgrade,configure,manageovertime–andinmanycaseseaseofuse.Asorganizationssubscribetothesoftware–theycanusewhattheyneedratherthanbuyingitallupfront.Withnosoftwaretoimplementorupgraderapidvaluecanbedeliveredwithoutanarmyofdevelopersandconsultants.CompaniessuchaasFacebook,DeutscheBank,IntelandUBS,havedeployedSaaSbasedITmanagementsuitestomanagetheITworkflowandautomation
November 2011 www.globalservicesmedia.com 43
policieswithintheirorganization,inmanycasesrippingouton-premisealternativesavailablefromthetraditionalBIG4managementvendors(BMC,CA,IBMandHP).Pressurefromcloudcomputing,economicrecessionandbudgetconstraintsisthreateningtheirpositions.DrivenbythesuccessofsoftwarecompaniessuchasBeetil and ServiceNow, on-premises vendors havepiledintothemarketwithofferingssuchasCA Service Manager on Demand,HPSoftware-as-a-Service, RemedyForce, Remedy OnDemand, and TivoliLive,
5. Increase your home-based workforce to significantly reduce infrastructure requirements. Higherlevelsofunemployment,improvedcollaborationtechnology,someofwhichisfree(skype,OovoO,Gmail),andtheabilitytohavehomeworkersusetheirowninfrastructureisallowingorganizationstotapintoabroaderpooloftalentandtodosocheaply.TheremovalofthebricksandmortaranduseofCloud-basedapplicationsforcollaborationisenablingthehomeworkingenvironmentonaseriousscale.Employingacontentflexibleworkforcedrivesemployeeretentionratesup,lowersthecostsofmanagingtalentandforsometypesofwork(particularlynonscriptedvoiceBPO),andimprovescustomersatisfactionwhencomparedtooffshorealternativesOtherareas,suchasmedicalcoding,alreadyrelyheavilyonhome-basedstafftoworkonadministrativetaskswithcontextualneeds.Indeed, wellover100,000home-basedcallcenterjobshavebeencreatedintheUSinthelastthreeyearsbycompaniesleveragingservicesavailablefromAlpine Access,Working Solutions,LiveOps,AriseandWestathome.
6.Embrace Social Media for infrastructure support and services.SocialmediaisnowbeingusedbyITservicesmanagementteamstohelpimprovecommunicationbetweenITandusers.SocialmediaallowsendusersimprovedtransparencytowhatishappeninginITthroughconsuminginformationfromsimpletechnologiesthattheyuseineverydaylife(e.g.,twitter,chat,forums,wikis).Itisaboutgettingtherightinformationpersonalizedtoauserandfasterthanthroughalternativechannels.Knowledge,servicecatalog,andrequestmanagementareprimecandidatesforsocialmediainfusion.Knowledgemanagement,traditionallyastaticdisciplinethatovertimebecamelessusefulasinformationwasnotupdatedorwasonlyavailablefromcumbersomeusermanualsorisolateddatabaseshasbeeninvigoratedwiththeimplementationofcrowdsourcedwikisandchatforums.Itemswithinaservicescatalogcanbeadvertisedthroughtweetstousersallowingorganizationstoencouragemoreself-service.ITandapplicationownerscannowsubscribetolistse.g.,forInstantaneousalertsandupdatescanbedistributedinafamiliarnotificationformattomobiledevicesensuringthatinterestedpartieshavethemostup-to-dateinformationonthestateofIT.Indeed,someITservicesdesksnowhaveintegrationsocialmediaincidents“twickets”,aplayonamoretraditionalhelpdesk“ticket”.
7.Consider outsourcing the supporting infrastructure with the application. Ratherthanoptimisinginfrastructureasahermeticsilo, outsourcing thesupportingITinfrastructurewithanapplicationdrivesaccountabilitytoone
44 www.globalservicesmedia.com November 2011
provider and therefore reduces finger pointing between multiple parties. AproviderthatbundlesbothITandapplicationmanagementsupportmaybemorecapableofaligningservicestothebusiness,improvingservicequalityandincidentclosuretimeasitunderstandandisresponsibleformanagingallthedependenciesfrominfrastructuretoapplications.Further,providersthatmanageallaspectsoftheITstackmaybemoremotivatedtomakeproactiveinvestmentsinITinfrastructuretoensurethattheapplicationisperformingaccordingtoservicelevelcommitments.
8.Review your procurement strategies and rationalize requirements.Whileforsomeexecutivesthismayseemlikemotherandapplepieadvice,HfSstillseesmanyITorganizationsasbloatedastheyover-spectheirenvironmentandover-provisiontheiremployees.Ifpeoplegotinnovativeandthoughtfulwiththeirpurchases,theycouldreallysaveaslewofwastedmoney.Forexample,manyemployeeswalkaroundwithexpensivelaptopswithenormousfunctionalitythatisoverkillfortheirjob,fashionableTumilaptopbackpacks,installedSAS@$5k/license,andhaveaCOLORfaxmachine,twocolorprinters,ablackandwhiteprinter,andaMFD/copiertosharewiththeiradmin(whowontsharewiththeirownteam).Iforganizationsweretoprocureinfrastructureservicesinafarmorelogicalmannerthroughrationalizingrequirementssignificantsavingswouldbecreated.Takeadvantageofany“DoubleDip”recessionfornewimpetusincostcuttingandproductivityefforts.
thE fInal WoRd: BE aggRESSIvE aBout gEttIng youRInnovatIon PlanS In MotIon
While some organizations are dissatisfied with the amount of innovation theyreceivefromserviceproviders,thetruthismostorganizationsfailtoprovideresourcestocaterfordevelopinganinnovationstrategy.Investmentindevelopingideasandimplementingsolutionsisnotfree,whethersourcedinternallyorthroughaservicesprovider.Organizationsneedtocreatetheconditionsforinnovationtotakeplace.Doyouhaveacultureandrewardschemeforindividuals/servicesproviderstotakerisksandfail,anddopeoplehaveasenseofpurposeatworkthatpromotesnewthinking?ITneedstoinvestinresearchingnewopportunitiesinordertodevelopanunderstandingofhownewinnovationscanbeimplementedforbusinessbenefit.IThastoselltheadvantagestogroupswhodon’tnecessarilyunderstandhowinvestmentsininfrastructurecanmakeanimpactontheirbusiness.OrganizationsthatwanttomovequicklytodeploynewinfrastructuresourcingalternativesinanystrategicmannermayneedsupportandadvicetohelpthemwithbothinternalITandprocesstransformation.OrganizationsneednotreinventthewheelandmayfindvalueinworkingwithpartnersthroughthisnextjourneyofITdelivery.Herearesomesimplestepsforbuyerstofollowtogetaninnovationplaninmotion:
◆Create an aggressive innovation agenda and a plan to keep that agenda fresh over time.Buyersneedtostipulatetheneedtoexplorenewandcreativewaystoimproveproductivityandtop-linegrowthasacoreelementoftheir
November 2011 www.globalservicesmedia.com 45
IMSendeavor,andcommunicatethisaggressively,onarepeatedbasis,totheirITorganization.
◆Communicate this innovation agenda to both governance and provider teams.Virtuallyallbuyersbeginningtoachievesomeinnovationsuccesswiththeirengagementwillsaythesamething:“Werecognizedwhatweneededtodointernally,andcommunicatedaggressivelywithourprovidertostartdeliveringitwithus”.Untilbuyersdirectlydealwiththeprobleminternallyandcommunicatetotheirpartnersthenewdirectiontheyaretaking,theywillstruggletoachieveanyrealpositiveresults.
◆Create an innovative contract with their provider.Buyersneedtoprovidefinancialincentivestotheirprovidersinordertogaintheirassistanceinachievinggainsinbothproductivityandgrowth.Providerswillstepuptotheplatewiththerightapproach,iftheyhavethefinancialincentivetodoso.
◆ Stop playing providers off in a low-cost bake-off. Ifabuyersimplysqueezesthelifeoutofitsproviderwithacostbake-off,itisunlikelytogetmuchinreturnbeyondoperationaldeliverytomeetthecontractedservicelevels.Someoftoday’sexternalservicesprovidersareinsertinggain-sharingelementsintotheirdealsinordertobeatoffprice-droppingcompetitors,becausetheyaredesperatetowinthedeal.Thebetterprovidersnowhavetheadvantageofknowingwheretheycanofferinnovationincentivestogaingroundintoughpursuits.Inanycase,asmostprovidersarenowoperatingwithinasimilarpriceband,thefocusneedstomoveawayfromsimplypriceandontowhichprovidersarebetterpreparedtodriveinnovativeresults,ofcoursewiththerightfinancialincentives.
◆ If your service provider fails to step up to the plate, seek alternative expertise.Smartbuyersquicklyrealizethattheinitialonustodriveaninnovationagendaliesontheirowndoorstep.Itisuptothemtodriveexpectationsandrequirementsontotheirserviceprovidertofosteracollaborativepartnershipwherebothpartiescanworktowardscommonbusinessoutcomesforthebuyer.However,itmanycases,thebuyerisdiscoveringoverthecourseofitsfirstcontract,thattheirprovideriseitherunable,orunwilling,tocommittheresourcesortalentneededtosupportitsclient’sinnovationroadmap.Ifthisisthecasethenitistimetobringadditionalexpertiseintothedeliverymix.Thiscanbedonetoforcemorecommitmentsduringacontractre-negotiation,or,alternatively,cansimplyforgepartofastrategywherethedisappointingproviderperformsmoreofanoperationalrole,andanotherproviderorconsultingfirmcanperformmoreoftheinnovationservices.
Stanton Jones, Vice President and Chief Information Officer (CIO) at TPI, is
responsible for TPI’s corporate technology
strategy as well as all of the company’s information technology (IT) operations
globally. As an active member of TPI’s Cloud
Computing Solutions Business Unit, Stanton
helps clients develop and implement their cloud sourcing strategies. In
previous positions, Stanton designed, developed and
supported some of the CRM industry’s largest and
most-advanced databases for clients across multiple
industry verticals. He also held roles in rapid
application development, account management, and
data center operations.
Scott Feuless is a Principal Consultant with Compass Management Consulting. He benefits from substantial senior management experience, with a strong background in leading technology and sourcing strategy and pricing in a variety of industry sectors. Scott’s areas of expertise include infrastructure performance; specifically mainframe, midrange, desktop, and networking environments. In the sourcing space, he works with client organizations on strategy definition, RFP development, negotiation assistance, and virtualization and cloud initiatives.
Scott Feuless Principal ConsultantCompass Management Consulting
Stanton Jones CIO & Vice President
TPI
November 2011 www.globalservicesmedia.com 47
Pricing the Cloudaccurate Measures and relevant cOMparisOns
are essential
Akey characteristic of cloud computing is the potential ability to price, deliver,andconsumeITresourcesinaflexible,usage-basedmanner.Ratherthanpayingforinfrastructure,customerspayonlyforneededcomputingpower.
Usemore,paymore.Useless,payless.
Theimplicationsofthisshiftarenothingshortoftransformational.Consumption-basedpricingenablestransparencyandencouragesdemandmanagement:ifthebusinessunderstandsthecostimplicationsofthewayITisused,betterchoiceswillpresumablyfollow.Inaddition,usage-basedpricingtheoreticallyeliminatesthecostofinsufficientoridlecapacity,sinceresourcesareallocatedonlyasneeded.
Theproblemis,we’renotquitethereyet.Accurateandconsistentpricingmodelsforcloudservicesremainelusive,andsignificantorganizationalobstaclesmustbeovercometoleveragethepotentialofflexiblepricing.Customersexploringcloudinitiativesneedtounderstandmarketdynamicsaswellasthechallengesinvolvedincomparingvariousofferingsandassessingthetruetotalcostofacloudsolution.
Infrastructure Management Services
48 www.globalservicesmedia.com November 2011
PRICIng ModElS
Today’smarketplaceischaracterizedbymyriadpricingmodelswithawiderangeofdifferentstructures.
Thediversityisbasedlargelyonwhetherthecloudofferingispublic,private,orahybrid.ProviderAmaychargebyprocessorsreserved,whileProviderBchargesbytheCPUhour.
Examplesofnewtotalcostofownership(TCO)calculatorsarecitedbelow:◆CloudSizer.com(IDEASInternational)◆MicrosoftAzurePricingCalculator◆Gogrid.com◆AmazonElasticComputeCloud(AmazonEC2)
MicrosoftrecentlyreleaseditsWindowsAzurePricingCalculator,addingtothegrowinglistofsimple,web-basedpricingcalculatorsforcloudplatforms.AmazonWebServices,apubliccloudpioneer,hashadapricingcalculatorinplacesince2009.Ofcourse,intruecloudfashion,it’sstillinbeta.Cloudhostingprovidershavealsoembracedthe“transparency”trend,withRackspace,GoGridandNavisitealldisplayingpublicpricingontheirwebsites.Somehavehadthislevelofcostvisibilityinplaceforyears;othersarejustnowgoingpublicwiththeircloudpricing.
Thesepricingtoolsareprovidingunprecedentedvisibilityintospecificcomponentsofpricingandthecostrequiredtorunkeypartsoftheinfrastructureandapplicationsinthecloud.
Thatsaid,theabilitytogaugeutilizationaccuratelyenoughtobillforitinatrueutilitymannerremainsachallenge.MostinternalandexternalITgroupsdon’thavethemonitoringtoolstoaccuratelymeasureandlogCPUminutes.
Moreover,aCPUminuteononemachinecanrepresentmoreorlessprocessingpowerthanaCPUminuteonanothermachine,soensuringanapples-to-applescomparisonofdifferentserviceofferingsisproblematic.
It’salsoimportanttonotethatthesecalculatorsonlyprovidecertaincomponentsofthepricinganddon’trepresenttherealtotalcosttooperateinthecloud.
alloCatIon
Somecurrentcloudmodelsuseallocation,suchasaserver“instance”oracompute“slice,”asthebasisforpricing.Here,theresourcethatacustomerisbilledforhastobeallocatedfirst,thusallowingforpredictabilityandpre-approvaloftheexpenditure.However,theterm“instance”canbedefinedindifferentways.Iftheinstanceissimplyachunkofprocessingtimeonaserverequalto750hours,thatequatestoafullmonth.Ifthe“size”oftheinstanceislinkedtoaspecifichardwareconfiguration,
November 2011 www.globalservicesmedia.com 49
the billing appears to be based on hours of processing,but in fact reflects access to aspecificserverconfigurationforamonth.Assuch,thepricingstructuredoesn’tdiffersignificantlyfromtraditionalserverhosting.
Terminologyisalsoanissue.Sincenoclearstandardsexistonhowcloudservicesaredefined,thesamesetofwordsonecloudvendorusestodescribeatrulyinnovative,cloud-baseddeliveryapproachcanbeusedbyanothervendortohypeatraditionaldeliverymechanism.Inotherwords,customersneedtoask:Arewetrulyleveragingthepotentialbenefitsofcloudcomputing?Orarewesimplygettingtraditionalserviceswithacloudlabelattached?
Despitetheseissues,cloudservicescananddoofferincreasedflexibilityandamorestreamlinedprocessforgrowingITinfrastructure,astheprovisioningofnewserverscanoftenbedoneinamatterofhoursordays,insteadofweeksormonths,eveniftheservicesarebilledviaanallocationmodel.Inaddition,themovetowardcloudserviceshasthepracticalimpactofdrivingstandardizationacrossmultiplecustomerenvironmentsandmakingservicesmoreutility-like.Thisallowsvendorstoleveragegreatereconomiesofscaleanddeliversignificantsavingstocustomers.
Cloud tCo
In today’s buyer beware cloud environment, customers need to understand thedetailsofeachpricingschemeinacomparativecontext,alongwiththetermsoftheagreement,todetermineexactlywhatthey’regetting(ornot)fortheirinvestment.Otherwise,thecostofthecloudsolutionrisksbecominginadditionto,ratherthaninsteadof,theexistingenvironment.
Theprocessisanalogoustobuyingacaronline.Thebasepricelooksextremelyattractive,butwhenalltheoptions,tax,title,license,maintenanceandfuelconsumptionareaddedtothebaseprice,thecostmaybeasmuchas50percentmore.Similarly,whenpricingatrueenterprisecloudsolution,thetotalcostsinvolvedhavetobeconsidered.Theseincludetrainingstaffonre-engineeringapplicationsforthecloud,re-workingtheauthenticationframework,integrationwithlegacyapplicationsandbuildinginbusinesscontinuityanddisasterrecoverysolutions.
Thecloudpricingcalculatorsdescribedearlierdon’tadequatelyaccountfortheseincrementalcosts.ExamplesofcostsfrequentlynotcalculatedinCloudsolutionsinclude:
◆ InternalLevel1servicedeskandtechnicalresourcestointerfacewiththeprovider’sLevel2desk
◆MigrationcoststotheCloud◆Additionalnetworkbandwidth(datatransferratesinandout)◆ Remainingbookvalueofstrandedassetsandsoftware◆ Remainingamortizationofapplications
50 www.globalservicesmedia.com November 2011
◆Additional staff to manage new contracts◆Costoffulfillingminimumvolumecommitmentsincurrentcontracts
A decision to process and store data in the cloud does not eliminate othercostsinherentintheITenvironment.Whilecloudcalculatorsprovidedetailandtransparencyintothebaseservicesprice,that’snotenough.CIOsneedtounderstandthetruetotalcostofownershipofacloudsolution–includingthecosttotransitiontoandtorunoperationsinthecloud.
It’salsoimperativetoaccuratelyassessandevaluatecloudoptionsandbenefitsinanapples-to-applescontext.
Keyquestionsinclude:Whichpricingmodelisappropriate?HowdoesofferingAtrulycomparetoofferingB?HowwillchoicessupportorunderminetheoverallITandbusinessstrategy.
lookIng ahEad
Organizations that will drive usage-based pricing to further maturity will be thosethatarewillingtogiveuppredictabilityforoverallsavings,andarewillingtoworkwithcloudprovidersthatarehungryformarketshare.Suchpioneers–Amazon,forexample–havebusinesseswithrevenue-generatingapplicationsthatneedtoscalerapidly.Forthem,scalabilitytrumpspredictability,andgrowingrevenuescancoverhighercosts.
Inthemeantime,forcustomerswhoareskittishaboutunanticipatedspikesinexpenditures,serviceprovidersareofferingpricingmodelsthatsetoffalertswhenacertainlevelofconsumptionislikelytobereached.
Theutilitymodelwillbemostattractiveforrevenue-generatingapplicationsthatneedtoscalequickly,developmentenvironmentsthatneedtoscaleupanddown,andcompute-intensiveapplicationsthatcanrunprocessesinparallelacrossmultiplemachines(today’sgridapplications).Formorecommontypesofproductionprocessing,mechanismsthatallowclientstoretaineffectivecontroloverincreasesindemandwillbeneeded.
Fromtheserviceproviderperspective,trueusage-basedpricingwillbedrivenbyvendorsaggressivelyseekingmarketshare.Theseplayerswillpushforincreasedflexibilitycoupledwithdecreasingminimalcommitments.Vendorsdefendingmarketshare,meanwhile,willbepulledreluctantlydownthispath.
Vox Artis- A Powerful Proposition for Service ProvidersAs a marketing professional, I am using this space to introduce a new product and to point out opportunities for service providers to enhance their marketing prowess. In other words, this is a shameless pitch, but a useful one at that.
Global Services is pleased to introduce a unique program called 'Vox Artis' – a Latin phrase that literally means 'voice of the expert'. The intention is to create a global sourcing knowledge repository that would help sourcing practitioners make actionable decisions.
Vox Artis is available complimentary to all readers of Global Services.
In terms of the nature of content, Vox Artis would feature cutting-edge essays, thought-provoking research, focused conferences, and timely webinars, videos, and podcasts. Therefore, Vox Artis would be produced in multiple media formats.
The overarching goal is to create a community of experts called as the Vox Artis family, an eclectic group of impactful and influential thought leaders in global sourcing. The contributors to Vox Artis comprises sourcing advisors, industry analysts, consultants, functional leaders, heads of shared services, process analysts, program leaders, and senior sourcing executives-except executives from the service provider community. Why so?
While we enormously respect the knowledge base within the service provider community, we are obsessed with giving our readers unalloyed advice and content coming from sources that are not aligned to any specific vendor. If we open out Vox Artis to all in the service provider community, then we fear that it would become a battleground of marketing messages.
Therefore, Vox Artis is available to service providers on a qualified basis. While 'qualified' may suggest that it needs to pass through the editorial filter, it does not mean that opportunities are exclusive to chosen few.This process is only intended to enhance the differentiation.
Having said that, Vox Artis is going to a be a great tool for service providers to reach out to the creme de la creme of enterprise services buyers. Vox Artis is guaranteed to squarely address the four pillars of services marketing: thought leadership, branding, influential marketing, lead generation.
I look forward to your feedback, comments, views and anything that you think matters.
Satish Gupta Head of Marketing Global Services [email protected]