ITO, Cloud and Next Generation Sourcing
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  • 1. ITO, Cloud and Next Generation SourcingMarch 7, 2012
  • 2. Agenda How The Cloud Delivers Enterprise Class Value Examples of Enterprises Making it Happen ITO and Cloud Migration – Myth vs Reality Proprietary & Confidential. © 2012, Everest Global, Inc. 2
  • 3. Global IT Services Market ForcesEnterprises face pressure to respond to extreme market demands for efficiency andflexibility Demand for Efficiency Demand for Flexibility Increasing Pace of Increasing Value Focus Innovation Ongoing budget pressure “Consumerization” of IT Demand for business value Device proliferation Vendor pricing Compressed cycle time Security and regulatory Strategic focus compliance Drive to Improve Utilization Need for Responsiveness High cost “single-tenant” Rapid volume growth; high models variability; explosion of data / Underutilization of Extreme complexity dedicated hardware Demands on Anytime / anywhere access Suboptimal skill mixes IT and Business Speed / on-demand service Underachievement of Configurability economies of scale Functions Proprietary & Confidential. © 2012, Everest Global, Inc. 3
  • 4. Impact of Next Generation IT ComponentsDisruptive Next Generation IT models are positioned to meet the demanding marketneeds, creating game-changing opportunities Efficiency Impact Flexibility Impact Next Generation Standardization equals Dramatically lowered cost Data Centers Reduced latency speed Designed to take advantage of Simplified management ‘Right-sized’ capacity modular, hyper-scale and high- Highly scalable ‘Just-in-time’ capacity density principles Next Generation Models Talent Factories Optimized staffing pyramid Improved access to High talent, low cost resources leading to improved resource specialized skills and organized by an optimized utilization technical expertise workforce pyramid Remote support from low Enhanced resource cost locations scalability Cloud Services Dynamic workload shift to On-demand processing and IT delivered as a service achieve 4-5X efficiency gain storage capacity through private, public, and/or Pooled resources/multi- Self-service provisioning hybrid cloud models tenancy Capital avoidance Cost linked to consumption Mobility Lower device end-user TCO Simplified ‘AppStore’ delivery Smartphones, tablets, sensors (for certain segments) of capabilities and other mobile end-point Productivity improvements ‘Always on’ connectivity technologies. Location and motion Ubiquitous user access information utility Proprietary & Confidential. © 2012, Everest Global, Inc. 4
  • 5. A Taxonomy for Today’s Discussion‘The Cloud’ is comprised of several different delivery models, each with differentattributes and characteristics Description Common Services Business End-to-end business Payroll Business process delivered as a Order-to-cash Process as a Process as a service Procure-to-pay Service Service Hire-to-retire (BPaaS) (BPaaS) Multi-tenant applications CRM Software as a Software as a and business services HCM Service Service Email Public Public (SaaS) (SaaS) Collaboration Cloud Cloud F&A Services Services Platform as a Multi-tenant application Dev Only Platform as a Service development and hosting Dev + Runtime Service (PaaS) environments (PaaS) Shared data center, Compute (Server / OS) Infrastructure Infrastructure Storage infrastructure hardware as a Service as a Service and software resources Database (IaaS) (IaaS) Networking Content Delivery Internally shared data Compute (Server / OS) Private // Hybrid Clouds center, infrastructure Private Hybrid Clouds Storage hardware and software ((On-Premise or Hosted) On-Premise or Hosted) Database resources Proprietary & Confidential. © 2012, Everest Global, Inc. 5
  • 6. Enterprise Cloud Business Value DriversCloud delivery models are creating enterprise-class value across several operationaland financial levers Operational Levers Key Financial Levers Observations Capex avoidance Levers and impact differ by delivery model Reduced operations and •BPaaS mgmt costs •SaaS •PaaS Outsourced maintenance and support •IaaS •Private / hybrid cloud Economics sensitive to context–specific factors •Refresh cycle •Migration approaches Revenue growth and cost Significant variations in Reduced operating value impact across costs vendors / CSPs Proprietary & Confidential. © 2012, Everest Global, Inc. 6
  • 7. Enterprise Cloud Infrastructure EconomicsImproving utilization and eliminating excess capacity are the key to realizing costefficiencies from cloud infrastructure models 3 Eliminate Eliminate spend Excess Capacity on unused ‘peak’ capacity Private Cloud Server Utilization 2Move ‘Peak’ Shift peak loads to Load to Public public cloud(s) Leverage on-demand ‘pay-as-you-go’ flexibility 1Keep ‘Base’ Shift loads to fill valleys (where Load in Private possible) Maximize private cloud utilization Proprietary & Confidential. © 2012, Everest Global, Inc. 7
  • 8. Cloud Infrastructure Services ImpactInfrastructure delivery based on the cloud has the potential to unlock extraordinaryworkload-level economics and flexibility benefits Enterprise Workload Cost by Platform1 • Hybrid models can drive truly $ / GHz hrs, Indexed vs Dedicated ‘disruptive’ economics • Applicable at individual workload 100 and portfolio level • Dynamic bursting not required to capture initial benefits 65 ‘Peak’ Load 60-65 Public Cloud •Shift ‘spike’ compute hours to public cloud 25 •Pay only for consumption ‘‘Base’ Load Base’ Load Virtualized/ Public Private Cloud Private Cloud Dedicated Hybrid ••Keep ‘‘base’ compute hours Keep base’ compute hours base’ Physical Private Cloud Cloud Model in private cloud in private cloud Server 7% 18% N/A 40% ••Maximize utilization Maximize utilization Utilization: (service provider)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 Proprietary & Confidential. © 2012, Everest Global, Inc. 8
  • 9. Agenda How The Cloud Delivers Enterprise Class Value Examples of Enterprises Making it Happen ITO and Cloud Migration – Myth vs Reality Proprietary & Confidential. © 2012, Everest Global, Inc. 9
  • 10. Enterprise Cloud ImpactRecent engagements illustrate the value creation potential of cloud solutionsfor the enterpriseCase Example II -Case Example - Case Example II - Case Example II -Fortune 200 Global Energy CompanyFortune 200 Global Energy Company Fortune 250 Consumer Goods Company Fortune 250 Consumer Goods Company Formulated sourcing strategy for Formulated sourcing strategy for Consolidated IT Outsourcing Consolidated IT Outsourcing corporate IT infrastructure supporting corporate IT infrastructure supporting agreements for 12 operating companies agreements for 12 operating companies operations in 28 countries on 5 operations in 28 countries on 5 into a single service provider into a single service provider continents continents – Build a solution that has high – Build a solution that has high – Reduce asset ownership – Reduce asset ownership availability during and after transition availability during and after transition – Outsource commodity skills – Outsource commodity skills – Reduce cost of IT – Reduce cost of IT – Secure variable pricing – Secure variable pricing Explored Next Generation cloud Explored Next Generation cloud Evaluated proposals for comprehensive Evaluated proposals for comprehensive solutions with 4 global providers solutions with 4 global providers IT infrastructure outsourcing IT infrastructure outsourcing – Strong cloud capabilities – Strong cloud capabilities – Traditional IT outsourcing solutions – Traditional IT outsourcing solutions – SAP expertise and global reach – SAP expertise and global reach – Cloud-based solution – Cloud-based solution – Ability to transition quickly – Ability to transition quickly Assessed proposals for broad managed Assessed proposals for broad managed Awarded contract to provider that Awarded contract to provider that services solutions with different cloud services solutions with different cloud proposed cloud-based solution, albeit proposed cloud-based solution, albeit mixes mixes with a more conservative transformation with a more conservative transformation – Range of savings potential – Range of savings potential timeline than original cloud proposal timeline than original cloud proposal – Variety of cloud intensiveness – Variety of cloud intensiveness Proprietary & Confidential. © 2012, Everest Global, Inc. 10
  • 11. Case Example I – Global Energy CompanyService providers proposed a diverse set of solutions to meet the client’s NextGeneration IT solution design objectivesSolution Overview Solution Description Dedicated Shared • Solution leverages true public cloud (via partner) • ~80% of workloads to cloud-based services;Provider A includes DR SAP SAP • SLAs reflect standard (public) offering, not customized to client situation • 82% of workloads to private cloud, includes DRProvider B • SAP resides fully in cloud environment • No minimum commitments required SAP • SLAs reflect shared environment • Solution aggressively virtualizes (20:1 ratio) andProvider C transitions to a dedicated, single-tenant environment; excludes DR SAP SAP • Client-specific SLA s met • Status quo does not transform infrastructure • No formal service levels; no self-service portal; no Baseline consumption-based service model; no service SAP SAP catalog; no ability to track application usage • Incomplete DR provided for select business 0% 25% 50% 75% 100% applications Proprietary & Confidential. © 2012, Everest Global, Inc. 11
  • 12. Case Example I – Global Energy CompanyThese solutions afforded very different value propositions for the client IT Infrastructure Annual Cost Indexed US$, Year 1 Baseline1 = 100 • Nearly 30% improvement in cost • Nearly 30% improvement in cost provided by public cloud-enabled provided by public cloud-enabled solution solution • Even modest use of public cloud to • Even modest use of public cloud to drive utilization appears to have drive utilization appears to have substantial benefit substantial benefit • All provider solutions include • All provider solutions include enhanced scope (albeit with some enhanced scope (albeit with some SLA tradeoffs) SLA tradeoffs) • Rapid changes in cloud service • Rapid changes in cloud service Public cloud- provider landscape make provider provider landscape make provider enabled selection an important success selection an important success factor factor 1 Transition costs are spread over 2 years; retained costs excluded. Proprietary & Confidential. © 2012, Everest Global, Inc. 12
  • 13. Case Example II – North America ConsumerGoods Company Proposed provider solutions Client requirements Traditional infrastructure solution Traditional infrastructure solution • • Assets owned by service provider, Assets owned by service provider, Solution must provide high delivered from provider facilities delivered from provider facilities availability infrastructure, with • • No offshore dedicated to client, only No offshore dedicated to client, only heightened sensitivity during leveraged resources offshore leveraged resources offshore transition • • 50%-90% of desired SLAs met 50%-90% of desired SLAs met Key decision criterion is • • Perceived risk of service disruption Perceived risk of service disruption magnitude and timing of cost during transition was moderate during transition was moderate savings Total scope included Cloud-based solution Cloud-based solution infrastructure and applications • • Dedicated private cloud for most Dedicated private cloud for most (this case example focuses on applications (including SAP) applications (including SAP) infrastructure) • No movement of client’s existing, • No movement of client’s existing, RFP guided service providers owned equipment owned equipment toward traditional solution • • 90% of desired SLAs met 90% of desired SLAs met • • Perceived risk of service disruption Perceived risk of service disruption during transition was low during transition was low Proprietary & Confidential. © 2012, Everest Global, Inc. 13
  • 14. Case Example II – North America ConsumerGoods Company IT Infrastructure Annual Cost Indexed US$, Year 1 Baseline = 100 • 38% cost improvement • 38% cost improvement provided by cloud-enabled provided by cloud-enabled solution solution • All provider solutions address • All provider solutions address substantially same scope as substantially same scope as Baseline Baseline • Represents initial pricing from • Represents initial pricing from Cloud- all providers (expectation for all providers (expectation for Enabled substantial concessions from substantial concessions from solution finalists were met) finalists were met) • Provider 4’s cloud-centric • Provider 4’s cloud-centric solution provided compelling solution provided compelling economic advantages economic advantages 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. Proprietary & Confidential. © 2012, Everest Global, Inc. 14
  • 15. Cloud Business Value DriversEverest Group experience suggests that infrastructure-related cloud Value Impactservices provide the most attractive cost-related opportunities Lower Higher Infrastructure Apps Operational Levers Private Hybrid IaaS PaaS SaaS Proprietary & Confidential. © 2012, Everest Global, Inc. 15
  • 16. Enterprise Cloud Adoption Patterns A set of common adoption paths and strategies are beginning to emerge for how enterprises are capturing value from cloud services A B C D E Observer Opportunists Solutioners Transformers Provider Cloud a low priority due Cloud adoption Cloud adoption Cloud models leveraged Cloud models providing Description to risk and / or perceived opportunistic; primarily intentionally driven by broadly across the foundation for new, adoption constraints driven by business unit / business / functional enterprise, integrated integrated service delivery (e.g., regulatory departmental initiatives use cases and needs with traditional models, ‘business model’ based on requirements) often driving wide-scale services market principles IT transformationCloud Penetration SaaS • None / limited • Limited / Modest • Modest • Modest / Ext • Modest / Ext • Individual buyers • Ind. / dept buyers • LOB buyers • Enterprise buyer • Enterprise buyers IaaS • None • Individual use • POC / pilots • Limited • Limited Private / Hybrid • None • Private POCs • Limited • Modest • Extensive Primary Buyers • Business • Business • Business / IT • IT • Business / IT IT Influence Cloud strategy • High • Limited • Modest • High • High Integration • None • None • Project basis • Architect • Broker Management • None / Limited • None / Limited • None / limited • Emerging • Extensive Governance • None • None • Policy only • Emerging • Extensive Proprietary & Confidential. © 2012, Everest Global, Inc. 16
  • 17. Agenda How The Cloud Delivers Enterprise Class Value Examples of Enterprises Making it Happen ITO and Cloud Migration – Myth vs Reality Proprietary & Confidential. © 2012, Everest Global, Inc. 17
  • 18. Why Are Enterprises Slow to Pursue the Opportunity?Several common misperceptions are preventing ITO clients from movingquickly to capture value from cloud economics ’We Still Have an ITO Deal’ Perceived Contractual Constraints ‘Our ITO Vendor ‘The Cloud Will Get Us There’ Isn’t Ready Yet’ Perceived Incentive Perceived Market Alignment Immaturity Proprietary & Confidential. © 2012, Everest Global, Inc. 18
  • 19. Issue 1 - Perceived Contractual ConstraintsMany believe that their current ITO contracts severely limit their ability tomove quickly to cloud solutionsCommon Perceptions - Examples 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” Proprietary & Confidential. © 2012, Everest Global, Inc. 19
  • 20. Issue 1 - Perceived Contractual Constraints (cont’d)Based on a review of multiple deals, most outsourcing agreements do notprevent the introduction of cloud solutions into the enterprise IT portfolio D S TE BUTypical Contract Reality Exclusivity Not present; tower termination Revenue commitment (floor) Demand exceeds floor Performance guarantee Engineered outcomes Regulatory compliance Vertically-oriented clouds Warranties Scope / change management Proprietary & Confidential. © 2012, Everest Global, Inc. 20
  • 21. Issue 2 – Are You Truly Aligned With Your Vendor?Significant disincentives exist for many legacy ITO vendors to migrate theircustomers to cloud and next generation IT platforms • Many ITO vendors face 30-40+% revenue ‘hit’ on client cloud migration Causes of Vendor Misalignment • Lack of cloud delivery platforms and technologies across private, public and hybrid models • Shortages or absence of key cloud solutioning and architecting capabilities Proprietary & Confidential. © 2012, Everest Global, Inc. 21
  • 22. Issue 2 – How Quickly Will They Get You There?Anecdotal evidence of misaligned incentives among vendors offering bothtraditional ITO and cloud services is not hard to find “SAP can’t be delivered as a “We’re seeing ~33% less revenue hosted, private cloud on cloud ITO clients – this is service…” creating a lot of internal - Sales rep, major IT services vendor resistance to move our clients” - Sales Engineer, leading IT services vendor “Yes, we can provide you SAP in a cloud environment!” - Same sales rep, one week later “Names have been changed to protect the innocent !!!” “We have found that cloud “All our sales team knows is solutions cannot economically revenue – until we change our compete with our data center comp plans, they’ll never drive to solutions" cloud solutions” - From IT services vendor client presentation - Executive, leading IT services vendor Proprietary & Confidential. © 2012, Everest Global, Inc. 22
  • 23. Issue 2 - Cloud Service Provider LandscapeDifferent cloud service provider groups are adopting distinctive strategies andpossess different biases and incentives Legacy IT Services Talent Model Network Providers Cloud PioneersStrategic fit• Business model • Difficult balance of traditional • Focus remains on talent • Difficult balance of traditional • Built from start for cloud and cloud models services to enable cloud and cloud models• Alignment • Conflicting goals, especially • Poor fit with infrastructure • Good alignment with standard • Sharp cloud focus with existing revenue base delivery; less go-to-market• Investment model • Bias toward client funding of • Little appetite for investment • Strong alignment with • Oriented to support rapid initiatives beyond talent factory historical approaches cloud growthOfferings• Structure/packaging • Legacy elements tend to • Biases toward enabling rather • Network-centric flavor often • Highly standard cloud not appear in cloud offerings than core solution exists always enterprise-friendly• Delivery capability • Cloud delivery capabilities • Talent model focused • Building capabilities • Most advanced cloud-focused often mixed with legacyGo-to-market• Sales approach • Enterprise-focused • Enterprise-focused • Underdeveloped for enterprise • Largely absent for enterprise• Pricing models • Strongly influenced by legacy, • Talent-based • Advanced, consistent with • Sophisticated, cloud-centric risk-shifting frame of legacy reference• Solutioning • Strong enterprise-class skills • Enterprise-oriented • Limited enterprise solution • Poor enterprise capability focusExample providers Proprietary & Confidential. © 2012, Everest Global, Inc. 23
  • 24. Issue 3 – Perceived Market ImmaturityCloud solutions are being deployed across a variety of enterprise use cases ILLUSTRATIVE Improved Efficiencies / Wave I – Migration Utilization DR/ Extending Low Risk Costs BCP Use Cases ‘Spiky’ LOB Low applications Medium Web High sites Backup/ ERP archive Test / ‘Big Data’/ development analytics Virtual desktop Email Transactional HCM applications Wave II – Driving Value Collaboration SCM Marketing Wave III – applications CRM Attacking the Core Adoption New Business Driver Capabilities Proprietary & Confidential. © 2012, Everest Global, Inc. 24
  • 25. Everest GroupLeading clients from insight to action Scott Bils Partner – Next Generation IT Practice Leader Everest Group scott.bils@everestgrp.com Twitter: @sbils, @everest_cloud 512-550-0207 (m) 214-341-3043 (o) www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Proprietary & Confidential. © 2012, Everest Global, Inc. 25