deal architect

When will their clients benefit?

In 1996, at Gartner I observed that consultant travel expenses on many ERP projects often exceeded the cost of the core software. While things have improved somewhat since, and the industry has moved to remote delivery models from around the globe, consultant travel and related impact on project productivity and morale continues to be a major waste in many IT budgets as I wrote here.

So it is good to see Accenture adopt telepresence in a big way. It is a perfect application for a global, people intensive business. But the usage seems internal, not on client projects. It would be nice to hear how Accenture is planning to cut client specific travel.

Then I see Scoble interview Chandrakant Patel, HP Fellow about the Data Center of the Future. He is bristling with ideas on energy savings, and other data center efficiencies. As I wrote in Data Center Makeover, it is fascinating all the innovations happening in DCs.

It is fine for HP to talk about this and their internal global data center consolidation project, but these do not really describe the older, much less efficient infrastructure the majority of clients get their services delivered from.

Be nice to see Accenture and HP and the rest of the outsourcing industry pass along the efficiencies of these innovations. 

Mutiny on the Bounty

The WSJ summarizes a survey of outsourcing firms by Brown-Wilson. And BusinessWeek jumps in and questions credibility of the firm.

BusinessWeek is right to point out outsourcing firm rankings should not jump like a yo-yo from year to year. But it is a bit unfair for Steve Hamm sitting in expensive real estate at Avenue of the Americas in Manhattan to question where Brown-Wilson does its research from. In this day and age of global delivery models and tele-commuting, who cares?

My advice to buyers - as it was with last year's survey - take advantage of the bounty of the fragmented outsourcing market!

If anything with cloud computing and SaaS vendors gathering momentum (which the survey did not factor), the outsourcing market is about to get disrupted even more.

When your data center is buzzword compliant...

When it is consolidated, virtualized, ITILicized, green and has other makeover, you have to call it something contemporary like a "Global Information Technology Facility"

Besides, if you still call it a data center, HP-EDS will come knocking offering to outsource it :)

Can a leopard change its spots?

So I am reading in Fortune that Ford is betting on another "world, small car". Do you get a sense of deja vu? I thought they already had Focus, Fiesta etc around the world. But their DNA is about big -  cars, trucks, SUVs. Loaded with bunch of options. They even, subtly and otherwise, mock small and fuel-efficient. Not blaming them - they clearly have a core customer group which keeps asking for that. But there is an even bigger world which makes them every few years realize they need to embrace the "small" religion.

I see something with the bigger outsourcers. At the turn of the decade when things were not so good, IBM was talking "on-demand". Now that things are a bit better, it mocks "cloud-computing". Their version of  "small and fuel-efficient". My friend Charlie Bess at EDS - on a  blog which is supposed to be about innovation - points to more potential negatives around cloud computing.

Don't worry. When it suits them - especially when the chips are down or when the customer absolutely insists - they will parade out their own version of "small and fuel efficient". But try getting that without any options - the utility computing version. They will give you the whole sales pitch about why their integrated GPS and bluetooth option is worth another $ 3,000 and why Garmins and other options are just not good enough for a fraction of that cost.

Because their DNA is similar to Ford's - it's mostly about big and lots of customized options. And at least a few customers keep wanting that. A shrinking few customers.

Even more "disruption of disruption"

Last week I wrote about "disruption of disruption"

With its storage in the cloud, amazon has for a while offered storage at prices almost 1/10th of what large outsourcers charge their clients.

Now it disrupts its own storage costs.

"We've often told you that one of our goals is to drive down costs continuously and to pass those savings on to you. We have been able to reduce our costs for data transfer, so we're pleased to announce that we're lowering our pricing for data transfer, effective May 1, 2008."

Voluntarily lowering prices? Another disruption to the traditional outsourcing market where the general attitude is Moore's Law does not apply to their sector.

Data Center Makeover

If you had told me 5 years ago, the boring data center would be one of the hottest areas in the technology industry I would have laughed.

But several trends have converged to make it so

• Cloud computing - Microsoft's Mesh offering this morning in response to what amazon, Joyent and others have been pioneering
• Breakthrough designs - Google, Sun and others , in particular, have been rethinking traditional raised floor and other accepted best practices in data center design
• Green Computing - the focus on lower energy consumption and a willingness to consider alternative energy efficient locations like Iceland
• Virtualization - VMware was one of the hottest IPOs last year, but there are several other vendors in the space
• DC Consolidation - Really aggressive consolidations like HP's internal moves from 85 data centers to 3 pairs worldwide with related savings in everything from real estate to network costs.
• Standardization - with ITIL - decades of data center operations and yellow books being formalized and best practices shared
• The move to services  - part of a broader desire for clients to reduce their capex IT spending and buy it more as as an opex service - SaaS, HaaS, PaaS
• Remote monitoring - the ability to monitor key components of network, database etc from cheaper, remote locations
• New tax incentives - seems like every state in the US and every savvy emerging country wants to attract data centers with incentives

But all this excitement is often muted at several of my clients. Why? Because many data centers are outsourced, and few outsourcers are proactively bringing these efficiencies to bear on their contracts. Clients are stuck in multi-year deals and outsourcers want to squeeze every last bit out of older data centers.

While HP can brag about its own DC consolidation, check how many of its DC clients have seen the pass through effects of such efficiencies. While IBM launches its own version of cloud computing check how many of its clients are being offered utility computing economics. While Accenture can talk about "green computing" check how many of its own DCs are green.

So, yes if you had told me 5 years ago data centers would be a hot area , I would have laughed. If you had told me many of the innovations would come from amazon and Google, not folks like EDS and CSC, I would have questioned your sanity. But that's the reality and outsourcers need to catch up and pass along these efficiencies. Fast.

Outsourcing Advisors

Phil Fersht at AMR has a paper on what to look for in an outsourcing advisor. Good read for clients looking for someone on your side as you outsource application support, business processes, IT infrastructure or even look at SaaS.

Let me add some of my firm's experiences as such an outsourcing advisor (along with some of our partner firms).  While we have nowhere the reach of TPI or Gartner or McKinsey, we have worked with some of the largest, most sophisticated companies in the world. Here are some reasons clients like a smaller advisory firm, and others who do not. And why some clients use both types - judiciously:

(Fair warning: it is a bit of a sales pitch).

a) Support for entire process or phases? Some of the larger firms will only engage if you work with them end-to-end - from sourcing to RFP to negotiations. We are a bit more flexible - we have worked with several clients on specific steps e.g. plan and execute the due diligence trip to vendor locations or just help with negotiations.

b) Do you want an advisor, or a doer? Some firms can give you an entire pyramid of program managers, analysts etc. Smaller firms tend to have more senior practitioners - domain experts - clients can bring in as an adviser to their sourcing team.

c) "Edgy" or mainstream? - I helped a client with an India outsourcing deal back in 2001. In the last 2 years we have helped clients look at utility computing models, BPO, SaCS, diversification beyond India to E. Europe and elsewhere. Our clients tend to be more willing to experiment in outsourcing innovations. Larger firms, in general, tend to be better at more mature outsourcing models.

d) Visibility and politics: It is a lot easier for a boardroom to accept a Gartner recommendation than that from a small firm. We have lost a few deals where the client told us that, more than competence, was the reason. Others will hire a smaller firm ahead of, around or behind a major firm to average out their costs and advice and "political correctness".

e)  Specialists or Wider?: I may be generalizing here, but because our firm helps with software, outsourcing and telecom negotiations I find we can bring some unique perspectives and practices from one spend category to another. Skill sets at many larger firms tend to be somewhat silo-ed.

f) Established or disruptive vendors?: I once presented analysis on 30 potential suppliers of all shapes and nationalities to a client. And they asked - who else should we be looking at? Many of the larger advisors tend to be more knowledgeable about - and aligned with - established vendors. It can lead to what I call the Stockholm Syndrome and they tend to be more defensive, less aggressive in negotiating with them. And they don't write blogs with a tag line of "disruptive" -)

Phil's personal blog is a play on the phrase Horses for Courses. I think it aptly sums up what you should consider as you look for an outsourcing advisor.

The Data Center is dead. Long live the Data Center!

Virtualization. Green Computing. Massive data center consolidation. Utility Computing. Global Tax incentives.

Never before have so many trends converged to make companies rethink their cold war era, concrete reinforced, kevlar coated bunkers called data centers. Particularly those at their outsourcers.

The choices should make buyers giddy:

• Is it is HP's new vision of cloud computing for large enterprises?
• Is it the kind that Joyent, amazon and others have been pioneering for SMEs at ridiculous server and storage pricing compared to what traditional outsourcers have charged?
• Is it the Google version of build-it yourself with commodity chips in energy efficient locations with eagerly competing government subsidies (New Scientist had a recent story about how U. of Illinois, Urbana-Champaign has used 8 eight computers each with 2 specialized chips found in the Sony Playstation3 to do tasks normally its supercomputer would be needed for)
• Is it the SaaS version where you outsource your apps AND infrastructure to a salesforce.com?
• Is it  to start rationalizing down to 1-2 existing data centers across the world and re-negotiate rates with existing outsourcers and wait for winning options from above to emerge over next 3-4 years?

Almost as if Rip Van Winkle woke up from his long slumber and saw his dog-eared IBM data center "yellow books" and cannot make up for lost time...

The State of Services Procurement

Brian Sommer summarizes what he learned in a recent meeting focused around services procurement. I think he is far too generous about the sophistication in procurement practices around services.

This comment is particularly telling "No consistent definition exists for professional services or consulting. Sourcing executives find it tough to apply a single set of practices that apply to the full breadth of services that companies procure."

Just around IT services (as against legal or architectural services) there are distinct markets around contracting/staff supplementation, systems integration, application management outsourcing (and offshoring), infrastructure outsourcing, and BPO. The players are different (look at the different ways different offshore markets are evolving), the things to look for are vastly different (ITIL and utility models in infrastructure outsourcing versus time tracking around contractors), the price points are widely different. And markets are morphing as everything gets delivered "as a service" - so software, hardware, telecom companies all offer variants of IT services.

No single sourcing process or sourcing technology can handle it all. Or should be expected to handle a services market which totals spend of over $ 500 billion a year.

I know I am being critical of my own clients in saying so, but like I wrote here, I wish more procurement folks would treat IT spend, not just IT services, as very different from MRO or other direct spend, not just try to find homogeneous "solutions" .  Lots of empty calories in the spend.

The good news is there are plenty of disruptive vendors and business practices and tools waiting to be leveraged. But they are often at sub-categories and niches of markets. Tough to discover them if you seek a "single set of practices".

The mythical 99.99% uptime SLA

amazon and salesforce.com outages grabbed headlines this week.  Google's  blueprint in Harper's for its massive new data center in Oregon will fuel more scrutiny of  SaaS and utility computing and SLAs associated with them.

I find the general assumption among us bloggers is these providers have to be up 99.9999% of the time. Major crisis when any of them has a crisis. Because supposedly that is what corporate America has always got and continues to get.

Who started that myth? Other than some sensitive and global apps, there is plenty of downtime in corporate data centers and those of big outsourcers like IBM and EDS.

In a given year (unlike a leap one like this year), we have 525,600 minutes. To meet a 99.99% uptime, the system could only be down 52 minutes - less than an hour - in the year. I can tell you most corporate data centers have scheduled downtimes which exceed that every month, if not every week.

Few companies have data centers which need to service users across more than 7-8 time zones. One based in Switzerland could service most of West and East Europe, one based in Singapore would cover a swath from India to New Zealand. If their operations are so geographically diverse. The majority of them find 16 hours of weekday coverage and 8 on weekends more than adequate. So a 90% uptime is good enough for many using 525600 minutes as denominator. 

Of course, there are some applications which are global and some critical ones which need to be up constantly. But that is a small percent of the overall portfolio.  And folks like IBM and CSC charge them a king's ransom to support those.

It's nice to push amazon and Google and others for high availability...but the big kahunas in corporate world don't get it consistently even at their large budgets...