Vox Artis - Inaugural Issue

INAUGURAL ISSUE  NovEmbER 2011

Infrastructure
Management Services

RIM Comes of Age Benchmarks Go Strategic
Ben Trowbridge Kathy Rudy
Alsbridge Compass Management Consulting

Emerging Models in IMS Achieving Innovation in IMS
Amit Singh Robert McNeill
Avasant Horses for Sources

Global Sourcing of Services Pricing the Cloud
Cliff Justice Scott Feuless
KPMG Compass Management Consulting

Stan Lepeak Stanton Jones
KPMG TPI

Hangzhou, China
A City of Financial Delivery Center

Demonstration City of Chinasourcing
Hangzhou
Hangzhou is defined as the “China Service Outsourcing Demonstration City” in February 2009. Hangzhou is also
one of the 21 software industry base cities in mainland China. It has currently formed the several industries including
telecommunication, software, integrated circuit, digital TV, animation games and E-commerce.

The revenue of software business in Hangzhou was achieved at 47 billion RMB in 2009, the software export revenue reached at
460million USD. There were total 112 enterprises passed CMMCMI, ISO27001 certification. There were 20 IT software enterprises
have list on public market, two companies ranked at Top 10 of self-brand software products, total 15 enterprises have list at the
key software enterprises name list of the national strategic planning.

In order to accelerate the development of outsourcing industry, Hangzhou Municipal Government set up the leading team
to draw up the development plan, issue the supporting policy to make the rapid development of outsourcing industry in
Hangzhou. The total delivered amount of offshore outsourcing business reached at 919mllion US Dollars, risen to 352%
compared to the same period of last year (2008).

Hangzhou government has put more focus on the financial service outsourcing that is considered as the medium and high end
outsourcing industry, Hangzhou now is creating to become the financial delivery center.

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

International Financial Outsourcing Center

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

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

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

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

Sponsors:
Ministry of Commerce of the People’s Republic of China
Ministry of Industry and Information Technology of the People’s Republic of China
Ministry of Education of the People’s Republic of China

Host City :
Hangzhou People’s Government

Ofﬁcial Promotion:
Hangzhou Municipal Foreign Trade & Economic Cooperation Bureau

International Financial Outsourcing Center

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

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Editor’s Note

Ed Nair
Editor
Global Services
Inside the Expert’s Mind

Welcome to the first edition of this series called as Vox Artis.
Vox Artis, a Latin phrase, translates to ‘the voice of the expert’. In all the older civilizations,
men of knowledge were highly respected. They spread their knowledge through the oral
tradition; they spoke with individuals and to the crowds to spread their ideas.
‘Thought leaders’ as we call them now, still hold a lot of influence for the conceptual
insights, analytical perspectives, practical ideas, and futuristic possibilities, they
enlighten the world with. At Global Services, Vox Artis is a channel for experts in global
sourcing of services to present their views. It is a program delivered in multiple media
formats- online/ Web, digital, print, webinars, conferences, and more. It is intended to
provide a 360-degree view on specific topics.
In this first issue of Vox Artis, we present six cutting-edge articles from accomplished
sourcing advisory companies like Alsbridge, Compass/ TPI, Avasant, Horses for
Sources, and KPMG. Management of IT infrastructure is one of the oldest areas in IT
services, yet it has witnessed many changes even in the past decade. Newer models of
engagement and delivery have led to specialization in the market and changes in the
vendor landscape. The increasing adoption of cloud computing is also a key dynamic
shaping this market. The collection of articles here present a multi-sided view on how
things are and what the possibilities are in the area of infrastructure management
services.
Feedback on this issue is highly appreciated. Our next topic, scheduled for release at
the end of the month, is on ‘Building and Sustaining Excellence in Global Services’. This
happens to be the theme for Global Services Conference 2012 in March 2012 at NYC.
In that sense, the next Vox Artis is a compilation of ideas, many of them by speakers
themselves, ahead of the conference. Do let us know if you would like to participate.

TABLE OF CONTENTS

RIM Comes of Age
Ben Trowbridge
Alsbridge 8
Emerging Models in
Infrastructure Management
Amit Singh
Avasant 14
Global Sourcing of Services:
Easier Said Than Done (Well)
Cliff Justice
Stan Lepeak
KPMG
22
Benchmarks Go Strategic
Kathy Rudy
Compass Management Consulting 30
Achieving Innovation in IMS:
Eight Strategies to Consider
Robert McNeill
Horses for Sources 38
Pricing the Cloud
Scott Feuless
Stanton Jones 46
Compass Management Consulting, TPI

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

Infrastructure Management Services

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

T
he information technology infrastructure outsourcing market continues
to evolve. As firms scour the landscape for ways to focus on their core
competencies and maintain their competitive edge, more and more emphasis
is being placed on wringing costs out and adding value to the IT spend. Although
sometimes exaggerated, the potential savings through the outsourcing of IT
infrastructure may range as high as 20 to 30 percent. One of the most significant
value drivers in IT outsourcing is Remote Infrastructure Management (RIM) - the off-
premise, often off-continent, management of IT infrastructure.

RIM can include behind the scenes activities such as hardware support and
management, or it can include managing user-facing services such as network
management or desktop support. The range of IT functions for RIM includes:

◆ Data Networks (WAN/LAN)
◆ Desktops/laptops and related peripherals
◆ E-mail systems
◆ Mainframe platforms
◆ Servers
◆ Storage platforms
◆ User support
◆ Voice Networks

November 2011 www.globalservicesmedia.com 9

Generally, RIM can be undertaken as a partial service, only permitting the provider
to manage or monitor a portion of the IT functions. This provides an opportunity for
the client to test the experience. Once the client is satisfied with their limited RIM
experience, they can contemplate moving up the sourcing model to full service
remote infrastructure management.

Full service RIM involves the client retaining their IT assets but handing over the
management of their IT infrastructure to a provider or providers. The configuration
of the RIM scenario depends on the client’s specific business drivers, internal
capabilities, and strategic IT direction.

RIM EvolutIon and MatuRIty

With the continued advancement of telecommunications and wide area network
infrastructure in both North America and Europe over the last 15 years, domestic
delivery of RIM has been a common operational model in most Fortune 1000
companies. Typically, domestic remote infrastructure management is performed
in a “lights out data center” environment. It is lights out in the sense that there is
limited or no on-site personnel staffing the data center and literally the data center
operates at most times with the light out. Remote operations staff both monitor and
manage the infrastructure from a different building or even a different city and
state. The remote functionality allows the operational activity to be performed in
a separate location from the client or data center, often using highly leveraged or
pooled resources to monitor several internal or external sites.

IT organizations are deploying and managing infrastructure services in compliance
with the standards of the Information Technology Infrastructure Library (ITIL) and
other quality metrics. Quality improvements and process standards are accepted
as vital RIM operational practices. Process maturity has facilitated the effective
deployment of an offshore delivery model. Work products are clearly defined and
can be assigned to train the teams offshore.

The rapid evolution in technologies and IT architectures, the economic impact and
drive to reduce costs, and the maturity of the offshore market is positioning RIM
services as the next wave of opportunity for outsourcers of all types.

StatE of thE RIM MaRkEt and InduStRy

The prospect of reaping the cost saving, productivity gains, and business model
flexibility derived through taking advantage of offshore IT outsourcing certainly is a
factor in the globalization of outsourcing. The IT industry is moving toward a remote
delivery model in which services are increasingly delivered by vendors with
operations in low-cost locations.

The banking, financial services, and insurance industries are leading RIM offshoring
growth. These industries, often referred to as the “financial services industry,” have
been early adopters – using remote software programming resources – of offshore

10 www.globalservicesmedia.com November 2011

outsourcing in the area of application development and support. In addition, the
financial services industries’ necessity for highly secure, 24/7 availability, highly
reliable and stable systems has created opportunities for global RIM providers. RIM
service providers have recognized the opportunity to offer follow-the-sun delivery
models, highly distributed and flexible monitoring and support models, and in those
cases where automation has not replaced labor arbitrage, labor cost savings.

The industries that are slow to move toward global RIM are those that have the
lowest transaction volumes, such as media and entertainment and professional
services. Other industries, such as aerospace and defense and the public sectors,
face various degrees of government regulations that inhibit their adoption of global
RIM. The healthcare industry has concerns with the data security and integrity
being provided in foreign, nondomestic locations. Healthcare also has much more
complicated revenue and cost recovery business models, which has some influence
on the adoption of global RIM.

The body of our research indicates financial services and insurance firms are under
significant pressure to reduce costs and increase efficiency and productivity of the
IT investment. As such, they continue to embrace outsourcing, and most recently,
RIM services, in a variety of global configurations and locations.

RIM dElIvERy analySIS

Target Towers
As the result of years of domestic and regional RIM experiences, typically in
managing and supporting the operations of data centers, servers, LAN/WAN
functionality, and to a lesser extent, end user computing (EUC), many of the
tasks performed within the infrastructure management towers can be delivered
from an offshore location. This is particularly true for the financial services
industry, which has embraced RIM offshoring because they have little need for
traditional backup media handling. Instead they are adopting a fully redundant
multiple location storage strategy. This is largely due to their disaster recovery
restoration timeframe requirements, which require high availability and fast
recovery times (minutes not hours). This is now provided by disk-to-disk and
media-less backups.

However, some activities remain that must be managed by a provider or by the
business’ internal IT staff in the local premise or domestic location. These activities
include the physical server provisioning and hardware repairs. Activities requiring
quick response times and direct customer service intervention, such as computer
break/fix or refresh, may be required to remain at the customer site, retained as a
third-party stand-by, or be part of the business’ internal domestic IT staff.

Mature providers continue to expand their flexible RIM offshore delivery model
offerings. These mature or full-service providers can operate a full service tower
remotely or include local, domestic staff augmentation. The providers can also
jointly support a tower with a domestic customer staff or a third party.


dElIvERy CountRIES

India is the leading location for providing RIM services. India appears as the
dominant global leader in IT offshoring both from the perspective of being the
preferred location to host RIM services, and from the perspective of being the home
country of many of the leading RIM providers. India has captured the majority of the
global offshore market and is positioned to be the leader in RIM offshoring. Indian
providers have the offshore maturity and experience and have created a significant
and rapidly growing customer base. They have been investing in the offshore
tools, processes, and infrastructure necessary to manage the growth of RIM. The
investment is being used to position India for major RIM market penetration. China
continues to emerge as a potentially major player in IT offshoring. Providers are
investing in China as part of their global delivery base. Network operation centers
are being established and beginning to support RIM clients.

In Europe, the Middle East, and Africa, Eastern European countries are positioned
as centers for RIM delivery. Poland and Hungary represent countries that are
beginning to advance into the RIM marketplace. They have particularly strong
experience in multilingual help desk support.

Mexico and Latin America offer a nearshore alternative for RIM services. Mexico has
an offering that is maturing and a time-sensitive customer base. Infosys has recently
announced plans to develop a network operation center in Monterrey, Mexico.
Argentina is also being developed as a RIM service alternative. Certain providers
have chosen to offer mainframe and AS400 tower support from countries that have the
skill and experience based on legacy use, such as Brazil and Argentina. Depending
on the criticality of the business process, providers may opt to provide mainframe and
AS400 support from higher cost countries such as the United States and Australia.

valuE PRoPoSItIon In dEPloyIng RIM

Cost Savings
Even before the arrival of the global economic downturn, senior business leaders
were being challenged to increase profitability and efficiency and to drive
operational costs down. The allure of outsourcing has always included the prospect
of cost reduction through efficiencies and labor arbitrage. Not surprisingly, the
increasing interest in RIM services is essentially due to the prospect of reducing
operational costs and increasing productivity in one IT function. Offshoring of
infrastructure management labor typically realizes a savings of 5 to 20 percent
compared with U.S. labor rates. But do not assume these savings are instantaneous.
RIM services, as with outsourcing in general, typically provide a gradual saving curve
as delivery maturity is attained, usually within the first two years of the engagement.

oPtIMIzatIon and StandaRdIzatIon

Current network and infrastructure centers in offshore locations provide rigorous
standards of full redundancy, high availability, and uncompromising data security.


The support is provided across multiple client environments. The deployment
of quality standards such as Six Sigma, ITIL, and those of the International
Organization for Standardization (IOS) have fostered a common understanding of
the work to be performed within a typical IT tower function. RIM services provide
an opportunity for selecting the right service mix to be delivered from the right
region. The infrastructure can be managed from multiple locations as a global
monitoring and support model is deployed. The follow-the-sun approach can be
adapted for a variety of benefits, particularly high availability of the supported
systems which, in essence, provides continual uptime. There will continue to be
advancements in the products and tools used to manage the infrastructure being
supported by RIM.

RISk dISCuSSIon

When considering the risks and benefits of engaging a provider, or providers,
to deliver RIM services, the risks can be considered from two perspectives. First,
one must consider the organizational risks associated with the internal customer’s
satisfaction with RIM services. In general, the major concerns identified by senior
business and IT executives with respect to offshoring include security and data
privacy, language and accents neutralization, high-level business and industry-
specific knowledge, internal political perceptions, and the lack of performance
metrics. These concerns can be mitigated through a strong provider management
and governance process that assures these issues are addressed well before any
service is transitioned to a provider. External issues such as political stability,
government regulations, cultural alignment, and productivity associated with remote
locations should be addressed by the provider as part of their standard service
profile.

The benefits of RIM services can be much broader than simply financial. Additionally,
choosing a provider with a broad range of locations and a large and diverse skilled
labor pool can increase flexibility to respond to the changing needs of its internal
business customer’s needs. Ideally, new skills and capabilities can be delivered by
a qualified provider by virtue of the provider’s range of services and knowledge
developed through RIM service delivery over a large pool of diverse clients.

SuMMaRy

Remote infrastructure management comes of age in the era of the flattening
globe. With the virtual elimination of global connectivity and bandwidth issues,
business centers in the developed world can connect with service providers in
low-cost, emerging markets. RIM global providers are harnessing large, well-
educated, and inexpensive labor pools to build global centers from which they
can manage almost any aspect of IT infrastructure support. Those businesses
engaging these global providers will both enjoy lower costs and potentially
greater efficiency and flexibility in the support of their global IT functions.
RIM has arrived, and there are a multitude of providers ready and waiting to
deliver it.


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


Emerging Models
in Infrastructure
Management

BaCkgRound

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

This paper explores some of the emerging models for IT Infrastructure outsourcing
and the reasons thereof.


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

ITO Software maintenance 48%
Custom application
47%
development
ADM Help desk 39%
Adoption

Package app
26%
Global implementation
Consulting work 20%
Sourcing
Remote infrastructure
Maturity management
19%

Enterprise network 15%

None of the above 17%

Early
Innovators Adopters Mainstream Laggards

Sourcing Maturity Lifecycle

IMPaCt of EConoMy on InfRaStRuCtuRE SouRCIng ModElS

The current economic downturn has already lasted since 2008 and there is a
strong possibility of the recession continuing into 2012. Due to constant economic
challenges significant changes have been observed in the nature of deployment in
new as well as existing deals. The following are the key changes to infrastructure
sourcing that we have witnessed during this turbulent time:

◆ Changes in Demand – Clients are no longer as much interested in looking for
a single solution that meets all infrastructure needs as they are in identifying
best of the breed solutions that can offer flexibility in service provisioning
and can keep up with technology change. A large, monolithic infrastructure
environment, if it is hard to change, is no longer viewed favorably in this
environment.

◆ End-Customer Requirements – The IT infrastructure requirements are more
and more directly tied to business requirements and are focused on being
prepared for the constant change in business. The infrastructure is being
asked to be much more agile in supporting business users than has been the
case traditionally. The speed and cost of activities such as to set up mailboxes,
provide remote access to working environments, enabling large scale data
transfer and providing interconnectivity to myriad mobile devices are some
of the examples of customer requirements driving emerging models in IT
infrastructure management.

◆ Consolidation & Virtualization – There has been a conspicuous trend towards
consolidating and virtualizing IT environment in the past several years with a
view to managing costs as well as upgrading from legacy systems that could
not allow for modular growth and seamless sharing of environments across
applications. This step, as one of the essential elements of leveraging cloud
based shared infrastructure technologies is currently one of the key focus
areas of a number of organizations.


◆ Nature & Scale of Services – The traditional models of physical business
locations being hard-wired to data centers are evolving rapidly to providing an
IT environment that can grow and change to support a multitude of fixed and
mobile devices, for example, multiple studies are pointing towards the Tablet
being the platform of choice for many industries soon. In return for flexibility,
there is a growing realization and acceptance of using shared infrastructure for
many of the non-critical applications.

◆ Cost – IT Infrastructure is the new frontier for cost reduction in most of
the IT departments across the globe. The ongoing recession is putting
enormous pressure on CIOs to do more with less and IT infrastructure, with
normally the largest budget of all IT departments is squarely in the sights
of cost cutting. At the same time, the maturity of RIM (Remote Infrastructure
Management) model as well as increased automation is now making it
possible to reduce as well as eliminate considerable infrastructure and
management costs.

kEy EMERgIng ModElS

The new and emerging models are based on leveraging cloud technologies.
Essentially, Cloud computing is the provision of dynamically scalable and often
virtualized resources that is delivered as a service. The picture below shows
the key elements that define cloud computing based infrastructure service
provisioning:

Secure
Multi-Tenancy Economic Element
• Pay-as-you-go
Utility • No Capex
Self-Service
Pricing

Architectural Element
Elastic CLOUD Virtualized • Simple enviroment
Resources COMPUTING Resources • Responsive to demand
• Secure shared resources

3rd Party Automation
Ownership Strategic Element
Managed
• Focus on more core competencies,
Services what you do best


Most of the emerging models in the current infrastructure management world follow
a combination of the characteristics shown above.

In general, the new models can be categorized as follows:

◆ Supplier Services – This is the supply side of the cloud computing
marketplace and consists of IT and business consulting, systems integration,
outsourcing, and other services used to develop and support cloud services
and infrastructure. These services include software components, such as
application platforms, information management, system management,
development tools and other software used to set-up and operate cloud
services and infrastructure. They also include hardware components, such as
servers, storage and networking hardware used to build cloud services and
infrastructure. This market is one of the largest components of the co-system
e
today with a projected 2012 market size of $44B, with a CAGR of 23 percent.

◆ End User Services – This segment comprises of end-user services being
provided from cloud computing, most notably the Infrastructure Services and
Business Services. They are described below:

◆ Infrastructure Services – Infrastructure services include PaaS (Platform as
a Service) and IaaS (Infrastructure as a Service).

◆ PaaS – PaaS constitutes of customers using programming languages,
tools and platforms to develop and deploy applications on multi-tenant,
shared infrastructure with ability to control deployed applications and
environments without the need to manage or control the underlying
resources. The examples include Google App Engine, Right Scale,
Joyent.

◆ IaaS – IaaS refers to the usage of processing, storage, networks, other
computing resources with ability to rapidly and elastically provision
and control resources to deploy and run software and services without
the need to manage or control the underlying resources. The examples
include Amazon Web Services, Rackspace and Akamai etc.

The market size of Infrastructure services is projected to cross $30B for 2012,
with a CAGR of more than 45 percent.

◆ Business Services – These comprise SaaS (Software as a Service) and BPaaS
(Business Process as a Service).

◆ SaaS – SaaS refers to customers using applications (E.g., CRM, ERP, E-mail)
from multiple client devices through a Web browser on multi-tenant and
shared infrastructure without the need to manage or control the underlying
resources. It is defined as use of an Internet browser to access software
applications, eliminating the need to purchase, install, run and maintain the


programs on internal systems. The examples include Gmail, Salesforce.com,
NetSuite, Hostanalytics.

◆ BPaaS - Customers consume business outcomes (E.g., payroll processing,
HR) by accessing business services via Web-centric interfaces on multi-
tenant and shared infrastructures without the need to manage or control the
underlying resources. The Examples include Corefino and ADP.

The market size of Business services is projected to cross $52B for 2012, with a
CAGR of more than 25 percent.

Another term that is emerging is XaaS (Everything as a Service). The following
diagram broadly defines its categories:

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

SaaS – Software as a Provision of application
Service AlaaS –
middleware, including applications
Application Infrastructure servers, ESB, and BPM (Busniess
as a Service Process Management)

XaaS – PaaS – Platform as a
Everything as a Service Based on application streaming &
DaaS – virtualization technology, provides
Service Desktop as a Service desktop standardization, pay-per-
use, management, and security.
Broad term that
embraces aN the laaS – Infrastructure as
models discussed a Service Provision of network
here. NaaS – communication, billing, and
Network as a Service intelligent features as services to
consumers.

Management of hardware and
software required for delivering
CaaS – Communications
voice over IP instant messaging
,
as a Service video conferencing, for both fixed
and mobile devices

In general, these models promise significant benefits from leveraging the global growth
of computational and network grids. Some of the key perceived benefits are as follows:

◆ Agility - Cloud platforms improve time-to-application deployment by
providing the option of developing and deploying new applications on existing
infrastructure as quickly as desired. In comparison, traditional platforms can
take up to three or four months to procure, install, and configure, many times
stalling the application deployment process.

◆ Predictability of Costs - Cloud computing allows organizations to align IT
budgets with application demand by hosting customer and public-facing
Web applications with cloud providers. Organizations just need to pay for the
resources they use, hour by hour.


◆ Managing Demand Variability - Cloud computing provides a mechanism to
manage peaks in demand for data center capacity, computing, storage, and
network resources. As an example, organizations can easily push big batch
jobs into the cloud instead of designing and building IT infrastructure for the
absolute peak data loads.

◆ Lowering CapEx Budgets - Cloud computing gives the ability to deliver new
applications without having to buy gear, raising the firm’s capital expenditures.
Application development and delivery can all be performed and managed via
operating expenses.

◆ Collaboration & Sharing - Cloud computing allows organizations a relatively
inexpensive and easily accessible way to share information by hosting data
on public clouds rather than opening their organization’s firewall to make it
available to external parties.

At the same time, many of the emerging models are being tested in the real
world and as risks get identified, organizations will have to plan required risk
mitigation strategies. Some of the key risks include those related to data security
and privacy, compliance with local and federal/international regulations and
guidelines as well as evolving business continuity/disaster recovery scenarios
with the new models.

From a service delivery perspective, the following diagram demonstrates the
deployment models being used by organizations. It is likely that most organizations
will deploy a mix of these models:

Private Cloud Hybrid Cloud Public Cloud

Deployment Private Private Private Community Public
Model (Internal) Managed Hosted Hosted Hosted
Service Service Service
Premise Enterprise Enterprise
Provider Provider Provider
Service Service Service Service
Run / Manage Enterprise
Provider Provider Provider Provider
Infrastructure Dedicated Dedicated Dedicated Shared Shared
Enterprise Enterprise Enterprise Select Multi-
Community Multi-Tenant
Tenant Tenant Tenant Tenant
VPN
Internal Internal VPN Network
Neteork Public
Access Enterprise Enterprise Public
Public Internet
Network Network Internet
Internet
Traditional
Payment Traditional Traditional or pay as Pay as you go Pay as you go
you go


As organizations look to deploy these models, it is recommended that they spend
time in developing an enterprise level cloud roadmap. The following section
identifies key recommended steps:

kEy StEPS foR CREatIng an EntERPRISE Cloud RoadMaP

◆ Define the cloud opportunity, establish direction, assess the application of
cloud technology within the enterprise context, assess the deployment options,
frame the service provider market, and plan the roadmap for cloud services.

◆ Identify and build a business case on the value that cloud computing can drive
to the enterprise.

◆ Document and educate the IT organization on how cloud-based services fit
within the context of existing technology plans and sourcing strategies.

◆ Evaluate internal skills and capabilities as well as provider service offerings
and capabilities.

◆ Assess the relative cost, architecture, and skills impacted by applying cloud
technologies to core business applications.

◆ Frame the risk and an organization’s readiness for the adoption of cloud
technology.

◆ Understand the management framework needed for the enterprise to manage
Cloud Services.

◆ Last but not the least, discuss with peers and seek expert assistance as you
embark on this journey.


Cliff Justice
US Shared Services and
Outsourcing Advisory
Group
KPMG

Stan Lepeak
Director, Research,
Shared Services &
Advisory
KPMG

Leads one of the world's Stan Lepeak is Director
largest and most of Research for Advisory
comprehensive shared Services at KPMG. He
services and outsourcing specialises in business
advisory businesses for process and information
KPMG LLP. Has 20 years of technology (IT) services and
relevant experience across outsourcing market trends;
a wide range of disciplines, outsourcing and shared
including operations, global services execution and
shared services and global management best practices;
outsourcing. Industry and the globalization of
expertise includes: Energy (Oil the business services and
& Gas), Financial Services, outsourcing markets. He
Healthcare & Pharmaceuticals, was formerly MD and the
Manufacturing, Human Leader of EquaTerraís
Resources, Consumer Food and global research practices
Packaged Goods, Technology, (KPMG acquired EquaTerra
and Utilities. Prior to joining in February, 2011) focused
KPMG, was Managing Director on trends, issues and futures
of EquaTerra, and led its in the global information
services globalization advisory technology and business
practice. Prior to EquaTerra, process outsourcing
Cliff was Managing Director markets.
of neoIT and specialized in
offshoring strategies.


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

K
PMG recently released the results of its 2Q11 Sourcing Advisory Pulse
surveys, which provide insights into trends and projections in end-
user organizations’ usage of shared services, outsourcing, and global
third-party business and IT services. While the survey findings reveal many
interesting trends, one key finding was that although many organizations are
looking to move to a more mature model for services delivery, few have realized
this goal.

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

While the use of near and offshore captive and third party services is nothing new,
the KPMG survey found that the scope of this usage continues to expand, both from
the perspectives of what services organizations are willing to take offshore and
also in terms of the number and diversity of delivery models and service providers
utilized.


For most larger firms, global sourcing today is a multi-point process across
multiple geographies, utilizing multiple service providers and employing
multiple service delivery models (e.g., internally run operations, local shared
services centers and offshore captive centers, onshore, nearshore and offshore
outsourcing). While this “extended global enterprise” model can better
support organizations’ global services needs and help to improve operational
competitiveness, it is also proving increasingly complex to successfully design,
deploy, operate and optimize.

Buyers undertaking global sourcing efforts naturally exert much focus on selecting
which service provider to employ and from what locations to source services. This
assessment process should include a clear and realistic assessment of a buyer’s
own maturity and sophistication relative to sourcing and managing global sourcing
efforts.

A common root cause of problematic or underachieving offshore outsourcing
efforts is a disconnect between what a buyer is trying to accomplish and the
skills, experience, and resources it possesses to support these efforts. These skills
involve selecting providers and locations, accounting for and managing risk, and
governing a growing number of sourcing efforts spread across multiple providers
and locations. Yet often it seems that many buyer organizations’ global sourcing
ambitions outpace their capabilities to successfully undertake and manage these
efforts. Or more simply the global sourcing “eyes” are bigger than the capabilities’
“stomach.”

In the 2Q11 Pulse survey, KPMG polled leading third party business and IT service
providers and its own sourcing advisors to assess buyer maturity and sophistication
relative to various global sourcing skills. Respondents were asked to rank their
perception of buyer skills on a one-to-five scale, where one represents very
immature or unsophisticated and five represents very mature or sophisticated (see
Figure 1). Results show that overall there is room for improvement across all of these
global sourcing capability sets.

KPMG advisors did not score buyers above the midpoint on any of the five skill
sets assessed. The highest score given was 2.65 for service provider selection and
assessing service providers’ global delivery capabilities. Service providers were
more generous in their perception of buyers’ skills, scoring this attribute at 3.32.

The skill ranked next highest by service providers was service delivery
geographic location assessment (e.g., where to source from, onshore/offshore,
which countries), scored at 3.21, while for advisors the second ranked skill was
assessing and accounting for data, data privacy and intellectual property risk,
scored at 2.61.

There was consensus on typical buyer challenges in managing and governing
multiple engagements and service providers across multiple functions,
geographies, etc., scored the lowest by both service providers and advisors.


Figure 1 – Buyer Global Sourcing Maturity/
Sophistication 

Service delivery geographic location 
assessment (e.g., where to source from, 
onshore/offshore, which countries, etc.) 
Assessing/accounting for geopolitical and 
service provider risk 

Assessing/accounting for data, data privacy 
and intellectual property risk 
Managing and governing multiple 
engagements and service providers across 
multiple functions, geographies, etc. 
Service provider selection/assessing SP's 
global delivery capabilities 

1.00  2.00  3.00  4.00  5.00 
1=Very unskilled/unsophisticated, 5=Very skilled/sophisticated 

Advisors  Service Providers 

KPMG advisors in the field offered additional details on why some buyers struggle
with their global sourcing efforts. One US-based partner who works with firms
sourcing back-office business functions globally made the following observation,
“Clients don’t consider the greater complexity of environments in which an
offshore captive or third-party providers operate, and therefore don’t account for
geopolitical risk, economic conditions, etc.”

Addressing and managing risk in global sourcing was a commonly cited weakness
indentified in many buyers’ accounts. As one senior advisor noted, “Clients are
gaining greater familiarity with utilizing offshore providers’ capabilities, but remain
risk averse. Despite this, little (or at least not enough) attention is given to managing
risk. Governance and relationship management capabilities are often weak
compared to the scope of the global sourcing efforts.”

A senior manager in the US was more blunt, or realistic. “Look these folks are
not idiots, but rarely are they excellent at each and all of these global sourcing
activities.”


EvolvIng toWaRdS a gloBal SERvICES PoRtfolIo aPPRoaCh and ModEl

As buyers’ appetites to source more services globally continues to grow, so too
should their capabilities to source and manage these efforts. This is at the heart of
the extended global enterprise model and maturity framework.

The first step to address the shortcomings outlined above is to recognize and define
each challenge and apply adequate and skilled resources to overcome them. This
is a multidisciplinary effort that extends leading practices related to sourcing,
selection, transition, outsourcing governance, and multi-provider management
to account for additional challenges and nuances introduced from increased
globalization of service efforts. As the scope and complexity of buyer global
sourcing efforts continue to grow, this will remain an ongoing challenge, with the
bar for leading practice continually being raised.

One means to improve global sourcing capabilities is to take more of a portfolio
approach to managing global efforts. This need will continue to grow as global
sourcing becomes more pervasive and accounts for more of an organization’s
global services footprint. However, tightly coordinating and managing sourcing
efforts globally is still a goal to which most organizations aspire.

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


5%  15% 
7%  18% 
35% 
9% 

53% 
58% 

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


In the 2Q11 Pulse, 58 percent of service providers polled and 53 percent KPMG
firms’ sourcing advisors indicated that when typical buyers are managing
existing global sourcing efforts, they are grouped and managed and governed
by geography, business unit, functional area, etc. (see Figure 2). This is the most
common, historical approach, and is adequate for deals and efforts that do not
overlap key functional areas.

However today, this approach to managing multiple shared services and
outsourcing efforts can often create fragmented, difficult to manage, and under
optimized functional and process silos. A more holistic, functional, and thorough
process is often required in these more complex sourcing environments.

Fewer than 10 percent of service providers and advisors indicated that existing
efforts are managed and governed by an enterprise sourcing council, which can
provide a more holistic, coordinated, and detailed view of global sourcing efforts
and their performance and cost levels.

The story is better for new sourcing efforts, with 15 percent of advisors and 27
percent of service providers indicating that buyers are attempting to source and
manage these efforts globally (see Figure 3).

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


15%  18% 
27% 
37% 

48% 
55% 

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


One common challenge to managing sourcing efforts globally is the fact that
they are often sourced locally from functional, budgetary, approval and execution
standpoints. As a KPMG UK manager noted, “Given the sensitivity of sourcing (and
excluding the executive sponsorship, often new efforts are run from project teams
who have been split off and act independently, then once sourced and as required
there is a global and/or regional engagement from operational teams and subject
matter experts.”

As procurement groups get more active in sourcing global services, however,
they can act as a unifying force. As one KPMG manager in the IT sourcing practice
called out, “Sourcing is still typically by function - usually pursued by different
organizations for IT, F&A, and HR, etc. The common thread, however, is increasingly
the centralized procurement organization.”

ConCluSIon

Many buyers today still view global sourcing as a series of discrete options and
capabilities (e.g., internal services, shared services, offshore captives, ITO, BPO)
rather than a continuum of integrated service models. This is similar to the legacy
perspective of viewing offshore outsourcing as a point-to-point initiative (for
example, from the United States to India) instead of an integrated suite of global
service delivery capabilities.

The reality today is that organizations should develop a holistic strategy and
operational model to support the totality of their businesses and IT services
operations. This includes how to source and manage these capabilities as well as
how to continually improve their overall efficiency and effectiveness.

While leading organizations have made progress, for example, in governing their
outsourcing efforts as a portfolio via a portfolio model as cited in the above Pulse
survey responses, often these efforts are disconnected from the management of
internal retained operational systems and functions, as well as the strategy and
execution of sourcing of new investments. In short, buyers’ capabilities to source
and manage a diverse services delivery portfolio have often not kept up with their
sourcing ambition’s scale and scope.


st
Introdu cing The World's Foremo
Expert on outsourcing

Vox Artis, a Latin phrase that literally means voice of the
expert, is a resource of cutting-edge insights by experts
in global sourcing of bussiness and technology, the
resource is intended to be a knowledge repository and is
oriented to help practitioners make actionable decisions.
The voice of experts is delivered on various subjects and
in multiple formats such as e-book, pdf, microsite, webi-
nars, webcasts, expert round tables and more.

An initiative by

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

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


Benchmarks Go
Strategic
cOMparative analysis as an OutsOurcing
gOvernance MechanisM

B
enchmark analyses of outsourcing arrangements are an accepted
management technique applied to gauge the market competitiveness and
quality of a provider’s services. In outsourced environments, benchmarks
have traditionally been applied as part of a contractually mandated exercise to
assess existing pricing and service quality in the context of comparable industry
standards.

Traditionally, outsourcing benchmarks have often been used strictly as a negotiating
tool to drive short-term adjustments in pricing within discrete service towers. As
a result, they’ve often been characterized by contentious confrontations between
clients, service providers, and third-party providers, and have delivered relatively
limited value in terms of enhancing the sourcing relationship.

Increasingly, the role of the benchmark in outsourcing agreements is evolving,
as top-performing client organizations and service providers use benchmarks
as a governance mechanism to identify improvement opportunities across the
enterprise, assess alternatives and model scenarios, and design and implement
transformational change initiatives.


RolE of BEnChMaRkIng

Broadly speaking, an outsourcing contract benchmark can be defined as an analysis
of the cost and quality of outsourced services in the context of market standards,
industry peers, and global leading practices. Depending on the terms of the clause,
the results can be used to adjust prices, or as an input to further negotiation. In
addition to focusing solely on assessing service provider performance, benchmarks
can be an effective way to identify operational constraints within the client
organization that inhibit optimal performance and prevent service providers from
leveraging their capabilities and tools.

Because benchmark initiatives often find a gap between outsourced prices and
market rates, they represent a threat to the service provider’s revenue stream,
thereby making them, by definition, problematic to the vendor community.
Moreover, most clauses only mandate adjustments if pricing is too high – if the
vendor delivers services below market rates, they are not compensated. As a result,
if the exercise is focused strictly on pricing, it’s a lose/lose proposition for the
outsourcer.

Another complaint voiced by service providers is that a benchmark’s findings may
provide a skewed perspective of pricing. Many long-term outsourcing contracts are
priced so that the provider discounts services dramatically in the initial years, and
then recovers those costs at the back end of the deal. While a properly conducted
benchmark will adjust for the financial engineering over the life of the contract, a
benchmark conducted late in the contract term may not adequately account for the
vendor’s earlier investment.

Because of these factors, service providers have, over the years, employed a
number of strategies to avoid or derail benchmark initiatives. In some cases, they
demand unrealistically precise comparator requirements, or challenge the validity
or relevance of the comparative data. In others, they offer upfront discounts in
lieu of the analysis. While such actions are perhaps understandable in the context
of the business issues at stake, they’ve often served to fuel acrimony during the
negotiation process, ultimately to the detriment of the long-term relationship with
their clients.

a tRadItIonal BEnChMaRk SCEnaRIo

The negative characteristics of a “traditional” outsourcing benchmark can include
an exclusive focus on short-term adjustments to pricing within individual service
towers, and an exclusion of broader operational considerations or opportunities.
Further, the findings of the analysis serve as a negotiating hammer to drive
concessions from the provider. The onus to reduce costs and find savings, moreover,
is solely on the provider, while the role of third-party advisors is to be a “bad cop”
who roughs up the service provider to extract pricing concessions.

Consider the implications of this approach in the following hypothetical situation:


a benchmark analysis finds the client organization is paying above market rate for
storage services. Adhering to the terms of the clause, the service provider adjusts
prices to align with the market. Faced with declining revenue, the provider brings
in less-experienced and lower-cost staff in an unsuccessful attempt to maintain
margins. Quality plummets, while the underlying problem – the client’s inadequate
data management and storage strategy – remains unaddressed.

a ChangIng RolE

As lessons are learned and the sourcing market matures, benchmarking is
increasingly being viewed as a way to address long-term business requirements
and improve the relationship for all parties. By baselining existing performance
prior to a new sourcing initiative, benchmarks can identify opportunities and
define actions for both parties to drive improvement. Benchmarks also give service
providers a better understanding of client environments, enabling more effective
solutions, more accurate proposals, and better assurance of deal profitability.

More specifically, clients are recognizing that short-term pricing adjustments in
their favor can be pyrrhic victories that prove ultimately to be counter-productive.
Clients also increasingly acknowledge their responsibility to change internal
processes to achieve improvement, rather than relying solely on the vendor.
Moreover, these process changes are focused on finding ways to allow the vendor
to leverage their capabilities and processes and tools. This change in mindset is
critical, as it opens the opportunity to achieve economies of scale across multiple
environments – rather than delivering unique and custom services to each
customer, the outsourcer is now in a position to drive standardization across its
portfolio of clients, to the benefit of all.

As organizations focus on implementing virtualization, cloud, and transformational
change initiatives, benchmarks are being applied to identify actions needed to
drive change, and to quantify the impact of those actions. By, for example, defining
the current “as is” state along with the future “to be” state, a benchmark can show
what changes in architecture will be needed to support a cloud solution, and outline
the optimal approach to implementing those changes.

StRatEgIC BEnChMaRk ChaRaCtERIStICS

In contrast to the negative characteristics of the traditional benchmark initiative
described earlier, a “strategic” benchmark can be seen as one where the results of
the analysis provide a baseline for long-term planning and improvement, including
transformational change. Rather than serving as a negotiating “hammer,” the
findings facilitate constructive dialogue aimed at driving an improvement process
where both parties assume responsibility for change. Rather than being a point of
contention, reference data are transparent to all parties, and the third-party advisor
now becomes an objective broker who ensures transparency and meaningful
analysis.


Consider too how a strategic benchmark can be applied to the scenario of above-
market pricing for storage services: in addition to high prices, the benchmark
analysis reveals unique business requirements, obsolete data processes, and costly
legacy systems. In this case, the benchmark charts a roadmap toward a future state
aligned with business needs, where the client invests in replacing legacy systems
with streamlined storage platform and a mature information management strategy.

To further illustrate the potential benefits of benchmarking, two case studies of
recent Compass client engagements are described below.

CaSE Study: M IndIng thE gaP

A global manufacturer executed a contractual benchmark clause and engaged
Compass to assess the market competitiveness and quality of IT services, and to
define how both parties could act to improve the client/vendor relationship.

The analysis went beyond a simple comparison of existing contract prices against
prevailing standards. Rather, the client sought an independent view of each party’s
roles and responsibilities within the agreement; a comprehensive assessment of
costs, resource utilization, and service quality; and recommendations on how to
enhance the strategic value of the partnership. The scope of the analysis comprised
the application and infrastructure server, storage, desktop, and service desk
environments in the Americas, Europe, and Asia. In defining the comparative
reference groups, adjustments were calculated for differences in organizational size,
complexity, server configuration, labor costs, and currency fluctuations relative to
the client.

The benchmark analysis revealed that the service provider’s contractual pricing
was close to a third below market standards. This raised a red flag, as service
providers typically compensate for low prices and unprofitable contracts through
a variety of tactics, including adding change order charges to any activity not
specified in the terms, replacing skilled staff with lower-cost personnel, reducing
initiative to improve service quality, and minimizing innovation and proactive use of
management tools. As a result, service quality often suffers, as does the relationship.

In light of these issues, the client was urged to consider a number of steps to steer
the relationship toward a more mutually beneficial state. One was to improve asset
management to enhance the accuracy of invoicing as well as the effectiveness of
SLAs. Another was to link metrics to service delivery improvement initiatives – by,
for instance, tracking and analyzing server outages to understand root causes and
impact on users. Another recommendation was to enhance SLAs and implement an
appropriate server refresh cycle to boost reliability and reduce support costs.

Another key change involved adjustments to pricing structures to link cost drivers
to vendor revenue, thereby facilitating demand management to benefit both parties.
Increased use of virtualization now results in hardware cost savings for the client as
well as increased revenue for the service provider.


Finally, both parties undertook a series of initiatives to improve operations to reduce
cost and complexity. These included expanding lockdown policies, simplifying
billing processes, and increasing use of the Help Desk as a way to identify root
causes of problems and reduce end-user effort.

CaSE Study: dEfInIng govERnanCE StRuCtuRES

Prior to renewing its IT outsourcing contract, a major global restaurant chain
engaged Compass to analyze the quality and pricing of services provided, and to
assess the service provider’s global capabilities. While satisfied with the vendor’s
overall performance, the client sought to identify gaps and to more clearly articulate
their objectives and expectations prior to negotiating a contract renewal.

Service delivery was assessed in a market-oriented context, identifying a series
of improvement opportunities related to pricing, governance, and innovation. The
scope of the analysis included mainframe, midrange, and Wintel servers, as well
as storage, network, desktop, and service desk environments in the Americas
and Asia Pacific regions. In analyzing services moved offshore, adjustments were
made for geographic variations in labor rates and facilities costs. While overall,
the pricing of the agreement was close to 7 percent below market rate, significant
gaps were found in individual service towers, with the client paying more than 60
percent above market rates for storage, and almost 45 percent below market rate for
midrange servers.

Recommendations focused on addressing the inconsistency in pricing identified
in some service towers, and on restructuring resource units to connect cost drivers
more directly to vendor revenue. Gaps in service expectations would be addressed
by streamlining staffing procedures, re-assessing escalation and resolution
processes, and renegotiating SLAs. Finally, tightening ID change SLAs from 5
business days to 1 to 2 days, and standard LAN Incident SLAs from 8 hours to 4
hours, would align service delivery to industry norms.

In addition to demonstrating the ability to provide quality service, the client
initially selected the service provider on the basis of cultural fit; as such, the client
expected a higher degree of responsiveness and flexibility. Ironically, this cultural
fit contributed to frustrations in the relationship. To address this, a governance
assessment was initiated that revealed a lack of alignment in the management
structure overseeing the relationship. Specifically, reporting structures had senior
executives from one party corresponding with lower level personnel from the other
party, resulting in inefficient and ineffective decision making. Another issue was the
dilution of “deal knowledge” over time. And, poor communication regarding the
service provider’s capabilities limited innovation.

Governance recommendations included ensuring that the client’s retained team
be properly aligned with the business and involved in strategy discussions,
streamlining response request procedures, taking a more proactive approach in
managing priority requests, and improving communication processes on vendor


capacity. A capabilities assessment found the vendor was effectively developing the
global reach and capabilities the client required.

To enhance the long-term partnership, the client institutionalized communication
of IT performance measures, and took steps to better define its expectations of the
service provider.

More specific recommendations included refining request procedures to ensure
responsiveness, implementing tools to improve utilization reporting, and instituting
more formally scheduled client/vendor meetings that feature action-oriented
outcomes and published resolution steps.

Following the analysis, the client and service provider formed a joint team to review
recommendations, prioritize actions, and build a framework for implementation and
measurement of success.

* * *

As these examples illustrate, a benchmark analysis goes far beyond an assessment
of pricing, and the benefits and outcomes of an effective benchmark initiative are
far more valuable than short-term adjustments to contractual terms.

Traditionally viewed as a useful (if limited) tactic to adjust the pricing of outsourced
services, benchmarks are evolving to assume an integral role within sourcing
advisory and governance. Specifically, business organizations are finding that an
effective benchmark analysis provides a critical factual and quantitative basis upon
which to define, assess, and validate their long-term operational strategies and
change plans.


As VP Research for HFS, Robert
Robert McNeill provides research and consulting
VP, Research services to both end user organizations
Horses for Sources (HFS) and services providers focused around
sourcing strategies and best practices.
Prior to HFS, Robert was VP Research/
Consulting for Saugatuck Technology,
VP Strategy/ Marketing for SaaS vendor
Service-now.com, a management
consultant with Deloitte Consulting
advising organizations across North
America on IT and business process
sourcing strategies and a Principal
Analyst with Forrester Research. He is a
contributing author of a book produced
by the Institute of Directors in the UK
Contributing Authors: on software asset management.
Esteban Herrera, COO, SVP Research, HfS Research
Tony Filippone, VP Research, HfS Research
Phil Fersht, CEO, HfS Research


Achieving
Innovation in IMS:
Eight Strategies to
Consider
ExECutIvE SuMMaRy

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


What IS InnovatIon?

Innovation within the context of delivering outsourcing services takes a variety of
forms including transformation, best practices, continuous process improvement,
new technologies, business benefits, effective policies and achievement of the
buyer’s desired future state. But...what is it really? HfS buckets innovation in three
areas:

1. Best Practice Implementation. Refers to providers (either internal or
external) bringing what they have learned from doing similar business
“outside”, judging whether it is the best way to do it, and implementing it
on behalf of their clients. Risk is moderate, but failure can be expensive.
The return can range from moderate to significant, depending on the
starting point.

2. Continuous Improvement. Refers to providers implementing minor
modifications to existing processes to make them perform better, without
regard for what is done “outside” Risk is minimal and failure is cheap.
Returns are generally small, but can add up over time.

3. Real Innovation. Refers to trying things that have never been done before
inside or outside. Involves highest level of risk-taking and the potential
for failure is significant. Returns can be very substantial if the innovation
succeeds.

EIght StRatEgIES to InnovatE youR InfRaStRuCtuRE ManagEMEnt StRatEgy

Some CIOs shy away from introducing innovation due to a laser-focus on achieving
operational stability within their IT environment. This strategy will increasingly
fail to satisfy the business as organizations want infrastructure that provides
them increased agility at a lower operating cost that is increasingly available
from external services providers. Innovation is about realizing new methods for
achieving business benefits, and IT organizations need to invest in new sourcing
options that will provide this impact to their users. Based on exhaustive research
with many organizations and service providers, HfS Research has identified the
eight ways to innovate infrastructure management services:

1. Design outsourcing contracts that promote change and innovation. Lets
face it, if you need to change and need to do to it quickly, external providers
can cut through organizational obstacles (e.g., politics, lack of skills and
company culture). However, if you outsource what you have and ask the
provider to do it exactly as you do it today, then you are not going to innovate.
On the other hand, if you give the outsourcer license to introduce innovations
(best practices, continuous services improvements and radical innovations),


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

2. Head to the Cloud for cost, speed and scale. Cloud Computing is
refashioning the cost, quality, speed and flexibility by which businesses can
access—and suppliers can deliver—services to support business needs.
Companies continue to suffer from significant internal resource and budget
constraints with, on average, 70 to 80 percent of the IT budget still spent on IT
operations and maintenance, leaving insufficient resources for new projects.
Organizations are beginning to leverage public cloud datacenters and
private cloud alternatives to provide rapid scaling in response to business
needs where dedicated infrastructure proves too costly and provisioning
flatly takes too long. Cloud-based infrastructure--available from Amazon’s
AWS, Rackspace, Savvis (CenturyLink), and Navisite, for instance--allows for

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

Q. In your opinion, how will a "Double Dip" Recession impact your organization's
impetus to pursue the following PRODUCTIVITY measure over the next six months?
9% 11% 10%
16% 17% 17% Don’t know
1% 1%
Buy-side Organizations

14% 7%
1% 1%
9% Major decrease

33% 38% 46%
46% Minor decrease
32%
51%
No change

37% 32% 20% Minor increase
29% 24%
24% 22% Major increase
11% 13% 12% 11%
Re-engineer Move business Move IT Move IT Invest in Subscribe to
existing support funtions infrastructure support Analytics Cloud Business
business into shared into the Cloud functions capabilities Services
processes services into shared platforms (i.e.
(Finance, services PaaS, SaaS)
Procurement, HR
and other ops)

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


the rapid provisioning of infrastructure and provides hardware elasticity in
an on-demand manner. As Cloud-based services mature, IT organizations
can reduce their reliance on on-premises software, hardware and internal
administration. Our September 2011 research shows that while 38 percent
of organizations will not change their strategy related to use of Cloud-based
infrastructure brought about by the prospects of “Double Dip” recession,
45 percent of organizations will move infrastructure to the Cloud (see
Exhibit 1). To IT executives and CIOs, the Cloud is a technology and business
enabler. If they can master these new innovations effectively, then they can
reduce the costs of provisioning technology and the time to deliver projects
to business units while planning for newer and more innovative solutions for
business units to deploy.

3. Seek better IT automation – Time to “Tool Up”. In large infrastructures,
CIOs have to contend with tools that may not be well integrated, multiple
databases that store information and weak reporting/analytics that require
heavy custom analysis just to figure what is going on. Many IT processes
are fragile as they depend too heavily on people. With the relatively high
adoption of service delivery/management processes such as ITIL CIOs have
the opportunity to automate services management processes thereby reduce
dependency on manual based processes. IT organizations must “tool up” to
improve productivity and transparency. Savvy CIOs are developing themselves
into Cloud-enablers by honing their sourcing and service integration skills
– and better automation is required. A whole new cadre of software vendors
that enable deployment of Cloud infrastructure is gaining certainly VC traction
in the market. Companies such as Eucalyptus, Abiquo, CloudKick (Rackspace),
Sensible Cloud, Enomaly, Enstratus, Rightscale, Cloud.com (Citrix), Platform
Computing, ServiceNow, HP Software, BMC, Dell, IBM, and Microsoft are all getting
into the act trying to accelerate the implementation of an infrastructure-
as-a-service (IaaS) cloud in a customer’s data center and where possible
integration with Public Cloud such as Amazon’s EC2. Process management
and orchestration become more important as the business requires faster
provisioning of IT requests. Automated discovery, mapping of application
and service dependencies and orchestration of infrastructure components
and tasks has become a “must have” for IT/business and cloud service
management organizations as the business demands increased automation of
commonly requested services.

4. Scrap installed legacy software in favor of SaaS based IT management.
SaaS-based IT management is one of fastest growth segments in enterprise
IT as advancements in technology. SaaS promises customers reduced costs
to upgrade, configure, manage over time – and in many cases ease of use.
As organizations subscribe to the software – they can use what they need
rather than buying it all up front. With no software to implement or upgrade
rapid value can be delivered without an army of developers and consultants.
Companies such aas Facebook, Deutsche Bank, Intel and UBS, have deployed
SaaS based IT management suites to manage the IT workflow and automation


policies within their organization, in many cases ripping out on-premise
alternatives available from the traditional BIG 4 management vendors (BMC,
CA, IBM and HP). Pressure from cloud computing, economic recession and
budget constraints is threatening their positions. Driven by the success of
software companies such as Beetil and ServiceNow, on-premises vendors have
piled in to the market with offerings such as CA Service Manager on Demand,
HPSoftware-as-a-Service, RemedyForce, Remedy OnDemand, and TivoliLive,

5. Increase your home-based workforce to significantly reduce
infrastructure requirements. Higher levels of unemployment, improved
collaboration technology, some of which is free (skype, OovoO, Gmail), and
the ability to have homeworkers use their own infrastructure is allowing
organizations to tap into a broader pool of talent and to do so cheaply. The
removal of the bricks and mortar and use of Cloud-based applications for
collaboration is enabling the homeworking environment on a serious scale.
Employing a content flexible workforce drives employee retention rates up,
lowers the costs of managing talent and for some types of work (particularly
non scripted voice BPO), and improves customer satisfaction when compared to
offshore alternatives Other areas, such as medical coding, already rely heavily
on home-based staff to work on administrative tasks with contextual needs.
Indeed, well over 100,000 home-based call center jobs have been created in
the US in the last three years by companies leveraging services available from
Alpine Access, Working Solutions, LiveOps, Arise and Westathome.

6. Embrace Social Media for infrastructure support and services. Social
media is now being used by IT services management teams to help improve
communication between IT and users. Social media allows end users improved
transparency to what is happening in IT through consuming information from
simple technologies that they use in everyday life (e.g., twitter, chat, forums,
wikis). It is about getting the right information personalized to a user and faster
than through alternative channels. Knowledge, service catalog, and request
management are prime candidates for social media infusion. Knowledge
management, traditionally a static discipline that over time became less useful
as information was not updated or was only available from cumbersome user
manuals or isolated databases has been invigorated with the implementation
of crowdsourced wikis and chat forums. Items within a services catalog can
be advertised through tweets to users allowing organizations to encourage
more self-service. IT and application owners can now subscribe to lists e.g., for
Instantaneous alerts and updates can be distributed in a familiar notification
format to mobile devices ensuring that interested parties have the most up-to-
date information on the state of IT. Indeed, some IT services desks now have
integration social media incidents “twickets”, a play on a more traditional
helpdesk “ticket”.

7. Consider outsourcing the supporting infrastructure with the application.
Rather than optimising infrastructure as a hermetic silo, outsourcing the
supporting IT infrastructure with an application drives accountability to one


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