Vox Artis

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RIM Comes of AgeBen Trowbridge

Alsbridge

Emerging Models in IMSAmit SinghAvasant

Global Sourcing of ServicesCliff Justice

KPMG

Stan Lepeak

KPMG

Benchmarks Go StrategicKathy Rudy

CompassManagementConsulting

Achieving Innovation in IMSRobert McNeillHorsesforSources

Pricing the CloudScott Feuless

CompassManagementConsulting

Stanton Jones

TPI

INAUGURAL ISSUE NovEmbER 2011

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

International Financial Outsourcing Center

For more details, please click:

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

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

Demonstration City of Chinasourcing

Hangzhou

Hangzhou is defined as the China Service Outsourcing Demonstration City in February 2009. Hangzhou is alsoone 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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International Financial Outsourcing Center

To Combine the Global Resources and Facilitate the

2011 the West Lake, Enlightenment and Discussion

Discovery, Transformation, Reaction, Share

Integration & Improvement of Global Service Capability

For Your Attention

Sponsors:

Ministry of Commerce of the Peoples Republic of China

Ministry of Industry and Information Technology of the Peoples Republic of China

Ministry of Education of the Peoples Republic of China

Host City :

Hangzhou Peoples Government

Official Promotion:

Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau

Contact: Tel-8610 85863613 Fax-8610 59081093 [email protected]

International Outsourcing Business Development Summit

Date: October 24-26, 2011Venue: Zhejiang Narada Grand Hotel, China

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Global ServiceS

An integrated media platform which connects thevarious constituents of the global technology andbusiness processing services industry ecosystem.

Directory of ServiceS

NewSletter

A regular digest of key industry happenings.

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webiNarS

Global Services web-based seminars aim toimpart useful information related to outsourcingindustry in the form of presentations and discus-sions by industry specialists.

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YOUR STRATEGIC

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Inside the Experts Mind

Welcome to the rst 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 inuence 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 specic topics.

In this rst 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 speakersthemselves, ahead of the conference. Do let us know if you would like to participate.

Ed NairEditor

Global ServicesEditorsNote

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RIM Comes of Age

8Ben TrowbridgeAlsbridgeEmerging Models in

Infrastructure Management

14Amit SinghAvasantGlobal Sourcing of Services:Easier Said Than Done (Well)

22Cliff Justice

Stan LepeakKPMG

Benchmarks Go Strategic

30Kathy RudyCompass Management ConsultingAchieving Innovation in IMS:Eight Strategies to Consider

38Robert McNeillHorses for SourcesPricing the Cloud

46

Scott FeulessStanton JonesCompass Management Consulting, TPI

TABLE OF CONTENTS

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Ben Trowbridge is founder and CEO ofAlsbridge, an award-winning sourcingadvisory and benchmarking rmchanging the way companies buyand manage hardware, software, ITinfrastructure services, applicationservices, business processes

and cloud computing. As CEO ofAlsbridge, one of the Inc 500's fastestgrowing companies in America in2010, Ben has revolutionized theway companies source technologyand business processes. Ben isrenowned for his forward thinkingand collaborative approaches to dealstructuring and sourcing techniquesthat have redened the solutiondevelopment, contract negotiation andimplementation process.

Ben TrowbridgeCEO

Alsbridge

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November 2011 www.globalservicesmedia.com 9

RIM Comes of AgeOutsOurcing infrastructure ManageMent: its 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 UsersupportVoiceNetworks

Infrastructure Management Services

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10 www.globalservicesmedia.com November 2011

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

FullserviceRIMinvolvestheclientretainingtheirITassetsbuthandingoverthemanagementoftheirITinfrastructuretoaproviderorproviders.TheconfigurationoftheRIMscenariodependsontheclientsspecificbusinessdrivers,internalcapabilities,andstrategicITdirection.

RIM EvolutIon and MatuRIty

With the continued advancement of telecommunications and wide area networkinfrastructureinbothNorthAmericaandEuropeoverthelast15years,domesticdeliveryofRIMhasbeenacommonoperationalmodelinmostFortune1000companies.Typically,domesticremoteinfrastructuremanagementisperformedinalightsoutdatacenterenvironment.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,andinsuranceindustriesareleadingRIMoffshoring

growth.Theseindustries,oftenreferredtoasthefinancialservicesindustry,havebeenearlyadoptersusingremotesoftwareprogrammingresourcesofoffshore

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outsourcing in the area of application development and support. In addition, thefinancialservicesindustriesnecessityforhighlysecure,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,someactivitiesremainthatmustbemanagedbyaproviderorbythebusinessinternalITstaffinthelocalpremiseordomesticlocation.Theseactivitiesincludethephysicalserverprovisioningandhardwarerepairs.Activitiesrequiringquickresponsetimesanddirectcustomerserviceintervention,suchascomputerbreak/fixorrefresh,mayberequiredtoremainatthecustomersite,retainedasathird-partystand-by,orbepartofthebusinessinternaldomesticITstaff.

MatureproviderscontinuetoexpandtheirflexibleRIMoffshoredeliverymodelofferings.Thesematureorfull-serviceproviderscanoperateafullservicetower

remotelyorincludelocal,domesticstaffaugmentation.Theproviderscanalsojointlysupportatowerwithadomesticcustomerstafforathirdparty.

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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.

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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,onemustconsidertheorganizationalrisksassociatedwiththeinternalcustomerssatisfactionwithRIMservices.Ingeneral,themajorconcernsidentifiedbyseniorbusinessandITexecutiveswithrespecttooffshoringincludesecurityanddataprivacy,languageandaccentsneutralization,high-levelbusinessandindustry-specificknowledge,internalpoliticalperceptions,andthelackofperformancemetrics.Theseconcernscanbemitigatedthroughastrongprovidermanagementandgovernanceprocessthatassurestheseissuesareaddressedwellbeforeanyserviceistransitionedtoaprovider.Externalissuessuchaspoliticalstability,governmentregulations,culturalalignment,andproductivityassociatedwithremotelocationsshouldbeaddressedbytheprovideraspartoftheirstandardserviceprofile.

ThebenefitsofRIMservicescanbemuchbroaderthansimplyfinancial.Additionally,choosingaproviderwithabroadrangeoflocationsandalargeanddiverseskilledlaborpoolcanincreaseflexibilitytorespondtothechangingneedsofitsinternalbusinesscustomersneeds.Ideally,newskillsandcapabilitiescanbedeliveredbyaqualifiedproviderbyvirtueoftheprovidersrangeofservicesandknowledgedevelopedthroughRIMservicedeliveryoveralargepoolofdiverseclients.

SuMMaRy

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

RIMhasarrived,andthereareamultitudeofprovidersreadyandwaitingtodeliverit.

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Amit is a Partner with Avasant LLC, one of

the globally top ranked sourcing advisory

and management consulting rms. Amit is

one of the key leaders of the rm in strategy

consulting, M&A and global shared services

optimization practices. He possesses

signicant 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 SinghPartner

Avasant

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Emerging Modelsin Infrastructure

Management


BaCkgRound

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

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

ThispaperexploressomeoftheemergingmodelsforITInfrastructureoutsourcingandthereasonsthereof.

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IMPaCt of EConoMy on InfRaStRuCtuRE SouRCIng ModElS

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

Changes in DemandClientsarenolongerasmuchinterestedinlookingforasinglesolutionthatmeetsallinfrastructureneedsastheyareinidentifyingbestofthebreedsolutionsthatcanofferflexibilityinserviceprovisioningandcankeepupwithtechnologychange.Alarge,monolithicinfrastructureenvironment,ifitishardtochange,isnolongerviewedfavorablyinthisenvironment.

End-Customer RequirementsTheITinfrastructurerequirementsaremoreandmoredirectlytiedtobusinessrequirementsandarefocusedonbeingpreparedfortheconstantchangeinbusiness.Theinfrastructureisbeingaskedtobemuchmoreagileinsupportingbusinessusersthanhasbeenthecasetraditionally.Thespeedandcostofactivitiessuchastosetupmailboxes,provideremoteaccesstoworkingenvironments,enablinglargescaledatatransferandprovidinginterconnectivitytomyriadmobiledevicesaresomeoftheexamplesofcustomerrequirementsdrivingemergingmodelsinITinfrastructuremanagement.

Consolidation & Virtualization TherehasbeenaconspicuoustrendtowardsconsolidatingandvirtualizingITenvironmentinthepastseveralyearswithaviewtomanagingcostsaswellasupgradingfromlegacysystemsthatcouldnotallowformodulargrowthandseamlesssharingofenvironmentsacrossapplications.Thisstep,asoneoftheessentialelementsofleveragingcloud

basedsharedinfrastructuretechnologiesiscurrentlyoneofthekeyfocusareasofanumberoforganizations.

Sourcing Maturity Lifecycle

Adoption

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%

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

CostITInfrastructureisthenewfrontierforcostreductioninmostoftheITdepartmentsacrosstheglobe.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

CLOUD

COMPUTING

ElasticResources

ManagedServices

Automation

VirtualizedResources

Self-Service

SecureMulti-Tenancy

3rd PartyOwnership

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Mostoftheemergingmodelsinthecurrentinfrastructuremanagementworldfollowacombinationofthecharacteristicsshownabove.

Ingeneral,thenewmodelscanbecategorizedasfollows:

Supplier ServicesThisisthesupplysideofthecloudcomputingmarketplaceandconsistsofITandbusinessconsulting,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-tenantandsharedinfrastructurewithouttheneedtomanageorcontroltheunderlying

resources.ItisdefinedasuseofanInternetbrowsertoaccesssoftwareapplications,eliminatingtheneedtopurchase,install,runandmaintainthe

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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-facing

Webapplicationswithcloudproviders.Organizationsjustneedtopayfortheresourcestheyuse,hourbyhour.

XaaS Everything as a

Service

Provision of application services

with added multitenant elasticity asa service

Provision of application

middleware, including applications

servers, ESB, and BPM (Busniess

Process Management)

Based on application streaming &

virtualization technology, provides

desktop standardization, pay-per-

use, management, and security.

Provision of networkcommunication, billing, and

intelligent features as services to

consumers.

Management of hardware and

software required for delivering

voice over IP, instant messaging

video conferencing, for both fixed

and mobile devices

APaaS

Application Platform as aService

AlaaS Application Infrastructure

as a Service

DaaS Desktop as a Service

NaaS Network as a Service

CaaS Communicationsas a Service

BPaaS Business

Process as a Service

SaaS Software as aService

PaaS Platform as aService

laaS Infrastructure as

a Service

Broad term thatembraces aN the

models discussedhere.

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

Lowering CapEx Budgets-Cloudcomputinggivestheabilitytodelivernewapplicationswithouthavingtobuygear,raisingthefirmscapitalexpenditures.Applicationdevelopmentanddeliverycanallbeperformedandmanagedviaoperatingexpenses.

Collaboration & Sharing-Cloudcomputingallowsorganizationsarelativelyinexpensiveandeasilyaccessiblewaytoshareinformationbyhostingdataonpubliccloudsratherthanopeningtheirorganizationsfirewalltomakeitavailabletoexternalparties.

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

Fromaservicedeliveryperspective,thefollowingdiagramdemonstratesthedeploymentmodelsbeingusedbyorganizations.Itislikelythatmostorganizationswilldeployamixofthesemodels:

DeploymentModel

Private(Internal)

EnterpriseServiceProvider

ServiceProvider

ServiceProvider

Shared

Select Multi-Tenant

VPN NetworkPublicInternet

Pay as you go

ServiceProvider

ServiceProvider

Shared

Pay as you go

PublicInternet

Multi-Tenant

ServiceProviderEnterprise

EnterpriseTenant

EnterpriseTenant

InternalEnterpriseNetwork

VPNNeteorkPublicInternet

TraditionalTraditionalor pay asyou go

Dedicated

Enterprise

ServiceProvider

EnterpriseTenant

InternalEnterpriseNetwork

Traditional

Dedicated Dedicated

PrivateManaged

PrivateHosted

CommunityHosted

PublicHosted

Private Cloud Hybrid Cloud Public Cloud

Premise

Run / Manage

Infrastructure

Community

Access

Payment

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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.

Frametheriskandanorganizationsreadinessfortheadoptionofcloudtechnology.

UnderstandthemanagementframeworkneededfortheenterprisetomanageCloudServices.

Lastbutnottheleast,discusswithpeersandseekexpertassistanceasyouembarkonthisjourney.

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Cliff JusticeUS Shared Services and

Outsourcing Advisory

Group

KPMG

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. Hewas formerly MD and the

Leader of EquaTerras

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

argest and most

comprehensive shared

services and outsourcing

advisory businesses for

KPMG LLP. Has 20 years of

relevant experience across

a wide range of disciplines,

ncluding 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 Directorof neoIT and specialized in

offshoring strategies.

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Global Sourcing ofServices: Easier Said

Than Done (Well)


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

third-partybusinessandITservices.Whilethesurveyfindingsrevealmanyinterestingtrends,onekeyfindingwasthatalthoughmanyorganizationsarelookingtomovetoamorematuremodelforservicesdelivery,fewhaverealizedthisgoal.

gloBal SouRCIng: thERES 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.

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Formostlargerfirms,globalsourcingtodayisamulti-pointprocessacrossmultiplegeographies,utilizingmultipleserviceprovidersandemployingmultipleservicedeliverymodels(e.g.,internallyrunoperations,localsharedservicescentersandoffshorecaptivecenters,onshore,nearshoreandoffshoreoutsourcing).Whilethisextendedglobalenterprisemodelcanbettersupportorganizationsglobalservicesneedsandhelptoimproveoperationalcompetitiveness,itisalsoprovingincreasinglycomplextosuccessfullydesign,deploy,operateandoptimize.

Buyersundertakingglobalsourcingeffortsnaturallyexertmuchfocusonselectingwhichserviceprovidertoemployandfromwhatlocationstosourceservices.Thisassessmentprocessshouldincludeaclearandrealisticassessmentofabuyersownmaturityandsophisticationrelativetosourcingandmanagingglobalsourcingefforts.

Acommonrootcauseofproblematicorunderachievingoffshoreoutsourcingeffortsisadisconnectbetweenwhatabuyeristryingtoaccomplishandtheskills,experience,andresourcesitpossessestosupporttheseefforts.Theseskillsinvolveselectingprovidersandlocations,accountingforandmanagingrisk,andgoverningagrowingnumberofsourcingeffortsspreadacrossmultipleprovidersandlocations.Yetoftenitseemsthatmanybuyerorganizationsglobalsourcingambitionsoutpacetheircapabilitiestosuccessfullyundertakeandmanagetheseefforts.Ormoresimplytheglobalsourcingeyesarebiggerthanthecapabilitiesstomach.

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

KPMGadvisorsdidnotscorebuyersabovethemidpointonanyofthefiveskillsetsassessed.Thehighestscoregivenwas2.65forserviceproviderselectionandassessingserviceprovidersglobaldeliverycapabilities.Serviceprovidersweremoregenerousintheirperceptionofbuyersskills,scoringthisattributeat3.32.

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

Therewasconsensusontypicalbuyerchallengesinmanagingandgoverning

multipleengagementsandserviceprovidersacrossmultiplefunctions,geographies,etc.,scoredthelowestbybothserviceprovidersandadvisors.

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KPMGadvisorsinthefieldofferedadditionaldetailsonwhysomebuyersstrugglewiththeirglobalsourcingefforts.OneUS-basedpartnerwhoworkswithfirmssourcingback-officebusinessfunctionsgloballymadethefollowingobservation,Clientsdontconsiderthegreatercomplexityofenvironmentsinwhichanoffshorecaptiveorthird-partyprovidersoperate,andthereforedontaccountforgeopoliticalrisk,economicconditions,etc.

Addressingandmanagingriskinglobalsourcingwasacommonlycitedweaknessindentifiedinmanybuyersaccounts.Asonesenioradvisornoted,Clientsaregaininggreaterfamiliaritywithutilizingoffshoreproviderscapabilities,butremainriskaverse.Despitethis,little(oratleastnotenough)attentionisgiventomanagingrisk.Governanceandrelationshipmanagementcapabilitiesareoftenweakcomparedtothescopeoftheglobalsourcingefforts.

AseniormanagerintheUSwasmoreblunt,orrealistic.Lookthesefolksarenotidiots,butrarelyaretheyexcellentateachandalloftheseglobalsourcingactivities.

Figure1BuyerGlobalSourcingMaturity/Sophistication

1.00 2.00 3.00 4.00 5.00

Serviceproviderselection/assessingSP'sglobaldeliverycapabilities

Managingandgoverningmultipleengagementsandserviceprovidersacross

multiplefunctions,geographies,etc.

Assessing/accountingfordata,dataprivacyandintellectualpropertyrisk

Assessing/accountingforgeopoliticalandserviceproviderrisk

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

1=Veryunskilled/unsophisticated,5=Veryskilled/sophisticated

Advisors ServiceProviders

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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.Thisneedwillcontinuetogrowasglobalsourcingbecomesmorepervasiveandaccountsformoreofanorganizationsglobalservicesfootprint.However,tightlycoordinatingandmanagingsourcingeffortsgloballyisstillagoaltowhichmostorganizationsaspire.

Figure2-Management&GovernanceModelsforExistingGlobalSourcingEfforts

35%

53%

7%5% 15%

58%

9%18%

IndependentlyofothereffortsalreadyinthefieldBygeography,businessunit,functionalarea,etc.ByanenterprisesourcingcouncilBy

an

enterprise

sourcing

Center

of

Excellence


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Inthe2Q11Pulse,58percentofserviceproviderspolledand53percentKPMGfirmssourcingadvisorsindicatedthatwhentypicalbuyersaremanagingexistingglobalsourcingefforts,theyaregroupedandmanagedandgovernedbygeography,businessunit,functionalarea,etc.(seeFigure2).Thisisthemostcommon,historicalapproach,andisadequatefordealsandeffortsthatdonotoverlapkeyfunctionalareas.

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

Fewerthan10percentofserviceprovidersandadvisorsindicatedthatexistingeffortsaremanagedandgovernedbyanenterprisesourcingcouncil,whichcanprovideamoreholistic,coordinated,anddetailedviewofglobalsourcingeffortsandtheirperformanceandcostlevels.

Thestoryisbetterfornewsourcingefforts,with15percentofadvisorsand27percentofserviceprovidersindicatingthatbuyersareattemptingtosourceandmanagetheseeffortsglobally(seeFigure3).

Figure3Management&GovernanceModelsforNewGlobalSourcingEfforts

18%

55%

27%37%

48%

15%

IndependentlyfromothereffortsbeingsourcedoralreadyinthefieldBygeography,businessunit,functionalarea,etc.Sourcedandcoordinatedglobally


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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,buyerscapabilitiestosourceandmanageadiverseservicesdeliveryportfoliohaveoftennotkeptupwiththeirsourcingambitionsscaleandscope.

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IntroducingTheWorld'sForemost

Expertnutsourcing

Vox Artis, a Latin phrase that literally means voice of the

expert, is a resource of cutting-edge insights by experts

in global sourcing of bussiness and technology, theresource is intended to be a knowledge repository and is

oriented to help practitioners make actionable decisions.

The voice of experts is delivered on various subjects and

in multiple formats such as e-book, pdf, microsite, webi-

nars, webcasts, expert round tables and more.

An initiative by

For queries, write to us at [email protected]

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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 includeperformance 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 RudyGlobal Consulting Director

Compass Management

Consulting

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Benchmarks GoStrategic

cOMparative analysisasan OutsOurcing

gOvernance MechanisM


Benchmark analyses of outsourcing arrangements are an acceptedmanagementtechniqueappliedtogaugethemarketcompetitivenessandqualityofaprovidersservices.Inoutsourcedenvironments,benchmarks

havetraditionallybeenappliedaspartofacontractuallymandatedexercisetoassessexistingpricingandservicequalityinthecontextofcomparableindustrystandards.

Traditionally,outsourcingbenchmarkshaveoftenbeenusedstrictlyasanegotiatingtooltodriveshort-termadjustmentsinpricingwithindiscreteservicetowers.Asaresult,theyveoftenbeencharacterizedbycontentiousconfrontationsbetweenclients,serviceproviders,andthird-partyproviders,andhavedeliveredrelativelylimitedvalueintermsofenhancingthesourcingrelationship.

Increasingly,theroleofthebenchmarkinoutsourcingagreementsisevolving,astop-performingclientorganizationsandserviceprovidersusebenchmarksasagovernancemechanismtoidentifyimprovementopportunitiesacrossthe

enterprise,assessalternativesandmodelscenarios,anddesignandimplementtransformationalchangeinitiatives.

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RolE of BEnChMaRkIng

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

Becausebenchmarkinitiativesoftenfindagapbetweenoutsourcedpricesandmarketrates,theyrepresentathreattotheserviceprovidersrevenuestream,therebymakingthem,bydefinition,problematictothevendorcommunity.Moreover,mostclausesonlymandateadjustmentsifpricingistoohighifthevendordeliversservicesbelowmarketrates,theyarenotcompensated.Asaresult,iftheexerciseisfocusedstrictlyonpricing,itsalose/losepropositionfortheoutsourcer.

Anothercomplaintvoicedbyserviceprovidersisthatabenchmarksfindingsmayprovideaskewedperspectiveofpricing.Manylong-termoutsourcingcontractsarepricedsothattheproviderdiscountsservicesdramaticallyintheinitialyears,andthenrecoversthosecostsatthebackendofthedeal.Whileaproperlyconductedbenchmarkwilladjustforthefinancialengineeringoverthelifeofthecontract,abenchmarkconductedlateinthecontracttermmaynotadequatelyaccountforthevendorsearlierinvestment.

Becauseofthesefactors,serviceprovidershave,overtheyears,employedanumberofstrategiestoavoidorderailbenchmarkinitiatives.Insomecases,theydemandunrealisticallyprecisecomparatorrequirements,orchallengethevalidityorrelevanceofthecomparativedata.Inothers,theyofferupfrontdiscountsinlieuoftheanalysis.Whilesuchactionsareperhapsunderstandableinthecontextofthebusinessissuesatstake,theyveoftenservedtofuelacrimonyduringthenegotiationprocess,ultimatelytothedetrimentofthelong-termrelationshipwiththeirclients.

a tRadItIonal BEnChMaRk SCEnaRIo

The negative characteristics of a traditional outsourcing benchmark can includeanexclusivefocusonshort-termadjustmentstopricingwithinindividualservicetowers,andanexclusionofbroaderoperationalconsiderationsoropportunities.Further,thefindingsoftheanalysisserveasanegotiatinghammertodriveconcessionsfromtheprovider.Theonustoreducecostsandfindsavings,moreover,issolelyontheprovider,whiletheroleofthird-partyadvisorsistobeabadcopwhoroughsuptheserviceprovidertoextractpricingconcessions.

Considertheimplicationsofthisapproachinthefollowinghypotheticalsituation:

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a benchmark analysis finds the client organization is paying above market rate forstorageservices.Adheringtothetermsoftheclause,theserviceprovideradjustspricestoalignwiththemarket.Facedwithdecliningrevenue,theproviderbringsinless-experiencedandlower-coststaffinanunsuccessfulattempttomaintainmargins.Qualityplummets,whiletheunderlyingproblemtheclientsinadequatedatamanagementandstoragestrategyremainsunaddressed.

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,asitopenstheopportunitytoachieveeconomiesofscaleacrossmultipleenvironmentsratherthandeliveringuniqueandcustomservicestoeachcustomer,theoutsourcerisnowinapositiontodrivestandardizationacrossitsportfolioofclients,tothebenefitofall.

Asorganizationsfocusonimplementingvirtualization,cloud,andtransformationalchangeinitiatives,benchmarksarebeingappliedtoidentifyactionsneededtodrivechange,andtoquantifytheimpactofthoseactions.By,forexample,definingthecurrentasisstatealongwiththefuturetobestate,abenchmarkcanshowwhatchangesinarchitecturewillbeneededtosupportacloudsolution,andoutlinetheoptimalapproachtoimplementingthosechanges.

StRatEgIC BEnChMaRk ChaRaCtERIStICS

In contrast to the negative characteristics of the traditional benchmark initiativedescribedearlier,astrategicbenchmarkcanbeseenasonewheretheresultsoftheanalysisprovideabaselineforlong-termplanningandimprovement,includingtransformationalchange.Ratherthanservingasanegotiatinghammer,thefindingsfacilitateconstructivedialogueaimedatdrivinganimprovementprocesswherebothpartiesassumeresponsibilityforchange.Ratherthanbeingapointofcontention,referencedataaretransparenttoallparties,andthethird-partyadvisor

nowbecomesanobjectivebrokerwhoensurestransparencyandmeaningfulanalysis.

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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,theclientsoughtanindependentviewofeachpartysrolesandresponsibilitieswithintheagreement;acomprehensiveassessmentofcosts,resourceutilization,andservicequality;andrecommendationsonhowtoenhancethestrategicvalueofthepartnership.Thescopeoftheanalysiscomprisedtheapplicationandinfrastructureserver,storage,desktop,andservicedeskenvironmentsintheAmericas,Europe,andAsia.Indefiningthecomparativereferencegroups,adjustmentswerecalculatedfordifferencesinorganizationalsize,complexity,serverconfiguration,laborcosts,andcurrencyfluctuationsrelativetotheclient.

Thebenchmarkanalysisrevealedthattheserviceproviderscontractualpricingwasclosetoathirdbelowmarketstandards.Thisraisedaredflag,asserviceproviderstypicallycompensateforlowpricesandunprofitablecontractsthroughavarietyoftactics,includingaddingchangeorderchargestoanyactivitynotspecifiedintheterms,replacingskilledstaffwithlower-costpersonnel,reducinginitiativetoimproveservicequality,andminimizinginnovationandproactiveuseofmanagementtools.Asaresult,servicequalityoftensuffers,asdoestherelationship.

Inlightoftheseissues,theclientwasurgedtoconsideranumberofstepstosteertherelationshiptowardamoremutuallybeneficialstate.OnewastoimproveassetmanagementtoenhancetheaccuracyofinvoicingaswellastheeffectivenessofSLAs.Anotherwastolinkmetricstoservicedeliveryimprovementinitiativesby,forinstance,trackingandanalyzingserveroutagestounderstandrootcausesandimpactonusers.AnotherrecommendationwastoenhanceSLAsandimplementanappropriateserverrefreshcycletoboostreliabilityandreducesupportcosts.

Anotherkeychangeinvolvedadjustmentstopricingstructurestolinkcostdriverstovendorrevenue,therebyfacilitatingdemandmanagementtobenefitbothparties.

Increaseduseofvirtualizationnowresultsinhardwarecostsavingsfortheclientaswellasincreasedrevenuefortheserviceprovider.

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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,andtoassesstheserviceprovidersglobalcapabilities.Whilesatisfiedwiththevendorsoverallperformance,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.Anotherissuewasthedilutionofdealknowledgeovertime.And,poorcommunicationregardingtheserviceproviderscapabilitieslimitedinnovation.

Governancerecommendationsincludedensuringthattheclientsretainedteambeproperlyalignedwiththebusinessandinvolvedinstrategydiscussions,

streamliningresponserequestprocedures,takingamoreproactiveapproachinmanagingpriorityrequests,andimprovingcommunicationprocessesonvendor

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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.

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As VP Research for HFS, Robert

provides research and consulting

services to both end user organizations

and services providers focused around

sourcing strategies and best practices.

Prior to HFS, Robert was VP Research/

Consulting for Saugatuck Technology,

VP Strategy/ Marketing for SaaS vendor

Service-now.com, a managementconsultant with Deloitte Consulting

advising organizations across North

America on IT and business process

sourcing strategies and a Principal

Analyst with Forrester Research. He is a

contributing author of a book produced

by the Institute of Directors in the UK

on software asset management.

Robert McNeillVP, Research

Horses for Sources (HFS)

Contributing Authors:

Esteban Herrera,COO, SVP Research, HfS Research

Tony Filippone,VP Research, HfS Research

Phil Fersht, CEO, HfS Research

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AchievingInnovation in IMS:Eight Strategies to

Consider

ExECutIvE SuMMaRy

In a period of uncertain business cycles influenced by a potential DoubleDipglobalrecession,corporateprioritieshaverapidlychangedjustwithinthepastfewmonthsastheyexploresmarterwaysofworking,newgrowth

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


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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 theprovider 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,effectivepoliciesandachievementofthebuyersdesiredfuturestate.But...whatisitreally?HfSbucketsinnovationinthreeareas:

1.Best Practice Implementation.Referstoproviders(eitherinternalorexternal)bringingwhattheyhavelearnedfromdoingsimilarbusinessoutside,judgingwhetheritisthebestwaytodoit,andimplementingitonbehalfoftheirclients.Riskismoderate,butfailurecanbeexpensive.Thereturncanrangefrommoderatetosignificant,dependingonthestartingpoint.

2.Continuous Improvement.Referstoprovidersimplementingminormodificationstoexistingprocessestomakethemperformbetter,withoutregardforwhatisdoneoutsideRiskisminimalandfailureischeap.Returnsaregenerallysmall,butcanaddupovertime.

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

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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 onsetit 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,speedandflexibilitybywhichbusinessescanaccessandsupplierscandeliverservicestosupportbusinessneeds.Companiescontinuetosufferfromsignificantinternalresourceandbudgetconstraintswith,onaverage,70to80percentoftheITbudgetstillspentonIToperationsandmaintenance,leavinginsufficientresourcesfornewprojects.Organizationsarebeginningtoleveragepublicclouddatacentersandprivatecloudalternativestoproviderapidscalinginresponsetobusinessneedswherededicatedinfrastructureprovestoocostlyandprovisioningflatlytakestoolong.Cloud-basedinfrastructure--availablefromAmazonsAWS, 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'simpetus to pursue the following PRODUCTIVITY measure over the next six months?

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

Re-engineer

existing

business

processes

Re-engineer

existing

business

processes

9% 11%16%

10%17% 17% Dont 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%Buy-sideOrganizations

Move business

support funtions

into shared

services

(Finance,

Procurement, HR

and other ops)

Move IT

infrastructure

into the Cloud

Move IT

support

functions

into shared

services

Invest in

Analytics

capabilities

Subscribe to

Cloud Business

Services

platforms (i.e.

PaaS, SaaS)

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therapidprovisioningofinfrastructureandprovideshardwareelasticityinanon-demandmanner.AsCloud-basedservicesmature,ITorganizationscanreducetheirrelianceonon-premisessoftware,hardwareandinternaladministration.OurSeptember2011researchshowsthatwhile38percentoforganizationswillnotchangetheirstrategyrelatedtouseofCloud-basedinfrastructurebroughtaboutbytheprospectsofDoubleDiprecession,45percentoforganizationswillmoveinfrastructuretotheCloud(seeExhibit1).ToITexecutivesandCIOs,theCloudisatechnologyandbusinessenabler.Iftheycanmasterthesenewinnovationseffectively,thentheycanreducethecostsofprovisioningtechnologyandthetimetodeliverprojectstobusinessunitswhileplanningfornewerandmoreinnovativesolutionsforbusinessunitstodeploy.

3.Seek better IT automation Time to Tool Up.Inlargeinfrastructures,CIOshavetocontendwithtoolsthatmaynotbewellintegrated,multipledatabasesthatstoreinformationandweakreporting/analyticsthatrequireheavycustomanalysisjusttofigurewhatisgoingon.ManyITprocessesarefragileastheydependtooheavilyonpeople.Withtherelativelyhighadoptionofservicedelivery/managementprocessessuchasITILCIOshavetheopportunitytoautomateservicesmanagementprocessestherebyreducedependencyonmanualbasedprocesses.ITorganizationsmusttooluptoimproveproductivityandtransparency.SavvyCIOsaredevelopingthemselvesintoCloud-enablersbyhoningtheirsourcingandserviceintegrationskillsandbetterautomationisrequired.AwholenewcadreofsoftwarevendorsthatenabledeploymentofCloudinfrastructureisgainingcertainlyVCtractioninthemarket.CompaniessuchasEucalyptus,Abiquo, CloudKick (Rackspace),Sensible Cloud, Enomaly, Enstratus, Rightscale, Cloud.com (Citrix), PlatformComputing, ServiceNow, HP Software, BMC, Dell, IBM,and Microsoft are all gettingintotheacttryingtoacceleratetheimplementationofaninfrastructure-as-a-service(IaaS)cloudinacustomersdatacenterandwherepossibleintegrationwithPublicCloudsuchasAmazonsEC2.ProcessmanagementandorchestrationbecomemoreimportantasthebusinessrequiresfasterprovisioningofITrequests.Automateddiscovery,mappingofapplicationandservicedependenciesandorchestrationofinfrastructurecomponentsandtaskshasbecomeamusthaveforIT/businessandcloudservicemanagementorganizationsasthebusinessdemandsincreasedautomationofcommonlyrequestedservices.

4.Scrap installed legacy software in favor of SaaS based IT management.SaaS-basedITmanagementisoneoffastestgrowthsegmentsinenterpriseITasadvancementsintechnology.SaaSpromisescustomersreducedcoststoupgrade,configure,manageovertimeandinmanycaseseaseofuse.Asorganizationssubscribetothesoftwaretheycanusewhattheyneedratherthanbuyingitallupfront.Withnosoftwaretoimplementorupgraderapidvaluecanbedeliveredwithoutanarmyofdevelopersandconsultants.

CompaniessuchaasFacebook,DeutscheBank,IntelandUBS,havedeployedSaaSbasedITmanagementsuitestomanagetheITworkflowandautomation

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policieswithintheirorganization,inmanycasesrippingouton-premisealternativesavailablefromthetraditionalBIG4managementvendors(BMC,CA,IBMandHP).Pressurefromcloudcomputing,economicrecessionandbudgetconstraintsisthreateningtheirpositions.Drivenbythesuccessofsoftwarecompaniessuchas Beetil 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 reduceinfrastructure 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,someITservicesdesksnowhaveintegrationsocialmediaincidentstwickets,aplayonamoretraditionalhelpdeskticket.

7.Consider outsourcing the supporting infrastructure with the application.

Ratherthanoptimisinginfrastructureasahermeticsilo,

outsourcing thesupportingITinfrastructurewithanapplicationdrivesaccountabilitytoone

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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(who

wontsharewiththeirownteam).Iforganizationsweretoprocureinfrastructureservicesinafarmorelogicalmannerthroughrationalizingrequirementssignificantsavingswouldbecreated.TakeadvantageofanyDoubleDiprecessionfornewimpetusincostcuttingandproductivityefforts.

thE fInal WoRd: BE aggRESSIvE aBout gEttIng youR

InnovatIon PlanS In MotIon

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

Create an aggressive innovation agenda and a plan to keep that agenda

fresh over time.Buyersneedtostipulatetheneedtoexplorenewandcreativewaystoimproveproductivityandtop-linegrowthasacoreelementoftheir

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IMSendeavor,andcommunicatethisaggressively,onarepeatedbasis,totheirITorganization.

Communicate this innovation agenda to both governance and providerteams.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.Someoftodaysexternalservicesprovidersareinsertinggain-sharingelementsintotheirdealsinordertobeatoffprice-droppingcompetitors,becausetheyaredesperatetowinthedeal.Thebetterprovidersnowhavetheadvantageofknowingwheretheycanofferinnovationincentivestogaingroundintoughpursuits.Inanycase,asmostprovidersarenowoperatingwithinasimilarpriceband,thefocusneedstomoveawayfromsimplypriceandontowhichprovidersarebetterpreparedtodriveinnovativeresults,ofcoursewiththerightfinancialincentives.

If your service provider fails to step up to the plate, seek alternativeexpertise.Smartbuyersquicklyrealizethattheinitialonustodriveaninnovationagendaliesontheirowndoorstep.Itisuptothemtodriveexpectationsandrequirementsontotheirserviceprovidertofosteracollaborativepartnershipwherebothpartiescanworktowardscommonbusinessoutcomesforthebuyer.However,itmanycases,thebuyerisdiscoveringoverthecourseofitsfirstcontract,thattheirprovideriseitherunable,orunwilling,tocommittheresourcesortalentneededtosupportitsclientsinnovationroadmap.Ifthisisthecasethenitistimetobringadditionalexpertiseintothedeliverymix.Thiscanbedonetoforcemorecommitmentsduringacontractre-negotiation,or,alternatively,cansimplyforgepartofastrategywherethedisappointingproviderperformsmoreofanoperationalrole,andanotherproviderorconsultingfirmcanperformmoreoftheinnovationservices.

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Stanton Jones, Vice President

and Chief Information

Ofcer (CIO) at TPI, is

responsible for TPIscorporate technology

strategy as well as all of

the companys information

technology (IT) operations

globally. As an active

member of TPIs Cloud

Computing Solutions

Business Unit, Stanton

helps clients develop and

implement their cloudsourcing strategies. In

previous positions, Stanton

designed, developed and

supported some of the

CRM industrys 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 benets from substantialsenior management

experience, with a strong

background in leading

echnology and sourcing

strategy and pricing in a

variety of industry sectors.

Scotts areas of expertise

nclude infrastructure

performance; specically

mainframe, midrange,desktop, and networking

environments. In the sourcing

space, he works with client

organizations on strategy

denition, RFP development,

negotiation assistance, and

virtualization and cloud

nitiatives.

Scott FeulessPrincipal Consultant

Compass Management

Consulting

Stanton Jones CIO & Vice President

TPI

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Pricing the Cloudaccurate Measuresand 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,werenotquitethereyet.Accurateandconsistentpricingmodelsforcloudservicesremainelusive,andsignificantorganizationalobstaclesmustbeovercometoleveragethepotentialofflexiblepricing.Customersexploringcloudinitiativesneedtounderstandmarketdynamicsaswellasthechallengesinvolvedincomparingvariousofferingsandassessingthetruetotalcostofacloudsolution.


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PRICIng ModElS

Todaysmarketplaceischaracterizedbymyriadpricingmodelswithawiderangeofdifferentstructures.

Thediversityisbasedlargelyonwhetherthecloudofferingispublic,private,orahybrid.ProviderAmaychargebyprocessorsreserved,whileProviderBchargesbytheCPUhour.

Examplesofnewtotalcostofownership(TCO)calculatorsarecitedbelow:CloudSizer.com(IDEASInternational)MicrosoftAzurePricingCalculatorGogrid.comAmazonElasticComputeCloud(AmazonEC2)

MicrosoftrecentlyreleaseditsWindowsAzurePricingCalculator,addingtothegrowinglistofsimple,web-basedpricingcalculatorsforcloudplatforms.AmazonWebServices,apubliccloudpioneer,hashadapricingcalculatorinplacesince2009.Ofcourse,intruecloudfashion,itsstillinbeta.Cloudhostingprovidershavealsoembracedthetransparencytrend,withRackspace,GoGridandNavisitealldisplayingpublicpricingontheirwebsites.Somehavehadthislevelofcostvisibilityinplaceforyears;othersarejustnowgoingpublicwiththeircloudpricing.

Thesepricingtoolsareprovidingunprecedentedvisibilityintospecificcomponentsofpricingandthecostrequiredtorunkeypartsoftheinfrastructureandapplicationsinthecloud.

Thatsaid,theabilitytogaugeutilizationaccuratelyenoughtobillforitinatrueutilitymannerremainsachallenge.MostinternalandexternalITgroupsdonthavethemonitoringtoolstoaccuratelymeasureandlogCPUminutes.

Moreover,aCPUminuteononemachinecanrepresentmoreorlessprocessingpowerthanaCPUminuteonanothermachine,soensuringanapples-to-applescomparisonofdifferentserviceofferingsisproblematic.

Itsalsoimportanttonotethatthesecalculatorsonlyprovidecertaincomponentsofthepricinganddontrepresenttherealtotalcosttooperateinthecloud.

alloCatIon

Somecurrentcloudmodelsuseallocation,suchasaserverinstanceoracomputeslice,asthebasisforpricing.Here,theresourcethatacustomerisbilledforhastobeallocatedfirst,thusallowingforpredictabilityandpre-approvaloftheexpenditure.However,theterminstancecanbedefinedindifferentways.Iftheinstanceis

simplyachunkofprocessingtimeonaserverequalto750hours,thatequatestoafullmonth.Ifthesizeoftheinstanceislinkedtoaspecifichardwareconfiguration,

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

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

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

Cloud tCo

In todays buyer beware cloud environment, customers need to understand thedetailsofeachpricingschemeinacomparativecontext,alongwiththetermsoftheagreement,todetermineexactlywhattheyregetting(ornot)fortheirinvestment.Otherwise,thecostofthecloudsolutionrisksbecominginadditionto,ratherthaninsteadof,theexistingenvironment.

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

Thecloudpricingcalculatorsdescribedearlierdontadequatelyaccountfortheseincrementalcosts.ExamplesofcostsfrequentlynotcalculatedinCloudsolutionsinclude:

InternalLevel1servicedeskandtechnicalresourcestointerfacewiththeprovidersLevel2desk

MigrationcoststotheCloudAdditionalnetworkbandwidth(datatransferratesinandout)

Remainingbookvalueofstrandedassetsandsoftware Remainingamortizationofapplications

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Additional staff to manage new contracts Costoffulfillingminimumvolumecommitmentsincurrentcontracts

A decision to process and store data in the cloud does not eliminate othercostsinherentintheITenvironment.Whilecloudcalculatorsprovidedetailandtransparencyint

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