Tag: next generation IT

IBM Takes Steps to Ensure It Will Be Relevant for the Future | Sherpas in Blue Shirts

IBM is taking some bitter medicine right now in its series of divestments. Big Blue recently exited the chip manufacturing business by spinning off that division to Globalfoundries. The move comes on the heels of having exited its server business and voice and transaction BPO business. There’s a lot of media attention to “IBM’s blues” and a lot of water cooler talk about what IBM is up to. Are they going to be viable, or do they have a foot in the grave? I look at it as they are ensuring that they have both feet on a very solid growth platform.

But the series of divestments raise a lot of eyebrows and create shareholder discomfort. It takes time for shareholders and customers to process what IBM is doing.

Here’s what’s happening:

  • The divestments were not failed businesses. They just are not the future of IBM. The company is simply pruning back its operations that have been a drag on earnings and siphoning their management attention and resources.
  • IBM has been acquiring almost one company per month, largely in the areas of cloud software, analytics and Big Data.

Often the assets IBM sells do well in other hands. Lenovo has done very well with IBM’s former PC business and looks to do well in the server business. And I expect Globalfoundries to do well with the chip business.

Simply put, IBM is remaking itself and making very deliberate and assured steps for its future. It is rare for large organizations to have the discipline to exit businesses. Most large organizations are eager to buy new growing businesses but struggle in the divestment of businesses that are no longer strategic or are struggling to perform. But IBM has managed to remake itself a number of times in their long, historic journey.

IBM now clearly has both feet in the future, whether it’s a growth platform for cloud, analytics, or high-value IT and BPO services.

I think this should be a comfort to IBM customers. Big Blue is taking necessary steps now to not become a Kodak and not consign itself to irrelevance for customers’ future needs.

Health Insurers Grappling with the New Dawn | Sherpas in Blue Shirts

If you’re a stakeholder – any stakeholder – in the United States’ healthcare system, the data in the following charts is troubling and flummoxing.

The U.S. Healthcare System Paradox

 

 

Although the country’s outlay on healthcare (as a share of GDP and per capita) substantially exceeds that of other developed countries, it ranks behind most nations on many measures of health outcomes, quality, and efficiency. In fact, a June 2014 study by the Commonwealth Fund ranked the U.S. dead last on most performance dimensions – e.g., access, efficiency, and quality – when compared against 10 other developed countries (Australia, Canada, France, Germany, Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom).

Winds of Change

The health insurance space in the U.S. is undergoing a radical transformation driven by regulatory changes and consumerization of demand. So it is not surprising that the current focus of the massive reform underway in the country focuses on cost rationalization and efficiency enhancement.

Health Insurance Themes

Reforms (primarily rising from the Affordable Care Act, or Obamacare) are reshaping health plans’ operating model. The onset of a value-based reimbursement model (moving from “defined benefits” to “defined contribution”) raises fundamental questions about current business paradigms. The impetus provided to Accountable Care Organizations (ACOs) and the blurring lines between payers and providers are leading to a fundamental realignment of incentives, ownership, and priorities. Obamacare and ICD-10 have had a sizable impact on payers’ technology portfolios as they look to leverage next-generation IT and modernize legacy platforms.

Payers are embracing the challenge of consumerization as their customers take increasing ownership of health outcomes, signaling the shift from large national accounts to the individual segments. This directly impacts their sales, outreach, and member engagement channels and methodologies. There is a renewed focus on approaching traditional buyer segments through non-traditional channels, primarily Health Insurance Exchanges (HIX) and direct engagement. These wide-sweeping changes are leading to a rethink of current systems, processes, interfaces, and vendors.

Payers Looking Ahead

Reform mandates key driver in healthcare ITO deals

Payers are marrying reform-driven changes with their overall technology portfolio in an effort to pivot from a primarily B2B business to a B2C model. These regulatory changes call for increased systems integration efforts, establishment of public portals, customer outreach, remediation, testing, and revenue cycle program management.

Healthcare reforms, a dynamic regulatory landscape, and consumerization of demand are transforming the healthcare industry. Payers need to understand, assess, and be proactive in navigating these choppy waters.

For further insight, check out our recent publication,  “IT Outsourcing (ITO) in the Payer Industry – Annual Report 2014: Regulations on Payers’ Mind.” This report provides an overview of the ITO market for the payer industry. Analysis includes market size and growth, forecasts (up to 2020), demand drivers, adoption and scope trends, key areas of investment, and implications for buyers and service providers.

Sea Change in Large Enterprises’ Cloud Strategic Intent | Sherpas in Blue Shirts

For five years we at Everest Group have tracked the cloud space in global services. Until this year, there was a lot of talk about cloud, but much true cloud adoption was driven in business units with large enterprises. CIOs basically sat out the game and watched the cloud’s performance. But since the beginning of 2014 we’ve seen a real shift in large enterprise CIO organizations, which signals a significant change for the services industry.

Until recently CIOs in large enterprises were reluctant to put cloud initiatives in place because they felt it was premature. They struggled with compliance and security questions. And they worked to make sure their organization understands and embrace cloud and as-a-service technologies. Their posture is moving from cautiously watching to actively planning and driving, and some have large initiatives underway. Their plans with regard to cloud have moved from the radical fringe to mainstream strategic intent to embrace and drive.

Large enterprise tech budgets are still controlled by the CIO organization because they are best able to drive technology initiatives to scale and to execute initiatives across functions.

This is a very important development and will cause significant changes in the technology and services industry. This undoubtedly will start to drive a significant shift in spend from the traditional structures into the cloud and as-a-service models. As that occurs, we believe it will pick up momentum and pull the rest of the industry through.

IBM Positioning for Dominance in Future of Infrastructure Services | Sherpas in Blue Shirts

I recently had the privilege to sit through a two-day session with IBM’s senior executive team in services. I’m someone who tries not to drink the Kool-Aid. Even so, I came away truly impressed by the work that IBM has done to position itself to be relevant and a major player in the future of IT infrastructure.

I’ve written frequently in this blog about the impending crisis that all asset-heavy players face as first RIM and then cloud attack their revenue base. This unrelenting onslaught is already moving share from the incumbents such as IBM to challengers such as HCL and TCS and will only be exacerbated as cloud takes stronger hold.

I came away with from the two days with IBM realizing Big Blue’s profound understanding of this phenomenon and its positioning of offers that allows them to leapfrog the RIM model and play a decisive and significant role in cloud.

Taken as a whole, IBM’s public cloud software and private cloud and automation strategies gives it the capability to move clients smoothly into the future. And it assures capturing the run-off from IBM’s traditional business while at the same time expanding market share. This is truly a formidable set of capabilities that, if executed well, will ensure IBM is a major — if not dominant — player in the future of IT infrastructure.

Everything will come down to execution, and history has seldom been kind to incumbents in the face of major technology and business model disruption. But based on the two days I spent with IBM, I believe that IBM has more than a fighting chance to successfully make this transition.


Photo credit: Irish Typepad

Enterprise Technology Disruption: It’s not the Cloud, Stupid… | Sherpas in Blue Shirts

Today’s conversations and research around technology disruption and the causes invariably focus on cloud services, and rightly so. Be it infrastructure, software, or any other facet of technology consumption or development, cloud services have had, and will continue to have, the most disruptive impact. The disruption discussion also includes the impact of mobility, next-generation analytics, and the growing importance of software to control the enterprise.

This is leaving enterprise technology providers in a state of amazement and numbness. They are investing all their energy in responding to these disruptive trends. However, there are equally important dimensions they need to understand. Some of these include:

  1. Where is the talent? How many conventional enterprise technology providers are the first choice of employees these days? They themselves believe, very few. The mindboggling (and questionable) valuation of companies such as Pinterest, Uber, and WhatsApp, and the flood of consumer technology start-ups/niche firms (reminders of 2000?), are pushing the technology talent toward these smaller companies. Job seekers now believe that all the action and fun are in consumer technology. Even within the enterprise technology segment, new candidates and existing talent are focusing on new and innovative firms (e.g., Alteryx, Coupa, Dropbox, Palantir, Tableau, Workday) or their own start-up more than on traditional vendors. Given that technology is as good as the people who innovate it, this is a serious threat for most enterprise technology providers.

  2. Where is the plan? Enterprise technology providers take pride in their exhaustive business case modelling and time to market planning. These cases normally create a multiyear plan and staggered investments across the timeline. However, given that technology disruption is reducing the cycle of innovation and time to market, these time and tested strategies are increasingly becoming irrelevant. Do these technology providers have sufficient internal strength, processes, and willingness to jettison the age-old model of investment planning and be in sync with the shortening technology cycle?

  3. Why so many competitors? The huge entry barriers incumbent technology providers created for newer players are crumbling in the face of technology disruption. Enterprise buyers, driven by internal and external factors, have become more receptive of nimbler and more innovative technology companies than in the past. Moreover, new-age technology providers now better understand the requirements of an “enterprise grade product.” More so, the enterprises’ requirements are themselves undergoing significant changes that suit these new-age technology firms, such as agility over control, and first to market rather than best to the market.

  4. Who is the competition? IBM is fighting retailer Amazon for dominance in cloud services, Oracle is fighting smaller MongoDB and Postgres for the database market, Teradata is fighting Cloudera for next generation analytics, and so on. While the technology world has been replete with similar David versus Goliath stories seemingly since time immemorial, their occurrence and impact have become more severe in the past couple of years.

The enterprise technology providers are responding by leveraging their tried and true methods of acquisition, (e.g., IBM/SoftLayer, VMware/AirWatch, Tibco/Jaspersoft,) and partnering with nimbler firms (e.g., SAP, Microsoft, and IBM partnering with Hortonworks and Cloudera for Hadoop, HP partnering with OpenStack for cloud services, and Oracle partnering with NetSuite for SaaS.)

The big challenge these enterprise technology providers now have is to strategize based on the type of competition. In earlier times, they knew their competitors and how they would react, and they were comfortable in their planning meetings. However, now the environment has changed. No one knows who and where the next competition is coming from (airline industry versus video conferencing, anyone?)

While there are likely numerous other dimensions shaping the technology market today, they are tough to foresee. This makes enterprises’ and technology providers’ task of planning for their technology roadmap almost impossible.

What is the best way to move ahead? Should enterprises and providers stop their technology planning cycles and become real time planners? Should they wait it out for the disruption smoke to clear? Should they continue with their existing strategies?

If you are an enterprise technology provider or a customer trying to make sense of this juggernaut, please do share your perspectives with me at [email protected].

CSC’s Path: One to Watch | Sherpas in Blue Shirts

Under new CEO Mike Lawrie, CSC’s well-publicized turnaround is showing increased momentum. He put CSC on a new path, and that strategic shift shows modest improvement in margins. But they still have a big wrinkle to iron out — despite increased profits, CSC’s revenue has been flat to down. The question is: Will the market continue to support an increasing stock price without seeing increased revenue?

Lawrie took some big — and critical — steps to reshape CSC’s market position. He brought in new leaders, divested non-core portions of the business and invested those funds in a set of cloud offerings for CSC’s core infrastructure business.

He also revitalized the dispirited and somewhat lost CSC sales engine. Since Lawrie stepped on board, CSC consistently goes to market with an interesting and powerful story focused on next generation IT. And unlike some of its provider brethren, CSC is quite willing to sponsor disruptive cloud and other disruptive next generation technologies — even if they cannibalize CSC’s own client portfolio while attacking competitor offerings. We increasingly observe customer organizations reacting favorably.

The hard truth

Nevertheless, I think it will be difficult for CSC to increase revenue — ironically partly due to the fact that it clearly demonstrates willingness to cannibalize its portfolio of work. I think we’ll inevitably find that CSC is replacing existing captured work at 50 cents on the dollar.

To increase revenue, CSC must capture new logos and new opportunities very aggressively, and I think that will be a significant challenge. But I give them full credit for facing reality and taking a cannibalistic approach.

Big Data Analytics in 2014: 5 Things That Won’t Happen | Gaining Altitude in the Cloud

While talking about a new year’s next cool thing or development is a thoroughly enjoyable ritual, discussing what will not change provides valuable lessons for technology adoption strategy and investment planning, and highlights potential future disruptions.

So what are the five things that will remain more or less the same in 2014 for big data analytics?

  1. Hadoop will NOT REPLACE ETL: The nine-year old platform has achieved great traction, and its mindshare has significantly increased. Well-known analytics providers such as Cloudera, Hortonworks, and MapR have supported it for a couple of years, and even the big boys such as IBM and Pivotal have embraced it. However, Hadoop’s proponents are positioning it as a panacea for all the ills of big data. The antagonists are equally up to the task, denouncing it as one of the important, yet small, pieces of the puzzle. Most Hadoop proponents confuse ETL as an “activity,” rather than a “process.” The way in which ETL is performed in a Hadoop framework set-up may differ, but it does not make ETL redundant or replaceable.

  2. Analytics will still be UNDEMOCRATIC: Innovative data analysis and visualization technology players such as Tableau, QlikView, Alteryx, and Tibco (Spotfire) have gained traction as “end user” friendly products. And mega providers such as SAP have increased their efforts in this direction (e.g., rebranding SAP Visual Intelligence as SAP Lumira). However, despite significant efforts to “consumerize” big data analysis and move the power out of the ivory towers of data scientists, 2014 will witness only incremental changes in this regard. 

  3. Big Data will still be a PROJECT: Organizations always pilot a new technology before they put it into mainstream production. However, this attitude defeats the purpose of big data analytics. To gain real advantage from the deluge of data, companies must engrain a big data mindset into their DNA, rather than treating it as a silo “project.” Will 2014 see organizations jettisoning their age-old habits to wholeheartedly adopt big data analytics? Not according to my market conversations.

  4. Real talent will be TOUGH to find: Every technology transformation comes with “talent imposters,” and organizations desperate for talent will hire some of these and then repent later. Unfortunately, most of the existing data warehousing and business intelligence analysts masquerade themselves as “big data talent.” And the mushrooming of big data certifications and aggressive resume fabrication will not make organizations’ hiring task any easier in 2014.

  5. Integration will be a CHALLENGE: Technology providers such as Attunity, Dell Boomi, Talend, and Informatica have created multiple solutions to integrate disparate data sources for a consistent analysis framework. Most of these solutions work with data sources such as Amazon Redshift, IBM PureData System for Analytics (Netezza), HP Vertica, SAP HANA, and Teradata. However, organizations continue to face challenges in seamlessly integrating these, and are thus unable to extract meaningful value from their big data analytics engagements. While we’ll see major improvement in this area in 2014, a world in which different data sources are seamlessly integrated and analyzed will still be a mirage.

With cloud-based data management, modeling, and analytics disrupting the landscape, coupled with the rise of in-memory computing, the big data market will continue to surprise: we’ll see technology providers entering “unknown” domains, competing with their partners, and even cannibalizing existing offerings.

What are your takes on big data analytics in 2014 and beyond?

We Don’t Get Innovation | Sherpas in Blue Shirts

The lack of innovation from service providers is a constant and mournful refrain echoing around the industry. This plaintive and mournful dirge reminds me of Sisyphus, who was cursed to endlessly roll a boulder up a hill, only to watch it tumble back down, never achieving satisfaction. Likewise, the unending efforts of service providers to provide innovation to their customers seem similarly futile, resulting in the same frustrating lack of satisfaction for either provider or customer.

Why are these efforts doomed?

Service providers and their customers have different goals. Providers invest in initiatives that drive growth or improve profitability for the provider. Customers want lower cost, increased productivity and more functionality. These goals seldom align and the parties often work at cross purposes.

What do we do about it? 

The answer is that the customer must take the responsibility for defining the innovation agenda. The customer must outline what will be impactful and make a difference in its business and then share that agenda with the service provider. Whatever the issue is — reducing receivables, stock-outs in retail, more productivity, faster time to market — the customer must illuminate and define the target for the provider.

What if the provider is reluctant to pursue the innovation agenda?

Our experience is that providers often are willing to fund innovation and work across the customer’s agenda when it’s clear that it will make a difference to the customer. In these situations, the exercises in innovation lead to higher customer satisfaction and also lead to an extended contract or changing the relationship in mutually beneficial ways for both parties.

But a provider may be reluctant to pursue some aspects on an innovation agenda. An example is driving increased productivity in the provider’s organization. In a world of (P) Price x (Q) Quantity = Revenue, the provider wants to keep Q as high as possible, and productivity issues bring quality down.

From the provider’s perspective, there are two categories of innovation:

  1. Those that the provider wants to pursue and naturally aligns with (the opportunities that give new revenue opportunities or better industry insight)
  2. Those that the provider likely won’t want to pursue (things that negatively affect its commercial environment, especially its productivity).

To avoid continuously pushing your innovation boulder uphill, keep the provider’s perspective in mind. If your innovation agenda focuses on category #1, you can expect a rewarding discussion around the areas where you and the provider are aligned. But you will need to take a much more active role in driving the category #2 initiatives that are not aligned with the provider’s interests.


Photo credit: Kristina Alexanderson

Rethinking Outsourced Application Development and Testing | Gaining Altitude in the Cloud

The cloud revolution is breaking down walls surrounding existing outsourcing arrangements. In fact, the business case for some outsourced workloads crumbles in light of opportunities in the cloud. In a traditional data center or IT outsourced infrastructure model, you pay for the capacity 24/7; but in a cloud environment, you pay only for what you use.

By moving workloads to a cloud environment, we estimate that an organization would end up paying approximately 25-50 percent of the cost for the current 24/7 model.

Those economics are stunning.

Our analysis suggests that about 50 percent of current outsourced workloads have the capability to move to the cloud easily. That doesn’t mean that they will be moved. But they are intermittent workloads, so they can be turned off and on and thus easily moved to a variable pricing model such as the cloud. They also don’t have the same security and compliance cloud constraints as production workloads.

That doesn’t mean they will be moved. It just means they have the capability to be moved without significant disruption or a large investment to replatform them.

The diagram below shows the workloads that we think will migrate to the cloud.

Enterprise cloud migration is coming in waves

We believe the first to head for the cloud environment will be the application development and testing environments as this work is intermittent and ideal for the pay-per-use model. Considering that application development and testing comprise 20-25 percent of most outsourced IT infrastructure workloads, we believe the compelling underlying economics of the cloud model will drive these workloads out of their current environments quite quickly.

An enterprise with an IT infrastructure outsourcing contract very likely will want to migrate some workloads out of that environment into a next-generation model such as the cloud. It just makes sense to capture the savings. And in most outsourcing contracts, the customer has the freedom to reduce the outsourced workload by 30 percent before incurring penalties.

We see this as a big opportunity.

It’s also a potential threat.

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