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A bit of passion spilled over into a rather bland conversation (this is a true story) among a group of IT procurement people and their technical consultant recently. Imagine the scene: the consultant was on a teleconference line while the client team gathered around a speaker phone. The not-so-exciting topic was about a benchmarking firm’s recently published market prices for a common infrastructure component – SAN storage. The consultant, who could not contain himself, declared that the benchmark was in gross error – as his experience indicated that market prices were exponentially less than those published. The IT procurement team – probably among the most logical and pragmatic people in business – felt comfortable with the benchmarking results. Their comfort was achieved due to the extensive documentation of parameters – about 40 in total – that clarified what was included in the price benchmark. These parameters included: disaster recovery capability, service level agreements, additional auxiliary services and others. The client team asked that the consultant compare his parameters – that is, working assumptions on quality and scope - with the benchmark to help validate the prices. That comparison was not happening. The increasingly belligerent consultant touted example after example reflecting a lower unit cost. Finally, the client manager abruptly hung up the phone in frustration, much to the consultant’s chagrin. I don’t think the consultant was making up his facts. And belligerence aside, he was making a critical point regarding the low prices available in the market. But what did those prices offer in terms of service scope and quality? I would like to suggest that a simple comparison of the facts and assumptions between competing offerings are needed to validate services offered against client requirements – and then look at price. That said, what are others (like you) seeing in the market place today? Do ‘exponentially lower’ unit prices for infrastructure components exist on a pay-as-you-go basis? What does the client sacrifice, if anything, of for the lower price?
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A great CEO client shared this story with me. His grandfather came to the United States and started a very successful retail and distribution business from a small fruit and vegetable store. The grandfather kept two cigar boxes at the checkout stand. One was for his bills and the other was for the cash receipts. Each Saturday he would reconcile the receipts with the bills, and if there was money left over it was a good week. The business measure was simple, fifty two good weeks in a row, satisfied customers, and the ability to build his business. Today the cigar box has been replaced by Managed Service providers with integrated business processes, mission-critical infrastructures and end-user technology to support essentially the same result. Just not as romantic and a lot more complex. Every so often one or more of these providers’ steps forward with "The Solution" to get us back to simpler cigar box times. Some solutions are as solid as concrete and others as fluffy as clouds. Cloud Computing is building expectations in the market; to provide the same simplicity as the cigar box. But what I miss in the dialogue is the Old Fashion Value Proposition. In short what does it do (assuming it works) besides reduce costs? Do not get me wrong reducing costs is a good thing but where is the enablement, the integration and the management with the simpler value propositions of a lost time: - Will the cloudy cigar box of managed services enable an enterprise to lower the cost of healthcare for the consumer and improve their loyalty to the HMO?
- Can it enable the reduction of credit card fraud within the retail industry so as to lower interest rates and increase available credit to customers?
- Can it shine the sun to enable NASA to send a manned mission to MARS at a more cost efficient ratio?
- Can it assist in enabling an energy company to be greener?
Value propositions such as these need the common sense of discipline and rigor not just a quick solution. The discipline centered on a vision, a hypothesis and the rigor of a strong methodology to bring the clouds to earth for the enterprise. An Alsbridge Phase One can make sure the promise of better cigar boxes and simpler times is possible. Check it out www.alsbridge.com. It is worth the time.
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Over the last year or so, major IT service providers have progressed in their efforts to position themselves in the Cloud Computing market-space as well as building out what is still a limited number of product offerings that can be delivered to the marketplace. Industry analysts suggest that enterprise demand for Cloud Services may be hampered, or slowed down, until more progress is made on critical technical and business issues around cloud computing. Come on now, how hard can cloud computing really be? Well…upon investigation it turns out that clouds are not always the transparent, fluffy cotton balls that come and go with ease… as it relates to highly flexible, demand oriented pay-as-you-go services, clouds can in fact be fairly hard! Despite their progress, IT service providers have a number of thorny issues to deal with before prospective clients feel comfortable enough to do more than plan around the eventual need to consider Cloud Services. Likewise, provider management is not yet convinced there is a sustainable market for what is being built or that given the business, technical and economic models in place today that providers can confidently price and deliver Cloud Services at a reasonable profit. Finally and perhaps most importantly, assuming the issues are successfully dealt with by providers and client organizations…how do you contract for these services and govern the relationship successfully over time from an IT outsourcing point of view?
The purpose of this blog is to initiate a discussion around these (and other) thorny issues and to explore the nature of them from a number of perspectives. First, from a client’s point of view: - What are the things that have to change for you to feel comfortable that Cloud Services are real and that there is substantial value in them for the enterprise?
- Why are the majority of enterprises (a recent market assessment indicates from 65- 85%) are not aware of, not interested in, or not budgeting for Cloud Services today?
Second, from a provider’s point of view: - How do the Business, Technical and Economic models in your business need to change to successfully deliver Cloud Services to your clients?
- What has to change for you to be assured of a favorable Return on Investment from the delivery of Cloud Services?
Finally, from an IT Outsourcing point of view: - How do the parties contract for these evolving services to ensure that value is delivered over time?
- How do ITO relationships and their underlying agreements need to be governed differently, through Service Level Metrics, Measures and Agreements for example?
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What are the right retention percentages by IT service category as I consider outsourcing and my retained organization structure? This is a question that seems to be on the mind of every CIO who is considering outsourcing. The question of balancing work to ensure an equal or better quality of service after engaging an outsourcing provider is key to IT’s ability to sustain the level of service expected from IT’s customer – the business.
The consultant’s answer is that it depends. It depends on the centralization, diversification, domestic, regional, and global nature of the current IT organization. To answer the retained organization question, we have come up with some fact-based information on real deals that have been recently completed.
The summaries below provide an interesting starting point for a discussion to answer the “right retention percentage” question. The data shows retained vs. outsourced role percentage broken into two organizational structure categories and four role categories.  We would like to build upon this limited sample by supplementing it with the experiences of those in the IT community who have designed their retained organizations based on their experience with outsourcing. Share your comments here. Blog on! Craig Nelson Director Alsbridge, Inc.
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At the beginning of the 20th century, two great inventors, Thomas Edison and Henry Ford, changed the world. Both men enabled an industrial revolution that we are still receiving the benefits from today. But to me, it is not their inventions as much as the courage it must have taken to bring the innovation or process change to market them that is important. For example, Henry Ford created the assembly line, and with it, the capability of mass production. In short, he enabled the automobile to become a commodity and affordable to everyone. Edison did likewise with the creation of the electric utility; he improved the quality of life in the home and the commercial marketplace.
A key piece of information is that the two of them were lifelong friends and actually had adjoining homes in Florida. Initially, Ford generated his own electricity for the plants and kept a team of people to maintain the power-generating equipment. Can you imagine Thomas Edison explaining to Henry Ford that he should outsource his power generation needs to the Edison companies? Henry Ford was probably extremely concerned about relying on a third party to provide the energy needed to make his assembly lines function. History does not tell us the exact time and place when Ford and manufacturers like him outsourced their power needs to third parties such as the Edison companies, but we can safely say it worked. Continue reading "Are the Clouds Real or Fluff"
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