www.voco.co.nz

Boost your Agility, Capability and Cost EffectivenessTravel Advice for your Journey into as-a-Service

A GUIDE FOR BUSINESS LEADERS : PART 1

Moving your organisation to as-a-Service involves a complex journey. Voco has prepared this ebook to explain why the destination is worth the effort, and how to get underway. In the following pages you’ll read about the payoffs you can expect for your organisation, such as:

Improved agility. Your organisation will be able to harness technology to become quicker, smarter, more responsive and more competitive.

Increased capability. Your ability to deliver superior outcomes, including better customer service, will be enhanced.

Enhanced cost-effectiveness. You can expect to cut your spend on ICT and related areas by 30-40% while increasing your capability.

Better balance of spend. Money spent to ‘keep the lights on’ can be put towards achieving business outcomes.

Supplier aligned. The supplier only profits if you use the service, and you only use the service if it drives value. The supplier’s focus is now aligned with yours.

Reduced risk. The traditional 70% upfront capex will drop to 10% as the supplier takes on the risk of developing a product/service they cannot lock you into.

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PART ONETHE PROMISED LAND

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PART TWO WHERE WE ARE NOW

PART THREE MAKING THE JOURNEY

Contents3 More Agile Means More Effective

4 Video: A Consumption Parable

5 TheFourBigBenefitsofMakingtheJourney

6 Moving to the Cloud and Shifting to a Consumption Model are the Same, Aren’t They?

7 A Popular Analogy – Pizza as a Service

10 The Cloud Services Market is Coming of Age

13 The Supplier’s Focus More Closely Aligns with Yours

14 The Four Big Concerns

16 Don’t Pay for Complexity You Don’t Need

17 The Old ways

18 What to Expect of Your Supplier

20 Lift Your Gaze

24 Four Big Things to Consider

25 Voco’s Three Keys to a Smooth and Successful Transition

26 Get Yourself a Travel Guide

28 A Glossary of Terms for the Non-CIOs

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1PART ONE

THE PROMISED LAND

Voco helps New Zealand enterprises design and implement high-stakes, technology-focused, change projects. We recently asked a client – a senior exec of one of the big banks – what are the biggest three challenges the enterprise was facing right now. His answer was “flexibility, flexibility and flexibility.”

Over the last few years we’ve all seen the rapid ascendancy of companies like Amazon Web Services, airbnb and Uber. These ‘hyperscale providers’ are built around a highly flexible as-a-Service model. Your organisation can offer its customers the same flexibility and responsiveness, provided you have flexibility from your suppliers. The reverse is also true. You can’t be flexible for your customers unless you are offered flexibility as a customer of your supplier.

More Agile Means More Effective

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THE FOUR BIG BENEFICIAL OUTCOMES

Agility goes up

Effectiveness goes up

Risk goes down

Cost goes down

Business is Being Altered by our Personal Behaviour We’ve already embraced as-a-Service at home as consumers. We chose what tools we want to use and swap between devices, apps, and providers. We will trial something, turn it off, turn it back on, add more functions and use it as we see fit. We don’t think about the servers at the back end – we just care about the outcome we want. We may need some specialist help to get it set up originally, but then all the choices we make about

usage are driven by what we want to achieve at that time. We don’t worry about how we will be charged for the service. We know we’ll receive a simple bill for the services we’ve consumed, and that we’re in control.

PART ONE • THE PROMISED LAND

Flexibility will mean different things to different organisations at different times. But, generally, it means the ability to:

• stand up business services in days or hours rather than weeks

• make decisions knowing that the cost of failure is small

• swap applications in and out without embarking on a major project

• scale up or down in line with almost real-time business demand

• have your people working as and when needed

• have supply arrangements that are simple to measure and manage.

The real prize in making the transition to consumption services is flexibility, or, as we prefer to put it, business agility*. Agility, in turn, allows for greater capability and cost effectiveness. Consumption based services are a critical part of enabling this agility – simply being able to use the services we need when we need them, and stop when we no longer need them, allows us to put the focus of our management effort on the front end and the customer experience rather than the engine room.

To illustrate this point we made a brief video. Take a look. It uses an analogy everyone can relate to.

CLICK TO PLAY OR VISIT HTTPS://YOUTU.BE/KKJ9WEXMN68

Why Move to As-a-Service – Made Dead Simple

* Business agility is not to be confused with the “Agile Methodology” for rapid application development – although these often go together.

Moving to the Cloud and Shifting to a Consumption Model are the Same Things, Aren’t They?

They are interrelated and the terms are used interchangeably, but to us they mean different things.

You Manage Vendor Manages

Traditional On-Premises

(On Prem)

Infrastructure as a Service

(IaaS)

Platform as a Service

(PaaS)

Software as a Service

(SaaS)

Made at Home Take & Bake Pizza Delivery Dining Out

Dining Table Dining Table Dining Table

Soda Soda Soda

Electric / Gas Electric / Gas

Oven Oven

Fire Fire

Pizza Dough

Tomato Sauce

Toppings

Cheese

Dining Table

Soda

Electric / Gas Electric / Gas

Oven Oven

Fire Fire

Pizza Dough Pizza Dough Pizza Dough

Tomato Sauce Tomato Sauce Tomato Sauce

Toppings Toppings Toppings

Cheese Cheese Cheese

Moving to the Cloud suggests a like-for-like replacement of hardware, platforms and products that you own or lease with hardware/platforms/products that are owned by others and supplied to you as a service. It’s about putting technology capability – computing power, storage, functionality – somewhere else.

Shifting to a Consumption Model requires that you change your operating model in order to fully reap the benefits of a world where almost anything can be bought ‘as a service’. The focus goes not on the products you want to replace, but on the business outcomes you want to achieve.

Focusing your attention on the business outcome enabled by technology and working out why a capability can make you more competitive is key to getting maximum value from your operating spend. You then get to shape both the scope and quantity, and therefore the cost (although not the ‘price’) of acquiring that capability. This model puts control of the use of the technology in the hands of the business. Your organisation gets to choose what capability it uses, how much it uses, and what it needs to change to be more competitive.

Analogy Upgrade – A Consumption Parable

If you haven’t already viewed this video, here’s a better analogy. It demonstrates an operating model replacement, rather than a point by point replacement of products for services.

The pizza model has been doing the rounds lately on the web. Despite its popularity as an analogy we would argue that it doesn’t go far enough to illustrate the complete mindset and operating model shift that realising maximum benefit from as-a-Service requires. This analogy demonstrates a like-for-like replacement of owned products with pay-as-you-go services, not a transformative

shift. It also, by using a domestic analogy, plays to the concept of an occasional treat, and misses the big mind shift.

To reap the benefits of shifting to as-a-Service you need to think bigger. Clear out the pantry, sell the oven, and free up the all the space and money being used to run the kitchen. It’s a new way of life.

A POPULAR ANALOGY – PIZZA AS A SERVICE

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Businesses are under enormous (and growing) pressure to take cost out of their budgets, refocus their spend and improve agility in order to compete. The cost of buying, building and maintaining bespoke infrastructure and systems, and the lack of flexibility this causes has become a huge constraint in an increasingly disrupted business environment. An 18-month lead time to stand up a new platform may have once been acceptable. These days, however, we’ve become accustomed to a world where

everyone is connected via the internet and where we, as consumers, can search for what we want and obtain instant responses with limited effort. There is an expectation that organisations will be able to pivot swiftly and easily to innovate or respond to their customers, unburdened by the limitations and costs associated with legacy systems.

We all know that cloud service providers promise cost and agility benefits. Cloud computing has been around a long time, and plenty of enterprise and government organisations have taken steps to replace technology they own with services they rent. So, why the increase in the media and marketplace chatter about consumption services lately?

Nothing New Here, So Why all the Noise? 2

PART TWO WHERE WE ARE NOW

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The Cloud Services Market is Coming of Age

When business models shift they have a profound impact.

You stick with the old business model too long and you have a Kodak moment.

You lead in a business model shift and you have an Apple moment.” TODD HEWLIN, TCG ADVISORS

The cloud services market has matured enough to provide a real alternative to the ‘old ways’ of procuring and paying for technology. Consumption services that expand and contract to match your demand, that allow you to pay only for what you use, and to exploit the cost benefits of a commodity pricing model, are becoming widespread. The cloud is hitting critical mass. What we’ve experienced to date could be

desribed as “light, scattered showers”, but it’s about to really rain consumption services. That can be a good thing or a bad thing depending on whether you’re prepared for a deluge.

A seismic shift in business operating models is now inevitable. It’s a case of not if, but when.

PART TWO • WHERE WE ARE NOW

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Supplier’s Focus Aligns More Closely With Yours

An beneficial outcome is the realignment of supplier to customer incentives. In the old model the supplier focused on winning the big sale, with most of the money coming up front and the remainder locked in through maintenance fees. We often see the supplier’s ‘A’ team appear in competitive sales processes, and lots of promises for future benefits, partnerships and value add.

Once the deal is done the ‘A’ team moves on, pocketing their incentive payments, leaving the customer to drive business benefits. The customer is focused on how the business gets value; the supplier was focused on the deal and is now off hunting a new one. Time passes, the business evolves, and the customer finds it difficult and costly to adapt to change.

With consumption services the focus re-aligns. The customer gets to deploy capability in line with business needs, and then turn it off again.

The supplier may get no revenue upfront, and only profits if the customer actually uses the service – and the customer will only use the service if it drives value, and continues to do so. So now the supplier is critically interested in their service delivering value to business users, as it is the only way they will get paid. If the service is not properly designed and implemented, and/or if a better product comes along that delivers greater value, the customer will swap – so the supplier has a vested interest in ensuring that the customer keeps benefiting.

That’s a huge shift – so big, in fact, that many supply organisations are struggling to make the transition. ‘Old school’ sales people will struggle, poor support structures will annoy business users and threaten value, and lack of innovation will open up opportunities for other suppliers. The increased competition will benefit customers. And because the as-a-Service solution demands greater accountability from suppliers it will become evident who has made the transition well as the cream rises to top.

As-a-Service Sounds Like the Answer. (I’m just not sure what the question is.)

When we first engage with clients on consumption models there’s a lot of confusion. In general, people are aware of the potential benefits, but still not sure why their organisation would go through the upheaval of a transition.

They think that the journey to as-a-Service will be complex and scary. It is a big change but it’s also quite manageable with a structured, disciplined and planned approach which minimises the risks while harnessing the benefits of the change. If any of the following questions are being asked in your organisation then you can’t afford to ignore this opportunity because, on first blush, it seems hard.

• How do we free up key resources so we can focus on capability that provides a competitive advantage?

• How do we improve our agility?

• How do we put flexible, mobile, user-friendly technology in the hands of the people who look after our customers?

Stop Spending to Keep the Lights on One of the most commonly espoused benefits of shifting to consumption services is, of course, reduced cost. But slashing the enormous capital spend required to buy/build and own your system is only half the picture. A staggering seventy per cent of IT budget in New Zealand is spent

‘keeping the lights on’ – money that could be far better spent on innovation, improving customer experience, or responding more quickly to threats or opportunities in the market. And it’s locked up where we can’t use it to respond quickly to opportunities or threats.

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THE FOUR BIG CONCERNS

“The benefits are not proven for us. We have unique requirements”

“The suppliers say they’re ready, but they’re not”

“We’re not in control of our IT anymore”

“When things change people lose their jobs”

These concerns are centred on both managing risk for the organisation’s sake and minimising risk for the individual’s sake. The top two concerns are overtly expressed. The second two may be kept quiet, but are keenly felt. They also fundamentally impact on the manageability of the transition from within the organisation.

Put the Spend Where it Shows

The benefits are not proven for us: Your business is unique and special on the customer facing stage, but looks like every other business behind the scenes. At the foundation layer all businesses largely have the same needs – certainly to the degree that it makes it worth exploiting market developments for common consumable services.

The Supplier Market is Ready Enough

The suppliers say they’re ready, but they’re not: Concerns about the supplier market being able to deliver are warranted. Questions such as whether the supplier is robust; whether they will stay the course with the service you’ve signed up for; how much it will cost to change suppliers; and how secure your data will be all need to be navigated. Voco has a rare level of insight into the supply market and our view is that it is maturing sufficiently for the above concerns not to be real impediments (provided that they are deliberately managed). The outcomes on offer are too compelling to let these concerns prevent or delay you investigating how moving to a consumption model would affect your organisation and how it would be practically achieved.

Risk is More Equably Shared

We’re not in control of our IT anymore: Yes, this transition involves risk, but at the same time you are transferring some of the risk that you currently ‘own’ to the vendor. If you allow concerns about stability as justification for avoiding this topic you may overlook the risk associated with staying with the status quo. There is not only the risk of being caught in the rain and having a ‘Kodak moment,’ there is inherent risk in your current platform and solutions.

People’s Roles Will Change

When things change, people lose their jobs: Remember, the seismic shift coming our way is being driven by the consumerisation of IT. You can blame Steve Jobs for the upheaval. By making it so easy for us to consume technology at home, Apple (and its competitors) have changed our behaviour and our expectations around how we engage with technology at work.

Job changes are inevitable. Organisations not seeking to make changes are missing an opportunity, not just to grow but to remain in business. Our advice would be to manage your change proactively for the benefit of your organisation and its employees.

Don’t Pay for Complexity you Don’t NeedSuppliers have been adding to the complexity and functionality of their products at a faster rate than their customers can consume these improvements. As enterprises focus on responding to their customers’ needs more quickly, they are chasing simplicity and becoming increasingly satisfied with ‘good enough’ solutions. These solutions may be generic but they are cheaper to buy/run, fast to deploy and functionally simpler to use.

Technology companies can no longer keep charging high prices for functionality customers are not using. Commoditisation is eating into their gross margins. The old ‘reasonable’ reasons for turning your back on cloud services, like ownership of data, are losing their edge in an increasingly global digital economy.

At the same time the promises made by cloud providers – lower prices, easier to use technology, and no vendor lock-in – are too appealing for the market to ignore. Customers are free to ‘try before they buy’ or bite off services in small chunks. They only pay when, and if, they consume.

The professional services part of the industry makes technology companies four times the revenue of software. These services are required to manage the complexity of the product. Cloud services don’t require anything like the same level of expenditure because implementation, integration and maintenance are largely built into the product.

A Virtuous CircleAs consumption services hit critical mass the technology companies’ operating model and way of life is set to change in a fundamental way, just like the customers they serve. It is in the suppliers best interests to move to as-a-Service provision as it enables them to drive standardisation

and gain leverage, which in turn reduces their operating costs and allows for potential higher returns. They are moving toward an improved ecosystem – a virtuous circle for both supplier and customer.

16 PART TWO • WHERE WE ARE NOW

The Old Ways

• sell complex technology through contracts that lock the customer in for a long period

• require the customer to pay up front and sign up for maintenance

• invoice the majority of the money (typically around 70%) during the first year

• charge for implementation, integration and maintenance to manage complexity

• leave the burden of realising business value to the customer

• invent ever more complex solutions to protect against eroding margins

• the supplier is certain to benefit for the term of the contract, but not the customer.

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6 New Rules of Consumption Services

The investment risk shifts to the vendor. The traditional 70% up front will become closer to 10% as capital spend becomes operating. Customers can assess as they go and re-evaluate or renegotiate.

Simplicity is King.Purchasers will increasingly opt for ‘good enough’ solutions that avoid complexity. Simplicity encourages trial and rapid adoption by end users.

End users drive purchasing decisions. End users now decide what services meet their needs. IT teams must share decision-making rights.

Customer aggregators shrink the direct market. Suppliers serving the aggregated market will achieve credibility and economies of scale that allow them to put their focus on providing a good product. A great example is the work government is doing building common capability for infrastructure and telecommunications, and allowing agencies to contract that as-a-Service.

Technology pricing under pressure. Different ways of pricing are being experimented with by cloud service providers as they try to figure out how to make the new model pay. Purchasers will benefit from initiatives such as ‘try before you buy’.

Behavioural data drives consumption. Customers will have access to live data about how their systems are being used, informing and empowering them. This data will leave ‘nowhere to hide’ for both suppliers and consumers and drive changes in behaviour as increasing efficiency and effectiveness is sought. This data will also shape the services suppliers continue to develop and offer.

What to Expect of your SupplierTechnology companies need to transition from selling technical expertise to be able to drive value for their customers. The ones that will succeed will be those who not only sell in a robust solution but stick around to help their customers achieve their desired outcomes. A key role will be helping end users utilise the capabilities of the service they’ve been sold. They should also be mining customer data, to help you consume their services efficiently.

Expect your technology supplier to become your capability provider – less like the combined car dealer and mechanics workshop, and more like the advisor that helps you focus on your goals and maintain good habits.

A good supplier will help you:

• accelerate the adoption of the technology that achieves outcomes

• improve the performance of the product and the end users

• understand how intelligently you’re consuming their service.

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Mobile

Technology

Technology Infrastructure

Network

HIGH COMPETITIVE ADVANTAGE

LOW COMPETITIVE ADVANTAGE

Currently 30% of spend

Customer Data

Customer Apps

Core Apps

Lift Your GazeOur clients who have genuinely challenged their requirements have been surprised by the results they’ve obtained. In our experience you can expect to increase your capability while reducing multi-year capital and capital spend on ICT and related services by 30-40%.

You may choose, in the end, to spend the same budget as always, but wouldn’t it be excellent to shift the balance of that spend so that more of it went towards technology that does express your uniqueness, like customer-facing applications?

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Currently 70% of spend

PART TWO • WHERE WE ARE NOW 21

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If you’ve read this far you probably agree that consumption models can have a real impact on agility. So, how do you go about making the shift?

3PART THREE:

MAKING THE JOURNEY

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Not a Like for Like ReplacementIt’s worth labouring this point. Don’t focus on products/solutions and spend to replace those with as-a-Service. Focus on the business outcomes you want, then spend to achieve those with as-a-Service. You need to create a holistic business case so that you can see how you are rebalancing what you spend money and time on.

Consumption Based ModelScalability is one of the true joys of this ‘pay only for what you use’ model. Scale up, scale down, breathe in, breathe out. Make sure your demand plan meets your business objectives. (Creating a demand plan is a relatively new competency for many organisations, and the complexity required is often overstated).

Catalogued Price, But Service VariesThe price might be fixed but what you get varies from supplier to supplier. You need to clearly indentify what each supplier offers.

Transition Cost is Variable The cost to transition will depend on where you are now. This is the one area where suppliers can be innovative in doing a deal with you.

Voco’s Three Keys to a Smooth and Successful Transition

1. Understand your Total Cost of Ownership Take a holistic view and challenge yourself to be bold. If you get stuck with greater operating expenditure and haven’t freed up budget and resources you’ll be stranded with a foot in the old world and a toe in the new, which is an expensive place to be. Remember the real benefits come from a revolutionary shift. Get rid of the car. Free up the garage. Start the band.

A TCO model will give you a multi-year financial model of all relevant considerations, clearly showing the implications of the shift to a consumption-based way of life. This is the first thing you should do.

2. Think and Plan Ahead to Maximise ReadinessIdeally you need to start thinking and planning a minimum of 24 months out from your next procurement cycle so that preparations can be made as part of your normal business planning process in order to maximise the opportunity.

3. Employ a Structured, Fast Cycle Approach

It’s easy to get lost in the detail during a complex transition such as this, but if you follow a structured approach you can make progress quickly while managing risk.

FIRST, CONSIDER THESE FOUR IMPORTANT FACTORS.

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Get Yourself a Travel Guide

If making the transition from within the organisation sounds difficult, it is. You’re dealing with new territory. Picture yourself setting out on an Antarctic expedition without any training, specialist help or navigation aids. We suggest you get yourself a travel guide. In fact, not just a travel guide, but an experienced expedition guide who will complete the journey alongside you. Here are some pointers on what to look for.

Choose a guide who:

• Focuses on the business outcomes you desire, not replacing the products/solutions you currently have.

• Can demonstrate the business case for making the shift and has a Total Cost of Ownership model ready to be populated with your financials.

• Has the ability to capture and express your future requirements under the new operating model.

• Has helped other organisations like yours move to as-a-Service, and understands the landscape and the services being promoted by suppliers.

• Can develop a robust roadmap that manages your risk and secures you some quick wins.

• Will help you execute by managing the transition in a practical hands-on manner, from stakeholder buy-in to supplier negotiations to your team adopting the new technology to create a better experience for your customers.

26 PART THREE • MAKING THE JOURNEY

If you’re keen to know what this kind of transformative shift would mean for your organisation and how you would structure your approach, get in touch with Voco.

Paul Gordon 021 718 190

Michael Foley 021 777 684

Julia Dol 021 458 542

The Cloud is Raining Acronyms

IaaS

PaaSSaaS

TaaS

XaaS

There are lots of ‘as-a-Service’ acronyms, but the three mains ones are IaaS - Infrastructure as a Service, PaaS - Platform as a Service, and SaaS – Software as a Service. The others all nest inside one of those big three. For example, TaaS (Telecommunications as a Service, pronounced ‘tazz’) goes under PaaS. When you’re speaking of them as a group you can employ the nifty ‘XaaS’. X as a Service means ‘anything’ or ‘everything’ as a service. (This one is pronounced ‘zazz’, by the way)

A glossary of terms for the non-CIOs

aaS - means ‘As a Service’ and is a collective term that stands for an increasing number of services that are delivered over the Internet rather than provided locally or on-site.

Consumption services - the same as aaS

CaaS - Communications as a Service. An outsourced enterprise communications solution that can be leased from a single vendor. Such communications can include voice over IP (VoIP or Internet telephony), instant messaging (IM), collaboration and videoconference applications using fixed and mobile devices.

Demand services - the same as aaS

DaaS - Desktop as a Service. A cloud service in which the back-end of a virtual desktop infrastructure (VDI) is hosted by a cloud service provider.

Iaas - Infrastructure as a Service. A category of cloud computing services that provides virtualised computing resources over the Internet.

MaaS - Monitoring as a Service. A framework that facilitates the deployment of monitoring functionalities for various other services and applications within the cloud.

OPaaS - Office Productivity as a Service. A Datacom product designed to provide NZ government agencies with Microsoft Office based email and calendar services on a per mailbox basis.

PaaS - Platform as a Service. A category of cloud based services that allow customers to develop, run, and manage applications without the complexity of building and maintaining the infrastructure typically associated with developing and launching an app.

SaaS - Software as a Service. A software distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet. SaaS is one of the three main categories of cloud computing with IaaS and PaaS.

TaaS - Telecommunications as a Service. The same as CaaS.

XaaS - ‘X’ as a service, or ‘anything as a service’. The same as aaS.

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