Vox Artis - Infrastructure Management

INAUGURAL ISSUE NOVEMBER 2011

International Financial Outsourcing Center

To Combine the Global Resources and Facilitate the

2011 the West Lake, Enlightenment and DiscussionDiscovery, Transformation, Reaction, Share

Integration & Improvement of Global Service Capability

For Your Attention

Sponsors:

Ministry of Commerce of the People’s Republic of China

Ministry of Industry and Information Technology of the People’s Republic of China

Ministry of Education of the People’s Republic of China

Host City :

Hangzhou People’s Government

Official Promotion:

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Contact: Tel-8610 85863613 Fax-8610 59081093 [email protected] Planner & Organizer: Great-Idea Business International Outsourcing Promotion Center


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

http://www.great-idea.com.cn/hangzhou/

International Outsourcing Business Development Summit

Date: October 24-26, 2011

Venue: Zhejiang Narada Grand Hotel, China

Demonstration City of ChinasourcingHangzhou

Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also

one of the 21 software industry base cities in mainland China. It has currently formed the several industries including

telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.

The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at

460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises

have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the

key software enterprises name list of the national strategic planning.

In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team

to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in

Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352%

compared to the same period of last year (2008).

Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end

outsourcing industry, Hangzhou now is creating to become the financial delivery center.

Hangzhou, ChinaA City of Financial Delivery Center





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Inside the Expert’s Mind

Welcome to the first edition of this series called as Vox Artis.

Vox Artis, a Latin phrase, translates to ‘the voice of the expert’. In all the older civilizations, men of knowledge were highly respected. They spread their knowledge through the oral tradition; they spoke with individuals and to the crowds to spread their ideas.

‘Thought leaders’ as we call them now, still hold a lot of influence for the conceptual insights, analytical perspectives, practical ideas, and futuristic possibilities, they enlighten the world with. At Global Services, Vox Artis is a channel for experts in global sourcing of services to present their views. It is a program delivered in multiple media formats- online/ Web, digital, print, webinars, conferences, and more. It is intended to provide a 360-degree view on specific topics.

In this first issue of Vox Artis, we present six cutting-edge articles from accomplished sourcing advisory companies like Alsbridge, Compass/ TPI, Avasant, Horses for Sources, and KPMG. Management of IT infrastructure is one of the oldest areas in IT services, yet it has witnessed many changes even in the past decade. Newer models of engagement and delivery have led to specialization in the market and changes in the vendor landscape. The increasing adoption of cloud computing is also a key dynamic shaping this market. The collection of articles here present a multi-sided view on how things are and what the possibilities are in the area of infrastructure management services.

Feedback on this issue is highly appreciated. Our next topic, scheduled for release at the end of the month, is on ‘Building and Sustaining Excellence in Global Services’. This happens to be the theme for Global Services Conference 2012 in March 2012 at NYC. In that sense, the next Vox Artis is a compilation of ideas, many of them by speakers themselves, ahead of the conference. Do let us know if you would like to participate.

Ed Nair EditorGlobal Services

Ed

itor

’s N

ote

RIM Comes of Age

8Ben TrowbridgeAlsbridge

Emerging Models in Infrastructure Management

14Amit SinghAvasant

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

22Cliff JusticeStan LepeakKPMG

Benchmarks Go Strategic

30Kathy RudyCompass Management Consulting

Achieving Innovation in IMS: Eight Strategies to Consider

38Robert McNeillHorses for Sources

Pricing the Cloud

46Scott FeulessStanton JonesCompass Management Consulting,TPI

TABLE OF CONTENTS

Ben Trowbridge is founder and CEO of Alsbridge, an award-winning sourcing advisory and benchmarking firm changing the way companies buy and manage hardware, software, IT infrastructure services, application services, business processes and cloud computing. As CEO of Alsbridge, one of the Inc 500's fastest growing companies in America in 2010, Ben has revolutionized the way companies source technology and business processes. Ben is renowned for his forward thinking and collaborative approaches to deal structuring and sourcing techniques that have redefined the solution development, contract negotiation and implementation process.

Ben Trowbridge CEO

Alsbridge

November 2011 www.globalservicesmedia.com 9

RIM Comes of AgeOutsOurcing infrastructure ManageMent: it’s tiMe

The information technology infrastructure outsourcing market continuestoevolve.Asfirmsscourthelandscapeforwaystofocusontheircorecompetenciesandmaintaintheircompetitiveedge,moreandmoreemphasis

isbeingplacedonwringingcostsoutandaddingvaluetotheITspend.Althoughsometimesexaggerated,thepotentialsavingsthroughtheoutsourcingofITinfrastructuremayrangeashighas20to30percent.OneofthemostsignificantvaluedriversinIToutsourcingisRemoteInfrastructureManagement(RIM)-theoff-premise,oftenoff-continent,managementofITinfrastructure.

RIMcanincludebehindthescenesactivitiessuchashardwaresupportandmanagement,oritcanincludemanaginguser-facingservicessuchasnetworkmanagementordesktopsupport.TherangeofITfunctionsforRIMincludes:

◆DataNetworks(WAN/LAN)◆Desktops/laptopsandrelatedperipherals◆E-mailsystems◆Mainframeplatforms◆ Servers◆ Storageplatforms◆Usersupport◆VoiceNetworks

Infrastructure Management Services

10 www.globalservicesmedia.com November 2011

Generally, RIM can be undertaken as a partial service, only permitting the providertomanageormonitoraportionoftheITfunctions.Thisprovidesanopportunityfortheclienttotesttheexperience.OncetheclientissatisfiedwiththeirlimitedRIMexperience,theycancontemplatemovingupthesourcingmodeltofullserviceremoteinfrastructuremanagement.

FullserviceRIMinvolvestheclientretainingtheirITassetsbuthandingoverthemanagementoftheirITinfrastructuretoaproviderorproviders.TheconfigurationoftheRIMscenariodependsontheclient’sspecificbusinessdrivers,internalcapabilities,andstrategicITdirection.

RIM EvolutIon and MatuRIty

With the continued advancement of telecommunications and wide area networkinfrastructureinbothNorthAmericaandEuropeoverthelast15years,domesticdeliveryofRIMhasbeenacommonoperationalmodelinmostFortune1000companies.Typically,domesticremoteinfrastructuremanagementisperformedina“lightsoutdatacenter”environment.Itislightsoutinthesensethatthereislimitedornoon-sitepersonnelstaffingthedatacenterandliterallythedatacenteroperatesatmosttimeswiththelightout.Remoteoperationsstaffbothmonitorandmanagetheinfrastructurefromadifferentbuildingorevenadifferentcityandstate.Theremotefunctionalityallowstheoperationalactivitytobeperformedinaseparatelocationfromtheclientordatacenter,oftenusinghighlyleveragedorpooledresourcestomonitorseveralinternalorexternalsites.

ITorganizationsaredeployingandmanaginginfrastructureservicesincompliancewiththestandardsoftheInformationTechnologyInfrastructureLibrary(ITIL)andotherqualitymetrics.QualityimprovementsandprocessstandardsareacceptedasvitalRIMoperationalpractices.Processmaturityhasfacilitatedtheeffectivedeploymentofanoffshoredeliverymodel.Workproductsareclearlydefinedandcanbeassignedtotraintheteamsoffshore.

TherapidevolutionintechnologiesandITarchitectures,theeconomicimpactanddrivetoreducecosts,andthematurityoftheoffshoremarketispositioningRIMservicesasthenextwaveofopportunityforoutsourcersofalltypes.

StatE of thE RIM MaRkEt and InduStRy

The prospect of reaping the cost saving, productivity gains, and business modelflexibilityderivedthroughtakingadvantageofoffshoreIToutsourcingcertainlyisafactorintheglobalizationofoutsourcing.TheITindustryismovingtowardaremotedeliverymodelinwhichservicesareincreasinglydeliveredbyvendorswithoperationsinlow-costlocations.

Thebanking,financialservices,andinsuranceindustriesareleadingRIMoffshoringgrowth.Theseindustries,oftenreferredtoasthe“financialservicesindustry,”havebeenearlyadopters–usingremotesoftwareprogrammingresources–ofoffshore


outsourcing in the area of application development and support. In addition, thefinancialservicesindustries’necessityforhighlysecure,24/7availability,highlyreliableandstablesystemshascreatedopportunitiesforglobalRIMproviders.RIMserviceprovidershaverecognizedtheopportunitytoofferfollow-the-sundeliverymodels,highlydistributedandflexiblemonitoringandsupportmodels,andinthosecaseswhereautomationhasnotreplacedlaborarbitrage,laborcostsavings.

TheindustriesthatareslowtomovetowardglobalRIMarethosethathavethelowesttransactionvolumes,suchasmediaandentertainmentandprofessionalservices.Otherindustries,suchasaerospaceanddefenseandthepublicsectors,facevariousdegreesofgovernmentregulationsthatinhibittheiradoptionofglobalRIM.Thehealthcareindustryhasconcernswiththedatasecurityandintegritybeingprovidedinforeign,nondomesticlocations.Healthcarealsohasmuchmorecomplicatedrevenueandcostrecoverybusinessmodels,whichhassomeinfluenceontheadoptionofglobalRIM.

ThebodyofourresearchindicatesfinancialservicesandinsurancefirmsareundersignificantpressuretoreducecostsandincreaseefficiencyandproductivityoftheITinvestment.Assuch,theycontinuetoembraceoutsourcing,andmostrecently,RIMservices,inavarietyofglobalconfigurationsandlocations.

RIM dElIvERy analySIS

Target TowersAstheresultofyearsofdomesticandregionalRIMexperiences,typicallyinmanagingandsupportingtheoperationsofdatacenters,servers,LAN/WANfunctionality,andtoalesserextent,endusercomputing(EUC),manyofthetasksperformedwithintheinfrastructuremanagementtowerscanbedeliveredfromanoffshorelocation.Thisisparticularlytrueforthefinancialservicesindustry,whichhasembracedRIMoffshoringbecausetheyhavelittleneedfortraditionalbackupmediahandling.Insteadtheyareadoptingafullyredundantmultiplelocationstoragestrategy.Thisislargelyduetotheirdisasterrecoveryrestorationtimeframerequirements,whichrequirehighavailabilityandfastrecoverytimes(minutesnothours).Thisisnowprovidedbydisk-to-diskandmedia-lessbackups.

However,someactivitiesremainthatmustbemanagedbyaproviderorbythebusiness’internalITstaffinthelocalpremiseordomesticlocation.Theseactivitiesincludethephysicalserverprovisioningandhardwarerepairs.Activitiesrequiringquickresponsetimesanddirectcustomerserviceintervention,suchascomputerbreak/fixorrefresh,mayberequiredtoremainatthecustomersite,retainedasathird-partystand-by,orbepartofthebusiness’internaldomesticITstaff.

MatureproviderscontinuetoexpandtheirflexibleRIMoffshoredeliverymodelofferings.Thesematureorfull-serviceproviderscanoperateafullservicetowerremotelyorincludelocal,domesticstaffaugmentation.Theproviderscanalsojointlysupportatowerwithadomesticcustomerstafforathirdparty.


dElIvERy CountRIES

India is the leading location for providing RIM services. India appears as thedominantgloballeaderinIToffshoringbothfromtheperspectiveofbeingthepreferredlocationtohostRIMservices,andfromtheperspectiveofbeingthehomecountryofmanyoftheleadingRIMproviders.IndiahascapturedthemajorityoftheglobaloffshoremarketandispositionedtobetheleaderinRIMoffshoring.Indianprovidershavetheoffshorematurityandexperienceandhavecreatedasignificantandrapidlygrowingcustomerbase.Theyhavebeeninvestingintheoffshoretools,processes,andinfrastructurenecessarytomanagethegrowthofRIM.TheinvestmentisbeingusedtopositionIndiaformajorRIMmarketpenetration.ChinacontinuestoemergeasapotentiallymajorplayerinIToffshoring.ProvidersareinvestinginChinaaspartoftheirglobaldeliverybase.NetworkoperationcentersarebeingestablishedandbeginningtosupportRIMclients.

InEurope,theMiddleEast,andAfrica,EasternEuropeancountriesarepositionedascentersforRIMdelivery.PolandandHungaryrepresentcountriesthatarebeginningtoadvanceintotheRIMmarketplace.Theyhaveparticularlystrongexperienceinmultilingualhelpdesksupport.

MexicoandLatinAmericaofferanearshorealternativeforRIMservices.Mexico hasanofferingthatismaturingandatime-sensitivecustomerbase.InfosyshasrecentlyannouncedplanstodevelopanetworkoperationcenterinMonterrey,Mexico.ArgentinaisalsobeingdevelopedasaRIMservicealternative.CertainprovidershavechosentooffermainframeandAS400towersupportfromcountriesthathavetheskillandexperiencebasedonlegacyuse,suchasBrazilandArgentina.Dependingonthecriticalityofthebusinessprocess,providersmayopttoprovidemainframeandAS400supportfromhighercostcountriessuchastheUnitedStatesandAustralia.

valuE PRoPoSItIon In dEPloyIng RIM

Cost SavingsEvenbeforethearrivaloftheglobaleconomicdownturn,seniorbusinessleaderswerebeingchallengedtoincreaseprofitabilityandefficiencyandtodriveoperationalcostsdown.Theallureofoutsourcinghasalwaysincludedtheprospectofcostreductionthroughefficienciesandlaborarbitrage.Notsurprisingly,theincreasinginterestinRIMservicesisessentiallyduetotheprospectofreducingoperationalcostsandincreasingproductivityinoneITfunction.Offshoringofinfrastructuremanagementlabortypicallyrealizesasavingsof5to20percentcomparedwithU.S.laborrates.Butdonotassumethesesavingsareinstantaneous.RIMservices,aswithoutsourcingingeneral,typicallyprovideagradualsavingcurveasdeliverymaturityisattained,usuallywithinthefirsttwoyearsoftheengagement.

oPtIMIzatIon and StandaRdIzatIon

Current network and infrastructure centers in offshore locations provide rigorousstandardsoffullredundancy,highavailability,anduncompromisingdatasecurity.


The support is provided across multiple client environments.The deploymentofqualitystandardssuchasSixSigma,ITIL,andthoseoftheInternationalOrganizationforStandardization(IOS)havefosteredacommonunderstandingoftheworktobeperformedwithinatypicalITtowerfunction.RIMservicesprovideanopportunityforselectingtherightservicemixtobedeliveredfromtherightregion.Theinfrastructurecanbemanagedfrommultiplelocationsasaglobalmonitoringandsupportmodelisdeployed.Thefollow-the-sunapproachcanbeadaptedforavarietyofbenefits,particularlyhighavailabilityofthesupportedsystemswhich,inessence,providescontinualuptime.TherewillcontinuetobeadvancementsintheproductsandtoolsusedtomanagetheinfrastructurebeingsupportedbyRIM.

RISk dISCuSSIon

When considering the risks and benefits of engaging a provider, or providers,todeliverRIMservices,theriskscanbeconsideredfromtwoperspectives.First,onemustconsidertheorganizationalrisksassociatedwiththeinternalcustomer’ssatisfactionwithRIMservices.Ingeneral,themajorconcernsidentifiedbyseniorbusinessandITexecutiveswithrespecttooffshoringincludesecurityanddataprivacy,languageandaccentsneutralization,high-levelbusinessandindustry-specificknowledge,internalpoliticalperceptions,andthelackofperformancemetrics.Theseconcernscanbemitigatedthroughastrongprovidermanagementandgovernanceprocessthatassurestheseissuesareaddressedwellbeforeanyserviceistransitionedtoaprovider.Externalissuessuchaspoliticalstability,governmentregulations,culturalalignment,andproductivityassociatedwithremotelocationsshouldbeaddressedbytheprovideraspartoftheirstandardserviceprofile.

ThebenefitsofRIMservicescanbemuchbroaderthansimplyfinancial.Additionally,choosingaproviderwithabroadrangeoflocationsandalargeanddiverseskilledlaborpoolcanincreaseflexibilitytorespondtothechangingneedsofitsinternalbusinesscustomer’sneeds.Ideally,newskillsandcapabilitiescanbedeliveredbyaqualifiedproviderbyvirtueoftheprovider’srangeofservicesandknowledgedevelopedthroughRIMservicedeliveryoveralargepoolofdiverseclients.

SuMMaRy

Remote infrastructure management comes of age in the era of the flatteningglobe.Withthevirtualeliminationofglobalconnectivityandbandwidthissues,businesscentersinthedevelopedworldcanconnectwithserviceprovidersinlow-cost,emergingmarkets.RIMglobalprovidersareharnessinglarge,well-educated,andinexpensivelaborpoolstobuildglobalcentersfromwhichtheycanmanagealmostanyaspectofITinfrastructuresupport.ThosebusinessesengagingtheseglobalproviderswillbothenjoylowercostsandpotentiallygreaterefficiencyandflexibilityinthesupportoftheirglobalITfunctions.RIMhasarrived,andthereareamultitudeofprovidersreadyandwaitingtodeliverit.

Amit is a Partner with Avasant LLC, one of the globally top ranked sourcing advisory and management consulting firms. Amit is one of the key leaders of the firm in strategy consulting, M&A and global shared services optimization practices. He possesses significant international management consulting experience and has a deep understanding of the outsourcing industry. He has more than 17 years of management and consulting experience with some of the best names in the industry before becoming a founding member of Avasant, including Gartner, PriceWaterhouseCoopers and Patni Computers. Amit's experience spans strategy, shared services restructuring, implementing multi-sourced services and governance processes and enterprise level change & risk management.

Amit Singh Partner

Avasant


Emerging Models in Infrastructure

Management


BaCkgRound

IT Infrastructure has traditionally been the bastion of stable managementmodels.WhileITapplicationmanagementwentthroughadramaticshiftinlandscapeduetoevolutioninprogramminglanguagesaswellasincreasing

offshoredeliveryviability,ITInfrastructurebusinessstayedvirtuallyunchangedforseveraldecades.However,therapidpaceoftechnologygrowthhasnowledtoemergenceofseveralnewmodelsofITInfrastructuredeliveryandconsequently,managementpractices.WhilethetraditionalApplicationDevelopmentandMaintenanceoutsourcingisinmaturityphaseasnotedbydiverseandlargebuyerindustries,demandforRIMservicesisestimatedtofurthergrowbyatleast25to30percentp.a.inthenext3years.

ThispaperexploressomeoftheemergingmodelsforITInfrastructureoutsourcingandthereasonsthereof.


IMPaCt of EConoMy on InfRaStRuCtuRE SouRCIng ModElS

The current economic downturn has already lasted since 2008 and there is astrongpossibilityoftherecessioncontinuinginto2012.Duetoconstanteconomicchallengessignificantchangeshavebeenobservedinthenatureofdeploymentinnewaswellasexistingdeals.Thefollowingarethekeychangestoinfrastructuresourcingthatwehavewitnessedduringthisturbulenttime:

◆Changes in Demand–Clientsarenolongerasmuchinterestedinlookingforasinglesolutionthatmeetsallinfrastructureneedsastheyareinidentifyingbestofthebreedsolutionsthatcanofferflexibilityinserviceprovisioningandcankeepupwithtechnologychange.Alarge,monolithicinfrastructureenvironment,ifitishardtochange,isnolongerviewedfavorablyinthisenvironment.

◆End-Customer Requirements–TheITinfrastructurerequirementsaremoreandmoredirectlytiedtobusinessrequirementsandarefocusedonbeingpreparedfortheconstantchangeinbusiness.Theinfrastructureisbeingaskedtobemuchmoreagileinsupportingbusinessusersthanhasbeenthecasetraditionally.Thespeedandcostofactivitiessuchastosetupmailboxes,provideremoteaccesstoworkingenvironments,enablinglargescaledatatransferandprovidinginterconnectivitytomyriadmobiledevicesaresomeoftheexamplesofcustomerrequirementsdrivingemergingmodelsinITinfrastructuremanagement.

◆Consolidation & Virtualization –TherehasbeenaconspicuoustrendtowardsconsolidatingandvirtualizingITenvironmentinthepastseveralyearswithaviewtomanagingcostsaswellasupgradingfromlegacysystemsthatcouldnotallowformodulargrowthandseamlesssharingofenvironmentsacrossapplications.Thisstep,asoneoftheessentialelementsofleveragingcloudbasedsharedinfrastructuretechnologiesiscurrentlyoneofthekeyfocusareasofanumberoforganizations.

Sourcing Maturity Lifecycle

Ad

op

tio

n ADM

BPO

InnovatorsEarly

Adopters Mainstream

ITO

Laggards

GlobalSourcingMaturity

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

Software maintenance

Custom applicationdevelopment

Package appimplementation

Remote infrastructuremanagement

Help desk

Consulting work

Enterprise network

None of the above 17%

15%

19%

20%

26%

39%

47%

48%


◆Nature & Scale of Services – The traditional models of physical businesslocationsbeinghard-wiredtodatacentersareevolvingrapidlytoprovidinganITenvironmentthatcangrowandchangetosupportamultitudeoffixedandmobiledevices,forexample,multiplestudiesarepointingtowardstheTabletbeingtheplatformofchoiceformanyindustriessoon.Inreturnforflexibility,thereisagrowingrealizationandacceptanceofusingsharedinfrastructureformanyofthenon-criticalapplications.

◆Cost–ITInfrastructureisthenewfrontierforcostreductioninmostoftheITdepartmentsacrosstheglobe.TheongoingrecessionisputtingenormouspressureonCIOstodomorewithlessandITinfrastructure,withnormallythelargestbudgetofallITdepartmentsissquarelyinthesightsofcostcutting.Atthesametime,thematurityofRIM(RemoteInfrastructureManagement)modelaswellasincreasedautomationisnowmakingitpossibletoreduceaswellaseliminateconsiderableinfrastructureandmanagementcosts.

kEy EMERgIng ModElS

The new and emerging models are based on leveraging cloud technologies.Essentially,Cloudcomputingistheprovisionofdynamicallyscalableandoftenvirtualizedresourcesthatisdeliveredasaservice.Thepicturebelowshowsthekeyelementsthatdefinecloudcomputingbasedinfrastructureserviceprovisioning:

Economic Element• Pay-as-you-go• No Capex

Architectural Element• Simple enviroment• Responsive to demand• Secure shared resources

Strategic Element• Focus on more core competencies, what you do best

UtilityPricing

CLOUDCOMPUTING

ElasticResources

ManagedServices

Automation

VirtualizedResources

Self-Service

SecureMulti-Tenancy

3rd PartyOwnership


Mostoftheemergingmodelsinthecurrentinfrastructuremanagementworldfollowacombinationofthecharacteristicsshownabove.

Ingeneral,thenewmodelscanbecategorizedasfollows:

◆ Supplier Services–ThisisthesupplysideofthecloudcomputingmarketplaceandconsistsofITandbusinessconsulting,systemsintegration,outsourcing,andotherservicesusedtodevelopandsupportcloudservicesandinfrastructure.Theseservicesincludesoftwarecomponents,suchasapplicationplatforms,informationmanagement,systemmanagement,developmenttoolsandothersoftwareusedtoset-upandoperatecloudservicesandinfrastructure.Theyalsoincludehardwarecomponents,suchasservers,storageandnetworkinghardwareusedtobuildcloudservicesandinfrastructure.Thismarketisoneofthelargestcomponentsoftheeco-systemtodaywithaprojected2012marketsizeof$44B,withaCAGRof23percent.

◆End User Services – Thissegmentcomprisesofend-userservicesbeingprovidedfromcloudcomputing,mostnotablytheInfrastructureServicesandBusinessServices.Theyaredescribedbelow:

◆ Infrastructure Services – InfrastructureservicesincludePaaS(PlatformasaService)andIaaS(InfrastructureasaService).

◆PaaS – PaaSconstitutesofcustomersusingprogramminglanguages,toolsandplatformstodevelopanddeployapplicationsonmulti-tenant,sharedinfrastructurewithabilitytocontroldeployedapplicationsandenvironmentswithouttheneedtomanageorcontroltheunderlyingresources.TheexamplesincludeGoogleAppEngine,RightScale,Joyent.

◆ IaaS – IaaSreferstotheusageofprocessing,storage,networks,othercomputingresourceswithabilitytorapidlyandelasticallyprovisionandcontrolresourcestodeployandrunsoftwareandserviceswithouttheneedtomanageorcontroltheunderlyingresources.TheexamplesincludeAmazonWebServices,RackspaceandAkamaietc.

ThemarketsizeofInfrastructureservicesisprojectedtocross$30Bfor2012,withaCAGRofmorethan45percent.

◆Business Services – ThesecompriseSaaS(SoftwareasaService)andBPaaS(BusinessProcessasaService).

◆ SaaS –SaaSreferstocustomersusingapplications(E.g.,CRM,ERP,E-mail)frommultipleclientdevicesthroughaWebbrowseronmulti-tenantandsharedinfrastructurewithouttheneedtomanageorcontroltheunderlyingresources.ItisdefinedasuseofanInternetbrowsertoaccesssoftwareapplications,eliminatingtheneedtopurchase,install,runandmaintainthe


programsoninternalsystems.TheexamplesincludeGmail,Salesforce.com,NetSuite,Hostanalytics.

◆BPaaS-Customersconsumebusinessoutcomes(E.g.,payrollprocessing,HR)byaccessingbusinessservicesviaWeb-centricinterfacesonmulti-tenantandsharedinfrastructureswithouttheneedtomanageorcontroltheunderlyingresources.TheExamplesincludeCorefinoandADP.

ThemarketsizeofBusinessservicesisprojectedtocross$52Bfor2012,withaCAGRofmorethan25percent.

AnothertermthatisemergingisXaaS(EverythingasaService).Thefollowingdiagrambroadlydefinesitscategories:

Ingeneral,thesemodelspromisesignificantbenefitsfromleveragingtheglobalgrowthofcomputationalandnetworkgrids.Someofthekeyperceivedbenefitsareasfollows:

◆Agility-Cloudplatformsimprovetime-to-applicationdeploymentbyprovidingtheoptionofdevelopinganddeployingnewapplicationsonexistinginfrastructureasquicklyasdesired.Incomparison,traditionalplatformscantakeuptothreeorfourmonthstoprocure,install,andconfigure,manytimesstallingtheapplicationdeploymentprocess.

◆Predictability of Costs-CloudcomputingallowsorganizationstoalignITbudgetswithapplicationdemandbyhostingcustomerandpublic-facingWebapplicationswithcloudproviders.Organizationsjustneedtopayfortheresourcestheyuse,hourbyhour.

XaaS –Everything as a

Service

Provision of application serviceswith added multitenant elasticity asa service

Provision of applicationmiddleware, including applicationsservers, ESB, and BPM (BusniessProcess Management)

Based on application streaming &virtualization technology, providesdesktop standardization, pay-per-use, management, and security.

Provision of networkcommunication, billing, andintelligent features as services toconsumers.

Management of hardware andsoftware required for deliveringvoice over IP, instant messagingvideo conferencing, for both fixedand mobile devices

APaaS –Application Platform as a

Service

AlaaS –Application Infrastructure

as a Service

DaaS –Desktop as a Service

NaaS –Network as a Service

CaaS – Communicationsas a Service

BPaaS – BusinessProcess as a Service

SaaS – Software as aService

PaaS – Platform as aService

laaS – Infrastructure asa Service

Broad term thatembraces aN the

models discussedhere.


◆Managing Demand Variability-Cloudcomputingprovidesamechanismtomanagepeaksindemandfordatacentercapacity,computing,storage,andnetworkresources.Asanexample,organizationscaneasilypushbigbatchjobsintothecloudinsteadofdesigningandbuildingITinfrastructurefortheabsolutepeakdataloads.

◆Lowering CapEx Budgets-Cloudcomputinggivestheabilitytodelivernewapplicationswithouthavingtobuygear,raisingthefirm’scapitalexpenditures.Applicationdevelopmentanddeliverycanallbeperformedandmanagedviaoperatingexpenses.

◆Collaboration & Sharing-Cloudcomputingallowsorganizationsarelativelyinexpensiveandeasilyaccessiblewaytoshareinformationbyhostingdataonpubliccloudsratherthanopeningtheirorganization’sfirewalltomakeitavailabletoexternalparties.

Atthesametime,manyoftheemergingmodelsarebeingtestedintherealworldandasrisksgetidentified,organizationswillhavetoplanrequiredriskmitigationstrategies.Someofthekeyrisksincludethoserelatedtodatasecurityandprivacy,compliancewithlocalandfederal/internationalregulationsandguidelinesaswellasevolvingbusinesscontinuity/disasterrecoveryscenarioswiththenewmodels.

Fromaservicedeliveryperspective,thefollowingdiagramdemonstratesthedeploymentmodelsbeingusedbyorganizations.Itislikelythatmostorganizationswilldeployamixofthesemodels:

DeploymentModel

Private(Internal)

Enterprise ServiceProvider

ServiceProviderServiceProvider

Shared

Select Multi-Tenant

VPN NetworkPublicInternet

Pay as you go


Shared

Pay as you go

PublicInternet

Multi-Tenant

ServiceProviderEnterprise

EnterpriseTenant

EnterpriseTenant

InternalEnterpriseNetwork

VPNNeteorkPublicInternet

TraditionalTraditional or pay as you go

Dedicated

Enterprise

ServiceProvider

EnterpriseTenant


Traditional

Dedicated Dedicated

PrivateManaged

PrivateHosted

CommunityHosted

PublicHosted

Private Cloud Hybrid Cloud Public Cloud

Premise

Run / Manage

Infrastructure

Community

Access

Payment


IMPaCt of EConoMy on InfRaStRuCtuRE SouRCIng ModElS

The current economic downturn has already lasted since 2008 and there is astrongpossibilityoftherecessioncontinuinginto2012.Duetoconstanteconomicchallengessignificantchangeshavebeenobservedinthenatureofdeploymentinnewaswellasexistingdeals.Thefollowingarethekeychangestoinfrastructuresourcingthatwehavewitnessedduringthisturbulenttime:

◆Changes in Demand–Clientsarenolongerasmuchinterestedinlookingforasinglesolutionthatmeetsallinfrastructureneedsastheyareinidentifyingbestofthebreedsolutionsthatcanofferflexibilityinserviceprovisioningandcankeepupwithtechnologychange.Alarge,monolithicinfrastructureenvironment,ifitishardtochange,isnolongerviewedfavorablyinthisenvironment.

◆End-Customer Requirements–TheITinfrastructurerequirementsaremoreandmoredirectlytiedtobusinessrequirementsandarefocusedonbeingpreparedfortheconstantchangeinbusiness.Theinfrastructureisbeingaskedtobemuchmoreagileinsupportingbusinessusersthanhasbeenthecasetraditionally.Thespeedandcostofactivitiessuchastosetupmailboxes,provideremoteaccesstoworkingenvironments,enablinglargescaledatatransferandprovidinginterconnectivitytomyriadmobiledevicesaresomeoftheexamplesofcustomerrequirementsdrivingemergingmodelsinITinfrastructuremanagement.

◆Consolidation & Virtualization –TherehasbeenaconspicuoustrendtowardsconsolidatingandvirtualizingITenvironmentinthepastseveralyearswithaviewtomanagingcostsaswellasupgradingfromlegacysystemsthatcouldnotallowformodulargrowthandseamlesssharingofenvironmentsacrossapplications.Thisstep,asoneoftheessentialelementsofleveragingcloudbasedsharedinfrastructuretechnologiesiscurrentlyoneofthekeyfocusareasofanumberoforganizations.

Sourcing Maturity Lifecycle

Ad

op

tio

n ADM

BPO

InnovatorsEarly

Adopters Mainstream

ITO

Laggards

GlobalSourcingMaturity

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

Software maintenance

Custom applicationdevelopment

Package appimplementation

Remote infrastructuremanagement

Help desk

Consulting work

Enterprise network

None of the above 17%

15%

19%

20%

26%

39%

47%

48%


◆Nature & Scale of Services – The traditional models of physical businesslocationsbeinghard-wiredtodatacentersareevolvingrapidlytoprovidinganITenvironmentthatcangrowandchangetosupportamultitudeoffixedandmobiledevices,forexample,multiplestudiesarepointingtowardstheTabletbeingtheplatformofchoiceformanyindustriessoon.Inreturnforflexibility,thereisagrowingrealizationandacceptanceofusingsharedinfrastructureformanyofthenon-criticalapplications.

◆Cost–ITInfrastructureisthenewfrontierforcostreductioninmostoftheITdepartmentsacrosstheglobe.TheongoingrecessionisputtingenormouspressureonCIOstodomorewithlessandITinfrastructure,withnormallythelargestbudgetofallITdepartmentsissquarelyinthesightsofcostcutting.Atthesametime,thematurityofRIM(RemoteInfrastructureManagement)modelaswellasincreasedautomationisnowmakingitpossibletoreduceaswellaseliminateconsiderableinfrastructureandmanagementcosts.

kEy EMERgIng ModElS

The new and emerging models are based on leveraging cloud technologies.Essentially,Cloudcomputingistheprovisionofdynamicallyscalableandoftenvirtualizedresourcesthatisdeliveredasaservice.Thepicturebelowshowsthekeyelementsthatdefinecloudcomputingbasedinfrastructureserviceprovisioning:

Economic Element• Pay-as-you-go• No Capex

Architectural Element• Simple enviroment• Responsive to demand• Secure shared resources

Strategic Element• Focus on more core competencies, what you do best

UtilityPricing

CLOUDCOMPUTING

ElasticResources

ManagedServices

Automation

VirtualizedResources

Self-Service

SecureMulti-Tenancy

3rd PartyOwnership


Mostoftheemergingmodelsinthecurrentinfrastructuremanagementworldfollowacombinationofthecharacteristicsshownabove.

Ingeneral,thenewmodelscanbecategorizedasfollows:

◆ Supplier Services–ThisisthesupplysideofthecloudcomputingmarketplaceandconsistsofITandbusinessconsulting,systemsintegration,outsourcing,andotherservicesusedtodevelopandsupportcloudservicesandinfrastructure.Theseservicesincludesoftwarecomponents,suchasapplicationplatforms,informationmanagement,systemmanagement,developmenttoolsandothersoftwareusedtoset-upandoperatecloudservicesandinfrastructure.Theyalsoincludehardwarecomponents,suchasservers,storageandnetworkinghardwareusedtobuildcloudservicesandinfrastructure.Thismarketisoneofthelargestcomponentsoftheeco-systemtodaywithaprojected2012marketsizeof$44B,withaCAGRof23percent.

◆End User Services – Thissegmentcomprisesofend-userservicesbeingprovidedfromcloudcomputing,mostnotablytheInfrastructureServicesandBusinessServices.Theyaredescribedbelow:

◆ Infrastructure Services – InfrastructureservicesincludePaaS(PlatformasaService)andIaaS(InfrastructureasaService).

◆PaaS – PaaSconstitutesofcustomersusingprogramminglanguages,toolsandplatformstodevelopanddeployapplicationsonmulti-tenant,sharedinfrastructurewithabilitytocontroldeployedapplicationsandenvironmentswithouttheneedtomanageorcontroltheunderlyingresources.TheexamplesincludeGoogleAppEngine,RightScale,Joyent.

◆ IaaS – IaaSreferstotheusageofprocessing,storage,networks,othercomputingresourceswithabilitytorapidlyandelasticallyprovisionandcontrolresourcestodeployandrunsoftwareandserviceswithouttheneedtomanageorcontroltheunderlyingresources.TheexamplesincludeAmazonWebServices,RackspaceandAkamaietc.

ThemarketsizeofInfrastructureservicesisprojectedtocross$30Bfor2012,withaCAGRofmorethan45percent.

◆Business Services – ThesecompriseSaaS(SoftwareasaService)andBPaaS(BusinessProcessasaService).

◆ SaaS –SaaSreferstocustomersusingapplications(E.g.,CRM,ERP,E-mail)frommultipleclientdevicesthroughaWebbrowseronmulti-tenantandsharedinfrastructurewithouttheneedtomanageorcontroltheunderlyingresources.ItisdefinedasuseofanInternetbrowsertoaccesssoftwareapplications,eliminatingtheneedtopurchase,install,runandmaintainthe


programsoninternalsystems.TheexamplesincludeGmail,Salesforce.com,NetSuite,Hostanalytics.

◆BPaaS-Customersconsumebusinessoutcomes(E.g.,payrollprocessing,HR)byaccessingbusinessservicesviaWeb-centricinterfacesonmulti-tenantandsharedinfrastructureswithouttheneedtomanageorcontroltheunderlyingresources.TheExamplesincludeCorefinoandADP.

ThemarketsizeofBusinessservicesisprojectedtocross$52Bfor2012,withaCAGRofmorethan25percent.

AnothertermthatisemergingisXaaS(EverythingasaService).Thefollowingdiagrambroadlydefinesitscategories:

Ingeneral,thesemodelspromisesignificantbenefitsfromleveragingtheglobalgrowthofcomputationalandnetworkgrids.Someofthekeyperceivedbenefitsareasfollows:

◆Agility-Cloudplatformsimprovetime-to-applicationdeploymentbyprovidingtheoptionofdevelopinganddeployingnewapplicationsonexistinginfrastructureasquicklyasdesired.Incomparison,traditionalplatformscantakeuptothreeorfourmonthstoprocure,install,andconfigure,manytimesstallingtheapplicationdeploymentprocess.

◆Predictability of Costs-CloudcomputingallowsorganizationstoalignITbudgetswithapplicationdemandbyhostingcustomerandpublic-facingWebapplicationswithcloudproviders.Organizationsjustneedtopayfortheresourcestheyuse,hourbyhour.

XaaS –Everything as a

Service

Provision of application serviceswith added multitenant elasticity asa service

Provision of applicationmiddleware, including applicationsservers, ESB, and BPM (BusniessProcess Management)

Based on application streaming &virtualization technology, providesdesktop standardization, pay-per-use, management, and security.

Provision of networkcommunication, billing, andintelligent features as services toconsumers.

Management of hardware andsoftware required for deliveringvoice over IP, instant messagingvideo conferencing, for both fixedand mobile devices

APaaS –Application Platform as a

Service

AlaaS –Application Infrastructure

as a Service

DaaS –Desktop as a Service

NaaS –Network as a Service

CaaS – Communicationsas a Service

BPaaS – BusinessProcess as a Service

SaaS – Software as aService

PaaS – Platform as aService

laaS – Infrastructure asa Service

Broad term thatembraces aN the

models discussedhere.


◆Managing Demand Variability-Cloudcomputingprovidesamechanismtomanagepeaksindemandfordatacentercapacity,computing,storage,andnetworkresources.Asanexample,organizationscaneasilypushbigbatchjobsintothecloudinsteadofdesigningandbuildingITinfrastructurefortheabsolutepeakdataloads.

◆Lowering CapEx Budgets-Cloudcomputinggivestheabilitytodelivernewapplicationswithouthavingtobuygear,raisingthefirm’scapitalexpenditures.Applicationdevelopmentanddeliverycanallbeperformedandmanagedviaoperatingexpenses.

◆Collaboration & Sharing-Cloudcomputingallowsorganizationsarelativelyinexpensiveandeasilyaccessiblewaytoshareinformationbyhostingdataonpubliccloudsratherthanopeningtheirorganization’sfirewalltomakeitavailabletoexternalparties.

Atthesametime,manyoftheemergingmodelsarebeingtestedintherealworldandasrisksgetidentified,organizationswillhavetoplanrequiredriskmitigationstrategies.Someofthekeyrisksincludethoserelatedtodatasecurityandprivacy,compliancewithlocalandfederal/internationalregulationsandguidelinesaswellasevolvingbusinesscontinuity/disasterrecoveryscenarioswiththenewmodels.

Fromaservicedeliveryperspective,thefollowingdiagramdemonstratesthedeploymentmodelsbeingusedbyorganizations.Itislikelythatmostorganizationswilldeployamixofthesemodels:

DeploymentModel

Private(Internal)

Enterprise ServiceProvider


Shared

Select Multi-Tenant

VPN NetworkPublicInternet

Pay as you go


Shared

Pay as you go

PublicInternet

Multi-Tenant

ServiceProviderEnterprise

EnterpriseTenant

EnterpriseTenant


VPNNeteorkPublicInternet

TraditionalTraditional or pay as you go

Dedicated

Enterprise

ServiceProvider

EnterpriseTenant


Traditional

Dedicated Dedicated

PrivateManaged

PrivateHosted

CommunityHosted

PublicHosted

Private Cloud Hybrid Cloud Public Cloud

Premise

Run / Manage

Infrastructure

Community

Access

Payment


As organizations look to deploy these models, it is recommended that they spendtimeindevelopinganenterpriselevelcloudroadmap.Thefollowingsectionidentifieskeyrecommendedsteps:

kEy StEPS foR CREatIng an EntERPRISE Cloud RoadMaP

◆Define the cloud opportunity, establish direction, assess the application ofcloudtechnologywithintheenterprisecontext,assessthedeploymentoptions,frametheserviceprovidermarket,andplantheroadmapforcloudservices.

◆ Identifyandbuildabusinesscaseonthevaluethatcloudcomputingcandrivetotheenterprise.

◆DocumentandeducatetheITorganizationonhowcloud-basedservicesfitwithinthecontextofexistingtechnologyplansandsourcingstrategies.

◆Evaluateinternalskillsandcapabilitiesaswellasproviderserviceofferingsandcapabilities.

◆Assesstherelativecost,architecture,andskillsimpactedbyapplyingcloudtechnologiestocorebusinessapplications.

◆ Frametheriskandanorganization’sreadinessfortheadoptionofcloudtechnology.

◆UnderstandthemanagementframeworkneededfortheenterprisetomanageCloudServices.

◆ Lastbutnottheleast,discusswithpeersandseekexpertassistanceasyouembarkonthisjourney.

Cliff Justice US Shared Services and Outsourcing Advisory GroupKPMG

Stan LepeakDirector, Research,

Shared Services & Advisory

KPMG

Stan Lepeak is Director of Research for Advisory

Services at KPMG. He specialises in business

process and information technology (IT) services and

outsourcing market trends; outsourcing and shared services execution and

management best practices; and the globalization of

the business services and outsourcing markets. He

was formerly MD and the Leader of EquaTerraís

global research practices (KPMG acquired EquaTerra

in February, 2011) focused on trends, issues and futures

in the global information technology and business

process outsourcing markets.

Leads one of the world's largest and most comprehensive shared services and outsourcing advisory businesses for KPMG LLP. Has 20 years of relevant experience across a wide range of disciplines, including operations, global shared services and global outsourcing. Industry expertise includes: Energy (Oil & Gas), Financial Services, Healthcare & Pharmaceuticals, Manufacturing, Human Resources, Consumer Food and Packaged Goods, Technology, and Utilities. Prior to joining KPMG, was Managing Director of EquaTerra, and led its services globalization advisory practice. Prior to EquaTerra, Cliff was Managing Director of neoIT and specialized in offshoring strategies.


Global Sourcing of Services: Easier Said

Than Done (Well)


KPMG recently released the results of its 2Q11 Sourcing Advisory Pulsesurveys,whichprovideinsightsintotrendsandprojectionsinend-userorganizations’usageofsharedservices,outsourcing,andglobal

third-partybusinessandITservices.Whilethesurveyfindingsrevealmanyinterestingtrends,onekeyfindingwasthatalthoughmanyorganizationsarelookingtomovetoamorematuremodelforservicesdelivery,fewhaverealizedthisgoal.

gloBal SouRCIng: thERE’S a WIll But not alWayS a SkIllEd Way

While the use of near and offshore captive and third party services is nothing new,theKPMGsurveyfoundthatthescopeofthisusagecontinuestoexpand,bothfromtheperspectivesofwhatservicesorganizationsarewillingtotakeoffshoreandalsointermsofthenumberanddiversityofdeliverymodelsandserviceprovidersutilized.


Formostlargerfirms,globalsourcingtodayisamulti-pointprocessacrossmultiplegeographies,utilizingmultipleserviceprovidersandemployingmultipleservicedeliverymodels(e.g.,internallyrunoperations,localsharedservicescentersandoffshorecaptivecenters,onshore,nearshoreandoffshoreoutsourcing).Whilethis“extendedglobalenterprise”modelcanbettersupportorganizations’globalservicesneedsandhelptoimproveoperationalcompetitiveness,itisalsoprovingincreasinglycomplextosuccessfullydesign,deploy,operateandoptimize.

Buyersundertakingglobalsourcingeffortsnaturallyexertmuchfocusonselectingwhichserviceprovidertoemployandfromwhatlocationstosourceservices.Thisassessmentprocessshouldincludeaclearandrealisticassessmentofabuyer’sownmaturityandsophisticationrelativetosourcingandmanagingglobalsourcingefforts.

Acommonrootcauseofproblematicorunderachievingoffshoreoutsourcingeffortsisadisconnectbetweenwhatabuyeristryingtoaccomplishandtheskills,experience,andresourcesitpossessestosupporttheseefforts.Theseskillsinvolveselectingprovidersandlocations,accountingforandmanagingrisk,andgoverningagrowingnumberofsourcingeffortsspreadacrossmultipleprovidersandlocations.Yetoftenitseemsthatmanybuyerorganizations’globalsourcingambitionsoutpacetheircapabilitiestosuccessfullyundertakeandmanagetheseefforts.Ormoresimplytheglobalsourcing“eyes”arebiggerthanthecapabilities’“stomach.”

Inthe2Q11Pulsesurvey,KPMGpolledleadingthirdpartybusinessandITserviceprovidersanditsownsourcingadvisorstoassessbuyermaturityandsophisticationrelativetovariousglobalsourcingskills.Respondentswereaskedtoranktheirperceptionofbuyerskillsonaone-to-fivescale,whereonerepresentsveryimmatureorunsophisticatedandfiverepresentsverymatureorsophisticated(seeFigure1).Resultsshowthatoverallthereisroomforimprovementacrossalloftheseglobalsourcingcapabilitysets.

KPMGadvisorsdidnotscorebuyersabovethemidpointonanyofthefiveskillsetsassessed.Thehighestscoregivenwas2.65forserviceproviderselectionandassessingserviceproviders’globaldeliverycapabilities.Serviceprovidersweremoregenerousintheirperceptionofbuyers’skills,scoringthisattributeat3.32.

Theskillrankednexthighestbyserviceproviderswasservicedeliverygeographiclocationassessment(e.g.,wheretosourcefrom,onshore/offshore,whichcountries),scoredat3.21,whileforadvisorsthesecondrankedskillwasassessingandaccountingfordata,dataprivacyandintellectualpropertyrisk,scoredat2.61.

Therewasconsensusontypicalbuyerchallengesinmanagingandgoverningmultipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.,scoredthelowestbybothserviceprovidersandadvisors.


KPMGadvisorsinthefieldofferedadditionaldetailsonwhysomebuyersstrugglewiththeirglobalsourcingefforts.OneUS-basedpartnerwhoworkswithfirmssourcingback-officebusinessfunctionsgloballymadethefollowingobservation,“Clientsdon’tconsiderthegreatercomplexityofenvironmentsinwhichanoffshorecaptiveorthird-partyprovidersoperate,andthereforedon’taccountforgeopoliticalrisk,economicconditions,etc.”

Addressingandmanagingriskinglobalsourcingwasacommonlycitedweaknessindentifiedinmanybuyers’accounts.Asonesenioradvisornoted,“Clientsaregaininggreaterfamiliaritywithutilizingoffshoreproviders’capabilities,butremainriskaverse.Despitethis,little(oratleastnotenough)attentionisgiventomanagingrisk.Governanceandrelationshipmanagementcapabilitiesareoftenweakcomparedtothescopeoftheglobalsourcingefforts.”

AseniormanagerintheUSwasmoreblunt,orrealistic.“Lookthesefolksarenotidiots,butrarelyaretheyexcellentateachandalloftheseglobalsourcingactivities.”

Figure1–BuyerGlobalSourcingMaturity/Sophistication

1.00 2.00 3.00 4.00 5.00

Serviceproviderselection/assessingSP'sglobaldeliverycapabilities

Managingandgoverningmultipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.

Assessing/accountingfordata,dataprivacyandintellectualpropertyrisk

Assessing/accountingforgeopoliticalandserviceproviderrisk

Servicedeliverygeographiclocationassessment(e.g.,wheretosourcefrom,onshore/offshore,whichcountries,etc.)

1=Veryunskilled/unsophisticated,5=Veryskilled/sophisticated

Advisors ServiceProviders


EvolvIng toWaRdS a gloBal SERvICES PoRtfolIo aPPRoaCh and ModEl

As buyers’ appetites to source more services globally continues to grow, so tooshouldtheircapabilitiestosourceandmanagetheseefforts.Thisisattheheartoftheextendedglobalenterprisemodelandmaturityframework.

Thefirststeptoaddresstheshortcomingsoutlinedaboveistorecognizeanddefineeachchallengeandapplyadequateandskilledresourcestoovercomethem.Thisisamultidisciplinaryeffortthatextendsleadingpracticesrelatedtosourcing,selection,transition,outsourcinggovernance,andmulti-providermanagementtoaccountforadditionalchallengesandnuancesintroducedfromincreasedglobalizationofserviceefforts.Asthescopeandcomplexityofbuyerglobalsourcingeffortscontinuetogrow,thiswillremainanongoingchallenge,withthebarforleadingpracticecontinuallybeingraised.

Onemeanstoimproveglobalsourcingcapabilitiesistotakemoreofaportfolioapproachtomanagingglobalefforts.Thisneedwillcontinuetogrowasglobalsourcingbecomesmorepervasiveandaccountsformoreofanorganization’sglobalservicesfootprint.However,tightlycoordinatingandmanagingsourcingeffortsgloballyisstillagoaltowhichmostorganizationsaspire.

Figure2-Management&GovernanceModelsforExistingGlobalSourcingEfforts

35%

53%

7%5% 15%

58%

9%

18%

Independentlyofothereffortsalreadyinthefield

Bygeography,businessunit,functionalarea,etc.

Byanenterprisesourcingcouncil

ByanenterprisesourcingCenterofExcellence



Inthe2Q11Pulse,58percentofserviceproviderspolledand53percentKPMGfirms’sourcingadvisorsindicatedthatwhentypicalbuyersaremanagingexistingglobalsourcingefforts,theyaregroupedandmanagedandgovernedbygeography,businessunit,functionalarea,etc.(seeFigure2).Thisisthemostcommon,historicalapproach,andisadequatefordealsandeffortsthatdonotoverlapkeyfunctionalareas.

Howevertoday,thisapproachtomanagingmultiplesharedservicesandoutsourcingeffortscanoftencreatefragmented,difficulttomanage,andunderoptimizedfunctionalandprocesssilos.Amoreholistic,functional,andthoroughprocessisoftenrequiredinthesemorecomplexsourcingenvironments.

Fewerthan10percentofserviceprovidersandadvisorsindicatedthatexistingeffortsaremanagedandgovernedbyanenterprisesourcingcouncil,whichcanprovideamoreholistic,coordinated,anddetailedviewofglobalsourcingeffortsandtheirperformanceandcostlevels.

Thestoryisbetterfornewsourcingefforts,with15percentofadvisorsand27percentofserviceprovidersindicatingthatbuyersareattemptingtosourceandmanagetheseeffortsglobally(seeFigure3).

Figure3–Management&GovernanceModelsforNewGlobalSourcingEfforts

18%

55%

27%37%

48%

15%

Independentlyfromothereffortsbeingsourcedoralreadyinthefield


Sourcedandcoordinatedglobally



One common challenge to managing sourcing efforts globally is the fact thattheyareoftensourcedlocallyfromfunctional,budgetary,approvalandexecutionstandpoints.AsaKPMGUKmanagernoted,“Giventhesensitivityofsourcing(andexcludingtheexecutivesponsorship,oftenneweffortsarerunfromprojectteamswhohavebeensplitoffandactindependently,thenoncesourcedandasrequiredthereisaglobaland/orregionalengagementfromoperationalteamsandsubjectmatterexperts.”

Asprocurementgroupsgetmoreactiveinsourcingglobalservices,however,theycanactasaunifyingforce.AsoneKPMGmanagerintheITsourcingpracticecalledout,“Sourcingisstilltypicallybyfunction-usuallypursuedbydifferentorganizationsforIT,F&A,andHR,etc.Thecommonthread,however,isincreasinglythecentralizedprocurementorganization.”

ConCluSIon

Many buyers today still view global sourcing as a series of discrete options andcapabilities(e.g.,internalservices,sharedservices,offshorecaptives,ITO,BPO)ratherthanacontinuumofintegratedservicemodels.Thisissimilartothelegacyperspectiveofviewingoffshoreoutsourcingasapoint-to-pointinitiative(forexample,fromtheUnitedStatestoIndia)insteadofanintegratedsuiteofglobalservicedeliverycapabilities.

TherealitytodayisthatorganizationsshoulddevelopaholisticstrategyandoperationalmodeltosupportthetotalityoftheirbusinessesandITservicesoperations.Thisincludeshowtosourceandmanagethesecapabilitiesaswellashowtocontinuallyimprovetheiroverallefficiencyandeffectiveness.

Whileleadingorganizationshavemadeprogress,forexample,ingoverningtheiroutsourcingeffortsasaportfolioviaaportfoliomodelascitedintheabovePulsesurveyresponses,oftentheseeffortsaredisconnectedfromthemanagementofinternalretainedoperationalsystemsandfunctions,aswellasthestrategyandexecutionofsourcingofnewinvestments.Inshort,buyers’capabilitiestosourceandmanageadiverseservicesdeliveryportfoliohaveoftennotkeptupwiththeirsourcingambition’sscaleandscope.

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An initiative by

For queries, write to us at [email protected]

As Global Consulting Director for Compass, Kathy Rudy oversees client engagements and ensures the quality of Compass deliverables across all geographies and service lines. She has extensive experience in a variety of industry sectors. Kathy has over 17 years of experience in information technology management and operations, project management, and business process analysis. Her areas of expertise include performance management (including Balanced Scorecard, Service Catalogue, and Service Level Agreement development), as well as process maturity assessments, with an emphasis on the ITIL and Cobit frameworks. She also has extensive experience in service level management, service desk and desktop environments, sourcing and offshoring operations, and program and project management.

Kathy Rudy Global Consulting Director

Compass Management Consulting



cOMparative analysis as an OutsOurcing gOvernance MechanisM


Benchmark analyses of outsourcing arrangements are an acceptedmanagementtechniqueappliedtogaugethemarketcompetitivenessandqualityofaprovider’sservices.Inoutsourcedenvironments,benchmarks

havetraditionallybeenappliedaspartofacontractuallymandatedexercisetoassessexistingpricingandservicequalityinthecontextofcomparableindustrystandards.

Traditionally,outsourcingbenchmarkshaveoftenbeenusedstrictlyasanegotiatingtooltodriveshort-termadjustmentsinpricingwithindiscreteservicetowers.Asaresult,they’veoftenbeencharacterizedbycontentiousconfrontationsbetweenclients,serviceproviders,andthird-partyproviders,andhavedeliveredrelativelylimitedvalueintermsofenhancingthesourcingrelationship.

Increasingly,theroleofthebenchmarkinoutsourcingagreementsisevolving,astop-performingclientorganizationsandserviceprovidersusebenchmarksasagovernancemechanismtoidentifyimprovementopportunitiesacrosstheenterprise,assessalternativesandmodelscenarios,anddesignandimplementtransformationalchangeinitiatives.


RolE of BEnChMaRkIng

Broadly speaking, an outsourcing contract benchmark can be defined as an analysisofthecostandqualityofoutsourcedservicesinthecontextofmarketstandards,industrypeers,andgloballeadingpractices.Dependingonthetermsoftheclause,theresultscanbeusedtoadjustprices,orasaninputtofurthernegotiation.Inadditiontofocusingsolelyonassessingservice providerperformance,benchmarkscanbeaneffectivewaytoidentifyoperationalconstraintswithintheclientorganizationthatinhibitoptimalperformanceandpreventserviceprovidersfromleveragingtheircapabilitiesandtools.

Becausebenchmarkinitiativesoftenfindagapbetweenoutsourcedpricesandmarketrates,theyrepresentathreattotheserviceprovider’srevenuestream,therebymakingthem,bydefinition,problematictothevendorcommunity.Moreover,mostclausesonlymandateadjustmentsifpricingistoohigh–ifthevendordeliversservicesbelowmarketrates,theyarenotcompensated.Asaresult,iftheexerciseisfocusedstrictlyonpricing,it’salose/losepropositionfortheoutsourcer.

Anothercomplaintvoicedbyserviceprovidersisthatabenchmark’sfindingsmayprovideaskewedperspectiveofpricing.Manylong-termoutsourcingcontractsarepricedsothattheproviderdiscountsservicesdramaticallyintheinitialyears,andthenrecoversthosecostsatthebackendofthedeal.Whileaproperlyconductedbenchmarkwilladjustforthefinancialengineeringoverthelifeofthecontract,abenchmarkconductedlateinthecontracttermmaynotadequatelyaccountforthevendor’searlierinvestment.

Becauseofthesefactors,serviceprovidershave,overtheyears,employedanumberofstrategiestoavoidorderailbenchmarkinitiatives.Insomecases,theydemandunrealisticallyprecisecomparatorrequirements,orchallengethevalidityorrelevanceofthecomparativedata.Inothers,theyofferupfrontdiscountsinlieuoftheanalysis.Whilesuchactionsareperhapsunderstandableinthecontextofthebusinessissuesatstake,they’veoftenservedtofuelacrimonyduringthenegotiationprocess,ultimatelytothedetrimentofthelong-termrelationshipwiththeirclients.

a tRadItIonal BEnChMaRk SCEnaRIo

The negative characteristics of a “traditional” outsourcing benchmark can includeanexclusivefocusonshort-termadjustmentstopricingwithinindividualservicetowers,andanexclusionofbroaderoperationalconsiderationsoropportunities.Further,thefindingsoftheanalysisserveasanegotiatinghammertodriveconcessionsfromtheprovider.Theonustoreducecostsandfindsavings,moreover,issolelyontheprovider,whiletheroleofthird-partyadvisorsistobea“badcop”whoroughsuptheserviceprovidertoextractpricingconcessions.

Considertheimplicationsofthisapproachinthefollowinghypotheticalsituation:


a benchmark analysis finds the client organization is paying above market rate forstorageservices.Adheringtothetermsoftheclause,theserviceprovideradjustspricestoalignwiththemarket.Facedwithdecliningrevenue,theproviderbringsinless-experiencedandlower-coststaffinanunsuccessfulattempttomaintainmargins.Qualityplummets,whiletheunderlyingproblem–theclient’sinadequatedatamanagementandstoragestrategy–remainsunaddressed.

a ChangIng RolE

As lessons are learned and the sourcing market matures, benchmarking isincreasinglybeingviewedasawaytoaddresslong-termbusinessrequirementsandimprovetherelationshipforallparties.Bybaseliningexistingperformancepriortoanewsourcinginitiative,benchmarkscanidentifyopportunitiesanddefineactionsforbothpartiestodriveimprovement.Benchmarksalsogiveserviceprovidersabetterunderstandingofclientenvironments,enablingmoreeffectivesolutions,moreaccurateproposals,andbetterassuranceofdealprofitability.

Morespecifically,clientsarerecognizingthatshort-termpricingadjustmentsintheirfavorcanbepyrrhicvictoriesthatproveultimatelytobecounter-productive.Clients alsoincreasinglyacknowledgetheirresponsibilitytochangeinternalprocessestoachieveimprovement,ratherthanrelyingsolelyonthevendor.Moreover,theseprocesschangesarefocusedonfindingwaystoallowthevendortoleveragetheircapabilitiesandprocessesandtools.Thischangeinmindsetiscritical,asitopenstheopportunitytoachieveeconomiesofscaleacrossmultipleenvironments–ratherthandeliveringuniqueandcustomservicestoeachcustomer,theoutsourcerisnowinapositiontodrivestandardizationacrossitsportfolioofclients,tothebenefitofall.

Asorganizationsfocusonimplementingvirtualization,cloud,andtransformationalchangeinitiatives,benchmarksarebeingappliedtoidentifyactionsneededtodrivechange,andtoquantifytheimpactofthoseactions.By,forexample,definingthecurrent“asis”statealongwiththefuture“tobe”state,abenchmarkcanshowwhatchangesinarchitecturewillbeneededtosupportacloudsolution,andoutlinetheoptimalapproachtoimplementingthosechanges.

StRatEgIC BEnChMaRk ChaRaCtERIStICS

In contrast to the negative characteristics of the traditional benchmark initiativedescribedearlier,a“strategic”benchmarkcanbeseenasonewheretheresultsoftheanalysisprovideabaselineforlong-termplanningandimprovement,includingtransformationalchange.Ratherthanservingasanegotiating“hammer,”thefindingsfacilitateconstructivedialogueaimedatdrivinganimprovementprocesswherebothpartiesassumeresponsibilityforchange.Ratherthanbeingapointofcontention,referencedataaretransparenttoallparties,andthethird-partyadvisornowbecomesanobjectivebrokerwhoensurestransparencyandmeaningfulanalysis.


Consider too how a strategic benchmark can be applied to the scenario of above-marketpricingforstorageservices:inadditiontohighprices,thebenchmarkanalysisrevealsuniquebusinessrequirements,obsoletedataprocesses,andcostlylegacysystems.Inthiscase,thebenchmarkchartsaroadmaptowardafuturestatealignedwithbusinessneeds,wheretheclientinvestsinreplacinglegacysystemswithstreamlinedstorageplatformandamatureinformationmanagementstrategy.

Tofurtherillustratethepotentialbenefitsofbenchmarking,twocasestudiesofrecentCompassclientengagementsaredescribedbelow.

CaSE Study: MIndIng thE gaP

A global manufacturer executed a contractual benchmark clause and engagedCompasstoassessthemarketcompetitivenessandqualityofITservices,andtodefinehowbothpartiescouldacttoimprovetheclient/vendorrelationship.

Theanalysiswentbeyondasimplecomparisonofexistingcontractpricesagainstprevailingstandards.Rather,theclientsoughtanindependentviewofeachparty’srolesandresponsibilitieswithintheagreement;acomprehensiveassessmentofcosts,resourceutilization,andservicequality;andrecommendationsonhowtoenhancethestrategicvalueofthepartnership.Thescopeoftheanalysiscomprisedtheapplicationandinfrastructureserver,storage,desktop,andservicedeskenvironmentsintheAmericas,Europe,andAsia.Indefiningthecomparativereferencegroups,adjustmentswerecalculatedfordifferencesinorganizationalsize,complexity,serverconfiguration,laborcosts,andcurrencyfluctuationsrelativetotheclient.

Thebenchmarkanalysisrevealedthattheserviceprovider’scontractualpricingwasclosetoathirdbelowmarketstandards.Thisraisedaredflag,asserviceproviderstypicallycompensateforlowpricesandunprofitablecontractsthroughavarietyoftactics,includingaddingchangeorderchargestoanyactivitynotspecifiedintheterms,replacingskilledstaffwithlower-costpersonnel,reducinginitiativetoimproveservicequality,andminimizinginnovationandproactiveuseofmanagementtools.Asaresult,servicequalityoftensuffers,asdoestherelationship.

Inlightoftheseissues,theclientwasurgedtoconsideranumberofstepstosteertherelationshiptowardamoremutuallybeneficialstate.OnewastoimproveassetmanagementtoenhancetheaccuracyofinvoicingaswellastheeffectivenessofSLAs.Anotherwastolinkmetricstoservicedeliveryimprovementinitiatives–by,forinstance,trackingandanalyzingserveroutagestounderstandrootcausesandimpactonusers.AnotherrecommendationwastoenhanceSLAsandimplementanappropriateserverrefreshcycletoboostreliabilityandreducesupportcosts.

Anotherkeychangeinvolvedadjustmentstopricingstructurestolinkcostdriverstovendorrevenue,therebyfacilitatingdemandmanagementtobenefitbothparties.Increaseduseofvirtualizationnowresultsinhardwarecostsavingsfortheclientaswellasincreasedrevenuefortheserviceprovider.


Finally, both parties undertook a series of initiatives to improve operations to reducecostandcomplexity.Theseincludedexpandinglockdownpolicies,simplifyingbillingprocesses,andincreasinguseoftheHelpDeskasawaytoidentifyrootcausesofproblemsandreduceend-usereffort.

CaSE Study: dEfInIng govERnanCE StRuCtuRES

Prior to renewing its IT outsourcing contract, a major global restaurant chainengagedCompasstoanalyzethequalityandpricingofservicesprovided,andtoassesstheserviceprovider’sglobalcapabilities.Whilesatisfiedwiththevendor’soverallperformance,theclientsoughttoidentifygapsandtomoreclearlyarticulatetheirobjectivesandexpectationspriortonegotiatingacontractrenewal.

Servicedeliverywasassessedinamarket-orientedcontext,identifyingaseriesofimprovementopportunitiesrelatedtopricing,governance,andinnovation.Thescopeoftheanalysisincludedmainframe,midrange,andWintelservers,aswellasstorage,network,desktop,andservicedeskenvironmentsintheAmericasandAsiaPacificregions.Inanalyzingservicesmovedoffshore,adjustmentsweremadeforgeographicvariationsinlaborratesandfacilitiescosts.Whileoverall,thepricingoftheagreementwascloseto7percentbelowmarketrate,significantgapswerefoundinindividualservicetowers,withtheclientpayingmorethan60percentabovemarketratesforstorage,andalmost45percentbelowmarketrateformidrangeservers.

Recommendationsfocusedonaddressingtheinconsistencyinpricingidentifiedinsomeservicetowers,andonrestructuringresourceunitstoconnectcostdriversmoredirectlytovendorrevenue.Gapsinserviceexpectationswouldbeaddressedbystreamliningstaffingprocedures,re-assessingescalationandresolutionprocesses,andrenegotiatingSLAs.Finally,tighteningIDchangeSLAsfrom5businessdaysto1to2days,andstandardLANIncidentSLAsfrom8hoursto4hours,wouldalignservicedeliverytoindustrynorms.

Inadditiontodemonstratingtheabilitytoprovidequalityservice,theclientinitiallyselectedtheserviceprovideronthebasisofculturalfit;assuch,theclientexpectedahigherdegreeofresponsivenessandflexibility.Ironically,thisculturalfitcontributedtofrustrationsintherelationship.Toaddressthis,agovernanceassessmentwasinitiatedthatrevealedalackofalignmentinthemanagementstructureoverseeingtherelationship.Specifically,reportingstructureshadseniorexecutivesfromonepartycorrespondingwithlowerlevelpersonnelfromtheotherparty,resultingininefficientandineffectivedecisionmaking.Anotherissuewasthedilutionof“dealknowledge”overtime.And,poorcommunicationregardingtheserviceprovider’scapabilitieslimitedinnovation.

Governancerecommendationsincludedensuringthattheclient’sretainedteambeproperlyalignedwiththebusinessandinvolvedinstrategydiscussions,streamliningresponserequestprocedures,takingamoreproactiveapproachinmanagingpriorityrequests,andimprovingcommunicationprocessesonvendor


capacity.Acapabilitiesassessmentfoundthevendorwaseffectivelydevelopingtheglobalreachandcapabilitiestheclientrequired.

Toenhancethelong-termpartnership,theclientinstitutionalizedcommunicationofITperformancemeasures,andtookstepstobetterdefineitsexpectationsoftheserviceprovider.

Morespecificrecommendationsincludedrefiningrequestprocedurestoensureresponsiveness,implementingtoolstoimproveutilizationreporting,andinstitutingmoreformallyscheduledclient/vendormeetingsthatfeatureaction-orientedoutcomesandpublishedresolutionsteps.

Followingtheanalysis,theclientandserviceproviderformedajointteamtoreviewrecommendations,prioritizeactions,andbuildaframeworkforimplementationandmeasurementofsuccess.

* * *

Astheseexamplesillustrate,abenchmarkanalysisgoesfarbeyondanassessmentofpricing,andthebenefitsandoutcomesofaneffectivebenchmarkinitiativearefarmorevaluablethanshort-termadjustmentstocontractualterms.

Traditionallyviewedasauseful(iflimited)tactictoadjustthepricingofoutsourcedservices,benchmarksareevolvingtoassumeanintegralrolewithinsourcingadvisoryandgovernance.Specifically,businessorganizationsarefindingthataneffectivebenchmarkanalysisprovidesacriticalfactualandquantitativebasisuponwhichtodefine,assess,andvalidatetheirlong-termoperationalstrategiesandchangeplans.


Achieving Innovation in IMS: Eight Strategies to

Consider

ExECutIvE SuMMaRy

In a period of uncertain business cycles influenced by a potential “DoubleDip”globalrecession,corporateprioritieshaverapidlychangedjustwithinthepastfewmonthsastheyexploresmarterwaysofworking,newgrowth

opportunitiesinnewmarkets,andbetterwaystomanagesprawling,capital-intensiveheterogeneousinfrastructures.Providersofinfrastructuremanagementservicesneedtoinnovatetheirofferingstokeepupwiththesenewdemandsoftheirclients-andanumberoftechnologicalandsourcinginnovationscanprovidetheITorganizationwithnewoptionsthatcanbeimplementedtoday.Thisreportfocusesonthetopwaystoinnovateinfrastructuremanagementservices.



EIght StRatEgIES to InnovatE youR InfRaStRuCtuRE ManagEMEnt StRatEgy

Some CIOs shy away from introducing innovation due to a laser-focus on achievingoperationalstabilitywithintheirITenvironment.Thisstrategywillincreasinglyfailtosatisfythebusinessasorganizationswantinfrastructurethatprovidesthemincreasedagilityataloweroperatingcostthatisincreasinglyavailablefromexternalservicesproviders.Innovationisaboutrealizingnewmethodsforachievingbusinessbenefits,andITorganizationsneedtoinvestinnewsourcingoptionsthatwillprovidethisimpacttotheirusers.Basedonexhaustiveresearchwithmanyorganizationsandserviceproviders,HfSResearchhasidentifiedtheeightwaystoinnovateinfrastructuremanagementservices:

1.Design outsourcing contracts that promote change and innovation.Letsfaceit,ifyouneedtochangeandneedtodotoitquickly,externalproviderscancutthroughorganizationalobstacles(e.g.,politics,lackofskillsandcompanyculture).However,if you outsource what you have and ask the provider to do it exactly as you do it today, then you are not going to innovate. On the other hand, if you give the outsourcer license to introduce innovations (best practices, continuous services improvements and radical innovations),

What IS InnovatIon?

Innovation within the context of delivering outsourcing services takes a variety offormsincludingtransformation,bestpractices,continuousprocessimprovement,newtechnologies,businessbenefits,effectivepoliciesandachievementofthebuyer’sdesiredfuturestate.But...whatisitreally?HfSbucketsinnovationinthreeareas:

1.Best Practice Implementation.Referstoproviders(eitherinternalorexternal)bringingwhattheyhavelearnedfromdoingsimilarbusiness“outside”,judgingwhetheritisthebestwaytodoit,andimplementingitonbehalfoftheirclients.Riskismoderate,butfailurecanbeexpensive.Thereturncanrangefrommoderatetosignificant,dependingonthestartingpoint.

2.Continuous Improvement.Referstoprovidersimplementingminormodificationstoexistingprocessestomakethemperformbetter,withoutregardforwhatisdone“outside”Riskisminimalandfailureischeap.Returnsaregenerallysmall,butcanaddupovertime.

3.Real Innovation.Referstotryingthingsthathaveneverbeendonebeforeinsideoroutside.Involveshighestlevelofrisk-takingandthepotentialforfailureissignificant.Returnscanbeverysubstantialiftheinnovationsucceeds.


service providers can be a source of rapid innovation. Organizations impacted by radical, fundamental shifts to their industry economics, are more prepared than ever to admit they need to look outside of their current organization boundaries to keep their business operations cost-competitive. In addition, buyers need to be careful when setting up the relationship at the onset—it is counterproductive to talk about constant change and frequent innovation and then design a contract that effectively locks both sides into an intransigent environment. Withnewgrowthcomingfromoutsideoftraditionalmarketsorganizationsneedtoreinventtheirinfrastructurestrategiesorfaceaninabilitytoexecuteagainstbusinessneeds.

2.Head to the Cloud for cost, speed and scale.CloudComputingisrefashioningthecost,quality,speedandflexibilitybywhichbusinessescanaccess—andsupplierscandeliver—servicestosupportbusinessneeds.Companiescontinuetosufferfromsignificantinternalresourceandbudgetconstraintswith,onaverage,70to80percentoftheITbudgetstillspentonIToperationsandmaintenance,leavinginsufficientresourcesfornewprojects.Organizationsarebeginningtoleveragepublicclouddatacentersandprivatecloudalternativestoproviderapidscalinginresponsetobusinessneedswherededicatedinfrastructureprovestoocostlyandprovisioningflatlytakestoolong.Cloud-basedinfrastructure--availablefromAmazon’s AWS,Rackspace, Savvis (CenturyLink), and Navisite, for instance--allows for

Exhibit 1. Threat of “Double Dip” moves more IT infrastructure to the Cloud

Q.In your opinion, how will a "Double Dip" Recession impact your organization's impetus to pursue the following PRODUCTIVITY measure over the next six months?

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

Re-engineer existing

businessprocesses


businessprocesses

9% 11% 16% 10%17% 17% Don’t know

Major decrease

Major increase

Minor increase

Minor decrease

No change

1%1%

1%1%9%

7%14%

33%

37%

11%

38%

32% 20%

22%

29% 24%

11%12%13%

46%32% 46%

51%

24%Bu

y-si

de

Org

an

iza

tion

s

Move business support funtions

into sharedservices(Finance,

Procurement, HR and other ops)

Move ITinfrastructureinto the Cloud

Move ITsupport

functionsinto shared

services

Invest inAnalytics

capabilities

Subscribe toCloud Business

Servicesplatforms (i.e.PaaS, SaaS)


therapidprovisioningofinfrastructureandprovideshardwareelasticityinanon-demandmanner.AsCloud-basedservicesmature,ITorganizationscanreducetheirrelianceonon-premisessoftware,hardwareandinternaladministration.OurSeptember2011researchshowsthatwhile38percentoforganizationswillnotchangetheirstrategyrelatedtouseofCloud-basedinfrastructurebroughtaboutbytheprospectsof“DoubleDip”recession,45percentoforganizationswillmoveinfrastructuretotheCloud(seeExhibit1).ToITexecutivesandCIOs,theCloudisatechnologyandbusinessenabler.Iftheycanmasterthesenewinnovationseffectively,thentheycanreducethecostsofprovisioningtechnologyandthetimetodeliverprojectstobusinessunitswhileplanningfornewerandmoreinnovativesolutionsforbusinessunitstodeploy.

3.Seek better IT automation – Time to “Tool Up”.Inlargeinfrastructures,CIOshavetocontendwithtoolsthatmaynotbewellintegrated,multipledatabasesthatstoreinformationandweakreporting/analyticsthatrequireheavycustomanalysisjusttofigurewhatisgoingon.ManyITprocessesarefragileastheydependtooheavilyonpeople.Withtherelativelyhighadoptionofservicedelivery/managementprocessessuchasITILCIOshavetheopportunitytoautomateservicesmanagementprocessestherebyreducedependencyonmanualbasedprocesses.ITorganizationsmust“toolup”toimproveproductivityandtransparency.SavvyCIOsaredevelopingthemselvesintoCloud-enablersbyhoningtheirsourcingandserviceintegrationskills–andbetterautomationisrequired.AwholenewcadreofsoftwarevendorsthatenabledeploymentofCloudinfrastructureisgainingcertainlyVCtractioninthemarket.CompaniessuchasEucalyptus,Abiquo,CloudKick (Rackspace),Sensible Cloud, Enomaly, Enstratus,Rightscale,Cloud.com (Citrix), Platform Computing, ServiceNow,HP Software,BMC,Dell, IBM, and Microsoft are all gettingintotheacttryingtoacceleratetheimplementationofaninfrastructure-as-a-service(IaaS)cloudinacustomer’sdatacenterandwherepossibleintegrationwithPublicCloudsuchasAmazon’sEC2.ProcessmanagementandorchestrationbecomemoreimportantasthebusinessrequiresfasterprovisioningofITrequests.Automateddiscovery,mappingofapplicationandservicedependenciesandorchestrationofinfrastructurecomponentsandtaskshasbecomea“musthave”forIT/businessandcloudservicemanagementorganizationsasthebusinessdemandsincreasedautomationofcommonlyrequestedservices.

4.Scrap installed legacy software in favor of SaaS based IT management.SaaS-basedITmanagementisoneoffastestgrowthsegmentsinenterpriseITasadvancementsintechnology.SaaSpromisescustomersreducedcoststoupgrade,configure,manageovertime–andinmanycaseseaseofuse.Asorganizationssubscribetothesoftware–theycanusewhattheyneedratherthanbuyingitallupfront.Withnosoftwaretoimplementorupgraderapidvaluecanbedeliveredwithoutanarmyofdevelopersandconsultants.CompaniessuchaasFacebook,DeutscheBank,IntelandUBS,havedeployedSaaSbasedITmanagementsuitestomanagetheITworkflowandautomation


policieswithintheirorganization,inmanycasesrippingouton-premisealternativesavailablefromthetraditionalBIG4managementvendors(BMC,CA,IBMandHP).Pressurefromcloudcomputing,economicrecessionandbudgetconstraintsisthreateningtheirpositions.DrivenbythesuccessofsoftwarecompaniessuchasBeetil and ServiceNow, on-premises vendors havepiledintothemarketwithofferingssuchasCA Service Manager on Demand,HPSoftware-as-a-Service, RemedyForce, Remedy OnDemand, and TivoliLive,

5. Increase your home-based workforce to significantly reduce infrastructure requirements. Higherlevelsofunemployment,improvedcollaborationtechnology,someofwhichisfree(skype,OovoO,Gmail),andtheabilitytohavehomeworkersusetheirowninfrastructureisallowingorganizationstotapintoabroaderpooloftalentandtodosocheaply.TheremovalofthebricksandmortaranduseofCloud-basedapplicationsforcollaborationisenablingthehomeworkingenvironmentonaseriousscale.Employingacontentflexibleworkforcedrivesemployeeretentionratesup,lowersthecostsofmanagingtalentandforsometypesofwork(particularlynonscriptedvoiceBPO),andimprovescustomersatisfactionwhencomparedtooffshorealternativesOtherareas,suchasmedicalcoding,alreadyrelyheavilyonhome-basedstafftoworkonadministrativetaskswithcontextualneeds.Indeed, wellover100,000home-basedcallcenterjobshavebeencreatedintheUSinthelastthreeyearsbycompaniesleveragingservicesavailablefromAlpine Access,Working Solutions,LiveOps,AriseandWestathome.

6.Embrace Social Media for infrastructure support and services.SocialmediaisnowbeingusedbyITservicesmanagementteamstohelpimprovecommunicationbetweenITandusers.SocialmediaallowsendusersimprovedtransparencytowhatishappeninginITthroughconsuminginformationfromsimpletechnologiesthattheyuseineverydaylife(e.g.,twitter,chat,forums,wikis).Itisaboutgettingtherightinformationpersonalizedtoauserandfasterthanthroughalternativechannels.Knowledge,servicecatalog,andrequestmanagementareprimecandidatesforsocialmediainfusion.Knowledgemanagement,traditionallyastaticdisciplinethatovertimebecamelessusefulasinformationwasnotupdatedorwasonlyavailablefromcumbersomeusermanualsorisolateddatabaseshasbeeninvigoratedwiththeimplementationofcrowdsourcedwikisandchatforums.Itemswithinaservicescatalogcanbeadvertisedthroughtweetstousersallowingorganizationstoencouragemoreself-service.ITandapplicationownerscannowsubscribetolistse.g.,forInstantaneousalertsandupdatescanbedistributedinafamiliarnotificationformattomobiledevicesensuringthatinterestedpartieshavethemostup-to-dateinformationonthestateofIT.Indeed,someITservicesdesksnowhaveintegrationsocialmediaincidents“twickets”,aplayonamoretraditionalhelpdesk“ticket”.

7.Consider outsourcing the supporting infrastructure with the application. Ratherthanoptimisinginfrastructureasahermeticsilo, outsourcing thesupportingITinfrastructurewithanapplicationdrivesaccountabilitytoone


provider and therefore reduces finger pointing between multiple parties. AproviderthatbundlesbothITandapplicationmanagementsupportmaybemorecapableofaligningservicestothebusiness,improvingservicequalityandincidentclosuretimeasitunderstandandisresponsibleformanagingallthedependenciesfrominfrastructuretoapplications.Further,providersthatmanageallaspectsoftheITstackmaybemoremotivatedtomakeproactiveinvestmentsinITinfrastructuretoensurethattheapplicationisperformingaccordingtoservicelevelcommitments.

8.Review your procurement strategies and rationalize requirements.Whileforsomeexecutivesthismayseemlikemotherandapplepieadvice,HfSstillseesmanyITorganizationsasbloatedastheyover-spectheirenvironmentandover-provisiontheiremployees.Ifpeoplegotinnovativeandthoughtfulwiththeirpurchases,theycouldreallysaveaslewofwastedmoney.Forexample,manyemployeeswalkaroundwithexpensivelaptopswithenormousfunctionalitythatisoverkillfortheirjob,fashionableTumilaptopbackpacks,installedSAS@$5k/license,andhaveaCOLORfaxmachine,twocolorprinters,ablackandwhiteprinter,andaMFD/copiertosharewiththeiradmin(whowontsharewiththeirownteam).Iforganizationsweretoprocureinfrastructureservicesinafarmorelogicalmannerthroughrationalizingrequirementssignificantsavingswouldbecreated.Takeadvantageofany“DoubleDip”recessionfornewimpetusincostcuttingandproductivityefforts.

thE fInal WoRd: BE aggRESSIvE aBout gEttIng youRInnovatIon PlanS In MotIon

While some organizations are dissatisfied with the amount of innovation theyreceivefromserviceproviders,thetruthismostorganizationsfailtoprovideresourcestocaterfordevelopinganinnovationstrategy.Investmentindevelopingideasandimplementingsolutionsisnotfree,whethersourcedinternallyorthroughaservicesprovider.Organizationsneedtocreatetheconditionsforinnovationtotakeplace.Doyouhaveacultureandrewardschemeforindividuals/servicesproviderstotakerisksandfail,anddopeoplehaveasenseofpurposeatworkthatpromotesnewthinking?ITneedstoinvestinresearchingnewopportunitiesinordertodevelopanunderstandingofhownewinnovationscanbeimplementedforbusinessbenefit.IThastoselltheadvantagestogroupswhodon’tnecessarilyunderstandhowinvestmentsininfrastructurecanmakeanimpactontheirbusiness.OrganizationsthatwanttomovequicklytodeploynewinfrastructuresourcingalternativesinanystrategicmannermayneedsupportandadvicetohelpthemwithbothinternalITandprocesstransformation.OrganizationsneednotreinventthewheelandmayfindvalueinworkingwithpartnersthroughthisnextjourneyofITdelivery.Herearesomesimplestepsforbuyerstofollowtogetaninnovationplaninmotion:

◆Create an aggressive innovation agenda and a plan to keep that agenda fresh over time.Buyersneedtostipulatetheneedtoexplorenewandcreativewaystoimproveproductivityandtop-linegrowthasacoreelementoftheir


IMSendeavor,andcommunicatethisaggressively,onarepeatedbasis,totheirITorganization.

◆Communicate this innovation agenda to both governance and provider teams.Virtuallyallbuyersbeginningtoachievesomeinnovationsuccesswiththeirengagementwillsaythesamething:“Werecognizedwhatweneededtodointernally,andcommunicatedaggressivelywithourprovidertostartdeliveringitwithus”.Untilbuyersdirectlydealwiththeprobleminternallyandcommunicatetotheirpartnersthenewdirectiontheyaretaking,theywillstruggletoachieveanyrealpositiveresults.

◆Create an innovative contract with their provider.Buyersneedtoprovidefinancialincentivestotheirprovidersinordertogaintheirassistanceinachievinggainsinbothproductivityandgrowth.Providerswillstepuptotheplatewiththerightapproach,iftheyhavethefinancialincentivetodoso.

◆ Stop playing providers off in a low-cost bake-off. Ifabuyersimplysqueezesthelifeoutofitsproviderwithacostbake-off,itisunlikelytogetmuchinreturnbeyondoperationaldeliverytomeetthecontractedservicelevels.Someoftoday’sexternalservicesprovidersareinsertinggain-sharingelementsintotheirdealsinordertobeatoffprice-droppingcompetitors,becausetheyaredesperatetowinthedeal.Thebetterprovidersnowhavetheadvantageofknowingwheretheycanofferinnovationincentivestogaingroundintoughpursuits.Inanycase,asmostprovidersarenowoperatingwithinasimilarpriceband,thefocusneedstomoveawayfromsimplypriceandontowhichprovidersarebetterpreparedtodriveinnovativeresults,ofcoursewiththerightfinancialincentives.

◆ If your service provider fails to step up to the plate, seek alternative expertise.Smartbuyersquicklyrealizethattheinitialonustodriveaninnovationagendaliesontheirowndoorstep.Itisuptothemtodriveexpectationsandrequirementsontotheirserviceprovidertofosteracollaborativepartnershipwherebothpartiescanworktowardscommonbusinessoutcomesforthebuyer.However,itmanycases,thebuyerisdiscoveringoverthecourseofitsfirstcontract,thattheirprovideriseitherunable,orunwilling,tocommittheresourcesortalentneededtosupportitsclient’sinnovationroadmap.Ifthisisthecasethenitistimetobringadditionalexpertiseintothedeliverymix.Thiscanbedonetoforcemorecommitmentsduringacontractre-negotiation,or,alternatively,cansimplyforgepartofastrategywherethedisappointingproviderperformsmoreofanoperationalrole,andanotherproviderorconsultingfirmcanperformmoreoftheinnovationservices.

Stanton Jones, Vice President and Chief Information Officer (CIO) at TPI, is

responsible for TPI’s corporate technology

strategy as well as all of the company’s information technology (IT) operations

globally. As an active member of TPI’s Cloud

Computing Solutions Business Unit, Stanton

helps clients develop and implement their cloud sourcing strategies. In

previous positions, Stanton designed, developed and

supported some of the CRM industry’s largest and

most-advanced databases for clients across multiple

industry verticals. He also held roles in rapid

application development, account management, and

data center operations.

Scott Feuless is a Principal Consultant with Compass Management Consulting. He benefits from substantial senior management experience, with a strong background in leading technology and sourcing strategy and pricing in a variety of industry sectors. Scott’s areas of expertise include infrastructure performance; specifically mainframe, midrange, desktop, and networking environments. In the sourcing space, he works with client organizations on strategy definition, RFP development, negotiation assistance, and virtualization and cloud initiatives.

Scott Feuless Principal ConsultantCompass Management Consulting

Stanton Jones CIO & Vice President

TPI


Pricing the Cloudaccurate Measures and relevant cOMparisOns

are essential

Akey characteristic of cloud computing is the potential ability to price, deliver,andconsumeITresourcesinaflexible,usage-basedmanner.Ratherthanpayingforinfrastructure,customerspayonlyforneededcomputingpower.

Usemore,paymore.Useless,payless.

Theimplicationsofthisshiftarenothingshortoftransformational.Consumption-basedpricingenablestransparencyandencouragesdemandmanagement:ifthebusinessunderstandsthecostimplicationsofthewayITisused,betterchoiceswillpresumablyfollow.Inaddition,usage-basedpricingtheoreticallyeliminatesthecostofinsufficientoridlecapacity,sinceresourcesareallocatedonlyasneeded.

Theproblemis,we’renotquitethereyet.Accurateandconsistentpricingmodelsforcloudservicesremainelusive,andsignificantorganizationalobstaclesmustbeovercometoleveragethepotentialofflexiblepricing.Customersexploringcloudinitiativesneedtounderstandmarketdynamicsaswellasthechallengesinvolvedincomparingvariousofferingsandassessingthetruetotalcostofacloudsolution.



PRICIng ModElS

Today’smarketplaceischaracterizedbymyriadpricingmodelswithawiderangeofdifferentstructures.

Thediversityisbasedlargelyonwhetherthecloudofferingispublic,private,orahybrid.ProviderAmaychargebyprocessorsreserved,whileProviderBchargesbytheCPUhour.

Examplesofnewtotalcostofownership(TCO)calculatorsarecitedbelow:◆CloudSizer.com(IDEASInternational)◆MicrosoftAzurePricingCalculator◆Gogrid.com◆AmazonElasticComputeCloud(AmazonEC2)

MicrosoftrecentlyreleaseditsWindowsAzurePricingCalculator,addingtothegrowinglistofsimple,web-basedpricingcalculatorsforcloudplatforms.AmazonWebServices,apubliccloudpioneer,hashadapricingcalculatorinplacesince2009.Ofcourse,intruecloudfashion,it’sstillinbeta.Cloudhostingprovidershavealsoembracedthe“transparency”trend,withRackspace,GoGridandNavisitealldisplayingpublicpricingontheirwebsites.Somehavehadthislevelofcostvisibilityinplaceforyears;othersarejustnowgoingpublicwiththeircloudpricing.

Thesepricingtoolsareprovidingunprecedentedvisibilityintospecificcomponentsofpricingandthecostrequiredtorunkeypartsoftheinfrastructureandapplicationsinthecloud.

Thatsaid,theabilitytogaugeutilizationaccuratelyenoughtobillforitinatrueutilitymannerremainsachallenge.MostinternalandexternalITgroupsdon’thavethemonitoringtoolstoaccuratelymeasureandlogCPUminutes.

Moreover,aCPUminuteononemachinecanrepresentmoreorlessprocessingpowerthanaCPUminuteonanothermachine,soensuringanapples-to-applescomparisonofdifferentserviceofferingsisproblematic.

It’salsoimportanttonotethatthesecalculatorsonlyprovidecertaincomponentsofthepricinganddon’trepresenttherealtotalcosttooperateinthecloud.

alloCatIon

Somecurrentcloudmodelsuseallocation,suchasaserver“instance”oracompute“slice,”asthebasisforpricing.Here,theresourcethatacustomerisbilledforhastobeallocatedfirst,thusallowingforpredictabilityandpre-approvaloftheexpenditure.However,theterm“instance”canbedefinedindifferentways.Iftheinstanceissimplyachunkofprocessingtimeonaserverequalto750hours,thatequatestoafullmonth.Ifthe“size”oftheinstanceislinkedtoaspecifichardwareconfiguration,


the billing appears to be based on hours of processing,but in fact reflects access to aspecificserverconfigurationforamonth.Assuch,thepricingstructuredoesn’tdiffersignificantlyfromtraditionalserverhosting.

Terminologyisalsoanissue.Sincenoclearstandardsexistonhowcloudservicesaredefined,thesamesetofwordsonecloudvendorusestodescribeatrulyinnovative,cloud-baseddeliveryapproachcanbeusedbyanothervendortohypeatraditionaldeliverymechanism.Inotherwords,customersneedtoask:Arewetrulyleveragingthepotentialbenefitsofcloudcomputing?Orarewesimplygettingtraditionalserviceswithacloudlabelattached?

Despitetheseissues,cloudservicescananddoofferincreasedflexibilityandamorestreamlinedprocessforgrowingITinfrastructure,astheprovisioningofnewserverscanoftenbedoneinamatterofhoursordays,insteadofweeksormonths,eveniftheservicesarebilledviaanallocationmodel.Inaddition,themovetowardcloudserviceshasthepracticalimpactofdrivingstandardizationacrossmultiplecustomerenvironmentsandmakingservicesmoreutility-like.Thisallowsvendorstoleveragegreatereconomiesofscaleanddeliversignificantsavingstocustomers.

Cloud tCo

In today’s buyer beware cloud environment, customers need to understand thedetailsofeachpricingschemeinacomparativecontext,alongwiththetermsoftheagreement,todetermineexactlywhatthey’regetting(ornot)fortheirinvestment.Otherwise,thecostofthecloudsolutionrisksbecominginadditionto,ratherthaninsteadof,theexistingenvironment.

Theprocessisanalogoustobuyingacaronline.Thebasepricelooksextremelyattractive,butwhenalltheoptions,tax,title,license,maintenanceandfuelconsumptionareaddedtothebaseprice,thecostmaybeasmuchas50percentmore.Similarly,whenpricingatrueenterprisecloudsolution,thetotalcostsinvolvedhavetobeconsidered.Theseincludetrainingstaffonre-engineeringapplicationsforthecloud,re-workingtheauthenticationframework,integrationwithlegacyapplicationsandbuildinginbusinesscontinuityanddisasterrecoverysolutions.

Thecloudpricingcalculatorsdescribedearlierdon’tadequatelyaccountfortheseincrementalcosts.ExamplesofcostsfrequentlynotcalculatedinCloudsolutionsinclude:

◆ InternalLevel1servicedeskandtechnicalresourcestointerfacewiththeprovider’sLevel2desk

◆MigrationcoststotheCloud◆Additionalnetworkbandwidth(datatransferratesinandout)◆ Remainingbookvalueofstrandedassetsandsoftware◆ Remainingamortizationofapplications


◆Additional staff to manage new contracts◆Costoffulfillingminimumvolumecommitmentsincurrentcontracts

A decision to process and store data in the cloud does not eliminate othercostsinherentintheITenvironment.Whilecloudcalculatorsprovidedetailandtransparencyintothebaseservicesprice,that’snotenough.CIOsneedtounderstandthetruetotalcostofownershipofacloudsolution–includingthecosttotransitiontoandtorunoperationsinthecloud.

It’salsoimperativetoaccuratelyassessandevaluatecloudoptionsandbenefitsinanapples-to-applescontext.

Keyquestionsinclude:Whichpricingmodelisappropriate?HowdoesofferingAtrulycomparetoofferingB?HowwillchoicessupportorunderminetheoverallITandbusinessstrategy.

lookIng ahEad

Organizations that will drive usage-based pricing to further maturity will be thosethatarewillingtogiveuppredictabilityforoverallsavings,andarewillingtoworkwithcloudprovidersthatarehungryformarketshare.Suchpioneers–Amazon,forexample–havebusinesseswithrevenue-generatingapplicationsthatneedtoscalerapidly.Forthem,scalabilitytrumpspredictability,andgrowingrevenuescancoverhighercosts.

Inthemeantime,forcustomerswhoareskittishaboutunanticipatedspikesinexpenditures,serviceprovidersareofferingpricingmodelsthatsetoffalertswhenacertainlevelofconsumptionislikelytobereached.

Theutilitymodelwillbemostattractiveforrevenue-generatingapplicationsthatneedtoscalequickly,developmentenvironmentsthatneedtoscaleupanddown,andcompute-intensiveapplicationsthatcanrunprocessesinparallelacrossmultiplemachines(today’sgridapplications).Formorecommontypesofproductionprocessing,mechanismsthatallowclientstoretaineffectivecontroloverincreasesindemandwillbeneeded.

Fromtheserviceproviderperspective,trueusage-basedpricingwillbedrivenbyvendorsaggressivelyseekingmarketshare.Theseplayerswillpushforincreasedflexibilitycoupledwithdecreasingminimalcommitments.Vendorsdefendingmarketshare,meanwhile,willbepulledreluctantlydownthispath.

Vox Artis- A Powerful Proposition for Service ProvidersAs a marketing professional, I am using this space to introduce a new product and to point out opportunities for service providers to enhance their marketing prowess. In other words, this is a shameless pitch, but a useful one at that.

Global Services is pleased to introduce a unique program called 'Vox Artis' – a Latin phrase that literally means 'voice of the expert'. The intention is to create a global sourcing knowledge repository that would help sourcing practitioners make actionable decisions.

Vox Artis is available complimentary to all readers of Global Services.

In terms of the nature of content, Vox Artis would feature cutting-edge essays, thought-provoking research, focused conferences, and timely webinars, videos, and podcasts. Therefore, Vox Artis would be produced in multiple media formats.

The overarching goal is to create a community of experts called as the Vox Artis family, an eclectic group of impactful and influential thought leaders in global sourcing. The contributors to Vox Artis comprises sourcing advisors, industry analysts, consultants, functional leaders, heads of shared services, process analysts, program leaders, and senior sourcing executives-except executives from the service provider community. Why so?

While we enormously respect the knowledge base within the service provider community, we are obsessed with giving our readers unalloyed advice and content coming from sources that are not aligned to any specific vendor. If we open out Vox Artis to all in the service provider community, then we fear that it would become a battleground of marketing messages.

Therefore, Vox Artis is available to service providers on a qualified basis. While 'qualified' may suggest that it needs to pass through the editorial filter, it does not mean that opportunities are exclusive to chosen few.This process is only intended to enhance the differentiation.

Having said that, Vox Artis is going to a be a great tool for service providers to reach out to the creme de la creme of enterprise services buyers. Vox Artis is guaranteed to squarely address the four pillars of services marketing: thought leadership, branding, influential marketing, lead generation.

I look forward to your feedback, comments, views and anything that you think matters.

Satish Gupta Head of Marketing Global Services [email protected]

INAUGURAL ISSUE NOVEMBER 2011





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Inside the Expert’s Mind

Welcome to the first edition of this series called as Vox Artis.

Vox Artis, a Latin phrase, translates to ‘the voice of the expert’. In all the older civilizations, men of knowledge were highly respected. They spread their knowledge through the oral tradition; they spoke with individuals and to the crowds to spread their ideas.

‘Thought leaders’ as we call them now, still hold a lot of influence for the conceptual insights, analytical perspectives, practical ideas, and futuristic possibilities, they enlighten the world with. At Global Services, Vox Artis is a channel for experts in global sourcing of services to present their views. It is a program delivered in multiple media formats- online/ Web, digital, print, webinars, conferences, and more. It is intended to provide a 360-degree view on specific topics.

In this first issue of Vox Artis, we present six cutting-edge articles from accomplished sourcing advisory companies like Alsbridge, Compass/ TPI, Avasant, Horses for Sources, and KPMG. Management of IT infrastructure is one of the oldest areas in IT services, yet it has witnessed many changes even in the past decade. Newer models of engagement and delivery have led to specialization in the market and changes in the vendor landscape. The increasing adoption of cloud computing is also a key dynamic shaping this market. The collection of articles here present a multi-sided view on how things are and what the possibilities are in the area of infrastructure management services.

Feedback on this issue is highly appreciated. Our next topic, scheduled for release at the end of the month, is on ‘Building and Sustaining Excellence in Global Services’. This happens to be the theme for Global Services Conference 2012 in March 2012 at NYC. In that sense, the next Vox Artis is a compilation of ideas, many of them by speakers themselves, ahead of the conference. Do let us know if you would like to participate.

Ed Nair EditorGlobal Services

Ed

itor

’s N

ote

RIM Comes of Age

8Ben TrowbridgeAlsbridge

Emerging Models in Infrastructure Management

14Amit SinghAvasant

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

22Cliff JusticeStan LepeakKPMG


30Kathy RudyCompass Management Consulting

Achieving Innovation in IMS: Eight Strategies to Consider

38Robert McNeillHorses for Sources

Pricing the Cloud

46Scott FeulessStanton JonesCompass Management Consulting,TPI

TABLE OF CONTENTS

Ben Trowbridge is founder and CEO of Alsbridge, an award-winning sourcing advisory and benchmarking firm changing the way companies buy and manage hardware, software, IT infrastructure services, application services, business processes and cloud computing. As CEO of Alsbridge, one of the Inc 500's fastest growing companies in America in 2010, Ben has revolutionized the way companies source technology and business processes. Ben is renowned for his forward thinking and collaborative approaches to deal structuring and sourcing techniques that have redefined the solution development, contract negotiation and implementation process.

Ben Trowbridge CEO

Alsbridge


RIM Comes of AgeOutsOurcing infrastructure ManageMent: it’s tiMe

The information technology infrastructure outsourcing market continuestoevolve.Asfirmsscourthelandscapeforwaystofocusontheircorecompetenciesandmaintaintheircompetitiveedge,moreandmoreemphasis

isbeingplacedonwringingcostsoutandaddingvaluetotheITspend.Althoughsometimesexaggerated,thepotentialsavingsthroughtheoutsourcingofITinfrastructuremayrangeashighas20to30percent.OneofthemostsignificantvaluedriversinIToutsourcingisRemoteInfrastructureManagement(RIM)-theoff-premise,oftenoff-continent,managementofITinfrastructure.

RIMcanincludebehindthescenesactivitiessuchashardwaresupportandmanagement,oritcanincludemanaginguser-facingservicessuchasnetworkmanagementordesktopsupport.TherangeofITfunctionsforRIMincludes:

◆DataNetworks(WAN/LAN)◆Desktops/laptopsandrelatedperipherals◆E-mailsystems◆Mainframeplatforms◆ Servers◆ Storageplatforms◆Usersupport◆VoiceNetworks



Generally, RIM can be undertaken as a partial service, only permitting the providertomanageormonitoraportionoftheITfunctions.Thisprovidesanopportunityfortheclienttotesttheexperience.OncetheclientissatisfiedwiththeirlimitedRIMexperience,theycancontemplatemovingupthesourcingmodeltofullserviceremoteinfrastructuremanagement.

FullserviceRIMinvolvestheclientretainingtheirITassetsbuthandingoverthemanagementoftheirITinfrastructuretoaproviderorproviders.TheconfigurationoftheRIMscenariodependsontheclient’sspecificbusinessdrivers,internalcapabilities,andstrategicITdirection.

RIM EvolutIon and MatuRIty

With the continued advancement of telecommunications and wide area networkinfrastructureinbothNorthAmericaandEuropeoverthelast15years,domesticdeliveryofRIMhasbeenacommonoperationalmodelinmostFortune1000companies.Typically,domesticremoteinfrastructuremanagementisperformedina“lightsoutdatacenter”environment.Itislightsoutinthesensethatthereislimitedornoon-sitepersonnelstaffingthedatacenterandliterallythedatacenteroperatesatmosttimeswiththelightout.Remoteoperationsstaffbothmonitorandmanagetheinfrastructurefromadifferentbuildingorevenadifferentcityandstate.Theremotefunctionalityallowstheoperationalactivitytobeperformedinaseparatelocationfromtheclientordatacenter,oftenusinghighlyleveragedorpooledresourcestomonitorseveralinternalorexternalsites.

ITorganizationsaredeployingandmanaginginfrastructureservicesincompliancewiththestandardsoftheInformationTechnologyInfrastructureLibrary(ITIL)andotherqualitymetrics.QualityimprovementsandprocessstandardsareacceptedasvitalRIMoperationalpractices.Processmaturityhasfacilitatedtheeffectivedeploymentofanoffshoredeliverymodel.Workproductsareclearlydefinedandcanbeassignedtotraintheteamsoffshore.

TherapidevolutionintechnologiesandITarchitectures,theeconomicimpactanddrivetoreducecosts,andthematurityoftheoffshoremarketispositioningRIMservicesasthenextwaveofopportunityforoutsourcersofalltypes.

StatE of thE RIM MaRkEt and InduStRy

The prospect of reaping the cost saving, productivity gains, and business modelflexibilityderivedthroughtakingadvantageofoffshoreIToutsourcingcertainlyisafactorintheglobalizationofoutsourcing.TheITindustryismovingtowardaremotedeliverymodelinwhichservicesareincreasinglydeliveredbyvendorswithoperationsinlow-costlocations.

Thebanking,financialservices,andinsuranceindustriesareleadingRIMoffshoringgrowth.Theseindustries,oftenreferredtoasthe“financialservicesindustry,”havebeenearlyadopters–usingremotesoftwareprogrammingresources–ofoffshore


outsourcing in the area of application development and support. In addition, thefinancialservicesindustries’necessityforhighlysecure,24/7availability,highlyreliableandstablesystemshascreatedopportunitiesforglobalRIMproviders.RIMserviceprovidershaverecognizedtheopportunitytoofferfollow-the-sundeliverymodels,highlydistributedandflexiblemonitoringandsupportmodels,andinthosecaseswhereautomationhasnotreplacedlaborarbitrage,laborcostsavings.

TheindustriesthatareslowtomovetowardglobalRIMarethosethathavethelowesttransactionvolumes,suchasmediaandentertainmentandprofessionalservices.Otherindustries,suchasaerospaceanddefenseandthepublicsectors,facevariousdegreesofgovernmentregulationsthatinhibittheiradoptionofglobalRIM.Thehealthcareindustryhasconcernswiththedatasecurityandintegritybeingprovidedinforeign,nondomesticlocations.Healthcarealsohasmuchmorecomplicatedrevenueandcostrecoverybusinessmodels,whichhassomeinfluenceontheadoptionofglobalRIM.

ThebodyofourresearchindicatesfinancialservicesandinsurancefirmsareundersignificantpressuretoreducecostsandincreaseefficiencyandproductivityoftheITinvestment.Assuch,theycontinuetoembraceoutsourcing,andmostrecently,RIMservices,inavarietyofglobalconfigurationsandlocations.

RIM dElIvERy analySIS

Target TowersAstheresultofyearsofdomesticandregionalRIMexperiences,typicallyinmanagingandsupportingtheoperationsofdatacenters,servers,LAN/WANfunctionality,andtoalesserextent,endusercomputing(EUC),manyofthetasksperformedwithintheinfrastructuremanagementtowerscanbedeliveredfromanoffshorelocation.Thisisparticularlytrueforthefinancialservicesindustry,whichhasembracedRIMoffshoringbecausetheyhavelittleneedfortraditionalbackupmediahandling.Insteadtheyareadoptingafullyredundantmultiplelocationstoragestrategy.Thisislargelyduetotheirdisasterrecoveryrestorationtimeframerequirements,whichrequirehighavailabilityandfastrecoverytimes(minutesnothours).Thisisnowprovidedbydisk-to-diskandmedia-lessbackups.

However,someactivitiesremainthatmustbemanagedbyaproviderorbythebusiness’internalITstaffinthelocalpremiseordomesticlocation.Theseactivitiesincludethephysicalserverprovisioningandhardwarerepairs.Activitiesrequiringquickresponsetimesanddirectcustomerserviceintervention,suchascomputerbreak/fixorrefresh,mayberequiredtoremainatthecustomersite,retainedasathird-partystand-by,orbepartofthebusiness’internaldomesticITstaff.

MatureproviderscontinuetoexpandtheirflexibleRIMoffshoredeliverymodelofferings.Thesematureorfull-serviceproviderscanoperateafullservicetowerremotelyorincludelocal,domesticstaffaugmentation.Theproviderscanalsojointlysupportatowerwithadomesticcustomerstafforathirdparty.


dElIvERy CountRIES

India is the leading location for providing RIM services. India appears as thedominantgloballeaderinIToffshoringbothfromtheperspectiveofbeingthepreferredlocationtohostRIMservices,andfromtheperspectiveofbeingthehomecountryofmanyoftheleadingRIMproviders.IndiahascapturedthemajorityoftheglobaloffshoremarketandispositionedtobetheleaderinRIMoffshoring.Indianprovidershavetheoffshorematurityandexperienceandhavecreatedasignificantandrapidlygrowingcustomerbase.Theyhavebeeninvestingintheoffshoretools,processes,andinfrastructurenecessarytomanagethegrowthofRIM.TheinvestmentisbeingusedtopositionIndiaformajorRIMmarketpenetration.ChinacontinuestoemergeasapotentiallymajorplayerinIToffshoring.ProvidersareinvestinginChinaaspartoftheirglobaldeliverybase.NetworkoperationcentersarebeingestablishedandbeginningtosupportRIMclients.

InEurope,theMiddleEast,andAfrica,EasternEuropeancountriesarepositionedascentersforRIMdelivery.PolandandHungaryrepresentcountriesthatarebeginningtoadvanceintotheRIMmarketplace.Theyhaveparticularlystrongexperienceinmultilingualhelpdesksupport.

MexicoandLatinAmericaofferanearshorealternativeforRIMservices.Mexico hasanofferingthatismaturingandatime-sensitivecustomerbase.InfosyshasrecentlyannouncedplanstodevelopanetworkoperationcenterinMonterrey,Mexico.ArgentinaisalsobeingdevelopedasaRIMservicealternative.CertainprovidershavechosentooffermainframeandAS400towersupportfromcountriesthathavetheskillandexperiencebasedonlegacyuse,suchasBrazilandArgentina.Dependingonthecriticalityofthebusinessprocess,providersmayopttoprovidemainframeandAS400supportfromhighercostcountriessuchastheUnitedStatesandAustralia.

valuE PRoPoSItIon In dEPloyIng RIM

Cost SavingsEvenbeforethearrivaloftheglobaleconomicdownturn,seniorbusinessleaderswerebeingchallengedtoincreaseprofitabilityandefficiencyandtodriveoperationalcostsdown.Theallureofoutsourcinghasalwaysincludedtheprospectofcostreductionthroughefficienciesandlaborarbitrage.Notsurprisingly,theincreasinginterestinRIMservicesisessentiallyduetotheprospectofreducingoperationalcostsandincreasingproductivityinoneITfunction.Offshoringofinfrastructuremanagementlabortypicallyrealizesasavingsof5to20percentcomparedwithU.S.laborrates.Butdonotassumethesesavingsareinstantaneous.RIMservices,aswithoutsourcingingeneral,typicallyprovideagradualsavingcurveasdeliverymaturityisattained,usuallywithinthefirsttwoyearsoftheengagement.

oPtIMIzatIon and StandaRdIzatIon

Current network and infrastructure centers in offshore locations provide rigorousstandardsoffullredundancy,highavailability,anduncompromisingdatasecurity.


The support is provided across multiple client environments.The deploymentofqualitystandardssuchasSixSigma,ITIL,andthoseoftheInternationalOrganizationforStandardization(IOS)havefosteredacommonunderstandingoftheworktobeperformedwithinatypicalITtowerfunction.RIMservicesprovideanopportunityforselectingtherightservicemixtobedeliveredfromtherightregion.Theinfrastructurecanbemanagedfrommultiplelocationsasaglobalmonitoringandsupportmodelisdeployed.Thefollow-the-sunapproachcanbeadaptedforavarietyofbenefits,particularlyhighavailabilityofthesupportedsystemswhich,inessence,providescontinualuptime.TherewillcontinuetobeadvancementsintheproductsandtoolsusedtomanagetheinfrastructurebeingsupportedbyRIM.

RISk dISCuSSIon

When considering the risks and benefits of engaging a provider, or providers,todeliverRIMservices,theriskscanbeconsideredfromtwoperspectives.First,onemustconsidertheorganizationalrisksassociatedwiththeinternalcustomer’ssatisfactionwithRIMservices.Ingeneral,themajorconcernsidentifiedbyseniorbusinessandITexecutiveswithrespecttooffshoringincludesecurityanddataprivacy,languageandaccentsneutralization,high-levelbusinessandindustry-specificknowledge,internalpoliticalperceptions,andthelackofperformancemetrics.Theseconcernscanbemitigatedthroughastrongprovidermanagementandgovernanceprocessthatassurestheseissuesareaddressedwellbeforeanyserviceistransitionedtoaprovider.Externalissuessuchaspoliticalstability,governmentregulations,culturalalignment,andproductivityassociatedwithremotelocationsshouldbeaddressedbytheprovideraspartoftheirstandardserviceprofile.

ThebenefitsofRIMservicescanbemuchbroaderthansimplyfinancial.Additionally,choosingaproviderwithabroadrangeoflocationsandalargeanddiverseskilledlaborpoolcanincreaseflexibilitytorespondtothechangingneedsofitsinternalbusinesscustomer’sneeds.Ideally,newskillsandcapabilitiescanbedeliveredbyaqualifiedproviderbyvirtueoftheprovider’srangeofservicesandknowledgedevelopedthroughRIMservicedeliveryoveralargepoolofdiverseclients.

SuMMaRy

Remote infrastructure management comes of age in the era of the flatteningglobe.Withthevirtualeliminationofglobalconnectivityandbandwidthissues,businesscentersinthedevelopedworldcanconnectwithserviceprovidersinlow-cost,emergingmarkets.RIMglobalprovidersareharnessinglarge,well-educated,andinexpensivelaborpoolstobuildglobalcentersfromwhichtheycanmanagealmostanyaspectofITinfrastructuresupport.ThosebusinessesengagingtheseglobalproviderswillbothenjoylowercostsandpotentiallygreaterefficiencyandflexibilityinthesupportoftheirglobalITfunctions.RIMhasarrived,andthereareamultitudeofprovidersreadyandwaitingtodeliverit.

Amit is a Partner with Avasant LLC, one of the globally top ranked sourcing advisory and management consulting firms. Amit is one of the key leaders of the firm in strategy consulting, M&A and global shared services optimization practices. He possesses significant international management consulting experience and has a deep understanding of the outsourcing industry. He has more than 17 years of management and consulting experience with some of the best names in the industry before becoming a founding member of Avasant, including Gartner, PriceWaterhouseCoopers and Patni Computers. Amit's experience spans strategy, shared services restructuring, implementing multi-sourced services and governance processes and enterprise level change & risk management.

Amit Singh Partner

Avasant


Emerging Models in Infrastructure

Management


BaCkgRound

IT Infrastructure has traditionally been the bastion of stable managementmodels.WhileITapplicationmanagementwentthroughadramaticshiftinlandscapeduetoevolutioninprogramminglanguagesaswellasincreasing

offshoredeliveryviability,ITInfrastructurebusinessstayedvirtuallyunchangedforseveraldecades.However,therapidpaceoftechnologygrowthhasnowledtoemergenceofseveralnewmodelsofITInfrastructuredeliveryandconsequently,managementpractices.WhilethetraditionalApplicationDevelopmentandMaintenanceoutsourcingisinmaturityphaseasnotedbydiverseandlargebuyerindustries,demandforRIMservicesisestimatedtofurthergrowbyatleast25to30percentp.a.inthenext3years.

ThispaperexploressomeoftheemergingmodelsforITInfrastructureoutsourcingandthereasonsthereof.


As organizations look to deploy these models, it is recommended that they spendtimeindevelopinganenterpriselevelcloudroadmap.Thefollowingsectionidentifieskeyrecommendedsteps:

kEy StEPS foR CREatIng an EntERPRISE Cloud RoadMaP

◆Define the cloud opportunity, establish direction, assess the application ofcloudtechnologywithintheenterprisecontext,assessthedeploymentoptions,frametheserviceprovidermarket,andplantheroadmapforcloudservices.

◆ Identifyandbuildabusinesscaseonthevaluethatcloudcomputingcandrivetotheenterprise.

◆DocumentandeducatetheITorganizationonhowcloud-basedservicesfitwithinthecontextofexistingtechnologyplansandsourcingstrategies.

◆Evaluateinternalskillsandcapabilitiesaswellasproviderserviceofferingsandcapabilities.

◆Assesstherelativecost,architecture,andskillsimpactedbyapplyingcloudtechnologiestocorebusinessapplications.

◆ Frametheriskandanorganization’sreadinessfortheadoptionofcloudtechnology.

◆UnderstandthemanagementframeworkneededfortheenterprisetomanageCloudServices.

◆ Lastbutnottheleast,discusswithpeersandseekexpertassistanceasyouembarkonthisjourney.

Cliff Justice US Shared Services and Outsourcing Advisory GroupKPMG

Stan LepeakDirector, Research,

Shared Services & Advisory

KPMG

Stan Lepeak is Director of Research for Advisory

Services at KPMG. He specialises in business

process and information technology (IT) services and

outsourcing market trends; outsourcing and shared services execution and

management best practices; and the globalization of

the business services and outsourcing markets. He

was formerly MD and the Leader of EquaTerraís

global research practices (KPMG acquired EquaTerra

in February, 2011) focused on trends, issues and futures

in the global information technology and business

process outsourcing markets.

Leads one of the world's largest and most comprehensive shared services and outsourcing advisory businesses for KPMG LLP. Has 20 years of relevant experience across a wide range of disciplines, including operations, global shared services and global outsourcing. Industry expertise includes: Energy (Oil & Gas), Financial Services, Healthcare & Pharmaceuticals, Manufacturing, Human Resources, Consumer Food and Packaged Goods, Technology, and Utilities. Prior to joining KPMG, was Managing Director of EquaTerra, and led its services globalization advisory practice. Prior to EquaTerra, Cliff was Managing Director of neoIT and specialized in offshoring strategies.


Global Sourcing of Services: Easier Said

Than Done (Well)


KPMG recently released the results of its 2Q11 Sourcing Advisory Pulsesurveys,whichprovideinsightsintotrendsandprojectionsinend-userorganizations’usageofsharedservices,outsourcing,andglobal

third-partybusinessandITservices.Whilethesurveyfindingsrevealmanyinterestingtrends,onekeyfindingwasthatalthoughmanyorganizationsarelookingtomovetoamorematuremodelforservicesdelivery,fewhaverealizedthisgoal.

gloBal SouRCIng: thERE’S a WIll But not alWayS a SkIllEd Way

While the use of near and offshore captive and third party services is nothing new,theKPMGsurveyfoundthatthescopeofthisusagecontinuestoexpand,bothfromtheperspectivesofwhatservicesorganizationsarewillingtotakeoffshoreandalsointermsofthenumberanddiversityofdeliverymodelsandserviceprovidersutilized.


Formostlargerfirms,globalsourcingtodayisamulti-pointprocessacrossmultiplegeographies,utilizingmultipleserviceprovidersandemployingmultipleservicedeliverymodels(e.g.,internallyrunoperations,localsharedservicescentersandoffshorecaptivecenters,onshore,nearshoreandoffshoreoutsourcing).Whilethis“extendedglobalenterprise”modelcanbettersupportorganizations’globalservicesneedsandhelptoimproveoperationalcompetitiveness,itisalsoprovingincreasinglycomplextosuccessfullydesign,deploy,operateandoptimize.

Buyersundertakingglobalsourcingeffortsnaturallyexertmuchfocusonselectingwhichserviceprovidertoemployandfromwhatlocationstosourceservices.Thisassessmentprocessshouldincludeaclearandrealisticassessmentofabuyer’sownmaturityandsophisticationrelativetosourcingandmanagingglobalsourcingefforts.

Acommonrootcauseofproblematicorunderachievingoffshoreoutsourcingeffortsisadisconnectbetweenwhatabuyeristryingtoaccomplishandtheskills,experience,andresourcesitpossessestosupporttheseefforts.Theseskillsinvolveselectingprovidersandlocations,accountingforandmanagingrisk,andgoverningagrowingnumberofsourcingeffortsspreadacrossmultipleprovidersandlocations.Yetoftenitseemsthatmanybuyerorganizations’globalsourcingambitionsoutpacetheircapabilitiestosuccessfullyundertakeandmanagetheseefforts.Ormoresimplytheglobalsourcing“eyes”arebiggerthanthecapabilities’“stomach.”

Inthe2Q11Pulsesurvey,KPMGpolledleadingthirdpartybusinessandITserviceprovidersanditsownsourcingadvisorstoassessbuyermaturityandsophisticationrelativetovariousglobalsourcingskills.Respondentswereaskedtoranktheirperceptionofbuyerskillsonaone-to-fivescale,whereonerepresentsveryimmatureorunsophisticatedandfiverepresentsverymatureorsophisticated(seeFigure1).Resultsshowthatoverallthereisroomforimprovementacrossalloftheseglobalsourcingcapabilitysets.

KPMGadvisorsdidnotscorebuyersabovethemidpointonanyofthefiveskillsetsassessed.Thehighestscoregivenwas2.65forserviceproviderselectionandassessingserviceproviders’globaldeliverycapabilities.Serviceprovidersweremoregenerousintheirperceptionofbuyers’skills,scoringthisattributeat3.32.

Theskillrankednexthighestbyserviceproviderswasservicedeliverygeographiclocationassessment(e.g.,wheretosourcefrom,onshore/offshore,whichcountries),scoredat3.21,whileforadvisorsthesecondrankedskillwasassessingandaccountingfordata,dataprivacyandintellectualpropertyrisk,scoredat2.61.

Therewasconsensusontypicalbuyerchallengesinmanagingandgoverningmultipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.,scoredthelowestbybothserviceprovidersandadvisors.


KPMGadvisorsinthefieldofferedadditionaldetailsonwhysomebuyersstrugglewiththeirglobalsourcingefforts.OneUS-basedpartnerwhoworkswithfirmssourcingback-officebusinessfunctionsgloballymadethefollowingobservation,“Clientsdon’tconsiderthegreatercomplexityofenvironmentsinwhichanoffshorecaptiveorthird-partyprovidersoperate,andthereforedon’taccountforgeopoliticalrisk,economicconditions,etc.”

Addressingandmanagingriskinglobalsourcingwasacommonlycitedweaknessindentifiedinmanybuyers’accounts.Asonesenioradvisornoted,“Clientsaregaininggreaterfamiliaritywithutilizingoffshoreproviders’capabilities,butremainriskaverse.Despitethis,little(oratleastnotenough)attentionisgiventomanagingrisk.Governanceandrelationshipmanagementcapabilitiesareoftenweakcomparedtothescopeoftheglobalsourcingefforts.”

AseniormanagerintheUSwasmoreblunt,orrealistic.“Lookthesefolksarenotidiots,butrarelyaretheyexcellentateachandalloftheseglobalsourcingactivities.”

Figure1–BuyerGlobalSourcingMaturity/Sophistication

1.00 2.00 3.00 4.00 5.00

Serviceproviderselection/assessingSP'sglobaldeliverycapabilities

Managingandgoverningmultipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.

Assessing/accountingfordata,dataprivacyandintellectualpropertyrisk

Assessing/accountingforgeopoliticalandserviceproviderrisk

Servicedeliverygeographiclocationassessment(e.g.,wheretosourcefrom,onshore/offshore,whichcountries,etc.)

1=Veryunskilled/unsophisticated,5=Veryskilled/sophisticated



EvolvIng toWaRdS a gloBal SERvICES PoRtfolIo aPPRoaCh and ModEl

As buyers’ appetites to source more services globally continues to grow, so tooshouldtheircapabilitiestosourceandmanagetheseefforts.Thisisattheheartoftheextendedglobalenterprisemodelandmaturityframework.

Thefirststeptoaddresstheshortcomingsoutlinedaboveistorecognizeanddefineeachchallengeandapplyadequateandskilledresourcestoovercomethem.Thisisamultidisciplinaryeffortthatextendsleadingpracticesrelatedtosourcing,selection,transition,outsourcinggovernance,andmulti-providermanagementtoaccountforadditionalchallengesandnuancesintroducedfromincreasedglobalizationofserviceefforts.Asthescopeandcomplexityofbuyerglobalsourcingeffortscontinuetogrow,thiswillremainanongoingchallenge,withthebarforleadingpracticecontinuallybeingraised.

Onemeanstoimproveglobalsourcingcapabilitiesistotakemoreofaportfolioapproachtomanagingglobalefforts.Thisneedwillcontinuetogrowasglobalsourcingbecomesmorepervasiveandaccountsformoreofanorganization’sglobalservicesfootprint.However,tightlycoordinatingandmanagingsourcingeffortsgloballyisstillagoaltowhichmostorganizationsaspire.

Figure2-Management&GovernanceModelsforExistingGlobalSourcingEfforts

35%

53%

7%5% 15%

58%

9%

18%

Independentlyofothereffortsalreadyinthefield


Byanenterprisesourcingcouncil

ByanenterprisesourcingCenterofExcellence



Inthe2Q11Pulse,58percentofserviceproviderspolledand53percentKPMGfirms’sourcingadvisorsindicatedthatwhentypicalbuyersaremanagingexistingglobalsourcingefforts,theyaregroupedandmanagedandgovernedbygeography,businessunit,functionalarea,etc.(seeFigure2).Thisisthemostcommon,historicalapproach,andisadequatefordealsandeffortsthatdonotoverlapkeyfunctionalareas.

Howevertoday,thisapproachtomanagingmultiplesharedservicesandoutsourcingeffortscanoftencreatefragmented,difficulttomanage,andunderoptimizedfunctionalandprocesssilos.Amoreholistic,functional,andthoroughprocessisoftenrequiredinthesemorecomplexsourcingenvironments.

Fewerthan10percentofserviceprovidersandadvisorsindicatedthatexistingeffortsaremanagedandgovernedbyanenterprisesourcingcouncil,whichcanprovideamoreholistic,coordinated,anddetailedviewofglobalsourcingeffortsandtheirperformanceandcostlevels.

Thestoryisbetterfornewsourcingefforts,with15percentofadvisorsand27percentofserviceprovidersindicatingthatbuyersareattemptingtosourceandmanagetheseeffortsglobally(seeFigure3).

Figure3–Management&GovernanceModelsforNewGlobalSourcingEfforts

18%

55%

27%37%

48%

15%

Independentlyfromothereffortsbeingsourcedoralreadyinthefield


Sourcedandcoordinatedglobally



One common challenge to managing sourcing efforts globally is the fact thattheyareoftensourcedlocallyfromfunctional,budgetary,approvalandexecutionstandpoints.AsaKPMGUKmanagernoted,“Giventhesensitivityofsourcing(andexcludingtheexecutivesponsorship,oftenneweffortsarerunfromprojectteamswhohavebeensplitoffandactindependently,thenoncesourcedandasrequiredthereisaglobaland/orregionalengagementfromoperationalteamsandsubjectmatterexperts.”

Asprocurementgroupsgetmoreactiveinsourcingglobalservices,however,theycanactasaunifyingforce.AsoneKPMGmanagerintheITsourcingpracticecalledout,“Sourcingisstilltypicallybyfunction-usuallypursuedbydifferentorganizationsforIT,F&A,andHR,etc.Thecommonthread,however,isincreasinglythecentralizedprocurementorganization.”

ConCluSIon

Many buyers today still view global sourcing as a series of discrete options andcapabilities(e.g.,internalservices,sharedservices,offshorecaptives,ITO,BPO)ratherthanacontinuumofintegratedservicemodels.Thisissimilartothelegacyperspectiveofviewingoffshoreoutsourcingasapoint-to-pointinitiative(forexample,fromtheUnitedStatestoIndia)insteadofanintegratedsuiteofglobalservicedeliverycapabilities.

TherealitytodayisthatorganizationsshoulddevelopaholisticstrategyandoperationalmodeltosupportthetotalityoftheirbusinessesandITservicesoperations.Thisincludeshowtosourceandmanagethesecapabilitiesaswellashowtocontinuallyimprovetheiroverallefficiencyandeffectiveness.

Whileleadingorganizationshavemadeprogress,forexample,ingoverningtheiroutsourcingeffortsasaportfolioviaaportfoliomodelascitedintheabovePulsesurveyresponses,oftentheseeffortsaredisconnectedfromthemanagementofinternalretainedoperationalsystemsandfunctions,aswellasthestrategyandexecutionofsourcingofnewinvestments.Inshort,buyers’capabilitiestosourceandmanageadiverseservicesdeliveryportfoliohaveoftennotkeptupwiththeirsourcingambition’sscaleandscope.

Introducing The World's Foremost

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An initiative by

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As Global Consulting Director for Compass, Kathy Rudy oversees client engagements and ensures the quality of Compass deliverables across all geographies and service lines. She has extensive experience in a variety of industry sectors. Kathy has over 17 years of experience in information technology management and operations, project management, and business process analysis. Her areas of expertise include performance management (including Balanced Scorecard, Service Catalogue, and Service Level Agreement development), as well as process maturity assessments, with an emphasis on the ITIL and Cobit frameworks. She also has extensive experience in service level management, service desk and desktop environments, sourcing and offshoring operations, and program and project management.

Kathy Rudy Global Consulting Director

Compass Management Consulting



cOMparative analysis as an OutsOurcing gOvernance MechanisM


Benchmark analyses of outsourcing arrangements are an acceptedmanagementtechniqueappliedtogaugethemarketcompetitivenessandqualityofaprovider’sservices.Inoutsourcedenvironments,benchmarks

havetraditionallybeenappliedaspartofacontractuallymandatedexercisetoassessexistingpricingandservicequalityinthecontextofcomparableindustrystandards.

Traditionally,outsourcingbenchmarkshaveoftenbeenusedstrictlyasanegotiatingtooltodriveshort-termadjustmentsinpricingwithindiscreteservicetowers.Asaresult,they’veoftenbeencharacterizedbycontentiousconfrontationsbetweenclients,serviceproviders,andthird-partyproviders,andhavedeliveredrelativelylimitedvalueintermsofenhancingthesourcingrelationship.

Increasingly,theroleofthebenchmarkinoutsourcingagreementsisevolving,astop-performingclientorganizationsandserviceprovidersusebenchmarksasagovernancemechanismtoidentifyimprovementopportunitiesacrosstheenterprise,assessalternativesandmodelscenarios,anddesignandimplementtransformationalchangeinitiatives.


RolE of BEnChMaRkIng

Broadly speaking, an outsourcing contract benchmark can be defined as an analysisofthecostandqualityofoutsourcedservicesinthecontextofmarketstandards,industrypeers,andgloballeadingpractices.Dependingonthetermsoftheclause,theresultscanbeusedtoadjustprices,orasaninputtofurthernegotiation.Inadditiontofocusingsolelyonassessingservice providerperformance,benchmarkscanbeaneffectivewaytoidentifyoperationalconstraintswithintheclientorganizationthatinhibitoptimalperformanceandpreventserviceprovidersfromleveragingtheircapabilitiesandtools.

Becausebenchmarkinitiativesoftenfindagapbetweenoutsourcedpricesandmarketrates,theyrepresentathreattotheserviceprovider’srevenuestream,therebymakingthem,bydefinition,problematictothevendorcommunity.Moreover,mostclausesonlymandateadjustmentsifpricingistoohigh–ifthevendordeliversservicesbelowmarketrates,theyarenotcompensated.Asaresult,iftheexerciseisfocusedstrictlyonpricing,it’salose/losepropositionfortheoutsourcer.

Anothercomplaintvoicedbyserviceprovidersisthatabenchmark’sfindingsmayprovideaskewedperspectiveofpricing.Manylong-termoutsourcingcontractsarepricedsothattheproviderdiscountsservicesdramaticallyintheinitialyears,andthenrecoversthosecostsatthebackendofthedeal.Whileaproperlyconductedbenchmarkwilladjustforthefinancialengineeringoverthelifeofthecontract,abenchmarkconductedlateinthecontracttermmaynotadequatelyaccountforthevendor’searlierinvestment.

Becauseofthesefactors,serviceprovidershave,overtheyears,employedanumberofstrategiestoavoidorderailbenchmarkinitiatives.Insomecases,theydemandunrealisticallyprecisecomparatorrequirements,orchallengethevalidityorrelevanceofthecomparativedata.Inothers,theyofferupfrontdiscountsinlieuoftheanalysis.Whilesuchactionsareperhapsunderstandableinthecontextofthebusinessissuesatstake,they’veoftenservedtofuelacrimonyduringthenegotiationprocess,ultimatelytothedetrimentofthelong-termrelationshipwiththeirclients.

a tRadItIonal BEnChMaRk SCEnaRIo

The negative characteristics of a “traditional” outsourcing benchmark can includeanexclusivefocusonshort-termadjustmentstopricingwithinindividualservicetowers,andanexclusionofbroaderoperationalconsiderationsoropportunities.Further,thefindingsoftheanalysisserveasanegotiatinghammertodriveconcessionsfromtheprovider.Theonustoreducecostsandfindsavings,moreover,issolelyontheprovider,whiletheroleofthird-partyadvisorsistobea“badcop”whoroughsuptheserviceprovidertoextractpricingconcessions.

Considertheimplicationsofthisapproachinthefollowinghypotheticalsituation:


a benchmark analysis finds the client organization is paying above market rate forstorageservices.Adheringtothetermsoftheclause,theserviceprovideradjustspricestoalignwiththemarket.Facedwithdecliningrevenue,theproviderbringsinless-experiencedandlower-coststaffinanunsuccessfulattempttomaintainmargins.Qualityplummets,whiletheunderlyingproblem–theclient’sinadequatedatamanagementandstoragestrategy–remainsunaddressed.

a ChangIng RolE

As lessons are learned and the sourcing market matures, benchmarking isincreasinglybeingviewedasawaytoaddresslong-termbusinessrequirementsandimprovetherelationshipforallparties.Bybaseliningexistingperformancepriortoanewsourcinginitiative,benchmarkscanidentifyopportunitiesanddefineactionsforbothpartiestodriveimprovement.Benchmarksalsogiveserviceprovidersabetterunderstandingofclientenvironments,enablingmoreeffectivesolutions,moreaccurateproposals,andbetterassuranceofdealprofitability.

Morespecifically,clientsarerecognizingthatshort-termpricingadjustmentsintheirfavorcanbepyrrhicvictoriesthatproveultimatelytobecounter-productive.Clients alsoincreasinglyacknowledgetheirresponsibilitytochangeinternalprocessestoachieveimprovement,ratherthanrelyingsolelyonthevendor.Moreover,theseprocesschangesarefocusedonfindingwaystoallowthevendortoleveragetheircapabilitiesandprocessesandtools.Thischangeinmindsetiscritical,asitopenstheopportunitytoachieveeconomiesofscaleacrossmultipleenvironments–ratherthandeliveringuniqueandcustomservicestoeachcustomer,theoutsourcerisnowinapositiontodrivestandardizationacrossitsportfolioofclients,tothebenefitofall.

Asorganizationsfocusonimplementingvirtualization,cloud,andtransformationalchangeinitiatives,benchmarksarebeingappliedtoidentifyactionsneededtodrivechange,andtoquantifytheimpactofthoseactions.By,forexample,definingthecurrent“asis”statealongwiththefuture“tobe”state,abenchmarkcanshowwhatchangesinarchitecturewillbeneededtosupportacloudsolution,andoutlinetheoptimalapproachtoimplementingthosechanges.

StRatEgIC BEnChMaRk ChaRaCtERIStICS

In contrast to the negative characteristics of the traditional benchmark initiativedescribedearlier,a“strategic”benchmarkcanbeseenasonewheretheresultsoftheanalysisprovideabaselineforlong-termplanningandimprovement,includingtransformationalchange.Ratherthanservingasanegotiating“hammer,”thefindingsfacilitateconstructivedialogueaimedatdrivinganimprovementprocesswherebothpartiesassumeresponsibilityforchange.Ratherthanbeingapointofcontention,referencedataaretransparenttoallparties,andthethird-partyadvisornowbecomesanobjectivebrokerwhoensurestransparencyandmeaningfulanalysis.


Consider too how a strategic benchmark can be applied to the scenario of above-marketpricingforstorageservices:inadditiontohighprices,thebenchmarkanalysisrevealsuniquebusinessrequirements,obsoletedataprocesses,andcostlylegacysystems.Inthiscase,thebenchmarkchartsaroadmaptowardafuturestatealignedwithbusinessneeds,wheretheclientinvestsinreplacinglegacysystemswithstreamlinedstorageplatformandamatureinformationmanagementstrategy.

Tofurtherillustratethepotentialbenefitsofbenchmarking,twocasestudiesofrecentCompassclientengagementsaredescribedbelow.

CaSE Study: MIndIng thE gaP

A global manufacturer executed a contractual benchmark clause and engagedCompasstoassessthemarketcompetitivenessandqualityofITservices,andtodefinehowbothpartiescouldacttoimprovetheclient/vendorrelationship.

Theanalysiswentbeyondasimplecomparisonofexistingcontractpricesagainstprevailingstandards.Rather,theclientsoughtanindependentviewofeachparty’srolesandresponsibilitieswithintheagreement;acomprehensiveassessmentofcosts,resourceutilization,andservicequality;andrecommendationsonhowtoenhancethestrategicvalueofthepartnership.Thescopeoftheanalysiscomprisedtheapplicationandinfrastructureserver,storage,desktop,andservicedeskenvironmentsintheAmericas,Europe,andAsia.Indefiningthecomparativereferencegroups,adjustmentswerecalculatedfordifferencesinorganizationalsize,complexity,serverconfiguration,laborcosts,andcurrencyfluctuationsrelativetotheclient.

Thebenchmarkanalysisrevealedthattheserviceprovider’scontractualpricingwasclosetoathirdbelowmarketstandards.Thisraisedaredflag,asserviceproviderstypicallycompensateforlowpricesandunprofitablecontractsthroughavarietyoftactics,includingaddingchangeorderchargestoanyactivitynotspecifiedintheterms,replacingskilledstaffwithlower-costpersonnel,reducinginitiativetoimproveservicequality,andminimizinginnovationandproactiveuseofmanagementtools.Asaresult,servicequalityoftensuffers,asdoestherelationship.

Inlightoftheseissues,theclientwasurgedtoconsideranumberofstepstosteertherelationshiptowardamoremutuallybeneficialstate.OnewastoimproveassetmanagementtoenhancetheaccuracyofinvoicingaswellastheeffectivenessofSLAs.Anotherwastolinkmetricstoservicedeliveryimprovementinitiatives–by,forinstance,trackingandanalyzingserveroutagestounderstandrootcausesandimpactonusers.AnotherrecommendationwastoenhanceSLAsandimplementanappropriateserverrefreshcycletoboostreliabilityandreducesupportcosts.

Anotherkeychangeinvolvedadjustmentstopricingstructurestolinkcostdriverstovendorrevenue,therebyfacilitatingdemandmanagementtobenefitbothparties.Increaseduseofvirtualizationnowresultsinhardwarecostsavingsfortheclientaswellasincreasedrevenuefortheserviceprovider.


Finally, both parties undertook a series of initiatives to improve operations to reducecostandcomplexity.Theseincludedexpandinglockdownpolicies,simplifyingbillingprocesses,andincreasinguseoftheHelpDeskasawaytoidentifyrootcausesofproblemsandreduceend-usereffort.

CaSE Study: dEfInIng govERnanCE StRuCtuRES

Prior to renewing its IT outsourcing contract, a major global restaurant chainengagedCompasstoanalyzethequalityandpricingofservicesprovided,andtoassesstheserviceprovider’sglobalcapabilities.Whilesatisfiedwiththevendor’soverallperformance,theclientsoughttoidentifygapsandtomoreclearlyarticulatetheirobjectivesandexpectationspriortonegotiatingacontractrenewal.

Servicedeliverywasassessedinamarket-orientedcontext,identifyingaseriesofimprovementopportunitiesrelatedtopricing,governance,andinnovation.Thescopeoftheanalysisincludedmainframe,midrange,andWintelservers,aswellasstorage,network,desktop,andservicedeskenvironmentsintheAmericasandAsiaPacificregions.Inanalyzingservicesmovedoffshore,adjustmentsweremadeforgeographicvariationsinlaborratesandfacilitiescosts.Whileoverall,thepricingoftheagreementwascloseto7percentbelowmarketrate,significantgapswerefoundinindividualservicetowers,withtheclientpayingmorethan60percentabovemarketratesforstorage,andalmost45percentbelowmarketrateformidrangeservers.

Recommendationsfocusedonaddressingtheinconsistencyinpricingidentifiedinsomeservicetowers,andonrestructuringresourceunitstoconnectcostdriversmoredirectlytovendorrevenue.Gapsinserviceexpectationswouldbeaddressedbystreamliningstaffingprocedures,re-assessingescalationandresolutionprocesses,andrenegotiatingSLAs.Finally,tighteningIDchangeSLAsfrom5businessdaysto1to2days,andstandardLANIncidentSLAsfrom8hoursto4hours,wouldalignservicedeliverytoindustrynorms.

Inadditiontodemonstratingtheabilitytoprovidequalityservice,theclientinitiallyselectedtheserviceprovideronthebasisofculturalfit;assuch,theclientexpectedahigherdegreeofresponsivenessandflexibility.Ironically,thisculturalfitcontributedtofrustrationsintherelationship.Toaddressthis,agovernanceassessmentwasinitiatedthatrevealedalackofalignmentinthemanagementstructureoverseeingtherelationship.Specifically,reportingstructureshadseniorexecutivesfromonepartycorrespondingwithlowerlevelpersonnelfromtheotherparty,resultingininefficientandineffectivedecisionmaking.Anotherissuewasthedilutionof“dealknowledge”overtime.And,poorcommunicationregardingtheserviceprovider’scapabilitieslimitedinnovation.

Governancerecommendationsincludedensuringthattheclient’sretainedteambeproperlyalignedwiththebusinessandinvolvedinstrategydiscussions,streamliningresponserequestprocedures,takingamoreproactiveapproachinmanagingpriorityrequests,andimprovingcommunicationprocessesonvendor


capacity.Acapabilitiesassessmentfoundthevendorwaseffectivelydevelopingtheglobalreachandcapabilitiestheclientrequired.

Toenhancethelong-termpartnership,theclientinstitutionalizedcommunicationofITperformancemeasures,andtookstepstobetterdefineitsexpectationsoftheserviceprovider.

Morespecificrecommendationsincludedrefiningrequestprocedurestoensureresponsiveness,implementingtoolstoimproveutilizationreporting,andinstitutingmoreformallyscheduledclient/vendormeetingsthatfeatureaction-orientedoutcomesandpublishedresolutionsteps.

Followingtheanalysis,theclientandserviceproviderformedajointteamtoreviewrecommendations,prioritizeactions,andbuildaframeworkforimplementationandmeasurementofsuccess.

* * *

Astheseexamplesillustrate,abenchmarkanalysisgoesfarbeyondanassessmentofpricing,andthebenefitsandoutcomesofaneffectivebenchmarkinitiativearefarmorevaluablethanshort-termadjustmentstocontractualterms.

Traditionallyviewedasauseful(iflimited)tactictoadjustthepricingofoutsourcedservices,benchmarksareevolvingtoassumeanintegralrolewithinsourcingadvisoryandgovernance.Specifically,businessorganizationsarefindingthataneffectivebenchmarkanalysisprovidesacriticalfactualandquantitativebasisuponwhichtodefine,assess,andvalidatetheirlong-termoperationalstrategiesandchangeplans.


Achieving Innovation in IMS: Eight Strategies to

Consider

ExECutIvE SuMMaRy

In a period of uncertain business cycles influenced by a potential “DoubleDip”globalrecession,corporateprioritieshaverapidlychangedjustwithinthepastfewmonthsastheyexploresmarterwaysofworking,newgrowth

opportunitiesinnewmarkets,andbetterwaystomanagesprawling,capital-intensiveheterogeneousinfrastructures.Providersofinfrastructuremanagementservicesneedtoinnovatetheirofferingstokeepupwiththesenewdemandsoftheirclients-andanumberoftechnologicalandsourcinginnovationscanprovidetheITorganizationwithnewoptionsthatcanbeimplementedtoday.Thisreportfocusesonthetopwaystoinnovateinfrastructuremanagementservices.



EIght StRatEgIES to InnovatE youR InfRaStRuCtuRE ManagEMEnt StRatEgy

Some CIOs shy away from introducing innovation due to a laser-focus on achievingoperationalstabilitywithintheirITenvironment.Thisstrategywillincreasinglyfailtosatisfythebusinessasorganizationswantinfrastructurethatprovidesthemincreasedagilityataloweroperatingcostthatisincreasinglyavailablefromexternalservicesproviders.Innovationisaboutrealizingnewmethodsforachievingbusinessbenefits,andITorganizationsneedtoinvestinnewsourcingoptionsthatwillprovidethisimpacttotheirusers.Basedonexhaustiveresearchwithmanyorganizationsandserviceproviders,HfSResearchhasidentifiedtheeightwaystoinnovateinfrastructuremanagementservices:

1.Design outsourcing contracts that promote change and innovation.Letsfaceit,ifyouneedtochangeandneedtodotoitquickly,externalproviderscancutthroughorganizationalobstacles(e.g.,politics,lackofskillsandcompanyculture).However,if you outsource what you have and ask the provider to do it exactly as you do it today, then you are not going to innovate. On the other hand, if you give the outsourcer license to introduce innovations (best practices, continuous services improvements and radical innovations),

What IS InnovatIon?

Innovation within the context of delivering outsourcing services takes a variety offormsincludingtransformation,bestpractices,continuousprocessimprovement,newtechnologies,businessbenefits,effectivepoliciesandachievementofthebuyer’sdesiredfuturestate.But...whatisitreally?HfSbucketsinnovationinthreeareas:

1.Best Practice Implementation.Referstoproviders(eitherinternalorexternal)bringingwhattheyhavelearnedfromdoingsimilarbusiness“outside”,judgingwhetheritisthebestwaytodoit,andimplementingitonbehalfoftheirclients.Riskismoderate,butfailurecanbeexpensive.Thereturncanrangefrommoderatetosignificant,dependingonthestartingpoint.

2.Continuous Improvement.Referstoprovidersimplementingminormodificationstoexistingprocessestomakethemperformbetter,withoutregardforwhatisdone“outside”Riskisminimalandfailureischeap.Returnsaregenerallysmall,butcanaddupovertime.

3.Real Innovation.Referstotryingthingsthathaveneverbeendonebeforeinsideoroutside.Involveshighestlevelofrisk-takingandthepotentialforfailureissignificant.Returnscanbeverysubstantialiftheinnovationsucceeds.


service providers can be a source of rapid innovation. Organizations impacted by radical, fundamental shifts to their industry economics, are more prepared than ever to admit they need to look outside of their current organization boundaries to keep their business operations cost-competitive. In addition, buyers need to be careful when setting up the relationship at the onset—it is counterproductive to talk about constant change and frequent innovation and then design a contract that effectively locks both sides into an intransigent environment. Withnewgrowthcomingfromoutsideoftraditionalmarketsorganizationsneedtoreinventtheirinfrastructurestrategiesorfaceaninabilitytoexecuteagainstbusinessneeds.

2.Head to the Cloud for cost, speed and scale.CloudComputingisrefashioningthecost,quality,speedandflexibilitybywhichbusinessescanaccess—andsupplierscandeliver—servicestosupportbusinessneeds.Companiescontinuetosufferfromsignificantinternalresourceandbudgetconstraintswith,onaverage,70to80percentoftheITbudgetstillspentonIToperationsandmaintenance,leavinginsufficientresourcesfornewprojects.Organizationsarebeginningtoleveragepublicclouddatacentersandprivatecloudalternativestoproviderapidscalinginresponsetobusinessneedswherededicatedinfrastructureprovestoocostlyandprovisioningflatlytakestoolong.Cloud-basedinfrastructure--availablefromAmazon’s AWS,Rackspace, Savvis (CenturyLink), and Navisite, for instance--allows for

Exhibit 1. Threat of “Double Dip” moves more IT infrastructure to the Cloud

Q.In your opinion, how will a "Double Dip" Recession impact your organization's impetus to pursue the following PRODUCTIVITY measure over the next six months?

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


businessprocesses


businessprocesses

9% 11% 16% 10%17% 17% Don’t know

Major decrease

Major increase

Minor increase

Minor decrease

No change

1%1%

1%1%9%

7%14%

33%

37%

11%

38%

32% 20%

22%

29% 24%

11%12%13%

46%32% 46%

51%

24%Bu

y-si

de

Org

an

iza

tion

s

Move business support funtions

into sharedservices(Finance,

Procurement, HR and other ops)

Move ITinfrastructureinto the Cloud

Move ITsupport

functionsinto shared

services

Invest inAnalytics

capabilities

Subscribe toCloud Business

Servicesplatforms (i.e.PaaS, SaaS)


therapidprovisioningofinfrastructureandprovideshardwareelasticityinanon-demandmanner.AsCloud-basedservicesmature,ITorganizationscanreducetheirrelianceonon-premisessoftware,hardwareandinternaladministration.OurSeptember2011researchshowsthatwhile38percentoforganizationswillnotchangetheirstrategyrelatedtouseofCloud-basedinfrastructurebroughtaboutbytheprospectsof“DoubleDip”recession,45percentoforganizationswillmoveinfrastructuretotheCloud(seeExhibit1).ToITexecutivesandCIOs,theCloudisatechnologyandbusinessenabler.Iftheycanmasterthesenewinnovationseffectively,thentheycanreducethecostsofprovisioningtechnologyandthetimetodeliverprojectstobusinessunitswhileplanningfornewerandmoreinnovativesolutionsforbusinessunitstodeploy.

3.Seek better IT automation – Time to “Tool Up”.Inlargeinfrastructures,CIOshavetocontendwithtoolsthatmaynotbewellintegrated,multipledatabasesthatstoreinformationandweakreporting/analyticsthatrequireheavycustomanalysisjusttofigurewhatisgoingon.ManyITprocessesarefragileastheydependtooheavilyonpeople.Withtherelativelyhighadoptionofservicedelivery/managementprocessessuchasITILCIOshavetheopportunitytoautomateservicesmanagementprocessestherebyreducedependencyonmanualbasedprocesses.ITorganizationsmust“toolup”toimproveproductivityandtransparency.SavvyCIOsaredevelopingthemselvesintoCloud-enablersbyhoningtheirsourcingandserviceintegrationskills–andbetterautomationisrequired.AwholenewcadreofsoftwarevendorsthatenabledeploymentofCloudinfrastructureisgainingcertainlyVCtractioninthemarket.CompaniessuchasEucalyptus,Abiquo,CloudKick (Rackspace),Sensible Cloud, Enomaly, Enstratus,Rightscale,Cloud.com (Citrix), Platform Computing, ServiceNow,HP Software,BMC,Dell, IBM, and Microsoft are all gettingintotheacttryingtoacceleratetheimplementationofaninfrastructure-as-a-service(IaaS)cloudinacustomer’sdatacenterandwherepossibleintegrationwithPublicCloudsuchasAmazon’sEC2.ProcessmanagementandorchestrationbecomemoreimportantasthebusinessrequiresfasterprovisioningofITrequests.Automateddiscovery,mappingofapplicationandservicedependenciesandorchestrationofinfrastructurecomponentsandtaskshasbecomea“musthave”forIT/businessandcloudservicemanagementorganizationsasthebusinessdemandsincreasedautomationofcommonlyrequestedservices.

4.Scrap installed legacy software in favor of SaaS based IT management.SaaS-basedITmanagementisoneoffastestgrowthsegmentsinenterpriseITasadvancementsintechnology.SaaSpromisescustomersreducedcoststoupgrade,configure,manageovertime–andinmanycaseseaseofuse.Asorganizationssubscribetothesoftware–theycanusewhattheyneedratherthanbuyingitallupfront.Withnosoftwaretoimplementorupgraderapidvaluecanbedeliveredwithoutanarmyofdevelopersandconsultants.CompaniessuchaasFacebook,DeutscheBank,IntelandUBS,havedeployedSaaSbasedITmanagementsuitestomanagetheITworkflowandautomation


policieswithintheirorganization,inmanycasesrippingouton-premisealternativesavailablefromthetraditionalBIG4managementvendors(BMC,CA,IBMandHP).Pressurefromcloudcomputing,economicrecessionandbudgetconstraintsisthreateningtheirpositions.DrivenbythesuccessofsoftwarecompaniessuchasBeetil and ServiceNow, on-premises vendors havepiledintothemarketwithofferingssuchasCA Service Manager on Demand,HPSoftware-as-a-Service, RemedyForce, Remedy OnDemand, and TivoliLive,

5. Increase your home-based workforce to significantly reduce infrastructure requirements. Higherlevelsofunemployment,improvedcollaborationtechnology,someofwhichisfree(skype,OovoO,Gmail),andtheabilitytohavehomeworkersusetheirowninfrastructureisallowingorganizationstotapintoabroaderpooloftalentandtodosocheaply.TheremovalofthebricksandmortaranduseofCloud-basedapplicationsforcollaborationisenablingthehomeworkingenvironmentonaseriousscale.Employingacontentflexibleworkforcedrivesemployeeretentionratesup,lowersthecostsofmanagingtalentandforsometypesofwork(particularlynonscriptedvoiceBPO),andimprovescustomersatisfactionwhencomparedtooffshorealternativesOtherareas,suchasmedicalcoding,alreadyrelyheavilyonhome-basedstafftoworkonadministrativetaskswithcontextualneeds.Indeed, wellover100,000home-basedcallcenterjobshavebeencreatedintheUSinthelastthreeyearsbycompaniesleveragingservicesavailablefromAlpine Access,Working Solutions,LiveOps,AriseandWestathome.

6.Embrace Social Media for infrastructure support and services.SocialmediaisnowbeingusedbyITservicesmanagementteamstohelpimprovecommunicationbetweenITandusers.SocialmediaallowsendusersimprovedtransparencytowhatishappeninginITthroughconsuminginformationfromsimpletechnologiesthattheyuseineverydaylife(e.g.,twitter,chat,forums,wikis).Itisaboutgettingtherightinformationpersonalizedtoauserandfasterthanthroughalternativechannels.Knowledge,servicecatalog,andrequestmanagementareprimecandidatesforsocialmediainfusion.Knowledgemanagement,traditionallyastaticdisciplinethatovertimebecamelessusefulasinformationwasnotupdatedorwasonlyavailablefromcumbersomeusermanualsorisolateddatabaseshasbeeninvigoratedwiththeimplementationofcrowdsourcedwikisandchatforums.Itemswithinaservicescatalogcanbeadvertisedthroughtweetstousersallowingorganizationstoencouragemoreself-service.ITandapplicationownerscannowsubscribetolistse.g.,forInstantaneousalertsandupdatescanbedistributedinafamiliarnotificationformattomobiledevicesensuringthatinterestedpartieshavethemostup-to-dateinformationonthestateofIT.Indeed,someITservicesdesksnowhaveintegrationsocialmediaincidents“twickets”,aplayonamoretraditionalhelpdesk“ticket”.

7.Consider outsourcing the supporting infrastructure with the application. Ratherthanoptimisinginfrastructureasahermeticsilo, outsourcing thesupportingITinfrastructurewithanapplicationdrivesaccountabilitytoone


provider and therefore reduces finger pointing between multiple parties. AproviderthatbundlesbothITandapplicationmanagementsupportmaybemorecapableofaligningservicestothebusiness,improvingservicequalityandincidentclosuretimeasitunderstandandisresponsibleformanagingallthedependenciesfrominfrastructuretoapplications.Further,providersthatmanageallaspectsoftheITstackmaybemoremotivatedtomakeproactiveinvestmentsinITinfrastructuretoensurethattheapplicationisperformingaccordingtoservicelevelcommitments.

8.Review your procurement strategies and rationalize requirements.Whileforsomeexecutivesthismayseemlikemotherandapplepieadvice,HfSstillseesmanyITorganizationsasbloatedastheyover-spectheirenvironmentandover-provisiontheiremployees.Ifpeoplegotinnovativeandthoughtfulwiththeirpurchases,theycouldreallysaveaslewofwastedmoney.Forexample,manyemployeeswalkaroundwithexpensivelaptopswithenormousfunctionalitythatisoverkillfortheirjob,fashionableTumilaptopbackpacks,installedSAS@$5k/license,andhaveaCOLORfaxmachine,twocolorprinters,ablackandwhiteprinter,andaMFD/copiertosharewiththeiradmin(whowontsharewiththeirownteam).Iforganizationsweretoprocureinfrastructureservicesinafarmorelogicalmannerthroughrationalizingrequirementssignificantsavingswouldbecreated.Takeadvantageofany“DoubleDip”recessionfornewimpetusincostcuttingandproductivityefforts.

thE fInal WoRd: BE aggRESSIvE aBout gEttIng youRInnovatIon PlanS In MotIon

While some organizations are dissatisfied with the amount of innovation theyreceivefromserviceproviders,thetruthismostorganizationsfailtoprovideresourcestocaterfordevelopinganinnovationstrategy.Investmentindevelopingideasandimplementingsolutionsisnotfree,whethersourcedinternallyorthroughaservicesprovider.Organizationsneedtocreatetheconditionsforinnovationtotakeplace.Doyouhaveacultureandrewardschemeforindividuals/servicesproviderstotakerisksandfail,anddopeoplehaveasenseofpurposeatworkthatpromotesnewthinking?ITneedstoinvestinresearchingnewopportunitiesinordertodevelopanunderstandingofhownewinnovationscanbeimplementedforbusinessbenefit.IThastoselltheadvantagestogroupswhodon’tnecessarilyunderstandhowinvestmentsininfrastructurecanmakeanimpactontheirbusiness.OrganizationsthatwanttomovequicklytodeploynewinfrastructuresourcingalternativesinanystrategicmannermayneedsupportandadvicetohelpthemwithbothinternalITandprocesstransformation.OrganizationsneednotreinventthewheelandmayfindvalueinworkingwithpartnersthroughthisnextjourneyofITdelivery.Herearesomesimplestepsforbuyerstofollowtogetaninnovationplaninmotion:

◆Create an aggressive innovation agenda and a plan to keep that agenda fresh over time.Buyersneedtostipulatetheneedtoexplorenewandcreativewaystoimproveproductivityandtop-linegrowthasacoreelementoftheir


IMSendeavor,andcommunicatethisaggressively,onarepeatedbasis,totheirITorganization.

◆Communicate this innovation agenda to both governance and provider teams.Virtuallyallbuyersbeginningtoachievesomeinnovationsuccesswiththeirengagementwillsaythesamething:“Werecognizedwhatweneededtodointernally,andcommunicatedaggressivelywithourprovidertostartdeliveringitwithus”.Untilbuyersdirectlydealwiththeprobleminternallyandcommunicatetotheirpartnersthenewdirectiontheyaretaking,theywillstruggletoachieveanyrealpositiveresults.

◆Create an innovative contract with their provider.Buyersneedtoprovidefinancialincentivestotheirprovidersinordertogaintheirassistanceinachievinggainsinbothproductivityandgrowth.Providerswillstepuptotheplatewiththerightapproach,iftheyhavethefinancialincentivetodoso.

◆ Stop playing providers off in a low-cost bake-off. Ifabuyersimplysqueezesthelifeoutofitsproviderwithacostbake-off,itisunlikelytogetmuchinreturnbeyondoperationaldeliverytomeetthecontractedservicelevels.Someoftoday’sexternalservicesprovidersareinsertinggain-sharingelementsintotheirdealsinordertobeatoffprice-droppingcompetitors,becausetheyaredesperatetowinthedeal.Thebetterprovidersnowhavetheadvantageofknowingwheretheycanofferinnovationincentivestogaingroundintoughpursuits.Inanycase,asmostprovidersarenowoperatingwithinasimilarpriceband,thefocusneedstomoveawayfromsimplypriceandontowhichprovidersarebetterpreparedtodriveinnovativeresults,ofcoursewiththerightfinancialincentives.

◆ If your service provider fails to step up to the plate, seek alternative expertise.Smartbuyersquicklyrealizethattheinitialonustodriveaninnovationagendaliesontheirowndoorstep.Itisuptothemtodriveexpectationsandrequirementsontotheirserviceprovidertofosteracollaborativepartnershipwherebothpartiescanworktowardscommonbusinessoutcomesforthebuyer.However,itmanycases,thebuyerisdiscoveringoverthecourseofitsfirstcontract,thattheirprovideriseitherunable,orunwilling,tocommittheresourcesortalentneededtosupportitsclient’sinnovationroadmap.Ifthisisthecasethenitistimetobringadditionalexpertiseintothedeliverymix.Thiscanbedonetoforcemorecommitmentsduringacontractre-negotiation,or,alternatively,cansimplyforgepartofastrategywherethedisappointingproviderperformsmoreofanoperationalrole,andanotherproviderorconsultingfirmcanperformmoreoftheinnovationservices.

Stanton Jones, Vice President and Chief Information Officer (CIO) at TPI, is

responsible for TPI’s corporate technology

strategy as well as all of the company’s information technology (IT) operations

globally. As an active member of TPI’s Cloud

Computing Solutions Business Unit, Stanton

helps clients develop and implement their cloud sourcing strategies. In

previous positions, Stanton designed, developed and

supported some of the CRM industry’s largest and

most-advanced databases for clients across multiple

industry verticals. He also held roles in rapid

application development, account management, and

data center operations.

Scott Feuless is a Principal Consultant with Compass Management Consulting. He benefits from substantial senior management experience, with a strong background in leading technology and sourcing strategy and pricing in a variety of industry sectors. Scott’s areas of expertise include infrastructure performance; specifically mainframe, midrange, desktop, and networking environments. In the sourcing space, he works with client organizations on strategy definition, RFP development, negotiation assistance, and virtualization and cloud initiatives.

Scott Feuless Principal ConsultantCompass Management Consulting

Stanton Jones CIO & Vice President

TPI


Pricing the Cloudaccurate Measures and relevant cOMparisOns

are essential

Akey characteristic of cloud computing is the potential ability to price, deliver,andconsumeITresourcesinaflexible,usage-basedmanner.Ratherthanpayingforinfrastructure,customerspayonlyforneededcomputingpower.

Usemore,paymore.Useless,payless.

Theimplicationsofthisshiftarenothingshortoftransformational.Consumption-basedpricingenablestransparencyandencouragesdemandmanagement:ifthebusinessunderstandsthecostimplicationsofthewayITisused,betterchoiceswillpresumablyfollow.Inaddition,usage-basedpricingtheoreticallyeliminatesthecostofinsufficientoridlecapacity,sinceresourcesareallocatedonlyasneeded.

Theproblemis,we’renotquitethereyet.Accurateandconsistentpricingmodelsforcloudservicesremainelusive,andsignificantorganizationalobstaclesmustbeovercometoleveragethepotentialofflexiblepricing.Customersexploringcloudinitiativesneedtounderstandmarketdynamicsaswellasthechallengesinvolvedincomparingvariousofferingsandassessingthetruetotalcostofacloudsolution.



PRICIng ModElS

Today’smarketplaceischaracterizedbymyriadpricingmodelswithawiderangeofdifferentstructures.

Thediversityisbasedlargelyonwhetherthecloudofferingispublic,private,orahybrid.ProviderAmaychargebyprocessorsreserved,whileProviderBchargesbytheCPUhour.

Examplesofnewtotalcostofownership(TCO)calculatorsarecitedbelow:◆CloudSizer.com(IDEASInternational)◆MicrosoftAzurePricingCalculator◆Gogrid.com◆AmazonElasticComputeCloud(AmazonEC2)

MicrosoftrecentlyreleaseditsWindowsAzurePricingCalculator,addingtothegrowinglistofsimple,web-basedpricingcalculatorsforcloudplatforms.AmazonWebServices,apubliccloudpioneer,hashadapricingcalculatorinplacesince2009.Ofcourse,intruecloudfashion,it’sstillinbeta.Cloudhostingprovidershavealsoembracedthe“transparency”trend,withRackspace,GoGridandNavisitealldisplayingpublicpricingontheirwebsites.Somehavehadthislevelofcostvisibilityinplaceforyears;othersarejustnowgoingpublicwiththeircloudpricing.

Thesepricingtoolsareprovidingunprecedentedvisibilityintospecificcomponentsofpricingandthecostrequiredtorunkeypartsoftheinfrastructureandapplicationsinthecloud.

Thatsaid,theabilitytogaugeutilizationaccuratelyenoughtobillforitinatrueutilitymannerremainsachallenge.MostinternalandexternalITgroupsdon’thavethemonitoringtoolstoaccuratelymeasureandlogCPUminutes.

Moreover,aCPUminuteononemachinecanrepresentmoreorlessprocessingpowerthanaCPUminuteonanothermachine,soensuringanapples-to-applescomparisonofdifferentserviceofferingsisproblematic.

It’salsoimportanttonotethatthesecalculatorsonlyprovidecertaincomponentsofthepricinganddon’trepresenttherealtotalcosttooperateinthecloud.

alloCatIon

Somecurrentcloudmodelsuseallocation,suchasaserver“instance”oracompute“slice,”asthebasisforpricing.Here,theresourcethatacustomerisbilledforhastobeallocatedfirst,thusallowingforpredictabilityandpre-approvaloftheexpenditure.However,theterm“instance”canbedefinedindifferentways.Iftheinstanceissimplyachunkofprocessingtimeonaserverequalto750hours,thatequatestoafullmonth.Ifthe“size”oftheinstanceislinkedtoaspecifichardwareconfiguration,


the billing appears to be based on hours of processing,but in fact reflects access to aspecificserverconfigurationforamonth.Assuch,thepricingstructuredoesn’tdiffersignificantlyfromtraditionalserverhosting.

Terminologyisalsoanissue.Sincenoclearstandardsexistonhowcloudservicesaredefined,thesamesetofwordsonecloudvendorusestodescribeatrulyinnovative,cloud-baseddeliveryapproachcanbeusedbyanothervendortohypeatraditionaldeliverymechanism.Inotherwords,customersneedtoask:Arewetrulyleveragingthepotentialbenefitsofcloudcomputing?Orarewesimplygettingtraditionalserviceswithacloudlabelattached?

Despitetheseissues,cloudservicescananddoofferincreasedflexibilityandamorestreamlinedprocessforgrowingITinfrastructure,astheprovisioningofnewserverscanoftenbedoneinamatterofhoursordays,insteadofweeksormonths,eveniftheservicesarebilledviaanallocationmodel.Inaddition,themovetowardcloudserviceshasthepracticalimpactofdrivingstandardizationacrossmultiplecustomerenvironmentsandmakingservicesmoreutility-like.Thisallowsvendorstoleveragegreatereconomiesofscaleanddeliversignificantsavingstocustomers.

Cloud tCo

In today’s buyer beware cloud environment, customers need to understand thedetailsofeachpricingschemeinacomparativecontext,alongwiththetermsoftheagreement,todetermineexactlywhatthey’regetting(ornot)fortheirinvestment.Otherwise,thecostofthecloudsolutionrisksbecominginadditionto,ratherthaninsteadof,theexistingenvironment.

Theprocessisanalogoustobuyingacaronline.Thebasepricelooksextremelyattractive,butwhenalltheoptions,tax,title,license,maintenanceandfuelconsumptionareaddedtothebaseprice,thecostmaybeasmuchas50percentmore.Similarly,whenpricingatrueenterprisecloudsolution,thetotalcostsinvolvedhavetobeconsidered.Theseincludetrainingstaffonre-engineeringapplicationsforthecloud,re-workingtheauthenticationframework,integrationwithlegacyapplicationsandbuildinginbusinesscontinuityanddisasterrecoverysolutions.

Thecloudpricingcalculatorsdescribedearlierdon’tadequatelyaccountfortheseincrementalcosts.ExamplesofcostsfrequentlynotcalculatedinCloudsolutionsinclude:

◆ InternalLevel1servicedeskandtechnicalresourcestointerfacewiththeprovider’sLevel2desk

◆MigrationcoststotheCloud◆Additionalnetworkbandwidth(datatransferratesinandout)◆ Remainingbookvalueofstrandedassetsandsoftware◆ Remainingamortizationofapplications


◆Additional staff to manage new contracts◆Costoffulfillingminimumvolumecommitmentsincurrentcontracts

A decision to process and store data in the cloud does not eliminate othercostsinherentintheITenvironment.Whilecloudcalculatorsprovidedetailandtransparencyintothebaseservicesprice,that’snotenough.CIOsneedtounderstandthetruetotalcostofownershipofacloudsolution–includingthecosttotransitiontoandtorunoperationsinthecloud.

It’salsoimperativetoaccuratelyassessandevaluatecloudoptionsandbenefitsinanapples-to-applescontext.

Keyquestionsinclude:Whichpricingmodelisappropriate?HowdoesofferingAtrulycomparetoofferingB?HowwillchoicessupportorunderminetheoverallITandbusinessstrategy.

lookIng ahEad

Organizations that will drive usage-based pricing to further maturity will be thosethatarewillingtogiveuppredictabilityforoverallsavings,andarewillingtoworkwithcloudprovidersthatarehungryformarketshare.Suchpioneers–Amazon,forexample–havebusinesseswithrevenue-generatingapplicationsthatneedtoscalerapidly.Forthem,scalabilitytrumpspredictability,andgrowingrevenuescancoverhighercosts.

Inthemeantime,forcustomerswhoareskittishaboutunanticipatedspikesinexpenditures,serviceprovidersareofferingpricingmodelsthatsetoffalertswhenacertainlevelofconsumptionislikelytobereached.

Theutilitymodelwillbemostattractiveforrevenue-generatingapplicationsthatneedtoscalequickly,developmentenvironmentsthatneedtoscaleupanddown,andcompute-intensiveapplicationsthatcanrunprocessesinparallelacrossmultiplemachines(today’sgridapplications).Formorecommontypesofproductionprocessing,mechanismsthatallowclientstoretaineffectivecontroloverincreasesindemandwillbeneeded.

Fromtheserviceproviderperspective,trueusage-basedpricingwillbedrivenbyvendorsaggressivelyseekingmarketshare.Theseplayerswillpushforincreasedflexibilitycoupledwithdecreasingminimalcommitments.Vendorsdefendingmarketshare,meanwhile,willbepulledreluctantlydownthispath.

Vox Artis- A Powerful Proposition for Service ProvidersAs a marketing professional, I am using this space to introduce a new product and to point out opportunities for service providers to enhance their marketing prowess. In other words, this is a shameless pitch, but a useful one at that.

Global Services is pleased to introduce a unique program called 'Vox Artis' – a Latin phrase that literally means 'voice of the expert'. The intention is to create a global sourcing knowledge repository that would help sourcing practitioners make actionable decisions.

Vox Artis is available complimentary to all readers of Global Services.

In terms of the nature of content, Vox Artis would feature cutting-edge essays, thought-provoking research, focused conferences, and timely webinars, videos, and podcasts. Therefore, Vox Artis would be produced in multiple media formats.

The overarching goal is to create a community of experts called as the Vox Artis family, an eclectic group of impactful and influential thought leaders in global sourcing. The contributors to Vox Artis comprises sourcing advisors, industry analysts, consultants, functional leaders, heads of shared services, process analysts, program leaders, and senior sourcing executives-except executives from the service provider community. Why so?

While we enormously respect the knowledge base within the service provider community, we are obsessed with giving our readers unalloyed advice and content coming from sources that are not aligned to any specific vendor. If we open out Vox Artis to all in the service provider community, then we fear that it would become a battleground of marketing messages.

Therefore, Vox Artis is available to service providers on a qualified basis. While 'qualified' may suggest that it needs to pass through the editorial filter, it does not mean that opportunities are exclusive to chosen few.This process is only intended to enhance the differentiation.

Having said that, Vox Artis is going to a be a great tool for service providers to reach out to the creme de la creme of enterprise services buyers. Vox Artis is guaranteed to squarely address the four pillars of services marketing: thought leadership, branding, influential marketing, lead generation.

I look forward to your feedback, comments, views and anything that you think matters.

Satish Gupta Head of Marketing Global Services [email protected]

Vox Artis - Infrastructure Management

Technology

international

smita vasudevanwebinars

research reports

socialmediaallowsendusersimproved

current economic

wiredtodatacentersareevolvingrapidlytoprovidingan

worlds stan

accepted managementtechniqueappliedtogaugethemarketcompetitivenessand