Vox Artis Inaugural Issue

Page 1

INAUGURAL ISSUE ď ľ NovEmbER 2011

Infrastructure Management Services RIM Comes of Age

Benchmarks Go Strategic

Emerging Models in IMS

Achieving Innovation in IMS

Global Sourcing of Services

Pricing the Cloud

Stan Lepeak KPMG

Stanton Jones TPI

Ben Trowbridge Alsbridge

Amit Singh Avasant

Cliff Justice KPMG

Kathy Rudy Compass Management Consulting

Robert McNeill Horses for Sources

Scott Feuless Compass Management Consulting


Hangzhou, China A City of Financial Delivery Center

Demonstration City of Chinasourcing Hangzhou 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.

For more details, please click: http://www.great-idea.com.cn/hangzhou/hhtz.htm http://www.great-idea.com.cn/hangzhou/

International Financial Outsourcing Center Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center


2011 the West Lake, Enlightenment and Discussion Discovery, Transformation, Reaction, Share

To Combine the Global Resources and Facilitate the Integration & Improvement of Global Service Capability For Your Attention

International Outsourcing Business Development Summit Date: October 24-26, 2011 Venue: Zhejiang Narada Grand Hotel, China

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

International Financial Outsourcing Center Contact: Tel-8610 85863613 Fax-8610 59081093 Email-salida-liu@great-idea.com.cn


Global ServiceS An integrated media platform which connects the various constituents of the global technology and business processing services industry ecosystem.

Directory of ServiceS NewSletter A regular digest of key industry happenings. DiGital MaGaziNe The monthly digital magazine features research reports, articles and experts’ views. Available on www.globalservicesmedia.com webiNarS Global Services’ web-based seminars aim to impart useful information related to outsourcing industry in the form of presentations and discussions by industry specialists. reSearch We deliver indepth analysis and research reports on sourcing subjects. MicroSiteS Online resource center designed to provide focused content on special subjects to the outsourcing community. eveNtS From multi-day, high-level, resort conferences to intimate breakfast discussions we offer a number of opportunities that connects the outsourcing community. cUStoM ProGraM Customized services rendered through different media platforms. oSoUrce booK A directory of global outsourcing service providers. www.osourcebook.com

A CYBERMEDIA PuBlICAtIon

Pradeep Gupta Chairman & Managing Director Cyber Media (India) Ltd. E. Abraham Mathew President Ed nair Editor ed@cybermedia.co.in Satish Gupta Head of Sales and Marketing satishg@cybermedia.co.in Smriti Sharma smritis@cybermedia.co.in Smita Vasudevan smitav@cybermedia.co.in Sourabh Chandra Pushp sourabhc@cybermedia.co.in niketa Chauhan niketac@cybermedia.co.in Gary Bindra Manager of International Sales gurdeepb@cybermedia.co.in Rahul Randhawa Manager of International Sales rahulr@cybermedia.co.in Global Services Cyber Media (India) Ltd. CyberHouse, B- 35, Sector 32 Gurgaon-122001, India Tel: +911 24 4822222 Fax: +911 24 2380694 Contact: globalservices@cybermedia.co.in Disclaimer All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher.

letterS to the eDitor Send letters to ed@cybermedia.co.in, or to any of our writers. We reserve the right to edit all letters. Postings submitted to our blogs and letters to the editor may be published in our digital magazine or Website.


YOUR STRATEGIC TECHNOLOGY PARTNER Building solutions for Finance, Telecom, IT, Automotive and Energy sectors  5000+ 4500+ best in class engineers  18 offices in 11 countries  Track record of building highly complex solutions  Expertise in business and technology domains  Focus on innovation and R&D  Best-in-class processes

www.luxoft.com

MICHAEL MINKEVICH VP Technology Services E-mail: MMinkevich@luxoft.com Tel: +7 (495) 967-8030 x4427 Mobile: +7 (495) 364-9137

CONTACT US:

ROMAN TRAKHTENBERG Managing Director, Luxoft USA E-mail: RTrakhtenberg@luxoft.com Tel: +1 (212) 964 9900x 240 Mobile: +1 (917) 930-205


Editor’s Note

Ed Nair Editor Global Services

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.


TABLE OF CONTENTS

RIM Comes of Age

8

Ben Trowbridge Alsbridge

Emerging Models in Infrastructure Management Amit Singh Avasant

Global Sourcing of Services: Easier Said Than Done (Well) Cliff Justice Stan Lepeak KPMG

Benchmarks Go Strategic

Kathy Rudy Compass Management Consulting

Achieving Innovation in IMS: Eight Strategies to Consider Robert McNeill Horses for Sources

Pricing the Cloud

14 22 30 38 46

Scott Feuless Stanton Jones Compass Management Consulting, TPI


Ben Trowbridge

Ben Trowbridge is founder and CEO of CEO Alsbridge, an award-winning sourcing Alsbridge 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.


Infrastructure Management Services

RIM Comes of Age OutsOurcing infrastructure ManageMent: it’s tiMe

T

he information technology infrastructure outsourcing market continues to evolve. As firms scour the landscape for ways to focus on their core competencies and maintain their competitive edge, more and more emphasis is being placed on wringing costs out and adding value to the IT spend. Although sometimes exaggerated, the potential savings through the outsourcing of IT infrastructure may range as high as 20 to 30 percent. One of the most significant value drivers in IT outsourcing is Remote Infrastructure Management (RIM) - the offpremise, often off-continent, management of IT infrastructure. RIM can include behind the scenes activities such as hardware support and management, or it can include managing user-facing services such as network management or desktop support. The range of IT functions for RIM includes: ◆ Data Networks (WAN/LAN) ◆ Desktops/laptops and related peripherals ◆ E-mail systems ◆ Mainframe platforms ◆ Servers ◆ Storage platforms ◆ User support ◆ Voice Networks

November 2011

www.globalservicesmedia.com

9


Generally, RIM can be undertaken as a partial service, only permitting the provider to manage or monitor a portion of the IT functions. This provides an opportunity for the client to test the experience. Once the client is satisfied with their limited RIM experience, they can contemplate moving up the sourcing model to full service remote infrastructure management. Full service RIM involves the client retaining their IT assets but handing over the management of their IT infrastructure to a provider or providers. The configuration of the RIM scenario depends on the client’s specific business drivers, internal capabilities, and strategic IT direction. RIM EvolutIon and MatuRIty With the continued advancement of telecommunications and wide area network infrastructure in both North America and Europe over the last 15 years, domestic delivery of RIM has been a common operational model in most Fortune 1000 companies. Typically, domestic remote infrastructure management is performed in a “lights out data center” environment. It is lights out in the sense that there is limited or no on-site personnel staffing the data center and literally the data center operates at most times with the light out. Remote operations staff both monitor and manage the infrastructure from a different building or even a different city and state. The remote functionality allows the operational activity to be performed in a separate location from the client or data center, often using highly leveraged or pooled resources to monitor several internal or external sites. IT organizations are deploying and managing infrastructure services in compliance with the standards of the Information Technology Infrastructure Library (ITIL) and other quality metrics. Quality improvements and process standards are accepted as vital RIM operational practices. Process maturity has facilitated the effective deployment of an offshore delivery model. Work products are clearly defined and can be assigned to train the teams offshore. The rapid evolution in technologies and IT architectures, the economic impact and drive to reduce costs, and the maturity of the offshore market is positioning RIM services as the next wave of opportunity for outsourcers of all types. StatE of thE RIM MaRkEt and InduStRy The prospect of reaping the cost saving, productivity gains, and business model flexibility derived through taking advantage of offshore IT outsourcing certainly is a factor in the globalization of outsourcing. The IT industry is moving toward a remote delivery model in which services are increasingly delivered by vendors with operations in low-cost locations. The banking, financial services, and insurance industries are leading RIM offshoring growth. These industries, often referred to as the “financial services industry,” have been early adopters – using remote software programming resources – of offshore 10

www.globalservicesmedia.com

November 2011


outsourcing in the area of application development and support. In addition, the financial services industries’ necessity for highly secure, 24/7 availability, highly reliable and stable systems has created opportunities for global RIM providers. RIM service providers have recognized the opportunity to offer follow-the-sun delivery models, highly distributed and flexible monitoring and support models, and in those cases where automation has not replaced labor arbitrage, labor cost savings. The industries that are slow to move toward global RIM are those that have the lowest transaction volumes, such as media and entertainment and professional services. Other industries, such as aerospace and defense and the public sectors, face various degrees of government regulations that inhibit their adoption of global RIM. The healthcare industry has concerns with the data security and integrity being provided in foreign, nondomestic locations. Healthcare also has much more complicated revenue and cost recovery business models, which has some influence on the adoption of global RIM. The body of our research indicates financial services and insurance firms are under significant pressure to reduce costs and increase efficiency and productivity of the IT investment. As such, they continue to embrace outsourcing, and most recently, RIM services, in a variety of global configurations and locations. RIM dElIvERy analySIS Target Towers As the result of years of domestic and regional RIM experiences, typically in managing and supporting the operations of data centers, servers, LAN/WAN functionality, and to a lesser extent, end user computing (EUC), many of the tasks performed within the infrastructure management towers can be delivered from an offshore location. This is particularly true for the financial services industry, which has embraced RIM offshoring because they have little need for traditional backup media handling. Instead they are adopting a fully redundant multiple location storage strategy. This is largely due to their disaster recovery restoration timeframe requirements, which require high availability and fast recovery times (minutes not hours). This is now provided by disk-to-disk and media-less backups. However, some activities remain that must be managed by a provider or by the business’ internal IT staff in the local premise or domestic location. These activities include the physical server provisioning and hardware repairs. Activities requiring quick response times and direct customer service intervention, such as computer break/fix or refresh, may be required to remain at the customer site, retained as a third-party stand-by, or be part of the business’ internal domestic IT staff. Mature providers continue to expand their flexible RIM offshore delivery model offerings. These mature or full-service providers can operate a full service tower remotely or include local, domestic staff augmentation. The providers can also jointly support a tower with a domestic customer staff or a third party. November 2011

www.globalservicesmedia.com

11


dElIvERy CountRIES India is the leading location for providing RIM services. India appears as the dominant global leader in IT offshoring both from the perspective of being the preferred location to host RIM services, and from the perspective of being the home country of many of the leading RIM providers. India has captured the majority of the global offshore market and is positioned to be the leader in RIM offshoring. Indian providers have the offshore maturity and experience and have created a significant and rapidly growing customer base. They have been investing in the offshore tools, processes, and infrastructure necessary to manage the growth of RIM. The investment is being used to position India for major RIM market penetration. China continues to emerge as a potentially major player in IT offshoring. Providers are investing in China as part of their global delivery base. Network operation centers are being established and beginning to support RIM clients. In Europe, the Middle East, and Africa, Eastern European countries are positioned as centers for RIM delivery. Poland and Hungary represent countries that are beginning to advance into the RIM marketplace. They have particularly strong experience in multilingual help desk support. Mexico and Latin America offer a nearshore alternative for RIM services. Mexico has an offering that is maturing and a time-sensitive customer base. Infosys has recently announced plans to develop a network operation center in Monterrey, Mexico. Argentina is also being developed as a RIM service alternative. Certain providers have chosen to offer mainframe and AS400 tower support from countries that have the skill and experience based on legacy use, such as Brazil and Argentina. Depending on the criticality of the business process, providers may opt to provide mainframe and AS400 support from higher cost countries such as the United States and Australia. valuE PRoPoSItIon In dEPloyIng RIM Cost Savings Even before the arrival of the global economic downturn, senior business leaders were being challenged to increase profitability and efficiency and to drive operational costs down. The allure of outsourcing has always included the prospect of cost reduction through efficiencies and labor arbitrage. Not surprisingly, the increasing interest in RIM services is essentially due to the prospect of reducing operational costs and increasing productivity in one IT function. Offshoring of infrastructure management labor typically realizes a savings of 5 to 20 percent compared with U.S. labor rates. But do not assume these savings are instantaneous. RIM services, as with outsourcing in general, typically provide a gradual saving curve as delivery maturity is attained, usually within the first two years of the engagement. oPtIMIzatIon and StandaRdIzatIon Current network and infrastructure centers in offshore locations provide rigorous standards of full redundancy, high availability, and uncompromising data security. 12

www.globalservicesmedia.com

November 2011


The support is provided across multiple client environments. The deployment of quality standards such as Six Sigma, ITIL, and those of the International Organization for Standardization (IOS) have fostered a common understanding of the work to be performed within a typical IT tower function. RIM services provide an opportunity for selecting the right service mix to be delivered from the right region. The infrastructure can be managed from multiple locations as a global monitoring and support model is deployed. The follow-the-sun approach can be adapted for a variety of benefits, particularly high availability of the supported systems which, in essence, provides continual uptime. There will continue to be advancements in the products and tools used to manage the infrastructure being supported by RIM. RISk dISCuSSIon When considering the risks and benefits of engaging a provider, or providers, to deliver RIM services, the risks can be considered from two perspectives. First, one must consider the organizational risks associated with the internal customer’s satisfaction with RIM services. In general, the major concerns identified by senior business and IT executives with respect to offshoring include security and data privacy, language and accents neutralization, high-level business and industryspecific knowledge, internal political perceptions, and the lack of performance metrics. These concerns can be mitigated through a strong provider management and governance process that assures these issues are addressed well before any service is transitioned to a provider. External issues such as political stability, government regulations, cultural alignment, and productivity associated with remote locations should be addressed by the provider as part of their standard service profile. The benefits of RIM services can be much broader than simply financial. Additionally, choosing a provider with a broad range of locations and a large and diverse skilled labor pool can increase flexibility to respond to the changing needs of its internal business customer’s needs. Ideally, new skills and capabilities can be delivered by a qualified provider by virtue of the provider’s range of services and knowledge developed through RIM service delivery over a large pool of diverse clients. SuMMaRy Remote infrastructure management comes of age in the era of the flattening globe. With the virtual elimination of global connectivity and bandwidth issues, business centers in the developed world can connect with service providers in low-cost, emerging markets. RIM global providers are harnessing large, welleducated, and inexpensive labor pools to build global centers from which they can manage almost any aspect of IT infrastructure support. Those businesses engaging these global providers will both enjoy lower costs and potentially greater efficiency and flexibility in the support of their global IT functions. RIM has arrived, and there are a multitude of providers ready and waiting to deliver it. November 2011

www.globalservicesmedia.com

13


Amit is a Partner with Avasant LLC, one of the globally top ranked sourcing advisory Partner and management consulting firms. Amit is Avasant 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


Infrastructure Management Services

Emerging Models in Infrastructure Management BaCkgRound

I

T Infrastructure has traditionally been the bastion of stable management models. While IT application management went through a dramatic shift in landscape due to evolution in programming languages as well as increasing offshore delivery viability, IT Infrastructure business stayed virtually unchanged for several decades. However, the rapid pace of technology growth has now led to emergence of several new models of IT Infrastructure delivery and consequently, management practices. While the traditional Application Development and Maintenance outsourcing is in maturity phase as noted by diverse and large buyer industries, demand for RIM services is estimated to further grow by at least 25 to 30 percent p.a. in the next 3 years. This paper explores some of the emerging models for IT Infrastructure outsourcing and the reasons thereof.

November 2011

www.globalservicesmedia.com

15


“For which of the following IT function do you currently use offshore resources?”

BPO ITO

48%

Software maintenance Custom application development Help desk

Adoption

ADM

Global Sourcing Maturity

Consulting work Remote infrastructure management

None of the above

Early Adopters

Mainstream

39%

Package app implementation

Enterprise network

Innovators

47%

26% 20% 19% 15% 17%

Laggards

Sourcing Maturity Lifecycle

IMPaCt of EConoMy on InfRaStRuCtuRE SouRCIng ModElS The current economic downturn has already lasted since 2008 and there is a strong possibility of the recession continuing into 2012. Due to constant economic challenges significant changes have been observed in the nature of deployment in new as well as existing deals. The following are the key changes to infrastructure sourcing that we have witnessed during this turbulent time: ◆ Changes in Demand – Clients are no longer as much interested in looking for a single solution that meets all infrastructure needs as they are in identifying best of the breed solutions that can offer flexibility in service provisioning and can keep up with technology change. A large, monolithic infrastructure environment, if it is hard to change, is no longer viewed favorably in this environment. ◆ End-Customer Requirements – The IT infrastructure requirements are more and more directly tied to business requirements and are focused on being prepared for the constant change in business. The infrastructure is being asked to be much more agile in supporting business users than has been the case traditionally. The speed and cost of activities such as to set up mailboxes, provide remote access to working environments, enabling large scale data transfer and providing interconnectivity to myriad mobile devices are some of the examples of customer requirements driving emerging models in IT infrastructure management. ◆ Consolidation & Virtualization – There has been a conspicuous trend towards consolidating and virtualizing IT environment in the past several years with a view to managing costs as well as upgrading from legacy systems that could not allow for modular growth and seamless sharing of environments across applications. This step, as one of the essential elements of leveraging cloud based shared infrastructure technologies is currently one of the key focus areas of a number of organizations. 16

www.globalservicesmedia.com

November 2011


◆ Nature & Scale of Services – The traditional models of physical business locations being hard-wired to data centers are evolving rapidly to providing an IT environment that can grow and change to support a multitude of fixed and mobile devices, for example, multiple studies are pointing towards the Tablet being the platform of choice for many industries soon. In return for flexibility, there is a growing realization and acceptance of using shared infrastructure for many of the non-critical applications. ◆ Cost – IT Infrastructure is the new frontier for cost reduction in most of the IT departments across the globe. The ongoing recession is putting enormous pressure on CIOs to do more with less and IT infrastructure, with normally the largest budget of all IT departments is squarely in the sights of cost cutting. At the same time, the maturity of RIM (Remote Infrastructure Management) model as well as increased automation is now making it possible to reduce as well as eliminate considerable infrastructure and management costs. kEy EMERgIng ModElS The new and emerging models are based on leveraging cloud technologies. Essentially, Cloud computing is the provision of dynamically scalable and often virtualized resources that is delivered as a service. The picture below shows the key elements that define cloud computing based infrastructure service provisioning:

Secure Multi-Tenancy Utility Pricing

Elastic Resources

Self-Service

CLOUD COMPUTING

Automation

3rd Party Ownership Managed Services

November 2011

Virtualized Resources

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

www.globalservicesmedia.com

17


Most of the emerging models in the current infrastructure management world follow a combination of the characteristics shown above. In general, the new models can be categorized as follows: ◆ Supplier Services – This is the supply side of the cloud computing marketplace and consists of IT and business consulting, systems integration, outsourcing, and other services used to develop and support cloud services and infrastructure. These services include software components, such as application platforms, information management, system management, development tools and other software used to set-up and operate cloud services and infrastructure. They also include hardware components, such as servers, storage and networking hardware used to build cloud services and infrastructure. This market is one of the largest components of the eco-system today with a projected 2012 market size of $44B, with a CAGR of 23 percent. ◆ End User Services – This segment comprises of end-user services being provided from cloud computing, most notably the Infrastructure Services and Business Services. They are described below: ◆ Infrastructure Services – Infrastructure services include PaaS (Platform as a Service) and IaaS (Infrastructure as a Service). ◆ PaaS – PaaS constitutes of customers using programming languages, tools and platforms to develop and deploy applications on multi-tenant, shared infrastructure with ability to control deployed applications and environments without the need to manage or control the underlying resources. The examples include Google App Engine, Right Scale, Joyent. ◆ IaaS – IaaS refers to the usage of processing, storage, networks, other computing resources with ability to rapidly and elastically provision and control resources to deploy and run software and services without the need to manage or control the underlying resources. The examples include Amazon Web Services, Rackspace and Akamai etc. The market size of Infrastructure services is projected to cross $30B for 2012, with a CAGR of more than 45 percent. ◆ Business Services – These comprise SaaS (Software as a Service) and BPaaS (Business Process as a Service). ◆ SaaS – SaaS refers to customers using applications (E.g., CRM, ERP, E-mail) from multiple client devices through a Web browser on multi-tenant and shared infrastructure without the need to manage or control the underlying resources. It is defined as use of an Internet browser to access software applications, eliminating the need to purchase, install, run and maintain the 18

www.globalservicesmedia.com

November 2011


programs on internal systems. The examples include Gmail, Salesforce.com, NetSuite, Hostanalytics. ◆ BPaaS - Customers consume business outcomes (E.g., payroll processing, HR) by accessing business services via Web-centric interfaces on multitenant and shared infrastructures without the need to manage or control the underlying resources. The Examples include Corefino and ADP. The market size of Business services is projected to cross $52B for 2012, with a CAGR of more than 25 percent. Another term that is emerging is XaaS (Everything as a Service). The following diagram broadly defines its categories: BPaaS – Business Process as a Service

SaaS – Software as a Service

XaaS – Everything as a Service

PaaS – Platform as a Service

Broad term that embraces aN the models discussed here.

laaS – Infrastructure as a Service

APaaS – Provision of application services Application Platform as a with added multitenant elasticity as a service Service

AlaaS – Application Infrastructure as a Service

Provision of application middleware, including applications servers, ESB, and BPM (Busniess Process Management)

DaaS – Desktop as a Service

Based on application streaming & virtualization technology, provides desktop standardization, pay-peruse, management, and security.

NaaS – Network as a Service

Provision of network communication, billing, and intelligent features as services to consumers.

CaaS – Communications as a Service

Management of hardware and software required for delivering voice over IP, instant messaging video conferencing, for both fixed and mobile devices

In general, these models promise significant benefits from leveraging the global growth of computational and network grids. Some of the key perceived benefits are as follows: ◆ Agility - Cloud platforms improve time-to-application deployment by providing the option of developing and deploying new applications on existing infrastructure as quickly as desired. In comparison, traditional platforms can take up to three or four months to procure, install, and configure, many times stalling the application deployment process. ◆ Predictability of Costs - Cloud computing allows organizations to align IT budgets with application demand by hosting customer and public-facing Web applications with cloud providers. Organizations just need to pay for the resources they use, hour by hour. November 2011

www.globalservicesmedia.com

19


◆ Managing Demand Variability - Cloud computing provides a mechanism to manage peaks in demand for data center capacity, computing, storage, and network resources. As an example, organizations can easily push big batch jobs into the cloud instead of designing and building IT infrastructure for the absolute peak data loads. ◆ Lowering CapEx Budgets - Cloud computing gives the ability to deliver new applications without having to buy gear, raising the firm’s capital expenditures. Application development and delivery can all be performed and managed via operating expenses. ◆ Collaboration & Sharing - Cloud computing allows organizations a relatively inexpensive and easily accessible way to share information by hosting data on public clouds rather than opening their organization’s firewall to make it available to external parties. At the same time, many of the emerging models are being tested in the real world and as risks get identified, organizations will have to plan required risk mitigation strategies. Some of the key risks include those related to data security and privacy, compliance with local and federal/international regulations and guidelines as well as evolving business continuity/disaster recovery scenarios with the new models. From a service delivery perspective, the following diagram demonstrates the deployment models being used by organizations. It is likely that most organizations will deploy a mix of these models:

Hybrid Cloud

Private Cloud

Deployment Model

Private (Internal)

Private Managed

Premise

Enterprise

Enterprise

Run / Manage

Enterprise

Infrastructure

Public Cloud

Private Hosted

Community Hosted

Service Provider

Service Provider Service Provider

Service Provider Service Provider

Service Provider Service Provider

Dedicated

Dedicated

Dedicated

Shared

Shared

Community

Enterprise Tenant

Enterprise Tenant

Select MultiTenant

Multi-Tenant

Access

Internal Enterprise Network

Internal Enterprise Network

VPN Network Public Internet

Public Internet

Payment

Traditional

Traditional

Enterprise Tenant VPN Neteork Public Internet Traditional or pay as you go

20

www.globalservicesmedia.com

Public Hosted

Pay as you go Pay as you go

November 2011


As organizations look to deploy these models, it is recommended that they spend time in developing an enterprise level cloud roadmap. The following section identifies key recommended steps: kEy StEPS foR CREatIng an EntERPRISE Cloud RoadMaP ◆ Define the cloud opportunity, establish direction, assess the application of cloud technology within the enterprise context, assess the deployment options, frame the service provider market, and plan the roadmap for cloud services. ◆ Identify and build a business case on the value that cloud computing can drive to the enterprise. ◆ Document and educate the IT organization on how cloud-based services fit within the context of existing technology plans and sourcing strategies. ◆ Evaluate internal skills and capabilities as well as provider service offerings and capabilities. ◆ Assess the relative cost, architecture, and skills impacted by applying cloud technologies to core business applications. ◆ Frame the risk and an organization’s readiness for the adoption of cloud technology. ◆ Understand the management framework needed for the enterprise to manage Cloud Services. ◆ Last but not the least, discuss with peers and seek expert assistance as you embark on this journey.

November 2011

www.globalservicesmedia.com

21


Cliff Justice

US Shared Services and Outsourcing Advisory Group KPMG

Stan Lepeak

Director, Research, Shared Services & Advisory KPMG 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.

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 EquaTerraĂ­s 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.


Infrastructure Management Services

Global Sourcing of Services: Easier Said Than Done (Well)

K

PMG recently released the results of its 2Q11 Sourcing Advisory Pulse surveys, which provide insights into trends and projections in enduser organizations’ usage of shared services, outsourcing, and global third-party business and IT services. While the survey findings reveal many interesting trends, one key finding was that although many organizations are looking to move to a more mature model for services delivery, few have realized this goal. 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, the KPMG survey found that the scope of this usage continues to expand, both from the perspectives of what services organizations are willing to take offshore and also in terms of the number and diversity of delivery models and service providers utilized.

November 2011

www.globalservicesmedia.com

23


For most larger firms, global sourcing today is a multi-point process across multiple geographies, utilizing multiple service providers and employing multiple service delivery models (e.g., internally run operations, local shared services centers and offshore captive centers, onshore, nearshore and offshore outsourcing). While this “extended global enterprise” model can better support organizations’ global services needs and help to improve operational competitiveness, it is also proving increasingly complex to successfully design, deploy, operate and optimize. Buyers undertaking global sourcing efforts naturally exert much focus on selecting which service provider to employ and from what locations to source services. This assessment process should include a clear and realistic assessment of a buyer’s own maturity and sophistication relative to sourcing and managing global sourcing efforts. A common root cause of problematic or underachieving offshore outsourcing efforts is a disconnect between what a buyer is trying to accomplish and the skills, experience, and resources it possesses to support these efforts. These skills involve selecting providers and locations, accounting for and managing risk, and governing a growing number of sourcing efforts spread across multiple providers and locations. Yet often it seems that many buyer organizations’ global sourcing ambitions outpace their capabilities to successfully undertake and manage these efforts. Or more simply the global sourcing “eyes” are bigger than the capabilities’ “stomach.” In the 2Q11 Pulse survey, KPMG polled leading third party business and IT service providers and its own sourcing advisors to assess buyer maturity and sophistication relative to various global sourcing skills. Respondents were asked to rank their perception of buyer skills on a one-to-five scale, where one represents very immature or unsophisticated and five represents very mature or sophisticated (see Figure 1). Results show that overall there is room for improvement across all of these global sourcing capability sets. KPMG advisors did not score buyers above the midpoint on any of the five skill sets assessed. The highest score given was 2.65 for service provider selection and assessing service providers’ global delivery capabilities. Service providers were more generous in their perception of buyers’ skills, scoring this attribute at 3.32. The skill ranked next highest by service providers was service delivery geographic location assessment (e.g., where to source from, onshore/offshore, which countries), scored at 3.21, while for advisors the second ranked skill was assessing and accounting for data, data privacy and intellectual property risk, scored at 2.61. There was consensus on typical buyer challenges in managing and governing multiple engagements and service providers across multiple functions, geographies, etc., scored the lowest by both service providers and advisors. 24

www.globalservicesmedia.com

November 2011


Figure
1
–
Buyer
Global
Sourcing
Maturity/ Sophistication
 Service
delivery
geographic
location
 assessment
(e.g.,
where
to
source
from,
 onshore/offshore,
which
countries,
etc.)
 Assessing/accounting
for
geopolitical
and
 service
provider
risk
 Assessing/accounting
for
data,
data
privacy
 and
intellectual
property
risk
 Managing
and
governing
multiple
 engagements
and
service
providers
across
 multiple
functions,
geographies,
etc.
 Service
provider
selection/assessing
SP's
 global
delivery
capabilities

1.00

2.00

3.00

4.00

5.00

1=Very
unskilled/unsophisticated,
5=Very
skilled/sophisticated

Advisors

Service
Providers

KPMG advisors in the field offered additional details on why some buyers struggle with their global sourcing efforts. One US-based partner who works with firms sourcing back-office business functions globally made the following observation, “Clients don’t consider the greater complexity of environments in which an offshore captive or third-party providers operate, and therefore don’t account for geopolitical risk, economic conditions, etc.” Addressing and managing risk in global sourcing was a commonly cited weakness indentified in many buyers’ accounts. As one senior advisor noted, “Clients are gaining greater familiarity with utilizing offshore providers’ capabilities, but remain risk averse. Despite this, little (or at least not enough) attention is given to managing risk. Governance and relationship management capabilities are often weak compared to the scope of the global sourcing efforts.” A senior manager in the US was more blunt, or realistic. “Look these folks are not idiots, but rarely are they excellent at each and all of these global sourcing activities.”

November 2011

www.globalservicesmedia.com

25


EvolvIng toWaRdS a gloBal SERvICES PoRtfolIo aPPRoaCh and ModEl As buyers’ appetites to source more services globally continues to grow, so too should their capabilities to source and manage these efforts. This is at the heart of the extended global enterprise model and maturity framework. The first step to address the shortcomings outlined above is to recognize and define each challenge and apply adequate and skilled resources to overcome them. This is a multidisciplinary effort that extends leading practices related to sourcing, selection, transition, outsourcing governance, and multi-provider management to account for additional challenges and nuances introduced from increased globalization of service efforts. As the scope and complexity of buyer global sourcing efforts continue to grow, this will remain an ongoing challenge, with the bar for leading practice continually being raised. One means to improve global sourcing capabilities is to take more of a portfolio approach to managing global efforts. This need will continue to grow as global sourcing becomes more pervasive and accounts for more of an organization’s global services footprint. However, tightly coordinating and managing sourcing efforts globally is still a goal to which most organizations aspire.

Figure
2-
Management
&
Governance
Models
for
 Existing
Global
Sourcing
Efforts
 Advisors

Service
Providers

5%
 7%

18%

15%

35%
 9%
 53%

58%
 Independently
of
other
efforts
already
in
the
field
 By
geography,
business
unit,
functional
area,
etc.
 By
an
enterprise
sourcing
council
 By
an
enterprise
sourcing
Center
of
Excellence

26

www.globalservicesmedia.com

November 2011


In the 2Q11 Pulse, 58 percent of service providers polled and 53 percent KPMG firms’ sourcing advisors indicated that when typical buyers are managing existing global sourcing efforts, they are grouped and managed and governed by geography, business unit, functional area, etc. (see Figure 2). This is the most common, historical approach, and is adequate for deals and efforts that do not overlap key functional areas. However today, this approach to managing multiple shared services and outsourcing efforts can often create fragmented, difficult to manage, and under optimized functional and process silos. A more holistic, functional, and thorough process is often required in these more complex sourcing environments. Fewer than 10 percent of service providers and advisors indicated that existing efforts are managed and governed by an enterprise sourcing council, which can provide a more holistic, coordinated, and detailed view of global sourcing efforts and their performance and cost levels. The story is better for new sourcing efforts, with 15 percent of advisors and 27 percent of service providers indicating that buyers are attempting to source and manage these efforts globally (see Figure 3).

Figure
3
–
Management
&
Governance
Models
for
 New
Global
Sourcing
Efforts
 Advisors

Service
Providers

15%
 37%

18%

27%

48%

55%

Independently
from
other
efforts
being
sourced
or
already
in
the
field
 By
geography,
business
unit,
functional
area,
etc.

 Sourced
and
coordinated
globally
 November 2011

www.globalservicesmedia.com

27


One common challenge to managing sourcing efforts globally is the fact that they are often sourced locally from functional, budgetary, approval and execution standpoints. As a KPMG UK manager noted, “Given the sensitivity of sourcing (and excluding the executive sponsorship, often new efforts are run from project teams who have been split off and act independently, then once sourced and as required there is a global and/or regional engagement from operational teams and subject matter experts.” As procurement groups get more active in sourcing global services, however, they can act as a unifying force. As one KPMG manager in the IT sourcing practice called out, “Sourcing is still typically by function - usually pursued by different organizations for IT, F&A, and HR, etc. The common thread, however, is increasingly the centralized procurement organization.” ConCluSIon Many buyers today still view global sourcing as a series of discrete options and capabilities (e.g., internal services, shared services, offshore captives, ITO, BPO) rather than a continuum of integrated service models. This is similar to the legacy perspective of viewing offshore outsourcing as a point-to-point initiative (for example, from the United States to India) instead of an integrated suite of global service delivery capabilities. The reality today is that organizations should develop a holistic strategy and operational model to support the totality of their businesses and IT services operations. This includes how to source and manage these capabilities as well as how to continually improve their overall efficiency and effectiveness. While leading organizations have made progress, for example, in governing their outsourcing efforts as a portfolio via a portfolio model as cited in the above Pulse survey responses, often these efforts are disconnected from the management of internal retained operational systems and functions, as well as the strategy and execution of sourcing of new investments. In short, buyers’ capabilities to source and manage a diverse services delivery portfolio have often not kept up with their sourcing ambition’s scale and scope.

28

www.globalservicesmedia.com

November 2011


ost m re o F 's d rl o W e h T g in c Introdu 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, webinars, webcasts, expert round tables and more. An initiative by

For queries, write to us at globalservices@cybermedia.co.in


Kathy Rudy

Global Consulting Director Compass Management Consulting

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.


Infrastructure Management Services

Benchmarks Go Strategic cOMparative analysis as an OutsOurcing gOvernance MechanisM

B

enchmark analyses of outsourcing arrangements are an accepted management technique applied to gauge the market competitiveness and quality of a provider’s services. In outsourced environments, benchmarks have traditionally been applied as part of a contractually mandated exercise to assess existing pricing and service quality in the context of comparable industry standards. Traditionally, outsourcing benchmarks have often been used strictly as a negotiating tool to drive short-term adjustments in pricing within discrete service towers. As a result, they’ve often been characterized by contentious confrontations between clients, service providers, and third-party providers, and have delivered relatively limited value in terms of enhancing the sourcing relationship. Increasingly, the role of the benchmark in outsourcing agreements is evolving, as top-performing client organizations and service providers use benchmarks as a governance mechanism to identify improvement opportunities across the enterprise, assess alternatives and model scenarios, and design and implement transformational change initiatives. November 2011

www.globalservicesmedia.com

31


RolE of BEnChMaRkIng Broadly speaking, an outsourcing contract benchmark can be defined as an analysis of the cost and quality of outsourced services in the context of market standards, industry peers, and global leading practices. Depending on the terms of the clause, the results can be used to adjust prices, or as an input to further negotiation. In addition to focusing solely on assessing service provider performance, benchmarks can be an effective way to identify operational constraints within the client organization that inhibit optimal performance and prevent service providers from leveraging their capabilities and tools. Because benchmark initiatives often find a gap between outsourced prices and market rates, they represent a threat to the service provider’s revenue stream, thereby making them, by definition, problematic to the vendor community. Moreover, most clauses only mandate adjustments if pricing is too high – if the vendor delivers services below market rates, they are not compensated. As a result, if the exercise is focused strictly on pricing, it’s a lose/lose proposition for the outsourcer. Another complaint voiced by service providers is that a benchmark’s findings may provide a skewed perspective of pricing. Many long-term outsourcing contracts are priced so that the provider discounts services dramatically in the initial years, and then recovers those costs at the back end of the deal. While a properly conducted benchmark will adjust for the financial engineering over the life of the contract, a benchmark conducted late in the contract term may not adequately account for the vendor’s earlier investment. Because of these factors, service providers have, over the years, employed a number of strategies to avoid or derail benchmark initiatives. In some cases, they demand unrealistically precise comparator requirements, or challenge the validity or relevance of the comparative data. In others, they offer upfront discounts in lieu of the analysis. While such actions are perhaps understandable in the context of the business issues at stake, they’ve often served to fuel acrimony during the negotiation process, ultimately to the detriment of the long-term relationship with their clients. a tRadItIonal BEnChMaRk SCEnaRIo The negative characteristics of a “traditional” outsourcing benchmark can include an exclusive focus on short-term adjustments to pricing within individual service towers, and an exclusion of broader operational considerations or opportunities. Further, the findings of the analysis serve as a negotiating hammer to drive concessions from the provider. The onus to reduce costs and find savings, moreover, is solely on the provider, while the role of third-party advisors is to be a “bad cop” who roughs up the service provider to extract pricing concessions. Consider the implications of this approach in the following hypothetical situation: 32

www.globalservicesmedia.com

November 2011


a benchmark analysis finds the client organization is paying above market rate for storage services. Adhering to the terms of the clause, the service provider adjusts prices to align with the market. Faced with declining revenue, the provider brings in less-experienced and lower-cost staff in an unsuccessful attempt to maintain margins. Quality plummets, while the underlying problem – the client’s inadequate data management and storage strategy – remains unaddressed. a ChangIng RolE As lessons are learned and the sourcing market matures, benchmarking is increasingly being viewed as a way to address long-term business requirements and improve the relationship for all parties. By baselining existing performance prior to a new sourcing initiative, benchmarks can identify opportunities and define actions for both parties to drive improvement. Benchmarks also give service providers a better understanding of client environments, enabling more effective solutions, more accurate proposals, and better assurance of deal profitability. More specifically, clients are recognizing that short-term pricing adjustments in their favor can be pyrrhic victories that prove ultimately to be counter-productive. Clients also increasingly acknowledge their responsibility to change internal processes to achieve improvement, rather than relying solely on the vendor. Moreover, these process changes are focused on finding ways to allow the vendor to leverage their capabilities and processes and tools. This change in mindset is critical, as it opens the opportunity to achieve economies of scale across multiple environments – rather than delivering unique and custom services to each customer, the outsourcer is now in a position to drive standardization across its portfolio of clients, to the benefit of all. As organizations focus on implementing virtualization, cloud, and transformational change initiatives, benchmarks are being applied to identify actions needed to drive change, and to quantify the impact of those actions. By, for example, defining the current “as is” state along with the future “to be” state, a benchmark can show what changes in architecture will be needed to support a cloud solution, and outline the optimal approach to implementing those changes. StRatEgIC BEnChMaRk ChaRaCtERIStICS In contrast to the negative characteristics of the traditional benchmark initiative described earlier, a “strategic” benchmark can be seen as one where the results of the analysis provide a baseline for long-term planning and improvement, including transformational change. Rather than serving as a negotiating “hammer,” the findings facilitate constructive dialogue aimed at driving an improvement process where both parties assume responsibility for change. Rather than being a point of contention, reference data are transparent to all parties, and the third-party advisor now becomes an objective broker who ensures transparency and meaningful analysis. November 2011

www.globalservicesmedia.com

33


Consider too how a strategic benchmark can be applied to the scenario of abovemarket pricing for storage services: in addition to high prices, the benchmark analysis reveals unique business requirements, obsolete data processes, and costly legacy systems. In this case, the benchmark charts a roadmap toward a future state aligned with business needs, where the client invests in replacing legacy systems with streamlined storage platform and a mature information management strategy. To further illustrate the potential benefits of benchmarking, two case studies of recent Compass client engagements are described below. CaSE Study: M IndIng thE gaP A global manufacturer executed a contractual benchmark clause and engaged Compass to assess the market competitiveness and quality of IT services, and to define how both parties could act to improve the client/vendor relationship. The analysis went beyond a simple comparison of existing contract prices against prevailing standards. Rather, the client sought an independent view of each party’s roles and responsibilities within the agreement; a comprehensive assessment of costs, resource utilization, and service quality; and recommendations on how to enhance the strategic value of the partnership. The scope of the analysis comprised the application and infrastructure server, storage, desktop, and service desk environments in the Americas, Europe, and Asia. In defining the comparative reference groups, adjustments were calculated for differences in organizational size, complexity, server configuration, labor costs, and currency fluctuations relative to the client. The benchmark analysis revealed that the service provider’s contractual pricing was close to a third below market standards. This raised a red flag, as service providers typically compensate for low prices and unprofitable contracts through a variety of tactics, including adding change order charges to any activity not specified in the terms, replacing skilled staff with lower-cost personnel, reducing initiative to improve service quality, and minimizing innovation and proactive use of management tools. As a result, service quality often suffers, as does the relationship. In light of these issues, the client was urged to consider a number of steps to steer the relationship toward a more mutually beneficial state. One was to improve asset management to enhance the accuracy of invoicing as well as the effectiveness of SLAs. Another was to link metrics to service delivery improvement initiatives – by, for instance, tracking and analyzing server outages to understand root causes and impact on users. Another recommendation was to enhance SLAs and implement an appropriate server refresh cycle to boost reliability and reduce support costs. Another key change involved adjustments to pricing structures to link cost drivers to vendor revenue, thereby facilitating demand management to benefit both parties. Increased use of virtualization now results in hardware cost savings for the client as well as increased revenue for the service provider. 34

www.globalservicesmedia.com

November 2011


Finally, both parties undertook a series of initiatives to improve operations to reduce cost and complexity. These included expanding lockdown policies, simplifying billing processes, and increasing use of the Help Desk as a way to identify root causes of problems and reduce end-user effort. CaSE Study: dEfInIng govERnanCE StRuCtuRES Prior to renewing its IT outsourcing contract, a major global restaurant chain engaged Compass to analyze the quality and pricing of services provided, and to assess the service provider’s global capabilities. While satisfied with the vendor’s overall performance, the client sought to identify gaps and to more clearly articulate their objectives and expectations prior to negotiating a contract renewal. Service delivery was assessed in a market-oriented context, identifying a series of improvement opportunities related to pricing, governance, and innovation. The scope of the analysis included mainframe, midrange, and Wintel servers, as well as storage, network, desktop, and service desk environments in the Americas and Asia Pacific regions. In analyzing services moved offshore, adjustments were made for geographic variations in labor rates and facilities costs. While overall, the pricing of the agreement was close to 7 percent below market rate, significant gaps were found in individual service towers, with the client paying more than 60 percent above market rates for storage, and almost 45 percent below market rate for midrange servers. Recommendations focused on addressing the inconsistency in pricing identified in some service towers, and on restructuring resource units to connect cost drivers more directly to vendor revenue. Gaps in service expectations would be addressed by streamlining staffing procedures, re-assessing escalation and resolution processes, and renegotiating SLAs. Finally, tightening ID change SLAs from 5 business days to 1 to 2 days, and standard LAN Incident SLAs from 8 hours to 4 hours, would align service delivery to industry norms. In addition to demonstrating the ability to provide quality service, the client initially selected the service provider on the basis of cultural fit; as such, the client expected a higher degree of responsiveness and flexibility. Ironically, this cultural fit contributed to frustrations in the relationship. To address this, a governance assessment was initiated that revealed a lack of alignment in the management structure overseeing the relationship. Specifically, reporting structures had senior executives from one party corresponding with lower level personnel from the other party, resulting in inefficient and ineffective decision making. Another issue was the dilution of “deal knowledge” over time. And, poor communication regarding the service provider’s capabilities limited innovation. Governance recommendations included ensuring that the client’s retained team be properly aligned with the business and involved in strategy discussions, streamlining response request procedures, taking a more proactive approach in managing priority requests, and improving communication processes on vendor November 2011

www.globalservicesmedia.com

35


capacity. A capabilities assessment found the vendor was effectively developing the global reach and capabilities the client required. To enhance the long-term partnership, the client institutionalized communication of IT performance measures, and took steps to better define its expectations of the service provider. More specific recommendations included refining request procedures to ensure responsiveness, implementing tools to improve utilization reporting, and instituting more formally scheduled client/vendor meetings that feature action-oriented outcomes and published resolution steps. Following the analysis, the client and service provider formed a joint team to review recommendations, prioritize actions, and build a framework for implementation and measurement of success. * * * As these examples illustrate, a benchmark analysis goes far beyond an assessment of pricing, and the benefits and outcomes of an effective benchmark initiative are far more valuable than short-term adjustments to contractual terms. Traditionally viewed as a useful (if limited) tactic to adjust the pricing of outsourced services, benchmarks are evolving to assume an integral role within sourcing advisory and governance. Specifically, business organizations are finding that an effective benchmark analysis provides a critical factual and quantitative basis upon which to define, assess, and validate their long-term operational strategies and change plans.

36

www.globalservicesmedia.com

November 2011



Contributing Authors:

As VP Research for HFS, Robert Robert McNeill provides research and consulting VP, Research services to both end user organizations Horses for Sources (HFS) 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.

Esteban Herrera, COO, SVP Research, HfS Research Tony Filippone, VP Research, HfS Research Phil Fersht, CEO, HfS Research


Infrastructure Management Services

Achieving Innovation in IMS: Eight Strategies to Consider ExECutIvE SuMMaRy

I

n a period of uncertain business cycles influenced by a potential “Double Dip� global recession, corporate priorities have rapidly changed just within the past few months as they explore smarter ways of working, new growth opportunities in new markets, and better ways to manage sprawling, capitalintensive heterogeneous infrastructures. Providers of infrastructure management services need to innovate their offerings to keep up with these new demands of their clients - and a number of technological and sourcing innovations can provide the IT organization with new options that can be implemented today. This report focuses on the top ways to innovate infrastructure management services.

November 2011

www.globalservicesmedia.com

39


What IS InnovatIon? Innovation within the context of delivering outsourcing services takes a variety of forms including transformation, best practices, continuous process improvement, new technologies, business benefits, effective policies and achievement of the buyer’s desired future state. But...what is it really? HfS buckets innovation in three areas: 1. Best Practice Implementation. Refers to providers (either internal or external) bringing what they have learned from doing similar business “outside”, judging whether it is the best way to do it, and implementing it on behalf of their clients. Risk is moderate, but failure can be expensive. The return can range from moderate to significant, depending on the starting point. 2. Continuous Improvement. Refers to providers implementing minor modifications to existing processes to make them perform better, without regard for what is done “outside” Risk is minimal and failure is cheap. Returns are generally small, but can add up over time. 3. Real Innovation. Refers to trying things that have never been done before inside or outside. Involves highest level of risk-taking and the potential for failure is significant. Returns can be very substantial if the innovation succeeds.

EIght StRatEgIES to InnovatE youR InfRaStRuCtuRE ManagEMEnt StRatEgy Some CIOs shy away from introducing innovation due to a laser-focus on achieving operational stability within their IT environment. This strategy will increasingly fail to satisfy the business as organizations want infrastructure that provides them increased agility at a lower operating cost that is increasingly available from external services providers. Innovation is about realizing new methods for achieving business benefits, and IT organizations need to invest in new sourcing options that will provide this impact to their users. Based on exhaustive research with many organizations and service providers, HfS Research has identified the eight ways to innovate infrastructure management services: 1. Design outsourcing contracts that promote change and innovation. Lets face it, if you need to change and need to do to it quickly, external providers can cut through organizational obstacles (e.g., politics, lack of skills and company culture). 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), 40

www.globalservicesmedia.com

November 2011


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. With new growth coming from outside of traditional markets organizations need to reinvent their infrastructure strategies or face an inability to execute against business needs. 2. Head to the Cloud for cost, speed and scale. Cloud Computing is refashioning the cost, quality, speed and flexibility by which businesses can access—and suppliers can deliver—services to support business needs. Companies continue to suffer from significant internal resource and budget constraints with, on average, 70 to 80 percent of the IT budget still spent on IT operations and maintenance, leaving insufficient resources for new projects. Organizations are beginning to leverage public cloud datacenters and private cloud alternatives to provide rapid scaling in response to business needs where dedicated infrastructure proves too costly and provisioning flatly takes too long. Cloud-based infrastructure--available from Amazon’s AWS, Rackspace, Savvis (CenturyLink), and Navisite, for instance--allows for Exhibit 1. Threat of “Double Dip” moves more IT infrastructure to the Cloud

Buy-side Organizations

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? 9% 1% 14%

11% 7%

33%

16% 1%

38%

10% 1%

17%

Don’t know

9%

1%

Major decrease

32%

46%

Minor decrease

46%

51%

24%

17%

No change

37%

32%

11%

13%

Move IT Re-engineer Move business support funtions infrastructure existing into shared into the Cloud business services processes (Finance, Procurement, HR and other ops)

20% 22% Move IT support functions into shared services

29%

24%

12%

11%

Minor increase Major increase

Subscribe to Invest in Analytics Cloud Business Services capabilities platforms (i.e. PaaS, SaaS)

Source: HfS Research September 2011; Sample: 157 Buy-side Organizations

November 2011

www.globalservicesmedia.com

41


the rapid provisioning of infrastructure and provides hardware elasticity in an on-demand manner. As Cloud-based services mature, IT organizations can reduce their reliance on on-premises software, hardware and internal administration. Our September 2011 research shows that while 38 percent of organizations will not change their strategy related to use of Cloud-based infrastructure brought about by the prospects of “Double Dip” recession, 45 percent of organizations will move infrastructure to the Cloud (see Exhibit 1). To IT executives and CIOs, the Cloud is a technology and business enabler. If they can master these new innovations effectively, then they can reduce the costs of provisioning technology and the time to deliver projects to business units while planning for newer and more innovative solutions for business units to deploy. 3. Seek better IT automation – Time to “Tool Up”. In large infrastructures, CIOs have to contend with tools that may not be well integrated, multiple databases that store information and weak reporting/analytics that require heavy custom analysis just to figure what is going on. Many IT processes are fragile as they depend too heavily on people. With the relatively high adoption of service delivery/management processes such as ITIL CIOs have the opportunity to automate services management processes thereby reduce dependency on manual based processes. IT organizations must “tool up” to improve productivity and transparency. Savvy CIOs are developing themselves into Cloud-enablers by honing their sourcing and service integration skills – and better automation is required. A whole new cadre of software vendors that enable deployment of Cloud infrastructure is gaining certainly VC traction in the market. Companies such as Eucalyptus, Abiquo, CloudKick (Rackspace), Sensible Cloud, Enomaly, Enstratus, Rightscale, Cloud.com (Citrix), Platform Computing, ServiceNow, HP Software, BMC, Dell, IBM, and Microsoft are all getting into the act trying to accelerate the implementation of an infrastructureas-a-service (IaaS) cloud in a customer’s data center and where possible integration with Public Cloud such as Amazon’s EC2. Process management and orchestration become more important as the business requires faster provisioning of IT requests. Automated discovery, mapping of application and service dependencies and orchestration of infrastructure components and tasks has become a “must have” for IT/business and cloud service management organizations as the business demands increased automation of commonly requested services. 4. Scrap installed legacy software in favor of SaaS based IT management. SaaS-based IT management is one of fastest growth segments in enterprise IT as advancements in technology. SaaS promises customers reduced costs to upgrade, configure, manage over time – and in many cases ease of use. As organizations subscribe to the software – they can use what they need rather than buying it all up front. With no software to implement or upgrade rapid value can be delivered without an army of developers and consultants. Companies such aas Facebook, Deutsche Bank, Intel and UBS, have deployed SaaS based IT management suites to manage the IT workflow and automation 42

www.globalservicesmedia.com

November 2011


policies within their organization, in many cases ripping out on-premise alternatives available from the traditional BIG 4 management vendors (BMC, CA, IBM and HP). Pressure from cloud computing, economic recession and budget constraints is threatening their positions. Driven by the success of software companies such as Beetil and ServiceNow, on-premises vendors have piled in to the market with offerings such as CA Service Manager on Demand, HPSoftware-as-a-Service, RemedyForce, Remedy OnDemand, and TivoliLive, 5. Increase your home-based workforce to significantly reduce infrastructure requirements. Higher levels of unemployment, improved collaboration technology, some of which is free (skype, OovoO, Gmail), and the ability to have homeworkers use their own infrastructure is allowing organizations to tap into a broader pool of talent and to do so cheaply. The removal of the bricks and mortar and use of Cloud-based applications for collaboration is enabling the homeworking environment on a serious scale. Employing a content flexible workforce drives employee retention rates up, lowers the costs of managing talent and for some types of work (particularly non scripted voice BPO), and improves customer satisfaction when compared to offshore alternatives Other areas, such as medical coding, already rely heavily on home-based staff to work on administrative tasks with contextual needs. Indeed, well over 100,000 home-based call center jobs have been created in the US in the last three years by companies leveraging services available from Alpine Access, Working Solutions, LiveOps, Arise and Westathome. 6. Embrace Social Media for infrastructure support and services. Social media is now being used by IT services management teams to help improve communication between IT and users. Social media allows end users improved transparency to what is happening in IT through consuming information from simple technologies that they use in everyday life (e.g., twitter, chat, forums, wikis). It is about getting the right information personalized to a user and faster than through alternative channels. Knowledge, service catalog, and request management are prime candidates for social media infusion. Knowledge management, traditionally a static discipline that over time became less useful as information was not updated or was only available from cumbersome user manuals or isolated databases has been invigorated with the implementation of crowdsourced wikis and chat forums. Items within a services catalog can be advertised through tweets to users allowing organizations to encourage more self-service. IT and application owners can now subscribe to lists e.g., for Instantaneous alerts and updates can be distributed in a familiar notification format to mobile devices ensuring that interested parties have the most up-todate information on the state of IT. Indeed, some IT services desks now have integration social media incidents “twickets”, a play on a more traditional helpdesk “ticket”. 7. Consider outsourcing the supporting infrastructure with the application. Rather than optimising infrastructure as a hermetic silo, outsourcing the supporting IT infrastructure with an application drives accountability to one November 2011

www.globalservicesmedia.com

43


provider and therefore reduces finger pointing between multiple parties. A provider that bundles both IT and application management support may be more capable of aligning services to the business, improving service quality and incident closure time as it understand and is responsible for managing all the dependencies from infrastructure to applications. Further, providers that manage all aspects of the IT stack may be more motivated to make proactive investments in IT infrastructure to ensure that the application is performing according to service level commitments. 8. Review your procurement strategies and rationalize requirements. While for some executives this may seem like mother and apple pie advice, HfS still sees many IT organizations as bloated as they over-spec their environment and over-provision their employees. If people got innovative and thoughtful with their purchases, they could really save a slew of wasted money. For example, many employees walk around with expensive laptops with enormous functionality that is overkill for their job, fashionable Tumi laptop backpacks, installed SAS @ $5k/license, and have a COLOR fax machine, two color printers, a black and white printer, and a MFD/copier to share with their admin (who wont share with their own team). If organizations were to procure infrastructure services in a far more logical manner through rationalizing requirements significant savings would be created. Take advantage of any “Double Dip” recession for new impetus in cost cutting and productivity efforts. thE fInal WoRd: B E aggRESSIvE aBout gEttIng youR InnovatIon PlanS In MotIon

While some organizations are dissatisfied with the amount of innovation they receive from service providers, the truth is most organizations fail to provide resources to cater for developing an innovation strategy. Investment in developing ideas and implementing solutions is not free, whether sourced internally or through a services provider. Organizations need to create the conditions for innovation to take place. Do you have a culture and reward scheme for individuals/ services providers to take risks and fail, and do people have a sense of purpose at work that promotes new thinking? IT needs to invest in researching new opportunities in order to develop an understanding of how new innovations can be implemented for business benefit. IT has to sell the advantages to groups who don’t necessarily understand how investments in infrastructure can make an impact on their business. Organizations that want to move quickly to deploy new infrastructure sourcing alternatives in any strategic manner may need support and advice to help them with both internal IT and process transformation. Organizations need not reinvent the wheel and may find value in working with partners through this next journey of IT delivery. Here are some simple steps for buyers to follow to get an innovation plan in motion: ◆ Create an aggressive innovation agenda and a plan to keep that agenda fresh over time. Buyers need to stipulate the need to explore new and creative ways to improve productivity and top-line growth as a core element of their 44

www.globalservicesmedia.com

November 2011


IMS endeavor, and communicate this aggressively, on a repeated basis, to their IT organization. ◆ Communicate this innovation agenda to both governance and provider teams. Virtually all buyers beginning to achieve some innovation success with their engagement will say the same thing: “We recognized what we needed to do internally, and communicated aggressively with our provider to start delivering it with us”. Until buyers directly deal with the problem internally and communicate to their partners the new direction they are taking, they will struggle to achieve any real positive results. ◆ Create an innovative contract with their provider. Buyers need to provide financial incentives to their providers in order to gain their assistance in achieving gains in both productivity and growth. Providers will step up to the plate with the right approach, if they have the financial incentive to do so. ◆ Stop playing providers off in a low-cost bake-off. If a buyer simply squeezes the life out of its provider with a cost bake-off, it is unlikely to get much in return beyond operational delivery to meet the contracted service levels. Some of today’s external services providers are inserting gain-sharing elements into their deals in order to beat off price-dropping competitors, because they are desperate to win the deal. The better providers now have the advantage of knowing where they can offer innovation incentives to gain ground in tough pursuits. In any case, as most providers are now operating within a similar price band, the focus needs to move away from simply price and on to which providers are better prepared to drive innovative results, of course with the right financial incentives. ◆ If your service provider fails to step up to the plate, seek alternative expertise. Smart buyers quickly realize that the initial onus to drive an innovation agenda lies on their own doorstep. It is up to them to drive expectations and requirements onto their service provider to foster a collaborative partnership where both parties can work towards common business outcomes for the buyer. However, it many cases, the buyer is discovering over the course of its first contract, that their provider is either unable, or unwilling, to commit the resources or talent needed to support its client’s innovation roadmap. If this is the case then it is time to bring additional expertise into the delivery mix. This can be done to force more commitments during a contract re-negotiation, or, alternatively, can simply forge part of a strategy where the disappointing provider performs more of an operational role, and another provider or consulting firm can perform more of the innovation services.

November 2011

www.globalservicesmedia.com

45


Scott Feuless

Principal Consultant Compass Management Consulting

Stanton Jones

CIO & Vice President TPI 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.

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.


Infrastructure Management Services

Pricing the Cloud accurate Measures and relevant cOMparisOns are essential

A

key characteristic of cloud computing is the potential ability to price, deliver, and consume IT resources in a flexible, usage-based manner. Rather than paying for infrastructure, customers pay only for needed computing power. Use more, pay more. Use less, pay less. The implications of this shift are nothing short of transformational. Consumptionbased pricing enables transparency and encourages demand management: if the business understands the cost implications of the way IT is used, better choices will presumably follow. In addition, usage-based pricing theoretically eliminates the cost of insufficient or idle capacity, since resources are allocated only as needed. The problem is, we’re not quite there yet. Accurate and consistent pricing models for cloud services remain elusive, and significant organizational obstacles must be overcome to leverage the potential of flexible pricing. Customers exploring cloud initiatives need to understand market dynamics as well as the challenges involved in comparing various offerings and assessing the true total cost of a cloud solution.

November 2011

www.globalservicesmedia.com

47


PRICIng ModElS Today’s marketplace is characterized by myriad pricing models with a wide range of different structures. The diversity is based largely on whether the cloud offering is public, private, or a hybrid. Provider A may charge by processors reserved, while Provider B charges by the CPU hour. Examples of new total cost of ownership (TCO) calculators are cited below: ◆ CloudSizer.com (IDEAS International) ◆ Microsoft Azure Pricing Calculator ◆ Gogrid.com ◆ Amazon Elastic Compute Cloud (Amazon EC2) Microsoft recently released its Windows Azure Pricing Calculator, adding to the growing list of simple, web-based pricing calculators for cloud platforms. Amazon Web Services, a public cloud pioneer, has had a pricing calculator in place since 2009. Of course, in true cloud fashion, it’s still in beta. Cloud hosting providers have also embraced the “transparency” trend, with Rackspace, GoGrid and Navisite all displaying public pricing on their web sites. Some have had this level of cost visibility in place for years; others are just now going public with their cloud pricing. These pricing tools are providing unprecedented visibility into specific components of pricing and the cost required to run key parts of the infrastructure and applications in the cloud. That said, the ability to gauge utilization accurately enough to bill for it in a true utility manner remains a challenge. Most internal and external IT groups don’t have the monitoring tools to accurately measure and log CPU minutes. Moreover, a CPU minute on one machine can represent more or less processing power than a CPU minute on another machine, so ensuring an apples-to-apples comparison of different service offerings is problematic. It’s also important to note that these calculators only provide certain components of the pricing and don’t represent the real total cost to operate in the cloud. alloCatIon Some current cloud models use allocation, such as a server “instance” or a compute “slice,” as the basis for pricing. Here, the resource that a customer is billed for has to be allocated first, thus allowing for predictability and pre-approval of the expenditure. However, the term “instance” can be defined in different ways. If the instance is simply a chunk of processing time on a server equal to 750 hours, that equates to a full month. If the “size” of the instance is linked to a specific hardware configuration, 48

www.globalservicesmedia.com

November 2011


the billing appears to be based on hours of processing, but in fact reflects access to a specific server configuration for a month. As such, the pricing structure doesn’t differ significantly from traditional server hosting. Terminology is also an issue. Since no clear standards exist on how cloud services are defined, the same set of words one cloud vendor uses to describe a truly innovative, cloud-based delivery approach can be used by another vendor to hype a traditional delivery mechanism. In other words, customers need to ask: Are we truly leveraging the potential benefits of cloud computing? Or are we simply getting traditional services with a cloud label attached? Despite these issues, cloud services can and do offer increased flexibility and a more streamlined process for growing IT infrastructure, as the provisioning of new servers can often be done in a matter of hours or days, instead of weeks or months, even if the services are billed via an allocation model. In addition, the move toward cloud services has the practical impact of driving standardization across multiple customer environments and making services more utility-like. This allows vendors to leverage greater economies of scale and deliver significant savings to customers. Cloud tCo In today’s buyer beware cloud environment, customers need to understand the details of each pricing scheme in a comparative context, along with the terms of the agreement, to determine exactly what they’re getting (or not) for their investment. Otherwise, the cost of the cloud solution risks becoming in addition to, rather than instead of, the existing environment. The process is analogous to buying a car online. The base price looks extremely attractive, but when all the options, tax, title, license, maintenance and fuel consumption are added to the base price, the cost may be as much as 50 percent more. Similarly, when pricing a true enterprise cloud solution, the total costs involved have to be considered. These include training staff on re-engineering applications for the cloud, re-working the authentication framework, integration with legacy applications and building in business continuity and disaster recovery solutions. The cloud pricing calculators described earlier don’t adequately account for these incremental costs. Examples of costs frequently not calculated in Cloud solutions include: ◆ Internal Level 1 service desk and technical resources to interface with the provider’s Level 2 desk ◆ Migration costs to the Cloud ◆ Additional network bandwidth (data transfer rates in and out) ◆ Remaining book value of stranded assets and software ◆ Remaining amortization of applications November 2011

www.globalservicesmedia.com

49


◆ Additional staff to manage new contracts ◆ Cost of fulfilling minimum volume commitments in current contracts A decision to process and store data in the cloud does not eliminate other costs inherent in the IT environment. While cloud calculators provide detail and transparency into the base services price, that’s not enough. CIOs need to understand the true total cost of ownership of a cloud solution – including the cost to transition to and to run operations in the cloud. It’s also imperative to accurately assess and evaluate cloud options and benefits in an apples-to-apples context. Key questions include: Which pricing model is appropriate? How does offering A truly compare to offering B? How will choices support or undermine the overall IT and business strategy. lookIng ahEad Organizations that will drive usage-based pricing to further maturity will be those that are willing to give up predictability for overall savings, and are willing to work with cloud providers that are hungry for market share. Such pioneers – Amazon, for example – have businesses with revenue-generating applications that need to scale rapidly. For them, scalability trumps predictability, and growing revenues can cover higher costs. In the meantime, for customers who are skittish about unanticipated spikes in expenditures, service providers are offering pricing models that set off alerts when a certain level of consumption is likely to be reached. The utility model will be most attractive for revenue-generating applications that need to scale quickly, development environments that need to scale up and down, and compute-intensive applications that can run processes in parallel across multiple machines (today’s grid applications). For more common types of production processing, mechanisms that allow clients to retain effective control over increases in demand will be needed. From the service provider perspective, true usage-based pricing will be driven by vendors aggressively seeking market share. These players will push for increased flexibility coupled with decreasing minimal commitments. Vendors defending market share, meanwhile, will be pulled reluctantly down this path.

50

www.globalservicesmedia.com

November 2011


Vox Artis- A Powerful Proposition for Service Providers As 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 satishg@cybermedia.co.in



Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.