ito, cloud and next generation outsourcing

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ITO, Cloud and Next Generation Outsourcing October 20, 2011

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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-term

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Page 1: ITO, Cloud and Next Generation Outsourcing

ITO, Cloud and Next Generation Outsourcing October 20, 2011

Page 2: ITO, Cloud and Next Generation Outsourcing

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

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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]

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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

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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

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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

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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

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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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Proprietary & Confidential. © 2011, Everest Global, Inc. 12

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 !!!”

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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

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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

Email

SCM

Virtual desktop

ERP

Transactional applications Wave II –

Driving Value

Backup/ archive

Migration Costs

Low

Medium High

‘Spiky’ LOB applications

CRM

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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

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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

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Proprietary & Confidential. © 2011, Everest Global, Inc. 20

To ask a question during the Q&A session Click the question mark (Q&A) button located on the floating tool bar in the bottom right of your screen.

This will open the Q&A Panel

Be sure to keep the default set to “Send to All Panelists”

Then, type your question in the rectangular field at the bottom of the Q&A box and click the send button to submit

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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Proprietary & Confidential. © 2011, Everest Global, Inc. 21

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Upcoming Webinars

Save the Date: Market Vista Q3 2011 Tuesday, November 8, 9 a.m. CDT

Registration details coming soon;

Visit our Webinars page for most up-to-date information

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Proprietary & Confidential. © 2011, Everest Global, Inc. 22

Everest Group leads clients from insight to action

Contact us for more information about our consulting, research, and industry resources.

www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com

Netherlands & Continental Europe [email protected] +31-20-301-2138

United Kingdom [email protected] +44-870-770-0270

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New York [email protected] +1-646-805-4000

India/Middle East [email protected] +91-124-496-1000 +91-124-496-1100