ito, cloud and next generation sourcing

ITO, Cloud and Next Generation Sourcing

March 7, 2012

Proprietary & Confidential. © 2012, Everest Global, Inc. 2

Agenda

How The Cloud Delivers Enterprise Class ValueHow The Cloud Delivers Enterprise Class Value

Examples of Enterprises Making it HappenExamples of Enterprises Making it Happen

ITO and Cloud Migration ITO and Cloud Migration –– Myth vs RealityMyth vs Reality


Demand for FlexibilityDemand for Efficiency

Drive to Improve Utilization

Increasing Value Focus Increasing Pace of Innovation

Need for Responsiveness

“Consumerization” of ITDevice proliferationCompressed cycle timeStrategic focus

Ongoing budget pressureDemand for business valueVendor pricingSecurity and regulatory compliance

Rapid volume growth; high variability; explosion of data / complexityAnytime / anywhere accessSpeed / on-demand serviceConfigurability

High cost “single-tenant”modelsUnderutilization of dedicated hardwareSuboptimal skill mixesUnderachievement of economies of scale

ExtremeDemands on

IT and BusinessFunctions

Global IT Services Market ForcesEnterprises face pressure to respond to extreme market demands for efficiency and flexibility


Impact of Next Generation IT ComponentsDisruptive Next Generation IT models are positioned to meet the demanding market needs, creating game-changing opportunities

Efficiency Impact Flexibility Impact

Nex

t Gen

erat

ion

Mod

els

Next Generation Data CentersDesigned to take advantage of modular, hyper-scale and high-density principles

Dramatically lowered costReduced latencySimplified managementHighly scalable

Standardization equals speed‘Right-sized’ capacity ‘Just-in-time’ capacity

Talent FactoriesHigh talent, low cost resources organized by an optimized workforce pyramid

Optimized staffing pyramid leading to improved resource utilizationRemote support from low cost locations

Improved access to specialized skills and technical expertise Enhanced resource scalability

Cloud ServicesIT delivered as a service through private, public, and/or hybrid cloud models

Dynamic workload shift to achieve 4-5X efficiency gain Pooled resources/multi-tenancyCost linked to consumption

On-demand processing and storage capacity Self-service provisioning Capital avoidance

MobilitySmartphones, tablets, sensors and other mobile end-point technologies.

Lower device end-user TCO (for certain segments) Productivity improvementsLocation and motion information utility

Simplified ‘AppStore’ delivery of capabilities‘Always on’ connectivityUbiquitous user access


A Taxonomy for Today’s Discussion‘The Cloud’ is comprised of several different delivery models, each with different attributes and characteristics

Description

End-to-end business process delivered as a service

Common Services

Multi-tenant applications and business services

Multi-tenant application development and hosting environments

PayrollOrder-to-cashProcure-to-payHire-to-retire

CRMHCMEmailCollaborationF&A

Dev OnlyDev + Runtime

PublicCloud

Services

PublicPublicCloud Cloud

ServicesServices

Business Process as a

Service (BPaaS)

Business Business Process as a Process as a

Service Service (BPaaS)(BPaaS)

Infrastructure as a Service

(IaaS)

Infrastructure Infrastructure as a Service as a Service

(IaaS)(IaaS)

Platform as a Service (PaaS)

Platform as a Platform as a Service Service (PaaS)(PaaS)

Software as a Service (SaaS)

Software as a Software as a Service Service (SaaS)(SaaS)

Compute (Server / OS)StorageDatabaseNetworkingContent Delivery

Shared data center, infrastructure hardware and software resources

Private / Hybrid Clouds(On-Premise or Hosted)

Private / Hybrid Clouds(On-Premise or Hosted)

Internally shared data center, infrastructure hardware and software resources

Compute (Server / OS)StorageDatabase


Enterprise Cloud Business Value DriversCloud delivery models are creating enterprise-class value across several operational and financial levers

Operational Levers Key Financial Levers

Capex avoidance

Outsourced maintenance and support

Revenue growth

Reduced operations and mgmt costs

Levers and impact differ by delivery model•BPaaS•SaaS•PaaS•IaaS•Private / hybrid cloud

Economics sensitive to context–specific factors•Refresh cycle•Migration approaches and costSignificant variations in value impact across vendors / CSPs

Reduced operating costs

Observations


Enterprise Cloud Infrastructure EconomicsImproving utilization and eliminating excess capacity are the key to realizing cost efficiencies from cloud infrastructure models

Shift loads to fill valleys (where possible)Maximize private cloud utilization

EliminateExcess Capacity

Eliminate spend on unused ‘peak’capacity

Shift peak loads to public cloud(s)Leverage on-demand ‘pay-as-you-go’ flexibility

3

Move ‘Peak’Load to Public2

Keep ‘Base’Load in Private

1

Private Cloud Server Utilization


Cloud Infrastructure Services Impact Infrastructure delivery based on the cloud has the potential to unlock extraordinary workload-level economics and flexibility benefits

Virtualized/ Private Cloud

Public Cloud

6560-65

Enterprise Workload Cost by Platform1

$ / GHz hrs, Indexed vs Dedicated

Dedicated

100

Hybrid Model

‘Base’ LoadPrivate Cloud

•Keep ‘base’ compute hours in private cloud•Maximize utilization

‘‘BaseBase’’ LoadLoadPrivate CloudPrivate Cloud

••Keep Keep ‘‘basebase’’ compute hours compute hours in private cloudin private cloud••Maximize utilizationMaximize utilization

25

PhysicalServer

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

‘Peak’ LoadPublic Cloud

•Shift ‘spike’ compute hours to public cloud•Pay only for consumption

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 costsSource: Everest Group Cloud Value Assessment Model


Agenda





Enterprise Cloud ImpactRecent engagements illustrate the value creation potential of cloud solutions for the enterprise

Case Example I -Fortune 200 Global Energy CompanyCase Example I Case Example I --Fortune 200 Global Energy CompanyFortune 200 Global Energy Company

Case Example II -Fortune 250 Consumer Goods CompanyCase Example II Case Example II --Fortune 250 Consumer Goods CompanyFortune 250 Consumer Goods Company

Consolidated IT Outsourcing agreements for 12 operating companies into a single service provider– Build a solution that has high

availability during and after transition– Reduce cost of IT

Evaluated proposals for comprehensive IT infrastructure outsourcing– Traditional IT outsourcing solutions– Cloud-based solution

Awarded contract to provider that proposed cloud-based solution, albeit with a more conservative transformation timeline than original cloud proposal

Consolidated IT Outsourcing agreements for 12 operating companies into a single service provider– Build a solution that has high

availability during and after transition– Reduce cost of IT

Evaluated proposals for comprehensive IT infrastructure outsourcing– Traditional IT outsourcing solutions– Cloud-based solution

Awarded contract to provider that proposed cloud-based solution, albeit with a more conservative transformation timeline than original cloud proposal

Formulated sourcing strategy for corporate IT infrastructure supporting operations in 28 countries on 5 continents– Reduce asset ownership– Outsource commodity skills– Secure variable pricingExplored Next Generation cloud solutions with 4 global providers– Strong cloud capabilities– SAP expertise and global reach– Ability to transition quicklyAssessed proposals for broad managed services solutions with different cloud mixes– Range of savings potential– Variety of cloud intensiveness

Formulated sourcing strategy for corporate IT infrastructure supporting operations in 28 countries on 5 continents– Reduce asset ownership– Outsource commodity skills– Secure variable pricingExplored Next Generation cloud solutions with 4 global providers– Strong cloud capabilities– SAP expertise and global reach– Ability to transition quicklyAssessed proposals for broad managed services solutions with different cloud mixes– Range of savings potential– Variety of cloud intensiveness


Case Example I – Global Energy CompanyService providers proposed a diverse set of solutions to meet the client’s Next Generation IT solution design objectives

Provider C

Provider A

Baseline

Provider B

SAPSAP

SAPSAP

SAP

SAPSAP

Dedicated Shared

100%50%25% 75%0%

Solution Overview

• Solution leverages true public cloud (via partner)• ~80% of workloads to cloud-based services;

includes DR• SLAs reflect standard (public) offering, not

customized to client situation

• 82% of workloads to private cloud, includes DR• SAP resides fully in cloud environment• No minimum commitments required• SLAs reflect shared environment

• Solution aggressively virtualizes (20:1 ratio) and transitions to a dedicated, single-tenant environment; excludes DR

• Client-specific SLA s met

• Status quo does not transform infrastructure• No formal service levels; no self-service portal; no

consumption-based service model; no service catalog; no ability to track application usage

• Incomplete DR provided for select business applications

Solution Description


Case Example I – Global Energy CompanyThese solutions afforded very different value propositions for the client

• Nearly 30% improvement in cost provided by public cloud-enabled solution

• Even modest use of public cloud to drive utilization appears to have substantial benefit

• All provider solutions include enhanced scope (albeit with some SLA tradeoffs)

• Rapid changes in cloud service provider landscape make provider selection an important success factor

• Nearly 30% improvement in cost provided by public cloud-enabled solution

• Even modest use of public cloud to drive utilization appears to have substantial benefit

• All provider solutions include enhanced scope (albeit with some SLA tradeoffs)

• Rapid changes in cloud service provider landscape make provider selection an important success factor

IT Infrastructure Annual CostIndexed US$, Year 1 Baseline1 = 100

Public cloud-

enabled

1 Transition costs are spread over 2 years; retained costs excluded.


Case Example II – North America Consumer Goods Company

Proposed provider solutionsClient requirements

Solution must provide high availability infrastructure, with heightened sensitivity during transitionKey decision criterion is magnitude and timing of cost savings Total scope included infrastructure and applications (this case example focuses on infrastructure)RFP guided service providers toward traditional solution

Traditional infrastructure solution• Assets owned by service provider,

delivered from provider facilities• No offshore dedicated to client, only

leveraged resources offshore• 50%-90% of desired SLAs met• Perceived risk of service disruption

during transition was moderate

Traditional infrastructure solution• Assets owned by service provider,

delivered from provider facilities• No offshore dedicated to client, only

leveraged resources offshore• 50%-90% of desired SLAs met• Perceived risk of service disruption

during transition was moderate

Cloud-based solution• Dedicated private cloud for most

applications (including SAP)• No movement of client’s existing,

owned equipment• 90% of desired SLAs met• Perceived risk of service disruption

during transition was low

Cloud-based solution• Dedicated private cloud for most

applications (including SAP)• No movement of client’s existing,

owned equipment• 90% of desired SLAs met• Perceived risk of service disruption

during transition was low


Case Example II – North America Consumer Goods Company

IT Infrastructure Annual CostIndexed US$, Year 1 Baseline = 100

Footnote: Transition costs are included. Providers ramp-up services in first two years. Provider 1 is the incumbent. Client chose cloud provider. Analysis based on largest subsidiary of the parent company.

• 38% cost improvement provided by cloud-enabled solution

• All provider solutions address substantially same scope as Baseline

• Represents initial pricing from all providers (expectation for substantial concessions from finalists were met)

• Provider 4’s cloud-centric solution provided compelling economic advantages

• 38% cost improvement provided by cloud-enabled solution

• All provider solutions address substantially same scope as Baseline

• Represents initial pricing from all providers (expectation for substantial concessions from finalists were met)

• Provider 4’s cloud-centric solution provided compelling economic advantages

Cloud-Enabledsolution


Cloud Business Value DriversEverest Group experience suggests that infrastructure-related cloud services provide the most attractive cost-related opportunities

SaaSPaaSPrivate Hybrid IaaSInfrastructure Apps

Value Impact

HigherLower

Operational Levers


AAObserverObserver

BBOpportunistsOpportunists

CCSolutionersSolutioners

DDTransformersTransformers

EEProviderProvider

Cloud a low priority due to risk and / or perceived adoption constraints (e.g., regulatory requirements)

Cloud adoption opportunistic; primarily driven by business unit / departmental initiatives

Cloud adoption intentionally driven by business / functional use cases and needs

Cloud models leveraged broadly across the enterprise, integrated with traditional models, often driving wide-scale IT transformation

Cloud models providing foundation for new, integrated service delivery ‘business model’ based on services market principles

• None / limited• Individual buyers

• Limited / Modest• Ind. / dept buyers

• Modest• LOB buyers

• Modest / Ext• Enterprise buyer

• Modest / Ext• Enterprise buyers

• None • Individual use • POC / pilots • Limited • Limited

• None • Private POCs • Limited • Modest • Extensive

• Business • Business • Business / IT • IT • Business / IT

• High • Limited • Modest • High • High

• None • None • Project basis • Architect • Broker

• None / Limited • None / Limited • None / limited • Emerging • Extensive

• None • None • Policy only • Emerging • Extensive

Description

Cloud Penetration

IT Influence

IaaS

Private / Hybrid

SaaS

Cloud strategy

Integration

Management

Governance

Enterprise Cloud Adoption PatternsA set of common adoption paths and strategies are beginning to emerge for how enterprises are capturing value from cloud services

Primary Buyers


Agenda





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 We Still Have an ITO DealHave an ITO Deal’’

Perceived Contractual Perceived Contractual ConstraintsConstraints

‘‘The Cloud The Cloud IsnIsn’’t Ready Yett Ready Yet’’

PerceivePerceived Marketd MarketImmaturityImmaturity

‘‘Our ITO Vendor Our ITO Vendor Will Get Us ThereWill Get Us There’’

Perceived IncentivePerceived IncentiveAlignmentAlignment


Issue 1 - Perceived Contractual ConstraintsMany believe that their current ITO contracts severely limit their ability to move quickly to 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


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

BUSTED

BUSTED

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


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

• 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 VendorCauses of VendorMisalignmenMisalignmentt


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 !!!”


Issue 2 - Cloud Service Provider LandscapeDifferent cloud service provider groups are adopting distinctive strategies and possess different biases and incentives

Legacy IT Services Talent Model Network Providers Cloud Pioneers

Strategic fit

• Business model • Difficult balance of traditional and cloud models

• Focus remains on talent services to enable cloud

• Difficult balance of traditional and cloud models

• Built from start for cloud

• Alignment • Conflicting goals, especially with existing revenue base

• Poor fit with infrastructure • Good alignment with standard delivery; less go-to-market

• Sharp cloud focus

• Investment model • Bias toward client funding of initiatives

• Little appetite for investment beyond talent factory

• Strong alignment with historical approaches

• Oriented to support rapid cloud growth

Offerings

• Structure/packaging • Legacy elements tend to appear in cloud offerings

• Biases toward enabling rather than core solution

• Network-centric flavor often exists

• Highly standard cloud not always enterprise-friendly

• Delivery capability • Cloud delivery capabilities often mixed with legacy

• Talent model focused • Building capabilities • Most advanced cloud-focused

Go-to-market

• Sales approach • Enterprise-focused • Enterprise-focused • Underdeveloped for enterprise • Largely absent for enterprise

• Pricing models • Strongly influenced by legacy, risk-shifting frame of reference

• Talent-based • Advanced, consistent with legacy

• Sophisticated, cloud-centric

• Solutioning • Strong enterprise-class skills • Enterprise-oriented • Limited enterprise solution focus

• Poor enterprise capability

Example providers


Issue 3 – Perceived Market ImmaturityCloud solutions are being deployed across a variety of enterprise use cases

New Business Capabilities

ImprovedEfficiencies /

Utilization

‘Big Data’/analytics

Wave I –Extending Low RiskUse Cases

Wave III –Attacking the Core

ILLUSTRATIVE

Adoption Driver

HCM

CollaborationMarketing

applications

Websites

Test /development

DR/BCP

Email

SCM

Virtualdesktop

ERP

Transactionalapplications Wave II –

Driving Value

Backup/archive

MigrationCosts

Low

MediumHigh

‘Spiky’ LOB applications

CRM


Everest GroupLeading clients from insight to action

Scott BilsPartner – Next Generation IT Practice LeaderEverest Group

[email protected]: @sbils, @everest_cloud 512-550-0207 (m)214-341-3043 (o)

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

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