ito, cloud and next generation outsourcing
DESCRIPTION
New cloud and next generation IT models are starting to deliver global enterprises disruptive improvements in cost and performance. Unfortunately, many organizations that have outsourced parts of their IT environment have been unable to capture these benefits. In this webinar, learn: How next generation IT models can reduce infrastructure costs by 30+% over ITO solutions, how cloud solutions can be leveraged even when an ITO solution is in place, The myths around ITO contractual constraints to cloud migration Why your ITO vendor may not be incented to migrate you to the cloud, new approaches for IT vendor governance and management in cloud environments, and how to develop a migration strategy and roadmap in preparation for ITO end-of-termTRANSCRIPT
ITO, Cloud and Next Generation Outsourcing October 20, 2011
Proprietary & Confidential. © 2011, Everest Global, Inc. 2
About Everest Group
Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations and private equity firms, in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com. For more information, contact Mark Williamson at [email protected]
Today’s Webinar is brought to you by Everest Group
Today’s Webinar
ITO, Cloud and Next Generation Outsourcing Synopsis: New cloud and next generation IT models are starting to deliver global enterprises disruptive improvements in cost and performance. Unfortunately, many organizations that have outsourced parts of their IT environment have been unable to capture these benefits. In this webinar, learn: How next generation IT models can reduce infrastructure costs by 30+% over ITO solutions How cloud solutions can be leveraged even when an ITO solution is in place The myths around ITO contractual constraints to cloud migration Why your ITO vendor may not be incented to migrate you to the cloud New approaches for IT vendor governance and management in cloud environments How to develop a migration strategy and roadmap in preparation for ITO end-of-term
Proprietary & Confidential. © 2011, Everest Global, Inc. 3
Introductions
Marvin Newell Partner, Strategy Practice Leader Everest Group [email protected]
Scott Bils Partner, Next Generation IT Practice Leader Everest Group [email protected]
Proprietary & Confidential. © 2011, Everest Global, Inc. 4
Agenda
How The Cloud Delivers Enterprise Class Value
ITO and Cloud Migration – Myth vs Reality
Enterprise Cloud Roadmap – Implementation
Proprietary & Confidential. © 2011, Everest Global, Inc. 5
Shift loads to fill valleys (where possible)
Maximize private cloud utilization
Eliminate Excess Capacity
Eliminate spend on unused ‘peak’ capacity
Shift peak loads to public cloud(s)
Leverage on-demand ‘pay-as-you-go’ flexibility
3
Enterprise Cloud Infrastructure Economics Improving utilization and eliminating excess capacity are the key to realizing cost efficiencies from cloud infrastructure models
Move ‘Peak’ Load to Public 2
Keep ‘Base’ Load in Private
1
Private Cloud Server Utilization
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Cloud Infrastructure Services Impact Infrastructure delivery based on the cloud has the potential to unlock extraordinary workload-level economics and flexibility benefits
1 Assumes average workload mix and profile; 15% of total peak workload hours shifted to public cloud in an on-demand model; does not include application migration costs Source: Everest Group Cloud Value Assessment Model
Virtualized/ Private Cloud
Public Cloud
65
60-65
Enterprise Workload Cost by Platform1
$ / GHz hrs, Indexed vs Dedicated
Dedicated
100
Hybrid Model
‘Base’ Load Private Cloud
• Keep ‘base’ compute hours in private cloud
• Maximize utilization
‘Peak’ Load Public Cloud
• Shift ‘spike’ compute hours to public cloud
• Pay only for consumption 25
Physical Server
Utilization: 7% N/A
(service provider) 18% 40%
• Hybrid models can drive truly ‘disruptive’ economics
• Applicable at individual workload and portfolio level
• Dynamic bursting not required to capture initial benefits
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Value Creation Potential Next Generation IT services can deliver value to customers at an enterprise level that will drive disruptive adoption impact in the market
Baseline
Next Generation IT Services Solution
Traditional Outsourcing Procurement
Cost Index
Alternative IT Infrastructure Solutions CLIENT EXAMPLE
Notes: Baseline and Traditional Outsourcing Procurement based on actual client projections and executed service provider contract, including transition costs
Next Generation IT Services Solution estimates potential from executing roadmap of Next Generation IT initiatives to implement private cloud and hybrid private/public cloud solution over 4 years, including projected migration costs
Only ~25% of compute hours moved to hybrid private / public models
40% of workloads remained dedicated delivery models
Public cloud concerns not applicable to private / dedicated models
Workload placement critical to unlocking economics
Proprietary & Confidential. © 2011, Everest Global, Inc. 8
Agenda
How The Cloud Delivers Enterprise Class Value
ITO and Cloud Migration – Myth vs Reality
Enterprise Cloud Roadmap – Implementation
Proprietary & Confidential. © 2011, Everest Global, Inc. 9
Why Are Enterprises Slow to Pursue the Opportunity? Several common misperceptions are preventing ITO clients from moving quickly to capture value from cloud economics
’We Still Have an ITO Deal’
Perceived Contractual Constraints
‘The Cloud Isn’t Ready Yet’
Perceived Market Immaturity
‘Our ITO Vendor Will Get Us There’
Perceived Incentive Alignment
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Issue 1 - Perceived Contractual Constraints Many believe that their current ITO contracts severely limit their ability to move quickly to cloud solutions
Solution Constraints – The Myths • Contractual terms prevent the adoption of alternative solutions • Performance needs can not be met through cloud platforms • Regulatory requirements can not be met through cloud solutions
Exclusivity – “contract limits services that can be contracted to other providers”
Revenue commitment (floor) – “minimums preclude moving workloads”
Performance guarantee – “service levels cannot be met by cloud solutions”
Regulatory compliance – “regulations cannot be satisfied by cloud solutions”
Warranties – “can’t cleanly separate scope for cloud services”
Common Perceptions - Examples
Proprietary & Confidential. © 2011, Everest Global, Inc. 11
Issue 1 - Perceived Contractual Constraints (cont’d) Based on a review of multiple deals, most outsourcing agreements do not prevent the introduction of cloud solutions into the enterprise IT portfolio
Solution Constraints – The Reality • Contractual terms prevent the adoption of alternative solutions • Performance needs can not be met through cloud platforms • Regulatory requirements can not be met through cloud solutions
Exclusivity
Revenue commitment (floor)
Performance guarantee
Regulatory compliance
Warranties
Not present; tower termination
Demand exceeds floor
Engineered outcomes
Vertically-oriented clouds
Scope / change management
Typical Contract Reality
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Issue 2 – Are You Truly Aligned With Your Vendor? Significant disincentives exist for many legacy ITO vendors to migrate their customers to cloud and next generation IT platforms
Financial Disincentives
• Many ITO vendors face 30-40+% revenue ‘hit’ on client cloud migration
• Lack of cloud delivery platforms and technologies across private, public and hybrid models
• Shortages or absence of key cloud solutioning and architecting capabilities
Causes of Vendor Misalignment
Platform Gaps
Skill Gaps
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Issue 2 – How Quickly Will They Get You There? Anecdotal evidence of misaligned incentives among vendors offering both traditional ITO and cloud services is not hard to find
“We’re seeing ~33% less revenue on cloud ITO clients – this is creating a lot of internal resistance to move our clients”
- Sales Engineer, leading IT services vendor
“SAP can’t be delivered as a hosted, private cloud service…”
- Sales rep, major IT services vendor “Yes, we can provide you SAP in a cloud environment!”
- Same sales rep, one week later
“We have found that cloud solutions cannot economically
compete with our data center solutions"
- From IT services vendor client presentation
“All our sales team knows is revenue – until we change our comp plans, they’ll never drive to cloud solutions”
- Executive, leading IT services vendor
“Names have been changed to protect
the innocent !!!”
Proprietary & Confidential. © 2011, Everest Global, Inc. 14
Demand for Flexibility Demand for Efficiency
Drive to Improve Utilization
Increasing Value Focus
Increasing Pace of Innovation
Need for Responsiveness
“Consumerization” of IT Device proliferation Compressed cycle time Strategic focus
Ongoing budget pressure Demand for business value Vendor pricing Security and regulatory
compliance
Rapid volume growth; high variability; explosion of data / complexity
Anytime / anywhere access Speed / on-demand service Configurability
High cost “single-tenant” models
Underutilization of dedicated hardware
Suboptimal skill mixes Underachievement of
economies of scale
Extreme Demands on
IT and Business Functions
Issue 2 – Most Enterprises Don’t Have Time to Wait Enterprises face pressure to respond to extreme market demands for efficiency and flexibility
Proprietary & Confidential. © 2011, Everest Global, Inc. 15
Issue 3 – Perceived Market Immaturity Cloud solutions are being deployed across a variety of enterprise use cases
New Business Capabilities
Improved Efficiencies /
Utilization
‘Big Data’/ analytics
Wave I – Extending Low Risk Use Cases
Wave III – Attacking the Core
ILLUSTRATIVE
Adoption Driver
HCM
Collaboration Marketing
applications
Web sites
Test / development
DR/ BCP
SCM
Virtual desktop
ERP
Transactional applications Wave II –
Driving Value
Backup/ archive
Migration Costs
Low
Medium High
‘Spiky’ LOB applications
CRM
Proprietary & Confidential. © 2011, Everest Global, Inc. 16
Agenda
How The Cloud Delivers Enterprise Class Value
ITO and Cloud Migration – Myth vs Reality
Enterprise Cloud Roadmap – Implementation
Proprietary & Confidential. © 2011, Everest Global, Inc. 17
Workload Migration Opportunities
Workload Portfolio Analysis
Current Traffic text text text text text text text
Workload Utilization Dynamics
+
Enterprise Cloud Roadmap
Migration Economics
Dependency Assessment
Portfolio Utilization Analysis
Overall 3-5 +year cloud migration roadmap
Supporting business case and plan
Enterprise Cloud Roadmap Developing an overall cloud migration strategy that optimizes enterprise economics requires a portfolio-based approach
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Next Generation ITO Solutions Enterprise will operate a “mixed” environment to maximize value by aligning infrastructure needs with distinct solutions
Next Generation IT Open | Integrated | Secure
Hosting services Next Generation data
centers High-density servers RIMO
Dedicated
Open source compute and storage services
vCloud, Azure-based IaaS / PaaS solutions
RIMO
Public Cloud Private Cloud
Cloud appliances/ hosting services
Next Generation data centers
Virtual architectures RIMO
Note: RIMO = Remote Infrastructure Management Outsourcing
Hybrid Delivery Models
LOB and selected mission critical applications
Integration services RIMO
SaaS
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Opportunity Identification
Developing an Enterprise Cloud Roadmap The approach for developing an Enterprise Cloud Roadmap requires rigorous, fact-based problem-solving focused on actionable business results
Data Collection
Scenario Testing Migration Roadmap
Application Rationalization
Migration Recommendations
Total Saving
s %
Define future state IT environment
Clarify goals and objectives
Identify portfolio opportunities
Design roadmap for transformation
Potential of Next Generation IT Workshop
Transformation Workshops
Mapping to Future State IT Environment
Detailed Analysis Business case
Objectives Assess the business case and build a strategic roadmap for IT transformation driven by cloud-based IT services, including identification of opportunities to:
Portfolio-based priority for workload migration to the cloud Improve non-migrated workloads and infrastructure Leverage remote infrastructure management
Proprietary & Confidential. © 2011, Everest Global, Inc. 20
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This will open the Q&A Panel
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Attendees will receive an email enabling them to download today’s webinar presentation as well as access a recorded audio version
For advice on Next Generation IT, please contact: – Scott Bils, [email protected] – Marvin Newell, [email protected]
For background information on Everest Group, please visit:
– www.everestgrp.com – research.everestgrp.com
Thank you for attending today
Q&A
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