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Building capabilities leveraging alternate solution deployments
 

Building capabilities leveraging alternate solution deployments

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    Building capabilities leveraging alternate solution deployments Building capabilities leveraging alternate solution deployments Document Transcript

    • SAP White Paperadaptive operating modelsBuilding CapaBilities leveraging alternatesolution deploymentsStrategic LeverS for competitive poSitioning
    • Content 4 Executive Summary 16 Deliberate Design process 4 the need to go Beyond 16 clarity of vision: the traditional approach enabling alignment 4 Leveraging alternate Solution 16 Knowing the Base: reality check Deployment models 17 Knowing the options: 5 constructing a Best-in-class increased probability of Success Solution Landscape and 18 value-Based Decisions:0 operating model improved roi 5 need for Deliberate Design 18 managing the transformation 5 need for orchestration: 18 process alignment to Drive operating as a Singular Unit efficiency 5 no Shortcuts: collaborating for 18 retained organization – the Best results vital to Success 18 operational Discipline 6 Capability Needs and 18 governance and orchestration Acquisition Options 6 existing Landscape: 20 Architecting the Solution often convoluted Landscape 6 Scarcity of resources: increasing 21 Hygiene factors the challenge 22 Strategic alignment 7 new Service Delivery models 22 Business Strategy offering possibilities galore 22 operations Strategy 8 challenge: choosing the right 22 risk tolerance Solution Deployment model 24 Business and operational factors 8 on-premise Deployment: 24 Business Situations the traditional Workhorse 24 operational factors 8 outsourcing Services: 25 Supplier compatibility Leveraging partner capabilities 26 financial evaluation10 Shared Service centers: 26 one-time costs an alternative to outsourcing 26 ongoing costs11 on-Demand Deployment: 26 Scope creep and overtime cost more flexibility and reduced 26 Business continuity costs expenditure 27 exit cost12 Business process as a Service: 27 Special-case circumstances Ultimate partner network13 private versus public cloud: 28 Conclusion Security comfort versus cost Benefit 29 Appendix14 Key to Success – getting it right the first time 35 Glossary of Terms15 Deliberate Design 36 Bibliography15 Best-in-class Landscape Qualities 36 Sap references15 evolutionary15 Delightful to Use15 operate as a Singular Unit16 Simplicity – the Key to Success
    • exeCutive summaryneeD for fLexiBiLity anD SpeeDin today’s global economy, enterprises are faced with the operating costs but also reduce capital expenditure and provide theintense competition. new network-based business models flexibility to scale based on businessand practices are transforming the way enterprises collab- needs. this can be very attractive, as the vendor makes all the investmentsorate and grow. Businesses need to be highly flexible, needed and provides businesses withscalable, and nimble to stay successful. it requires their access to ready-to-use solutions or services through a pay-as-you-go model.operations to be able to adapt quickly to market conditions this reduces and sometimes even elimi-and be responsive to customer demands. However, this is nates the need for initial investment on the part of the buyer while providingeasier said than done; building and maintaining such capa- the ability to scale according to needs.bilities the traditional way is laborious and challenging. it is these options provide businesses withimperative that businesses innovate and seek alternate ways opportunities to build the capabilitiesto acquire essential capabilities in a cost-effective manner. they need while reducing capital and operating expenditures. However, like everything in life, there are limitationsThe Need to Go Beyond evaluating alternatives to acquire and downsides with these models asthe Traditional Approach best-in-class capabilities. this includes well. enterprises need to evaluate the building a network of strategic business implications for their businesses andBusiness needs are not homogeneous; partners that are able to provide the determine the best combination ofwhile some may be short term, others required capabilities at a competitive deployment models that will suit theirwill be longer term. certain capability price. the concept itself is not new; it needs (see figure 1).requirements may be related to core is about extending it into operationalbusiness aspects, while others may be and it functions previously consideredperipheral. the traditional approach to beyond scope. On premisebuilding capabilities in-house to address Shared serviceevery need is time consuming and oftencapital intensive; sustaining these capa- Leveraging Alternate Solutionbilities at market-comparable levels is Deployment Models Outsourcedeven more challenging. also, businessesmay not have the requisite knowledge, many large enterprises have taken On premisecompetencies, and resources essential to outsourcing, while some have estab- Decentralizedto adequately address the needs. lished captive shared service centers in resource-rich, low-cost locationsgiven the fast-paced business environ- to reduce their operating costs. more On demandment, diversity in demand, and chal- recently, we have seen a slew of solu-lenges associated with the traditional tion and service providers under theapproach, businesses may be well banner of “on demand” or “cloud” Figure 1: Hybrid Solution Landscapeserved by looking outside the box, services, offering to not only reduce4 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • Constructing a Best-in-Class scientious effort, which we refer to as as a singular unit, provide seamlessSolution Landscape and Operating “deliberate design” (see figure 2). support for end-to-end businessesModel Deliberate design is about architecting process integration, and have the ability every aspect of the solution landscape to evolve over time according to theWhile the new solution deployment to address specific business objectives business needs. this requires planningoptions offer businesses opportunities and goals, without leaving anything to and orchestration at the enterprise level.to solve several it-related issues, they chance. this does not happen naturally architecturally, the solution landscapeare not yet in a position to address all and requires deliberate effort on the needs to be componentized with a lowerof the enterprise needs and challenges part of architects and decision makers. level of diversity and a higher level of– for example, what does one do with enterprises need to think in terms of integration. this will help achieve athe complex and often convoluted legacy enterprise capabilities and not in terms higher degree of flexibility and agility.systems that many businesses have of the functionalities and features oftoday? these cannot be replaced individual technology components. When No Shortcuts: Collaborating forovernight – there will be considerable architecting the solution landscape, the Best Resultsrisk exposure. the on-demand and businesses must take into consider-cloud services industry is still in its ation existing capabilities and constraints, Deliberate design needs to be more thaninfancy, and there are a limited number balancing solution benefits and risks, just an approach; it needs to be ingrainedof enterprise solutions available today. to get to the best possible outcome. into the operating culture. enterprisesthe products currently available often must live it, from both a business andhave smaller functional footprints as an it perspective, to be successful. anycompared to their on-premise counter- Strategy data and process inconsistencies canparts, and many of the on-demand destroy gains made on the functionalvendors are new and small. even the fronts. Despite the pressures to respondoutsourcing industry, which is more to market opportunities and inclinationsthan two decades old, is still evolving to bypass enterprise it, business leadersand is not in a position to service all need to collaborate with their it col-of the enterprise needs. these new Benefits Risks leagues to identify and implement thesolution deployment models increase right solutions. many of the it challengesthe level of dependency on the service that enterprises are faced with today areprovider; any failure or shortcoming often a direct result of a series of non-on the part of the service provider will Capabilities integrated purchasing decisions. careexpose the buyer to significant risks. and needs to be taken to ensure that short-in addition, not all aspects of business constraints term fixes are aligned with longer-termfunctions are conducive to every form business interests and that risk levelsof alternate deployment. Figure 2: Deliberate Design are acceptable.Need for Deliberate Design Need for Orchestration: Operating this paper aims to discuss the various as a Singular Unit capability acquisition and it solutionevery enterprise situation is different. deployment options and provide a per-to get to the best solution option, independent of the ultimate solution spective on how to evaluate the suitabilityenterprises need to undertake a con- selected or deployment model used, of those options, given an enterprise’s the enterprise landscape must operate situation, and to get the best outcome. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 5
    • CapaBility needs and aCquisition optionstHe cHaLLengeSthe marketplace has become more have ended up with – often a direct to develop innovative solutions requiredcomplex with globalization – having a result of years of a piecemeal approach to provide a competitive edge. even ifgood strategy is not enough, the ability to building it-driven capabilities. this they are currently able to garner theto execute is vital, and only the proficient incoherent approach has left many resources, will they be able to retainand dexterous will survive. enterprises enterprises with a plethora of technolo- the talent on a long-term basis and whatneed to have market-relevant capabilities gies and systems, with varying degrees will it cost? Businesses also need toto stay competitive, and technology is of antiquity and often with a suboptimal determine if internal development is thea key enabler. at the same time, there level of integration, creating significant most cost-effective option to acquiringare limitations on available resources. business risks (see figure 3). the necessary capabilities. it is importantenterprises need to build or acquire to ensure that investments made todaythe right set of it-enabled business Scarcity of Resources: Increasing will remain productive and relevant acapabilities in a cost-effective manner the Challenge few years down the road.to remain competitive – and this iseasier said than done. With continued pressures to reduce operating costs and an increase in a piecemeal approachExisting Landscape: Often competing demand for capital, many to solution selection andConvoluted businesses are reducing their it bud- gets as a percentage of revenue. deployment has resultedBusiness executives often feel that their in enterprises having convo-enterprise it is unable to keep pace with Besides monetary constraints, enter-their needs. While there may be several prises also find it difficult to attract and luted solution landscapes.reasons why, typically it is the convoluted retain the talent essential to build thesolution landscape that enterprises needed operational capabilities and Service providers Outsourced Cloud services Business need Risks On demand Benefits On premise Captive shared service centerFigure 3: Impact of Piecemeal Architecture Evolution6 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • New Service Delivery Models However, the industry still has a long for obvious reasons – low capitalOffering Possibilities Galore way to go before it can be categorized expenditure, low deployment costs, as being mature. recent advancements faster implementation, better alignmentWith increasing competitiveness, enter- in internet technology, the growth of of cash flow, quicker access to innova-prises need to make best use of their communication infrastructure, the tion, lower internal resource needs, theresources, focusing their own efforts development of virtualization technolo- ability to scale, and the ability to changewhere they can make a difference while gies, and new internet-based solutions providers due to no fixed investments.leveraging others to provide additional have enabled the provisioning of a newcapabilities and solution support. over breed of services, commonly referred there are four categories of on-demandthe last two decades, many businesses to as on-demand or cloud services. the services:have leveraged outsourcing to address vendors make the investments necessary 1. infrastructure as a service (iaaS),a scarcity of resources and escalating to provide the on-demand or cloud ser- wherein the vendor delivers computeroperations costs; some have managed vices, thus eliminating the need on the infrastructure as a service. ratherto go beyond cost reduction and improve part of the buyer to make major capital than purchasing servers, software,their operational performance and drive investments. vendors typically charge data-center space, or networkinnovation. for the services on a consumption basis. equipment, enterprises instead these services are becoming popular buy these resources as a fully outsourced service. In-house Infrastructure 2. platform as a service (paaS), wherein shared services management services the vendor provides the computing On premise platform and solution stack as a Hosting services service, often consuming cloud Outsourcing infrastructure and sustaining cloud applications. it facilitates deployment Application services of applications without the cost and complexity of buying and managing Business process the underlying hardware and soft- outsourcing services ware layers. Deployment models 3. Software as a service (SaaS), Infrastructure as wherein the vendor delivers software a service applications as a service over the internet, eliminating the need to install Platform as a service and run the application on the enter- On demand prise’s own computers and simplifying Software as a service maintenance and support. the appli- cations are hosted on the vendor’s premises on a vendor-owned or Business process as vendor-leased infrastructure. the a service users get access to the application via the internet.Figure 4: Alternate Deployment Models SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 7
    • 4. Business process as a service be advantageous for some and not so downsides – the need to invest up front, (BpaaS), wherein the vendor pro- for others, depending on their situation. longer implementation lead time, opera- vides the business services, (for enterprises need to fully understand tions management, and ongoing access example, payroll services or travel- the benefits and risks associated with to quality resources (see figure 5). the expense processing services). the each option as well as the longer-term inability to attract and retain quality vendor installs all the hardware and implications for the business. resources can pose a significant risk. software necessary to provide the With alternate options now being avail- business services, which frees up on-premise Deployment: able, enterprises will be well served the user from having to deal with the traditional Workhorse to evaluate the traditional on-premise the entire it layer. enterprises have traditionally deployed solution deployment approach relative solutions on premise primarily because to others. on-premise deploymentsprima facie, these solution deployment there were not many alternatives. the will make sense when system securityor capability acquisition models appear question is whether it is still the best is paramount, business capabilitiesto be tailor-made to address the enter- option now that there are more choices. supported are strategic, and the enter-prise needs. industry analysts expect prise has the core competenciesa major portion of the global it and the primary advantage with on-premise required to perform better than thebusiness services to be provided via deployment is the sense of security market in a cost-effective manner.these models in the foreseeable future. and control, with the solution beingHowever, there is the need to exercise deployed within the enterprise firewall outsourcing Services: Leveragingcaution. Like everything else in life, and managed by internal resources. partner capabilitiesthere are pros and cons with each of there are other advantages, such as By leveraging global resources andthese options – a poor selection will lower vendor dependency, the possibility newer technologies and adoptinghave long-term business ramifications. to customize, a certain level of opera- industry best practices, outsourcing tional flexibilities, and potential lower service providers are typically ableChallenge: Choosing the Right cost per unit over the long run based to offer enterprises opportunities toSolution Deployment Model on utilization. lower their operating costs, improve performance, and provide operationaleach of the deployment models has While ownership does provide a sense flexibility, to name just a few. there aredistinct attributes; these attributes may of independency, it comes with some several different outsourcing options – infrastructure outsourcing, hosting services, application management Key Drivers Key Inhibitors services, and business process out- • Less dependency on the supplier • Up-front capital requirement sourcing (Bpo) services – each with its • Lower risk • Infrastructure needed own value proposition. the appropriate • Deployment flexibility • Implementation lead time • Operational control • Internal IT resources needed option for a buyer enterprise depends • Security • Additional operational workload on its situation and what it is seeking • Lower per-unit transaction cost • Lack of operational flexibility to achieve (see figure 6). for example, in the long run an enterprise with an underutilized, high-quality data center but limited skilled it resources may find it cost- effective to host the solution internally while leveraging a third party for oper- ating services; whereas an enterpriseFigure 5: On-Premise Influencers8 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • that does not have a robust it infra- outsourcing does not mean transferring work to an externalstructure but has cost-competitiveinternal human resources may benefit enterprise; it is really about bringing the external entity intoby having the solution hosted externally the enterprise’s own supply chain.but operated by its own personnel.While outsourcing provides significant supply chain. enterprises are now icant organizational and operationalbenefits, not all enterprises are satisfied. dependent on the supplier to fulfill its change management on the part ofa forrester research survey conducted business needs – the supplier’s risks the buyer. as such, selecting the rightin november 2009 shows that the key become part of the enterprise’s risk service provider is extremely important.reasons for dissatisfaction are lower profile, and any failure on the part ofcost savings than expected, services the supplier can directly impact the given the risks, when should one out-not being up to expectations, a lack of buyer. enterprises need to have fall- source? to get to the answer, the risksinnovations, and an inability to respond back plans in place; transitioning associated with outsourcing need to beto changing business needs. in today’s back the work will be expensive and, weighed against the risks of maintainingcompetitive business environment, these at times, not a viable option. the solutions in-house. the key ques-can be severely debilitating. • Differences in organizational cultures tions to consider are: and operating models – no two orga- • Does the enterprise have thethe success and failure of outsourcing nizations are alike. there are several resources and competencies to bedepends on several factors; however, aspects that drive differences, includ- able to perform comparable to bestthere are two fundamental aspects that ing operational processes, organiza- in class, and are these sustainable?need to be recognized: tional culture, priorities, and so on; • is the intellectual property (ip), func-• introduction of a third party into the these can create significant opera- tion, or process central to the business, value chain – outsourcing is not tional issues. for outsourcing to be and does it need to be rigidly guarded about throwing things over the wall; successful, it requires complete inte- at all cost? on the contrary, it introduces the gration of the operating models and • is the internal operation more cost- external party into the company’s the organizations; this requires signif- efficient and sustainable? • What are the longer-term implications in terms of future investment needs? Key Drivers Key Inhibitors • Lack of internal IT resources • Strategic intellectual property enterprises must consider outsourcing • Freeing up of valuable internal or operations when internal capabilities are in short resources • Dilution of control supply and the organization does not • Reduction in operating • Significant transition costs expenditure • Significant change management have the competencies and resources • Operational flexibility • Higher supplier dependency required to outperform the market. • Access to best practices • Local regulations typically, functions and processes that • Redeployment of assets are noncore to the business and do not provide distinct marketplace differentia- tion are ideal candidates for outsourcing. this does not mean that enterprises should not consider other areas for out- sourcing. outsourcing service providersFigure 6: Outsourcing Influencers SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 9
    • are often able to bring in innovation andbest practices as well as leverage scale Key Drivers Key Inhibitorsto create value. in addition, outsourcing • Control • Significant transition costscan help free up key resources to focus • Security • Organizational change on more strategic business aspects. • Economies of scale • Process changes • Strong internal competencies • Cultural change • Lack of critical massShared Service centers: an alternative • Divergent service needsto outsourcing • Inability to attract essential Some enterprises opted to establish resourcestheir own captive shared service centersin low-cost, resource-rich locationsas an alternate way to reduce operatingcosts and improve performance. estab-lishing captive shared service centersprovides certain advantages over Figure 7: Shared Services Influencersoutsourcing – it enables retention offull operational control, protects the enterprises need to ensure the appro- to go beyond the selection of the city;company’s ip, and avoids third-party priateness of the functions and pro- it needs to be as granular as possible, cesses being shifted to shared service down to a specific site within a cityCentralized Versus Localized Service centers. operations that require inti- (see “case example: Shared ServiceCenters mate knowledge of local cultures and center Location” sidebar). there are those that benefit from face-to-face several factors to be considered, likeCentralized Localized interactions are not ideal for remote local laws, the quality of infrastructureBack-office func- front-office func- shared service centers.tions, transaction tions, functionsprocessing, analytics requiring customer moving to a shared services model typ- Case Example:and research, non– interactions (like ically requires redesigning the processes Shared Service Center Locationcustomer facing receivable and involved and the operating structure, a global enterprise set up a regionalactivities collections man- resulting in a need for significant orga- shared service center in a certain agement and sales nizational change management. the low-cost location. Within a few management) ability to recruit and retain the right years, the company had to relocate resources on an ongoing basis is vital to a different location with a larger for any shared service center, a chal- resource pool. the same locationrisks. However, establishing a captive lenge that enterprises often underesti- attributes that attracted that com-shared service center is not for every- mate. factors like brand recognition, pany to the original location hadone – it requires considerable investment growth opportunity, perception of the brought in other businesses com-to set up a world-class shared service job, supply pool, and competitive land- peting for the same resources.center. there are costs related to facili- scape influence an enterprise’s ability recruiting and retaining qualityties buildup, recruitment and training, to attract and retain talent. resources became a challenge. itand organizational changes; without also meant an increase in operatingthe critical mass and market compara- Location is central to any shared service cost due to higher attrition, trainingble competencies, establishing a cap- center operations. establishing a shared costs, and productivity losses.tive shared service center is a risky service center in the wrong location this also impacted its operationalproposition (see figure 7). can be disastrous. the evaluation needs performance during the transition period.10 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • or entirely eliminates the need for the buyer to acquire assets. this is Legal system a major value proposition, especially when businesses are faced with Location attractiveness considerable competing demand for investment capital. Brand attractiveness • Standardized services – Services are provided on a standardized basis with Economic stability very limited or no ability to customize. the inability to customize may impair Costs and inflation an enterprise’s ability to optimally leverage the solution to address its Geopolitical stability unique needs and gain a market advantage. Laws and regulations • Speed – the other side of standardized services is that businesses do not have Infrastructure to go through a long, drawn-out imple- mentation; for example, businesses Labor availability can easily procure additional comput- ing resources within minutes by simply swiping their credit card. Similarly, 0 1 2 3 4 5 businesses can have access to certain Location B desktop applications and collaboration Minimum Location A Threshold tools by setting up a subscriber account. enterprise applications, onFigure 8: Location Assessment Grid the other hand, will be somewhat more complicated but still faster than anavailable, costs, inflation, geopolitical ingly crowded with on-demand solution on-premise implementation.stability, economic stability, location vendors everyday. While it is imperative • Scalability – Suppliers typically offerattractiveness, ability to compete, and that enterprises evaluate a solution buyers the ability to scale up or downso forth (see figure 8). offering by comparing it to their needs, based on their need. this is highly having an understanding of the key valuable for businesses that are inthe ability to maintain competitive attributes typically associated with such a growth mode or have unpredictableadvantage over the longer term can be on-demand offerings will help businesses business demand. it also helps busi-a challenge. Several companies with construct a solution landscape appro- nesses better align their cash flowsuccessful captive shared service centers priate to their needs. with consumption.have exited – some did it to monetize • flexibility – Having the ability to sub-their capabilities, while others did it there are several types of on-demand scribe to services or have accessbecause it was not as cost-effective services available these days. the key to resources enables businesses toas they had anticipated. attributes associated with software on experiment without having to expend demand are the following: significant capital to build capabilities.on-Demand Deployment: more • capital expenditure – the supplier it also allows businesses to deployflexibility and reduced expenditure makes all the investment needed interim solutions while evaluatingthe marketplace is becoming increas- to provide the service, which reduces longer-term solution options. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 11
    • • Shared services basis –the on-demand suppliers for all aspects of the opera- by having rights to the software and services are typically offered on a tions, including system performance, other assets that may be essential shared services basis. the customers service quality, and disaster recovery. to operate the system efficiently. in share the application and the underly- any weakness on the part of a sup- case a supplier uses third-party ing infrastructure. While this is one plier creates direct exposure for its resources to provide the service, of the core value drivers, it is also the customers. a business must also seek to have biggest source of concern – about • emerging industry – the on-demand access rights to those assets or system security, performance, extent industry is still in its infancy; the mar- solutions. of operational control, and compliance ket will invariably consolidate as it with the law. grows and matures, and buyers need enterprises need to balance the bene-• Supplier dependency – there is a to evaluate the survivability of their fits of low capital requirement, better higher level of supplier dependency for suppliers. alignment of costs, and operational everything from fixing simple solution • integration – the ability to integrate is flexibility with the risks of failure on problems to developing more complex an important consideration, especially the part of the service provider (see solution upgrades. many of the solu- in cases where the application services figure 9). as the industry develops and tions available today have limited are part of a process chain. matures, there will be more offerings functionalities. While a smaller foot- • Legal protection – While procuring and further refinement of the service print may serve today’s need, the SaaS and on-demand solutions is delivery model. Selecting the right ser- vendor’s ability to address future needs relatively easy, businesses must not vice provider is paramount to success. is crucial. the ability of a vendor take contracting for these services to provide timely upgrades will have lightly. a company will be well served Business process as a Service: a direct impact on an enterprise’s by having its legal team review the Ultimate partner network ability to respond to market needs. services contract to ensure adequate BpaaS, or platform Bpo, or business Suppliers are unlikely to build new protection and avoid situations where process utility (BpU), as gartner capabilities unless there is a broader it does not have recourse in case the refers to it, is part of the on-demand demand for the functionality. enter- supplier is unable to deliver services. services category. BpaaS has existed prises are also dependent on the a business can protect its interests for decades, common examples being the payroll and benefits administration services provided by companies like Drivers Inhibitors aDp. Like other on-demand services, • Lower up-front capital requirement • Supplier dependency vendors make the investment required • Speed of implementation • Security and privacy to provide the business services; they • Less internal IT resources needed • Limited customization possibilities • Operational flexibility (scaling) • Need for tight integration either have their own underlying infra- • Better alignment of cash flow • Uncertainty over total cost of structure or use a third-party infrastruc- • Agility ownership ture solution to provide the services. • Access to resources • Portability this category of services is expected • Access to best practices • Existing landscapes to become more popular, with busi- nesses seeking to move away from fixed costs and reduce investments in noncore functional areas and more service providers entering the market with a wide range of offerings. theFigure 9: On-Demand Influencers12 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • option is attractive in a number of While sharing resources helps reduce potential benefits. enterprises needsituations: cost, it brings up questions about safe- to consider several aspects:• enterprise does not have market- guards, data security, ip protection, • robustness of the supplier’s infra- comparable it and operational statutory and regulatory compliance structure – is it robust enough to capabilities in-house. obligations, liabilities, consumers’ legal deliver the services at the expected• the need for business services rights in case of breach, backup and performance level? is it fault tolerant, capability is immediate and does not recovery, data portability, ability to audit, and does it have built-in redundancies offer adequate lead time to build it and system availability and performance. to guard against failures? in-house. • Security – is the service delivery• the cost of internal operations is public cloud service providers will infrastructure secure, and does it significantly higher than the cost of argue that their infrastructure is safe. adhere to international standards? externally sourced business services. fortunately, there has not been any Besides the systems, how robust• the business needs are short term. major incident of breach. However, with are the supplier’s security policies increased global competition and and procedures?external providers are better positioned increasing industrial espionage via • ease of integration – Will the enter-to leverage economies of scale, lever- the internet and attacks on Web sites, prise be able to easily integrate theage technology advances, and incorpo- it is prudent to be cautious. the very cloud solution with other in-house orrate best practices, bringing value to their resources that can provide computing third-party systems? With a diversitycustomers. However, opting for BpaaS power to enterprises on demand are of business needs, enterprises arealso means greater supplier dependency; also available to hackers. Whether likely to end up with a combinationbuyers need to protect their investment a cloud is safe or not depends on of in-house systems, outsourcedby having a comprehensive fall-back strat- the quality of the underlying assets solutions, and on-demand services.egy in case of exigency. and tools and how they are deployed the ability to easily integrate systems as well as the service provider’s will make the difference.private versus public cloud: Security operational practices. many leading • ability to audit – Will the enterprisecomfort versus cost Benefit cloud infrastructure service providers be able to perform system audits atthe on-demand story is not complete are deploying best-in-class security any time?without discussing the private versus solutions and building multilevel redun- • portability – Will the enterprise bepublic cloud. Simply put, cloud services dancies to protect against breach and able to easily transition the solutionare dynamically provisioned it and busi- service failures. However, buyers must back in-house or to a third party, ifness services that are delivered over not assume that this is always the case the need arises?the internet in a multitenancy mode, and must verify the robustness and • Business continuity – Will the enter-leveraging shared it resources. With security of the service provider’s deliv- prise have the rights to the servicevirtualization technology, it is possible ery ecosystem. as with any in-house delivery components in case theto perform real-time assignment of system, weakness at any level of the supplier defaults or is unable to delivertechnology to consumers on demand. technology stack can potentially impact to contracted service levels?Subscribers to cloud services share service, security, and compliance. • Business case – What is the incre-the underlying infrastructure, operating mental cost savings as compared toenvironment, applications system, and opting for public cloud is primarily other solution deployment options?human resources, as the case may be. a question of balancing risks with SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 13
    • not all enterprises are fully convinced Key to Success – Getting It Rightabout the safeguards and are opting for the First Timewhat is called a private cloud deploy-ment. a private cloud is nothing but With pressures to respond to thea carving out of physical resources customer, there is often a temptationwithin the public cloud ecosystem for to opt for quick fixes. History hasexclusive use. this allows the enter- shown that such short-term fixes haveprise to incorporate additional security the tendency to have longer-termand other safeguards that it may desire. consequences creating complexity and adding to the challenge ratherthe private cloud is not exactly new; than reducing it. the “appendix” sec-enterprises have used virtual private tion contains a list of factors to considernetworks for a while. vendors are (see “Deployment model Selectionusing the same concept by offering consideration” table) when decidingstandardized services via a dedicated between the deployment models. asinfrastructure within the shared eco- enterprises seek to address businesssystem. Having a private cloud is needs, it is not the lack of options thatanalogous to having a reserved parking is a constraining factor nor is it the extentspace in a public parking lot for exclu- of potential benefits with the varioussive use, as opposed to using any solutions; it is the associated constraintsavailable parking space in the lot as and risks that makes it a challenge. aneeded. Under the private cloud, the comprehensive evaluation of the optionsbuyer pays for the dedicated parking will enable the buyer to make informedspot rather than paying based on decisions, guard against potentiallyactual utilization. avoidable adverse impact, and increase the probability of success.at the end of the day, it is a questionof cost versus the ability to operateon your own terms. it is important tounderstand the potential risks and havea plan in place in case of failure on thepart of the service provider.14 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • deliBerate designmaKing oBjective-Driven,fact-BaSeD DeciSionSHow does one optimally leverage the scape to be flexible and evolutionary enable the enterprise to take advantagevarious deployment options without as well – without having to expend of innovation without adversely impact-overly increasing the risks? a purist may significant resources. this then requires ing the business or losing out on previoussay, “Start with a clean slate.” the reality the solution landscape to be modular investments. Standardizing interfacesis that enterprises cannot afford to start in design, with plug-and-play solution and integration points based on openfrom scratch and need to be able to components and with each having the protocols will help enterprises to avoidleverage their existing investments in ability to evolve independently and lock-ins and retain the power of choice.the best possible manner. this requires according to the needs of the business. this approach will help minimize thethe enterprise to adopt a very systematic to achieve this, the architecture needs interdependencies and improve theand deliberate approach to architecting to be designed using the concept of ability to swap components accordingits solution landscapes, reevaluating “capability units.” each capability unit is to needs.existing solutions, and designing every a self-contained solution componentcomponent such that it has a definitive consisting of technology and operating Delightful to Userole to play in creating enterprise value. resources, with the ability to execute another important attribute is the abilitythe “deliberate” design approach is predefined processes, delivering spe- to delight the users. When a solution isbased on strategic intent, as opposed cific outcomes. Being self-contained delightful to use, there will be a higherto an “accidental” design, which is basi- allows each capability unit to evolve on adoption rate, reduced errors, andcally a string of mostly opportunistic, its own and according to business needs. improved productivity, resulting in lowerstand-alone decisions without an over- cost and better business outcomes. thisarching set of guidelines or road map. these units need to be built using proven requires the solution to be intuitive to technology. Having components devel- use, be easily configurable, and haveDeliberate design is anchored on busi- oped on proven technology platforms the ability to tune performance accord-ness goals and objectives, the operating by established firms will help improve ing to the company’s needs. it mustenvironment, and constraints. it is based the life of the capability units. this is support company policies and processes,on facts with metrics to measure success because proven technologies have wider promote productivity, and enablein terms of final outcomes. for creating adoption rates, which translates into a informed decision making.sustained value, the solution landscape higher probability of new solutions beingneeds to have certain qualities. developed on the platform and the like- operate as a Singular Unit lihood of a large resource pool, thereby the solution landscape needs to oper-Best-in-Class Landscape Qualities extending the useful life of the compo- ate as one singular unit despite being nent. Using appropriate adaptation a collection of disparate componentsthere are several qualities that your layers, namely middleware, and loose with a diverse set of attributes. thesolution landscape should have in order coupling between the components will components need to complement eachto best support your business needs.evolutionary Deliberate design should be more than just an approach,Businesses are not static and needto continuously innovate to stay com- it should be a sacred tenet; enterprises need to ingrain itpetitive; this requires the solution land- into their operating culture to benefit from it. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 15
    • other to provide seamless support for existing solution landscape, replace where, when, and at what pace theend-to-end business processes. the legacy technologies and systems, and leadership wants to grow; what itsunderlying technologies, solutions, or implement a more modular architecture. go-to-market strategy will be; whetherdeployment models should be imper- it will go alone or partner with an existingceptible to the users. integration needs Deliberate Design Process local firm; and so on. Such clarity andto occur at all levels – technology, solu- granularity will help architects deter-tion, process, and organizational. When Deliberate design is all about designing mine the organizational capabilitiesmultiple service delivery entities are with an end in mind – the end being a set that need to be built and determineinvolved, integration needs to occur of business capabilities that the enter- the best approach to get them. time-across these entities. prise needs to be successful in the lines are important, as they have a marketplace on an ongoing basis (see significant influence on the approachSimplicity – the Key to Success figure 10). it must be able to evolve, taken to acquiring the required solutionas einstein once put it, “make every- be efficient, and be cost-effective. support and building the capabilities.thing as simple as possible, not simpler.”enterprises will be well served to follow clarity of vision: enabling alignment Knowing the Base: reality checkeinstein’s advice when designing their Knowing your destination increases your this is a self-evident idea but notsolution landscapes. Simplicity helps chances of getting there. Businesses consistently practiced. to get to thereduce errors, improve productivity, and typically have some sort of strategic optimal outcome, decisions need to bedeliver better results. commonality in objectives and goals; these need to be based on fact. Decision makers needsolution attributes will help reduce the translated into specific operational met- to have a clear understanding of theircomplexity – for example, having a rics, such as capacity, competencies, existing ecosystem and what they cancommon underlying technology, using and capabilities required – and where and cannot do with it. they need to knowdesign frameworks based on open and when. what they have in terms of solutionarchitecture philosophy, standardizing components, organizational capabili-operational practices – will likely result for example, an enterprise plans ties, and supplier capabilities (and thein a simpler solution landscape. along to expand into new markets and strengths and weaknesses of each);these lines, many enterprises have expects to double in size over the next which regulatory and statutory compli-recognized the need to clean up their five years. it is important to know ance requirements they have to follow; and what contractual obligations they have. this knowledge will help enter- Know the prises develop a more pragmatic base Value Enterprise- approach to building up their solution Clarity of vision based specific landscape and acquiring business capa- Know the filter landscape bilities. Knowing the base will help iden- options tify serious risks that may exist within and need to be addressed on a priorityFigure 10: Deliberate Design Framework16 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • basis. to do it right, enterprises will • Know the shackles: understand the Best-run companies actively manageneed to do the following: obligations – existing contracts and their supplier relationships, often• Benchmark to the marketplace – legal obligations can become stumbling working closely with their suppliers the organizational competencies and blocks. enterprises need to know to understand and influence the sup- operational capabilities need to be the restrictions and constraints that pliers’ strategies and plans. evaluated relative to the marketplace, may exist with respect to software to get a more accurate assessment license transfer rights, employee Knowing the options: increased of strengths and weaknesses. Best- contracts, labor union or work council probability of Success run companies benchmark not just agreements, labor laws, and regula- einstein once said, “We can’t solve within their industry but across other tions prior to changing the deployment problems by using the same kind of industries as well. reality checks can models. for example, certain states thinking we used when we created be painful but can help enterprises be in the United States insist that health- them.” Knowing the base helps enter- successful when appropriate remedial care insurance claims processing prises to better evaluate the options actions are taken. to ensure long-term must be handled in-state; while out- and avoid the mistakes; understanding sustainability of the solution, enter- sourcing is possible, the work still the options and their implications will prises must benchmark their ability needs to be done in-state. there are enable an enterprise to better deploy to attract and retain skilled resources similar laws in the United Kingdom its resources. on an ongoing basis. and europe that regulate where data• Technology matters: business needs to reside and how it must be enterprises often look at obvious choices performance depends on it – Despite handled. these can have a significant and miss out on nontraditional options. the rhetoric that it should not matter impact on the business case. for example, these days there are it when it comes to business services, • Track suppliers: companies depend outsourcing service providers that are the reality is that technology is the on them more than they know – willing to finance the acquisition of soft- single greatest value driver; it helps enterprises must periodically assess ware, provided the buyer is willing to drive productivity, quality of service, their suppliers for their ability to pro- procure other related services (such decision-making ability, and overall vide continued best-in-class services. as implementation and operations) and success. enterprises must be selec- Suppliers’ interests and capabilities even provide it as software-as-a-service tive when it comes to technology. change as well. it is important to know to their customers via a subscription Whether the solution is internally their strategic intent, where they plan model. this means an enterprise now has deployed or provided by a third party, to invest, and areas they plan to exit. the ability to lower its capital expendi- they must evaluate the underlying it is also important to know their ture without having to forego the ability technology that is used to deliver the relative standing in the marketplace. to implement a customized solution. the services. it can provide early indica- assess if they continue to be leaders options need to be evaluated for longer- tion of the quality of service that the in their space. With alternate deploy- term impact on the organization and its enterprise can expect to receive. ment models, suppliers become an ability to remain competitive. Keeping Having reliable and flexible technology integral part of an enterprise’s supply the solution landscape simple goes a makes it easier for businesses to be chain; their ability to deliver will impact long way in improving effectiveness and responsive to business needs. the enterprise’s ability to perform. efficiencies. it is often tempting to opt SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 17
    • for the next new technology. But diver- success. implementation of any new many or too few resources increasessity in technology across the solution solution typically involves some form risks and can dilute the value. theylandscape can become untenable. of operational or organizational change. need to have clarity about what needs for an alternate deployment to be suc- to be done internally under the newvalue-Based Decisions: improved roi cessful, enterprises must align their operating structure and eliminateSaying that all decisions need to be processes and organization structure, redundancies. enterprises must avoidvalue based is as basic as it can get. instill operational discipline, and imple- the temptation to shuffle existingas there is no single right answer, each ment joint governance. resources to these roles and must beenterprise must determine the combi- open to recruiting from outside the firmnation of solutions and deployment process alignment to Drive efficiency to get the right skills essential for suc-options that will enable it to get to its When enterprises outsource, external cess under the new operating model.desired state in the most cost-effective entities are introduced into the process enterprises must proactively addressmanner. When selecting the solution chain. external service providers bring the resulting change managementcomponents, decision makers need their own operating policies, procedures, requirement. extensive communicationto keep both the immediate-term and and standards into the supply chain. and retraining of resources are vital forthe long-term value in perspective. there is a need to ensure that processes enabling smooth organizational transition.Having a well-defined, value-based pri- between the entities dovetail, which mayoritization framework can help resolve require enterprises to redesign the pro- operational Disciplineconflicts and enable decision makers cesses, taking into consideration the another impact of outsourcing or on-to select solutions that are better aligned strengths and limitations of both parties. demand deployment is the operationalwith the enterprise’s value system. enterprises must involve the suppliers elasticity. Unlike in an on-premise situa- in the redesign process. the transpar- tion, an enterprise will not be able to makethe final choice may well depend on ency will enable both parties to develop operational changes at short noticefactors outside of the enterprise, such a more comprehensive value chain. without having to pay for them. Serviceas supply constraints. Business situa- providers operate strictly to their con-tions often change; what was important retained organization – vital to Success tracts. a poor demand managementyesterday may not be essential tomor- one common mistake that enterprises process can lead to increased overallrow. Hence, this process needs to be often make when outsourcing is that they costs, manifesting in additional serviceiterative. an enterprise must not hesi- do not redesign their retained organiza- provider charges or the inability to meettate to pull the plug on an initiative if tion for the new operating model. this business needs. enterprises need tothere is a dilution in benefits or if it is often leads to the creation of shadow ensure that there is operational disci-no longer required. organizations that are nonproductive pline to avoid “scope creep” and ensure and potentially disruptive. to avoid realization of the business case benefits.Managing the Transformation the creation of a shadow organization, enterprises must clearly define the roles governance and orchestrationDesigning is only the first part of the and responsibilities under the new Having an efficient and effective gover-equation; implementing and managing operating model. enterprises need to be nance organization is vital for ultimatethe transformation is key to the ultimate deliberate in their design. retaining too success. Buyer enterprises must ensure18 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • Enterprise Enterprise On-demand Business On-demand Business supplier process supplier process outsourcing outsourcing supplier supplier Hosting Shared Hosting Shared supplier services supplier servicesFigure 11: Integrated Service Delivery Managementthat they do not become the bottleneck issues quickly. there should be a clearwhen multiple service providers are set of goals, objectives, guiding principles,involved in the delivery of a service and issue resolution processes. enter-(see figure 11). they must put in place prises will be well served by establishingan operating mechanism that enables a competency center that defines stan-the service delivery providers (except, dards and coordinates activities relatedperhaps, standard out-of-the-box SaaS to alternate deployment models, sourc-providers) to work collaboratively and ing, contracting, administration, andresolve any problem that may arise, governance.without having to depend on the buyerenterprise to facilitate the interactions.the governance organization must bestaffed with decision makers and keyindividuals who are accountable forbusiness outcomes. it must includeexecutive-level representation from thesupplier organizations. internally, thegovernance organization must haverepresentation from it, business, and Hr.orchestrating the relationships at theenterprise level will enable it to resolve SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 19
    • arChiteCting the solution landsCapefactorS to conSiDerWhen buyers do not have choices,decision making is relatively straightfor- Solution models are a function of p ownership, technology deployment, hiward. With increased choices, buyers rs w et and operational responsibility ne wn O sshave a greater opportunity to choose o A ntsomething that will make a difference. realternate deployment models can pro- third-party operatedvide significant value as long as the Operationsappropriate model is chosen for thegiven circumstance. it is important to operated internallynote that no single model is appropriatefor every situation; as such, an enter-prise must expect to have a combination internally hosted externally hostedof solution deployment models within Technology Hostingits landscape. Figure 12: Three Dimensions of the Operating Modela simplified way of looking at thesedeployment models is in terms of asset 2. On-premise rental – Solution isownership, location of deployment, and rented from a third party but hostedoperational responsibilities, as shown and operated by internal resources.in figure 12. fundamentally, there 3. Classical hosting – this is the sameare three questions that need to be as classical on premise, except the Hygiene factorsaddressed for any solution component: solution is hosted externally by a• Should the enterprise own the tech- third party on its infrastructure. Strategic nology component? 4. On demand or SaaS – a supplier alignment• Where should it deploy the component provides the solution platform or Business and – internally on the company’s infra- the services using its own solution operational factors structure or externally on a third- components for the buyer to use. Supplier party infrastructure? 5. Classical BPO – a supplier provides compatibility• Who should operate it – internal the business services using the cus- resources or an external service tomer’s it platform (“labor arbitrage Financial evaluation provider? Bpo”). 6. Bundled outsourcing – the supplierthe right answers may vary based on operates the customer’s technology Best fitcomponent type and the circumstances and business process – that is,that the enterprise finds itself in. We bundling classic Bpo and classicsee seven of the eight possible combi- hosting (owned, externally hosted, Figure 13: Solution Evaluation Frameworknations in use in the marketplace; the externally operated).last one, which involves on-premise 7. Platform BPO – the business Deciding between the various solutionsrental operated by a third party, is process provider provides the full and deployment options can be chal-rarely seen in practice: process infrastructure, which lenging. there are several factors to be1. Classical on premise – the enter- enables full economies of scale considered, and they can be grouped into prise owns, hosts, and operates the (“full-stack Bpo”). five major categories (see figure 13): solution itself.20 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • • Hygiene factors • Technological alignment – the solution many mature service providers have• Strategic alignment must be aligned with the enterprise’s built robust service delivery opera-• Business and operational factors technology strategy and standards. tions with world-class security and• Supplier compatibility evaluation it is preferable to adopt solutions that have specialized staff to keep track• financial evaluation adhere to open standards and are of regulatory changes and compliance based on proven technology; this requirements. also, outsourcing andthis five-step approach can help busi- will enhance the ability of the solution on-demand vendors are better posi-nesses conduct a systematic evalua- to easily integrate with other compo- tioned to implement frequent chang-tion of the options. nents of the solution landscape and es that might occur at a lower per- enhance the life of the solution. Here customer cost basis, as comparedHygiene Factors again, solutions that do not meet to in-house operations. the standards get filtered out. • Budgetary limits – all enterprisesHygiene factors can also be referred • Compliance and security – noncom- have budgetary constraints. consid-to as show stoppers and can help pliance to applicable regulations can ering them up front in the evaluationenterprises quickly narrow down their create significant liabilities for an process can save a lot of time andsolution choices (see figure 14). While enterprise. certain industries (like U.S. effort. for example, not having theeach enterprise must come up with its healthcare) and certain geographic necessary capital to procure theown set of factors, a typical set will regions (such as the european Union) software license reduces the optionsinclude the following: have stringent data privacy require- available for on-premise deployment.• Solution fit – the solution needs ments. there might also be local con- enterprises must explore financing to be good enough – that is, it has tent rules or political circumstances options prior to eliminating an other- the basic functionalities and support (for example, local hosting in china) wise good solution. there are a num- for capabilities that the enterprise is that weigh in favor of staying local ber of finance sources, including seeking in order to address its busi- with services “production.” this does service providers who may be willing ness needs. Solutions not meeting not mean that enterprises must nec- to make an investment in exchange this threshold get filtered out. essarily opt for an in-house solution. for additional business. • Urgency of business needs – While every customer would want to have Hygiene Factors an immediate solution to a problem, it is often not a mandatory condition. Solution a Buyers must determine the true Solution B urgency of the need; having more compliance and security technological alignment time often increases the number of Budgetary restriction Urgency of business Solution c options available to them. Solution D at the end of this exercise, enterprises Solution fit Solution e Short-listed solutions Solution f can expect to have a narrower set of valid options. now it is the question Solution g of finding the best among the viable Solution H solutions.Figure 14: Hygiene Factors SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 21
    • Strategic Alignment Operations Strategy help determine priority segments for Enterprises use different operational investments. When evaluating solutionsImmediate-term requirements often strategies to differentiate themselves and deployment models, having align-dominate the decision-making process, in the marketplace; for instance, some ment to operations strategy can enablehowever, having alignment with strate- may pursue a cost leadership strategy better allocation of resources.gic objectives and goals enables better while others may adopt a value leader-return on investment. Enterprises must ship strategy. This will have an impact Risk Tolerancedeploy solutions that support their stra- on the selection of the solution. Buyers There is risk associated with eachtegic objectives and business goals. must also look into the capability-to-cost deployment model. The question is,There are three aspects with which the equation. At the same time, enterprises what is an acceptable level of risk andsolution needs to align, as shown in may choose to keep certain solution what option provides the best valueFigure 15: components guarded; they may not want equation? This question is pertinent to let others have insight into their IP, when enterprises have choices. even if it means higher operating costs. One way to look at solution choices is to consider the extent of external Business Enterprises must be truly critical in their dependency it creates (see Figure 16). strategy evaluation when determining what needs It is preferable to limit external exposure to be retained in-house. This does not in business-critical areas, as failure mean that every business within an on the part of the supplier to provide industry will perceive its solution land- the necessary services can critically scape in a similar manner. What is core hamper the enterprise. When an enter- Solution selection to an enterprise can differ even within prise outsources, it is not moving work an industry. For example, a large box to an external entity; rather, it is bringing retailer may consider its supply chain the external entity into the supply chain. Risk Operation and logistics management as being its tolerance strategy strategic value differentiator, whereas a high-end retailer may view its customer Case Example: Business Strategy intimacy and shopping experience as Case example: A U.S. company wasFigure 15: Strategic Alignment core to its business. These two firms in urgent need of a new HR system, will have different views of what they as its existing system was not able• Business strategy need to have direct control over. to address new regulations. The IT• Operations strategy department initially identified a• Risk tolerance An enterprise must reflect on what is solution that was tailor-made for core to its business and its ability to its immediate needs. What the ITBusiness Strategy build the essential competencies department did not know was thatWhile the solution may need to address required to gain competitive advantage. the company board had plans inimmediate-term objectives, the selection Investing to build up competencies in place to expand into Asia withinprocess must also take the long-term noncore areas can be suboptimal, as it the next few years. Had they knownbusiness strategy into account. Having may require diverting scarce resources that, they may have selected aalignment with the longer-term business from activities that are more fundamen- different solution, one that providedstrategies will help reduce total cost of tal to the business. Here again, seeking expanded geographic coverage andownership in the long run (see “Case alignment with strategic objectives can avoided future costs. SeekingExample: Business Strategy” sidebar). alignment with longer-term goals can help reduce overall cost and better return on assets.22 SAP White Paper – Building Capabilities Leveraging Alternate Solution Deployments
    • for the services, security, compliance, access to world-class capabilities and IT outsourcing or business continuity, and innovation. improve their ability to compete with business process outsourcing Weakness on the part of the supplier more-established competitors by lever- can have negative implications. aging third-party providers. They may Hosting On also be able to improve their ability demand As enterprises move from on-premise to comply with legal requirements (for solutions to platform BPO, the level of example, national and multinational tax On supplier dependency increases. One reporting) and thus reduce business premise way to determine the appropriate level risks by outsourcing. Badly implemented L H Platform business of dependency is by mapping the solu- and operated on-premise solutions can process tion options to business criticality. The be riskier than best practices–based outsourcing “corridor of acceptability” (see Figure 17) outsourced solutions. will depend to a large extent on theFigure 16: Supplier Dependency Meter internal capabilities of the enterprise – Besides evaluating individual solution- the lesser the in-house capabilities, the level risks, businesses must also evalu-Similarly, when an enterprise implements lower the slope will be. If the business ate risks at the enterprise level. Doeson-demand solutions, it brings the sup- function is critical and the enterprise implementing a specific solution increaseplier’s service delivery stack into the does not have the requisite competen- the enterprise’s exposure to a specificprocess chain. There are literally hun- cies and capabilities in-house, it is self- supplier? Often, enterprises conductdreds of things that can cause supply destructing to keep it in-house. On the risk assessment on a stand-alone basis.chain disruptions (for example, the other hand, with strong internal capabil- Best-run companies also evaluate theavian flu outbreak in 1997 and the ities, an enterprise may be able to gain enterprise risk when selecting solution ortsunami in 2008). Events like labor distinct competitive advantage by service providers. (see “Case Example:unrest, geopolitical events, and key retaining the solution in-house. Vendor Selection” sidebar).supplier employee attrition can causeservice disruption. The responsibility Enterprises must determine when itfor outcomes remains with the enter- makes sense to leverage a third party. Case Example: Vendor Selectionprise even as it relies on the supplier Smaller companies can often gain Case example: A global company decided to outsource a business function. Through a detailed evaluation L Higher internal capabilities process, it identified two potential vendors, each capable of providing Business criticality the requisite services. The company Platform business had a strong incumbent relationship it y process outsourcing abil with one of them. Despite the rela- cc ept of a tionship, it decided to opt for the dor Corri second vendor. The company was Lower internal capabilities not comfortable about the increased H On premise exposure it would create by awarding L Supplier dependency H the new business to the incumbent.Figure 17: Acceptability of Supplier Dependency SAP White Paper – Building Capabilities Leveraging Alternate Solution Deployments 23
    • Business and Operational Factors needs to be aligned with the strategic Service providers make significant plan. an enterprise implementing a investments to build up their servicethis is the third stage in the solution short-term fix must also put in place delivery capabilities to stay competitiveselection process. While alignment with plans to replace it with longer-term in the marketplace. this means that abroader, long-term strategies is essen- solutions at the earliest possible time. service provider’s operational capabilitiestial, there are always base realities, in many noncore business processessuch as competing demand on existing operational factors will be superior to that of most enter-operational capabilities (see figure 18). We all like to believe that we are really prises, even large ones. for example, good at what we do – it is only human, while enterprises consider Hr as beingBusiness Situations and enterprises are no different. Before important, they also consider it to be aoften, enterprises find themselves in deciding on on-premise or shared ser- support function; this often translatessituations in which they need to act vices deployment, an enterprise must to limited budget being available forquickly to address a challenge or lever- ask the tough questions regarding its improvement in operational capabilities.age a market opportunity; these situa- operational capabilities: Does it have on the other hand, an Hr outsourcingtions may call for some flexibility in the operational capabilities comparable service provider will invest heavily inhow the solutions are deployed. (see to its direct peers? Will it be able to building up its operational capabilities,“case example: Business Situations” sustain any competitive advantage going as that is its core business. the Hrsidebar). forward? Will it be able to attract and service provider may also be able to retain the skilled resources needed? How attract and hire better talent by offeringthere can be other reasons, such as does its performance compare to a better career opportunities.uncertainty of the business opportunity, third-party service provider? are thelack of capital, and so on, that may operations cost-effective, as compared the buyers must not take a serviceinfluence the selection. even under to the market? if the answer to any of provider’s capabilities for granted.these circumstances, the selection these questions is “no,” the enterprise While many have strong capabilities in may want to consider an alternative certain areas, that does not translate deployment. into strengths across the board. enter-Case Example: Business Situationscase example: a U.S. healthcarecompany was about to undertake acomprehensive systems upgrade ini- In-House World Classtiative. just before it started on itsimplementations, it received an Competenciesacquisition offer. this made the Competenciesmanagement put a hold on all major Domain knowledge Domaininitiatives. However, the business knowledgeneeded certain additional capabilities Processesto maintain compliance. to address this Processesspecific need, the company opted for Infrastructurea niche solution for the interim that it Infrastructurecould deploy immediately. Figure 18: Comparative Assessment of Operational Capabilities24 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • prises must validate their suppliers’ Supplier Compatibility for new business segments insteadabilities to proactively develop innova- of improving current offerings.tive solutions. for example, an it out- Suppliers become an integral part of • Financial stability – Having financialsourcing service provider may have the buyer’s enterprise, especially in stability allows the supplier to focusstrong technical knowledge but may cases of outsourcing and on-demand on operational aspects and customernot have equally strong domain knowl- services. Businesses must evaluate needs. it also means a reduced risk ofedge across all industries. this may their suppliers on five aspects besides the supplier becoming insolvent. thislimit its ability to innovate and deploy how well the solution fits their business is vitally important in the on-demandindustry-specific solutions. needs (see figure 19): space, as many of the providers are • Supplier’s strategic intent – Under- relatively small.a recent forrester research survey standing the supplier’s strategic • Willingness to invest – Having finan-shows that 41% of those dissatisfied intent can provide actionable insight; cial stability is not enough; there needswith their outsourcing relationships for example, a supplier that intends to be a willingness to invest – in newpicked lack of innovation and continuous to grow through value leadership is technologies, tools, and best people.improvement as causes for dissatisfac- likely to invest more in creating value, Businesses must seek to understandtion. Benchmarking internal and service whereas a supplier focused on cost how the supplier treats and motivatesprovider capabilities will help determine leadership will help drive down cost its employees. How does it incorpo-the best combination for maximizing but may not necessarily develop inno- rate best practices on an ongoingreturns while minimizing risks. enter- vative solutions. Similarly, a supplier basis? is it investing in areas relevantprises must not compromise on value intent on broadening its service offer- for the enterprise? partnering withleadership while trying to get to a lower ings will likely dedicate more funds suppliers willing to make the invest-cost base. ments will help the enterprise maintain competitive advantage. • Organizational compatibility – the importance of organizational compati- bility is often underestimated. cultural differences, generation gaps, com- Solution fit munication styles, and different value systems contribute greatly to opera- partnership Strategic intent tional incompatibility. While a perfect commitment match may be difficult every time, having similar corporate values and operating principles will help the Supplier buyer and the supplier employees to better understand each other and organizational financial lead to better collaboration and compatibility stability improved results. • Commitment to partnership – at the Willingness end of the day, the supplier’s commit- to invest ment to a partnership is what dictates success. this can be gauged by the senior resource commitment they are willing to make with regard toFigure 19. Key Supplier Evaluation Framework SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 25
    • the relationship. the relevance of example, a data migration cost is typically straightforward, it is the ongo- the buyer’s business to the supplier’s incurred if the enterprise is migrating ing support structure cost – including goals will partly drive the level of from an old system to a new one. Simi- costs related to service delivery manage- commitment. larly, the costs associated with transition, ment, governance, and contract admin- reorganization, and change management istration – that can be a challenge.Financial Evaluation are applicable only when enterprises transition from an on-premise model Scope creep and overtime costWhen everything else is acceptable, to an alternate deployment model. one aspect of operations cost that oftenthe selection boils down to financials: these elements are often missed gets overlooked is the cost associatedwhat will it cost over the productive or underestimated. with overtime needs. in an outsourcedlife of the solution, commonly referred situation, the service providers will chargeto as the total cost of ownership (tco)? the training costs associated with additional fees for services beyond theenterprises must consider cost over reskilling retained employees for their contracted scope of work; the same isthe lifetime – initial cost, ongoing cost, new roles and responsibilities can be the case with on-demand and cloudand exit cost. each category has significant, especially in the case of services. the cost for enterprises witha number of cost elements and applica- outsourcing or establishing shared fluctuating workload and absence ofbility of these elements may differ service centers. there is a need for operational discipline can be significant.based on the deployment model extensive people management during additionally, scope creeps are easier in (see the “Key tco cost elements” the transition process; the risks of the case of outsourced services, astable in the “appendix” section for operational errors and productivity service providers area list of key cost elements). losses are very high and can be expen- typically not constrained by resource sive. there are also costs associated availability and are more likely to expectone-time costs with process and behavioral changes, requests for additional work – of course,the cost elements that get invoiced in order to be effective under the new for a fee.by the supplier are the obvious ones; operating model.estimating internal costs are often the Business continuity costschallenge, even in the case of SaaS Besides internal change management, enterprises must account for businessdeployments. a survey by forrester there is a need to proactively manage continuity under the different solutionresearch of customers using third-party external stakeholders, such as custom- options. in the case of supplier-providedsystems integration support to roll out ers, suppliers, local governments, and disaster recovery, it is important toSaaS solutions found that 36% of the others, as the case may be. these determine the level of protection desiredSaaS projects involving enterprise solu- can be onerous at times and must be and the associated cost. While manytions took more than a year to complete, considered when calculating transition enterprises do account for this, theywith only 7% completed within three cost. Legal issues are a possibility and often underestimate the cost associatedmonths. the survey also found that can be expensive. When functions and with coordination and the complemen-the key drivers of these were heavy processes are outsourced, there are tary effort needed on the part of theintegration with legacy systems, deeper two types of integration costs – one enterprise to bridge the gap in servicecustomization than previously anticipated, relates to the technical integration and levels during a disaster. enterprisesand significant process reengineering. the second pertains to operational must also account for the probability integration. these can be significant. of failure on the part of the service pro-the cost of integration is, of course, vider for providing business continuitydependent on the extent of integration ongoing costs and have their own fall-back plan ininvolved. Some of the one-time costs the ongoing costs are often difficult place. there will be a cost elementare dependent on the situation – for to gauge. While direct labor costs are associated with such arrangements.26 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • exit costthe last cost category is the “exit cost.” business processDepending on the circumstances, this can outsourcing outsourcing on premise on demandbe very significant. transitioning work platformback in-house can be more expensive Hostingthan outsourcing the first time around.in case of termination midway throughthe contract, there may be additional cost-related legal matters, including costs Speed of implementation L Hrelated to termination for convenience.the need for termination can occur for Cash-flow alignment L Hreasons other than performance – forexample, the supplier gets bought out Operational flexibility L Hby a company that the enterprise doesnot want to do business with, the enter- Supplier independence L Hprise decides to sell off its unit that wasconsuming the outsourced service, or Organizational change H Lthe supplier’s financial situation becomesunstable. for tco calculations, enter- preferable not preferableprises must weigh the probability of suchevents occurring, based on the busi- Figure 21: Alternate Deployment Characteristics.ness situation and assessment of theprovider, to estimate a potential cost. always helps lower the cost, but it always must be used to decide on the solution, comes with some risk. enterprises must all other preconditions being fulfilled.the decision to go for one deployment decide the acceptability of the risk.model or the other must not be based on Special-Case Circumstancesany presumption that one type of solu- tco must be calculated over the antici-tion deployment will always be cheaper pated life of the solution (see figure 20). there may be other special-case circum-than the other. the real costs will vary the on-demand solutions, with their stances that may have an influence onby circumstances. Sharing resources pay-as-you-go model, will be more the ultimate selection – for example, an cost-effective in the shorter term. the enterprise may be planning to divest one subscription model also helps smooth of its business units. in the case of it Cumulative cost over time out the cash flow and improve alignment needs for this business unit, it may want of cost with consumption. Some enter- to opt for a third-party solution, as it would prises may prefer such flexibility, even be easier at the time of separation. if the tco is higher over the life of Costs the solution. in summary, each deployment model has its merits and demerits (see figure typically, solutions vary from one another 21). the cost-benefit trade-offs need to on premise in terms of functionality footprint, capa- be evaluated on a case-by-case basis. on demand bilities supported, and potential value. While immediate pain points need to be Hence, tco must be considered with resolved, a deliberate design approach Time reference to value realizable. it should can help enterprises achieve a sustain-Figure 20: Total Cost of Ownership Projections ideally be the value-to-cost ratio that able competitive advantage. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 27
    • ConClusionHyBriD SoLUtion LanDScape: Key to SUcceSSin conclusion, alternate solution deploy- Influencing On Premise Outsourcing On Demandment models offer enterprises choices Factorson how to build up their capabilities. capability type core noncore noncorethese choices can provide significant Business Long term Long term Short term orbenefits or introduce undesirable risks, requirement unsuredepending on the circumstances. Urgency of Low Low to medium Highcurrently, there is no single deployment business needoption that can address all types ofbusiness needs. as such, a business Demand pattern Steady fluctuating fluctuatingwill need to select the solution deploy- in-house readily available not adequate not adequatement option based on its circumstanc- infrastructurees. While there are several aspects to in-house market comparable not adequate available in-houseconsider when evaluating, there are competenciessome key factors (see the “influencing cost of internal comparable to expensive to expensive tofactors” table) that will likely influence operations market the market the marketthe choice of the deployment model – Up-front available available not availablethese being capability type, short-term investment capitalversus long-term business requirement,urgency of need, nature of the demand,in-house infrastructure and competen-cies, internal cost structure comparedto the market, and availability of invest- ac Us p ce inte er Userment capital. Backu ssi bili rfa functionalities accessibility ty ce interfaceWhatever the deployment model, networkthe solution component needs to be Server Server network Deployment Security modelable to operate cohesively with the rest functionalitiesof the solutions in the landscape. the ent loymsolutions need to be aligned with Dep odel Storage middleware Security mthe enterprise’s longer-term it and Storage s moperations strategy. every component ion id cat technologies Locations dl Lo Backupof the solution landscape needs to ew techn ologie arcome together as a singular unit, with s ethe ability to adapt and evolve accord-ing to needs (see figure 22). Figure 22: Operating as a Single Unitto get to the best solution landscape,it and business leaders need to collab-orate. a collaborative approach can helpthe enterprises develop innovative solu-tions to address immediate term needswithout sacrificing longer-term success.28 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • appendixDeployment Model Selection ConsiderationsAreas On Demand On Premise Outsourcingcapital requirement capital requirement is lower, capital requirement is higher, capital requirement is higher, as the vendor invests in the as the buyer needs to invest as the buyer needs to invest requisite hardware and soft- in the requisite hardware and in the requisite hardware and ware to provide the service. software. software. outsourcing vendors may be willing to finance or subsidize the investment need- ed in exchange for additional future revenue.cash flow the on-demand vendors cash flow is skewed and front cash flow is skewed and typi- charge either on a fixed price loaded. However, this results cally front loaded. additionally, subscription basis or on a con- in lower ongoing operations if the solution is being shifted sumption basis. in either case, costs. from an on-premise to an it helps enterprises get better outsourced model, there is an alignment of cash flow with additional transition cost. How- consumption. ever, the resulting operating expenditure is expected to be lower.functionality match Solution needs to be a good Buyer has access to the Buyer has access to the match, as buyers typically do source code and can build source code and can either not have the option to exten- additional functionalities, if build or have the service sively customize the solution. required. provider build additional Software as a service (SaaS) functionalities, if required. is provided via a shared re- source that is configurable at the user interface level but not customizable at the database or application levels. at best, businesses can build add-on solutions, outside of the core SaaS application. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 29
    • Areas On Demand On Premise Outsourcingimplementation effort and implementation lead time implementation lead time can implementation lead time canlead time is minimal; the on-demand be significant, as the solution be significant, but lower than offerings are standardized with needs to be configured and on premise, as outsourcing minimal possibilities for cus- deployed. Having the ability to suppliers can bring in best tomization. this means buyers customize the solution often practices and lower per-unit do not have choices; however, translates into longer deploy- cost resources to reduce lead the positive aspect is quick ment time. time and cost. deployment.future needs and supplier’s Buyer is dependent on the Buyer is not entirely dependent Buyer is not entirely depen-product road map vendor to build and deploy new on the vendor to build and dent on the vendor to build functionalities and features deploy new functionalities and and deploy new functionalities to address future needs. the features to address future needs. and features to address future buyer must evaluate the sup- the buyer, while preferring needs. the buyer, while prefer- plier’s strategy, future product that the vendor provides new ring that the vendor provides road map, and ability to ad- functionalities as part of stan- new functionalities as part of dress future needs in a timely dard software, has the option standard software, has the manner. if the supplier does of building add-ons or making option of building add-ons not have a clear road map, modifications, if required. or making modifications, if this can be a red flag. required.Shared resources SaaS vendors typically offer the solution is deployed the solution is deployed either services via the multitenancy in-house on buyer’s own infra- in-house behind the firewall model, meaning that the un- structure behind the firewall. or on the outsourcing service derlying service delivery infra- as such, the security is entirely providers infrastructure. the structure and resources are within the buyer’s control. infrastructure is typically sepa- shared. this can have implica- rated out at the outsourcing tions and must be evaluated. providers site, unlike in the SaaS vendors may in turn use case of on-demand services. third-party services to develop their service delivery platform; this may require the buyer to evaluate the third party as well. firms should review the vendor’s architecture to ensure proper data segregation.30 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • Areas On Demand On Premise Outsourcingaccess SaaS is offered via the public With deployment within the With deployment within internet, using standard user firewalls, enterprises have the firewalls, enterprises can interfaces for authorized users. direct control over who can choose to maintain access Buyers need to evaluate the access the system. within the security of vpn. implications in terms of enter- prise security.application performance Buyer is dependent on the Buyer is dependent on the Buyer is dependent on the supplier to ensure application software design for its perfor- software design for its per- system performance according mance but is not dependent formance and is dependent to service-level agreements. on the vendor for infrastructure- on the outsourcing vendor for the buyer must understand related performance and infrastructure-related perfor- the underlying quality of the operational service levels. mance and operational service resources being deployed to levels. ensure system performance in a high-volume, multitenancy environment.Scalability a key value proposition of Buyer can scale up with Buyer can scale up with SaaS is scalability. the buyer additional licenses but may additional licenses but may not must evaluate if the vendor’s not have the option to scale have the option to scale down architecture is designed for down and get a refund in case and get a refund. additional true scalability. of reduced utilization. services, such as business processing services, can be procured on a transaction basis with a stepped-scalability option.ability to integrate with in- this can be an issue and must With access to the source With access to the sourcehouse and partner solutions be evaluated up front. the code, it is often easier to code, it is often easier to inability to integrate can dilute integrate the solution to other integrate the solution to other any savings due to lower oper- in-house and partner systems. in-house and partner systems. ating cost. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 31
    • Areas On Demand On Premise OutsourcingSupplier commitment Suppliers commitment to Suppliers commitment to the Suppliers commitment to the invest in building up the SaaS product is important; however, product is important; however solution and service delivery if the supplier fails to deliver, if the supplier fails to deliver, capabilities is vital. Unwilling- the buyer is less at risk as the buyer is less at risk as ness or inability to invest will compared to its on-demand compared to its on-demand place the buyer in a bind. counterparts. counterparts.financial stability SaaS is based on a shared- Having a strong customer Having a strong customer base cost model. the sustainability base is always beneficial; is always beneficial; however, of the model is dependent on however, there is less depen- there is less dependency on the supplier’s ability to make dency on the vendors financial the software vendors financial continued investments, as strengths. strengths. But there is depen- the revenue and cost recovery dency on the outsourcing happens over an extended vendor’s financial strengths to period. Hence, the customer enable continued investment base becomes important. required for performance Dependency on a few large improvements and innovations. customers can be risky, as the vendor will be severely impacted if any of them drop out. if the vendor is unable to attract a large number of customers to its platform, the solution may have a short life. evaluate the vendor’s customer base, financial standing, and invest- ment ability.compliance risks Understanding the supplier’s entirely within the buyers Buyer is dependent on the ability to fulfill all of the compli- domain. outsourcing service provider ance requirements is para- to comply with all laws and mount. certain industry and regulations. country regulations mandate that the data be domiciled with- in the territory or region. as such, it is important to under- stand where the data resides in such situations.32 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • Areas On Demand On Premise OutsourcingBackup and recovery Buyer needs to assess the entirely within the buyers Buyer is dependent on the backup and disaster recovery domain. outsourcing service provider processes and determine if the to ensure backup and provide recovery time and recovery acceptable disaster recovery point objectives are accept- capabilities. able. on the same note, the buyer must determine if it will have access to the software source code if the vendor fails to perform. it must also assess the solution’s ability to perform in a single tenancy mode.portability in case of failure on the part Question does not arise, as the data resides either within of the provider, is it possible the data resides within the the enterprise or can be easily to extract and move the data enterprise. moved back in-house from an to a different system? outsourcing vendor platform. SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 33
    • Key TCO Cost ElementsCost Elements Classic On Classic Classic SaaS/ Classic Bundled Platform Premise Rental Hosting On Demand BPO BPO BPOInitial costSoftware license ü ü ü üHardware ü ü ü (ü)facilities ü ü ü (ü)other software ü ü ü ü (ü)configuration andimplementation ü ü ü (ü) ü ü üData migration ü ü ü ü üintegration ü ü ü ü ü ü ütransition (ü) ü ü (ü)reorganization (ü) ü ü (ü)change management cost (ü) ü ü (ü)Business user training ü ü ü üOngoing costService charge ü ü ü ü ü üStandard softwaremaintenance support ü ü ü üfacility costs ü ü ü ü (ü)it operations ü ü üBusiness operations ü ü ü ügovernance ü ü ü ü ücontract administration ü ü ü ü üBusiness continuity ü ü ü ü ü ü üExit costalternate solution selection ü ü ü ü ümigration ü ü ü ü üreorganization ü ü ü üUser training ü ü ü üLegend: (ü) – Depends on the situation34 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
    • glossary of termsOn premise – Solution that is deployed on enterprise-owned infrastructure andoperated by internal resources. this includes shared service centers that are fullyowned and operated by the company.On demand – Solution or service that is provided in a fully hosted and ready-to-use mode, either on a subscription basis or a consumption basis. the ownershipof the assets resides with the service provider. the on-demand services includeinfrastructure services, application services, and business services.Shared service – centralized service operations that provide services to multiplebusiness or operating units located in multiple geographiesOutsourcing – any operational activity performed by an external party; these canbe either it related or business related or both.Platform BPO – Standardized business services using a single technology platformto provide services to many clientsCloud services – it-enabled solutions and services (including business services)ubiquitously delivered, over the internet, to multiple customers and consumers,on demand, using standardized processes and leveraging shared resources –infrastructure, systems, and peopleHybrid landscape – Solution landscape that includes more than one of the deploy-ment models – that is, on premise, outsourcing, and on demand SAP White Paper – Building capabilities Leveraging alternate Solution Deployments 35
    • BiBliography 1. forrester research inc., “real-World insights into SaaS implementation Success,” by Liz Herbert, with christina ferrusi ross and elizabeth rose, may 2010. 2. forrester research inc., “Status, challenges, and near-term tactics for cloud Services in enterprise outsourcing Deals,” by paul roehrig, phD, november 2009. 3. forrester research inc., “SaaS adoption 2010: Buyers See more options But must Balance tco, Security, and integration,” by Liz Herbert, with christine ferrusi ross and mark grannan, june 2010. 4. forrester research inc., “SaaS valuation criteria,” by Liz Herbert; february 2010. 5. forrester research inc., “Best practices: SaaS Systems integration,” by Liz Herbert with christine ferrusi ross and mark grannan, november 2010. 6. gartner research presentation, “Who really cares about the cloud – an industry perspective,” by jeff roster, cynthia moore, and Kristine pfeiler. 7. gartner research, “SaaS Dynamics continue to act as a catalyst for the convergence of Services and Software,” by frances Karamouzis and matthew goldman, april 2010. 8. gartner research, “four Steps to get in front of the SaaS curve,” by robert p. Desisto, june 2010. 9. gartner research, “Hype cycle for cloud computing,” 2009.10. iDc, “Success in outsourced cloud Services involves Building to the end State, Understanding your genetic code, and avoiding potential pitfalls and Dead ends,” by David tapper.11. iDc, “Worldwide Software as a Service 2010 – 2014 forecast: Software Will never Be the Same,” by robert p. mahowald.12. iBm 2010 global ceo Study.13. HrBr 2010 volume 3, number 1, “to Bundle or not to Bundle?” by prof. Leslie Willcocks, Dr. ilan oshri, and Dr. john Hindle.14. HrBr 2010 volume 3, number 1, “imperfect arbitrage,” by Deborah Kops.15. Wikipedia Web site “cloud computing.”SAP References1. “Business Solutions Without compromise – integrated on-Demand and on-premise applications from Sap.”2. “the impact of technology in Business process outsourcing – the complete Business process outsourcing cost picture.”36 SAP White Paper – Building capabilities Leveraging alternate Solution Deployments
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