Author: Yugal Joshi

Love Thy Enemy to Float in the Cloud | Gaining Altitude in the Cloud

Many nations celebrate Friendship Day on the first Sunday in August, with citizens spending time together, exchanging gifts, cards, and wristbands to proclaim their friendship to each other. And when Oracle, an organization that trashed cloud earlier, partners with bête noire Microsoft, Salesforce.com, and NetSuite, and when Microsoft extends olive branch to its rival Engine Yard, and adds its platform to Windows Azure marketplace, it’s a clear sign that technology company “frenemies” have inaugurated their own variant of Friendship Day a little in advance of the official date.

These newfound friendships are testimony to the fact that the market for cloud services is driving these companies to bury their hatchets and think about computing in a totally different way. While money, (e.g., Oracle’s poor performance in selling new software licenses, Microsoft’s issues in traditional software sales,) is one of the key drivers, these technology providers now also realize the disruption in the competitive landscape, and appreciate, accept, and are evolving along with the changes in the market dynamics and requirements.

As an example, consider that Salesforce.com always ran on an Oracle database. Although it investigated competing open source technologies, (e.g., NoSQL,) it is now committed to Oracle’s hardware and middleware, perhaps moving away from commodity infrastructure. Similarly, Oracle is partnering with NetSuite to target the mid-market and ensure that its Fusion human capital management (HCM) works with NetSuite’s ERP. If they enter into a distribution agreement, Salesforce.com and NetSuite may get access to Oracle’s direct sales channel, resulting in interesting competitive dynamics.

Further, as cloud adoption grows more pervasive and complex, partnerships are emerging to provide buyers with the requisite ecosystem to enable enterprise computing with cloud DNA. For example, Microsoft is partnering with Engine Yard in an acknowledgement that developers need more capabilities and require application and infrastructure abstraction to work across multiple clouds. While many may view these strange bedfellow affiliations as an indication of large technology companies’ inability to compete with nimbler players, Everest Group believes this is a positive development that enables enterprise buyers to leverage the best of the cloud delivery models.

Yet, when competitors become partners and it becomes fashionable to be frenemies, should buyers worry about collusion? To guard against possible challenges, every buyer needs to ask itself and its technology providers:

  1. How does a partnership with an erstwhile competitor change the product lifecycle, commitment, and roadmap?
  2. Should I be wary of a “tacit understanding” between these newfound partners that impacts my ability to buy the best business solution?
  3. Does this affiliation give technology providers a perverse incentive to unofficially agree not to rock the boat of enterprise computing?
  4. Does this partnership dent technology providers’ capability to innovate to stay ahead of the competition? If yes, then how does this lack of innovation affect my technology landscape?

On the surface, everything may look great as vendors pitch broader solutions citing partnerships. But enterprise buyers need to have laser precision vision – and more than a sprinkling of clairvoyance – on their business objectives in segregating the high pitch, (and sometimes false,) marketing spiel of the provider community.

The Changing Pecking Order and Emerging Irrelevance of the WITCH Group Term | Sherpas in Blue Shirts

As most in the global services industry know, the acronym WITCH stemmed from the fact that the large, India-based, offshore-centric service providers – Wipro, Infosys, TCS, Cognizant, and HCL Technologies – had quite similar delivery models, sales strategies, risk appetite, and growth trajectories, which essentially placed them in a single bucket.

However, Everest Group’s recently released annual assessment, “The Changing Pecking Order of the Indian IT Service Provider Landscape, revealed that the relevance of the collective term WITCH is fast diminishing as market conditions are forcing differentiation among these players.

Indeed, stark divergence among this group, as evidenced by Cognizant’s capture of the number two spot away from Infosys (see chart below), is clearly emerging.

WITCH ranking

Per the latest financial results released by these offshore majors (ending March 31, 2013), TCS and Cognizant continued to outgrow their peers on a yearly basis – both in terms of size and growth – by adding revenue that was higher than, or almost at par with, the cumulative incremental revenue of Infosys, Wipro, and HCL. Their clear vision and strategic bets, as compared to the prevailing internal confusion of the other WITCH players, is paying off.

What is leading to this segregation within the WITCH group?

  • TCS is continuing to excel on the back of its broad-based growth and aggressive penetration in the European market
  • Cognizant’s approach of keeping margins lower via a higher investment in sales and marketing spend is fetching  benefits
  • HCL is capitalizing well on the ongoing churn in the industry, and is exploiting the anti-incumbency against the traditional service providers. While this makes HCL’s growth narrow and focused largely on infrastructure services, it’s paying off for a short-term strategy
  • Infosys and Wipro are struggling with their internal, company-specific issues, (i.e., strategic confusion, weakening brand recognition, legal issues, and senior level exits).

The ultimate questions are:

  • Will the irrelevance of the collective WITCH term become more visible in the future? Will the different strategic gambles of each service provider lead to huge variances in their success rates?
  • Will the return of Infosys’ retired co-founder and former chairman Narayana Murthy help it make a comeback to the levels of TCS and Cognizant?
  • To what extent will the ongoing challenges of a few of the WITCH group players create opportunities for mid-sized players – such as Genpact, one of the key players in the FAO space, and Tech Mahindra (the combined entity) which has credible enterprise applications and infrastructure management offerings – to capitalize on their niche capabilities?

We expect to witness further changes over the next few years in the pecking order in the overall industry, and the formation of new groups cannot be ruled out. This is likely to be driven by inorganic growth, key strategic investments, service provider consolidation, and aggressive sales strategies.

For drill-down data and insights into pecking order changes in the Indian IT Service Provider Landscape by size, verticals, and geographies, please see Everest Group’s newly released viewpoint, “The Changing Pecking Order of the Indian IT Service Provider Landscape.”

Enterprise CIO: “The Reports of My Death Are Not Greatly Exaggerated” | Gaining Altitude in the Cloud

As a humorist, American author Mark Twain would undoubtedly have been amused by this variant of his famous quote. But the demise of enterprise CIOs’ traditional role is real, (unlike the misreports of Twain’s passing), and to understand this phenomenon, we need to understand the evolving market dynamics.

Three key trends are significantly altering the shape, structure, and operations of today’s CIO office:

  1. Cloud services: Unlike infrastructure, IT governance, and IT security teams, which are generally shared throughout an enterprise, large numbers of applications developers are normally aligned to specific businesses. Due to the complex labyrinth of multiple teams and decision centers, applications developers face substantial difficulties in fulfilling their business-based project sponsors’/budget holders’ demand for quick time to market.

    To overcome these challenges, applications developers are increasingly adopting cloud-based infrastructure/platform-as-a-service (PaaS). This allows them to bypass the other IT teams, (e.g., security and infrastructure). By leveraging cloud services, applications developers no longer solely rely on enterprise IT’s infrastructure and operations to develop and test their applications. They can develop, test, and even host their applications on a cloud-based platform. This is causing challenges for the CIO’s office in terms of reduced involvement with businesses, security issues, and audit risks.

  2. Software-as-a-Service (SaaS): Although it is part of the cloud ecosystem and has been in the marketplace for more than a decade, SaaS is treated as a different segment. The challenges with deploying enterprise software in the traditional manner, (e.g., ownership of licenses, hardware, support, upgrades, etc.), coupled with the significant time to deploy and the high rate of failure, are driving business to push the CIO’s office toward a “cloud first policy.” For simpler applications that do not require organizational support, (e.g., infrastructure, data, integration), businesses are more than willing to leverage the SaaS model. And to avoid getting embroiled into the complex labyrinth of organizational IT, businesses are also hiring contractors to perform specific IT-related tasks. Additionally, as businesses’ appetite to wait for months, even years, without knowing the possible outcomes of an enterprise software deployment is depleting fast, they are increasingly viewing SaaS as the solution.

  3. Digitization and business-IT budgets: Although cloud services and SaaS are disrupting enterprise IT, the biggest challenge facing CIOs is the shift of technology budgets to the business. This typically includes initiatives such as big data analytics, multi-channel customer engagement, social media, CRM, and enterprise mobility. While the CIO’s office plays a role in these initiatives, it is fast losing decision-making powers. CEOs and CFOs are now inclined to spend technology dollars on business initiatives that generate growth, e.g., digitization. Therefore, in a boardroom battle for technology budgets, CIOs are increasingly losing against the businesses (e.g., chief marketing officers and chief digitization officers). The growing perception that digitization is for growth and IT is for efficient operations also works against the CIO’s office.

Despite the fact that a CIO’s office will always exist, there will be an increasing debate around its utility in its existing form. While the misalignment of business and IT has been an age-old debate, the cloud age has finally provided businesses with the ammunition required to change the game. Cloud services, next generation technologies, techno-savvy business users, and the pivotal role of technology in an organization’s growth are creating pressure on enterprise CIOs. They need to act fast to prove that Mark Twain was indeed right and stem reports of their death.

If you are a CIO or an IT manager interested in sharing your story, please reach out to me at [email protected], or directly add a comment below.

Global IT Services – Irrelevance of Capability or Celebration of Mediocrity? | Sherpas in Blue Shirts

Recent discussions with buyers of technology solutions and services make it clear the demarcation lines between global multinational company (MNC) service providers and offshore-centric players are increasingly blurring. Yet, they continue to have lingering questions, concerns, and perceptions about both categories of providers:

The global MNC service providers

  • Is their service delivery model sub-optimized, at least for commoditized work?
  • Would they have rationalized their price of services and delivery model if the offshore players had not disrupted the market?
  • Did/do they deploy “high-skill and high-cost” experts who were/are not always required?

The offshore players

  • They are focused on “cheap labor” that is trained on buyer’s money and are unable to deliver high value services
  • They promise unrealistic deal constructs and face challenges in meeting them
  • Buyers have few, if any, alternatives, even if they are dissatisfied with service delivery and normally continue with offshore players as the MNCs cannot match the low price points

With these issues in their minds, buyers themselves have created a cost versus capabilities and high-value versus low- value conundrum, rather than thinking about their end objectives. Moreover, they are surprisingly unaware of the critical role they played in this race to the bottom for pricing in global services. They fail to understand that any provider will be willing and able to serve them regardless of the delivery location, if they are willing to pay a suitable price. Indeed, in response to buyer desires for cost containment, global MNCs are expanding to low-cost locations to reduce their cost of services – not necessarily for capabilities. And offshore providers are expanding to near-client/high-cost centers, often for project-specific or political reasons – again, not necessarily for capabilities. Most of these providers are also reducing the average age of resources performing service delivery, indicating rationalization of experienced staff for further cost management. Although some type of work does require client proximity and typically higher cost resources, providers today are trying to optimize this as much as possible.

All this raises the question, “Do IT buyers care anymore about strong capabilities, or are they fine with a mediocre solution as long as it comes with a significantly low price tag?”

The fundamental discussion in this debate should be around inherent misplaced assumptions that a solution that provides higher value must carry a higher price tag and capable resources can rarely be in global delivery locations. Nevertheless, the realities are that buyers are accepting the offshore delivery model, irrespective of the type of service provider leveraging it, and service providers are investing in skilled talent and increasing the portfolio of services they deliver through offshore locations. At the same time, it is undeniable that the biggest “value” provided by a global delivery network is cost savings. Had it not been for the cost differential, service providers would have had little incentive to create global delivery networks.

Everest Group finds buyers’ response to this situation very interesting. Today, they are compartmentalizing their services landscape into “best-in-class” and “good enough.” They are willing to work with different types of service providers and delivery models as long as their objectives are met. For best-in-class, they value a service provider that can partner with them, and present and deliver on a future state blueprint. Despite the above faulty perceptions, this provider can be either a global MNC or an offshore-centric provider. For good enough, the type of provider is also irrelevant, as long as the price point is appreciably low.

Of course, buyers will not leverage a service provider that lacks capability. However, the definition of capability varies based on the type of work being outsourced. For services perceived as “high value,” they require a provider that truly understands their business, has the ability to work in tandem with them to achieve greater competitive advantage, and charges a price commensurate with their comfort zone. For “good-enough” solutions, the cost savings offered is indeed the “capability” of the provider.

Five Mistakes that Enterprise Cloud Service Providers are Making | Gaining Altitude in the Cloud

A wide array of players is aggressively attacking the enterprise cloud infrastructure services market. The competitive landscape includes providers from a variety of backgrounds, including hosting companies such as Rackspace, GoGrid, and Tier3; telcos such as AT&T, Verizon, Telstra, and BT; and legacy enterprise IT service providers such as IBM, HP, CSC, and Dell. They’re all pursuing the same prize – providing CIOs of large enterprises a range of cloud-enabled, next generation infrastructure platforms, from managed or hosted private clouds to public cloud IaaS.

Although the market opportunity is undeniably large and growing, the problem is that many IT services players are not achieving their revenue and growth aspirations for enterprise cloud services. They’re finding it difficult to migrate existing customers to cloud platforms, expand cloud adoption beyond limited use cases, and use cloud services to win new customer logos. Why is growth falling short of expectations? While not exhaustive, following is a set of five issues and mistakes Everest Group commonly sees in the service provider community:

  1. Underestimating Amazon: Enterprise providers almost universally discount Amazon AWS as not being “enterprise ready.” This is despite the fact that AWS is now forecasted to generate nearly US$4 billion in 2013 revenue and that enterprise customers will be driving a significant part of this revenue. While AWS enterprise use cases today are focused primarily on dev / test environments, web apps, and websites, AWS has recently rolled out a variety of enterprise offerings. These include everything from Redshift and data pipeline services targeting business intelligence (BI) and data warehousing, to vertical specific clouds including GovCloud and FinQloud. In fact, this iterative, incremental approach is part of its strategy for attacking the enterprise, with many competitors running the risk of becoming the proverbial “boiled frog.” The reality is, many service providers need to think hard about whether they are going to be able to compete in the enterprise public cloud IaaS space. Using AWS instead of continuing to invest in a native public cloud IaaS offering may be a better strategy for many of them over time.

  2. Neglecting change management:  While providers expect customers to make the cloud paradigm shift, many haven’t done so internally. Instead, a “build it and they will come” mentality tends to be pervasive. The expectation is that once the offers hit the market, customers will be clamoring to get on board. Unfortunately, experience is showing that’s not the case. Customers need help understanding the benefits, risks, and costs of cloud models, and where they make sense. Although helping customers understand the implications of cloud models is critical, many providers have dramatically underinvested in vital areas such as sales training. Too often, sales and marketing groups position and message cloud services in a legacy paradigm, which isn’t connecting with customers. While many providers are frustrated that sales teams aren’t making cloud quotas, they need to take a step back to make sure their go-to market teams are positioned and trained for success. To achieve sales effectiveness, they need to structurally change their incentive mechanism, account strategy, and planning exercises.

  3. Selling sole-source:  many providers are selling next generation infrastructure platforms – the ability to provide customers anything from dedicated or managed hosting to public cloud services. The problem is that’s not how enterprise customers are buying cloud today. They’re seeking to use the flexibility of the model to deploy specific use cases, and different use cases may require different platforms. Too many providers are trying to sell the “big bang,” sole source IT transformation story and telling CIOs they can provide all of their next generation platform needs. While there are CIOs driving cloud-enabled IT transformation, there aren’t enough of these opportunities yet to support the number of providers chasing them. In fact, many providers would likely be better off selling incremental or even transformational stories to business buyers.

  4. Omitting SaaS and PaaS: Cloud infrastructure service providers have little incentive to migrate customers to public cloud SaaS offerings such as Salesforce.com or Workday. For many customers, migrating legacy apps to SaaS models will be the right answer. Many enterprise cloud service providers conveniently omit this lever from their transformation story and lose customer credibility as a result. The fact is these providers need a better answer for SaaS migration and integration. Moreover, very few cloud IaaS providers are investing in creating an effective PaaS strategy. Enterprise buyers require flexible platforms hosted in an agile infrastructure environment to develop applications for the future. Service provider transformation stories need to closely integrate application development platforms with a cohesive IaaS offering.

  5. Failing to differentiate:  Many vendors position themselves as providing managed services that make cloud models ”enterprise ready.” The problem is that every other vendor is saying the exact same thing. Enterprise cloud service providers need to think harder about what their distinctive customer value proposition really is. Too many providers are trying to sell horizontal cloud technology platforms with little thought given to customers’ unique business drivers and how cloud can be used to drive business transformation. But there are plenty of potential opportunities to differentiate by vertical, use case, geography, target community, and other dimensions.

While all of these issues are fixable, they also are non-trivial. The good news for the provider community is that no one has truly yet cracked the code on enterprise and cloud infrastructure services.

PaaS, IaaS and SaaS Providers…Moving Up and Down the Cloud Stack | Gaining Altitude in the Cloud

As the market for cloud services expands, the providers at each level of the stack are realizing various opportunities beyond their core solutions. They are also realizing that scale is absolutely critical for the success of cloud services. As a result, they’re starting to enter each others’ domain. Let’s take a look.

Platform-as-a-Service (PaaS) Providers

Large PaaS providers such as Microsoft and Google are moving down the stack to create Infrastructure-as-a-Service (IaaS) offerings. This may indicate not only that standalone PaaS is a difficult business to scale but also that IaaS is required to create a broader cloud footprint and higher degree of acceptance, as evidenced by Amazon’s runaway success with AWS. At the current stage of cloud adoption, PaaS may appear to be too futuristic, and many organizations may be unwilling to bet on it for the long term. Therefore, it makes sense for PaaS providers to offer IaaS solutions to their clients.

Most PaaS providers, and their respective platforms – think CloudBees, dotCloud, Salesforce.com’s Force.com and Heroku, Google Apps Engine, IBM SmartCloud Application Services, Iron Foundry Web Fabric, LongJump, Microsoft Windows Azure, Morphlabs, OutSystems, RedHat OpenShift, and VMware CloudFoundry – have preferred programming languages, e.g., .Net for Microsoft Windows Azure, Java for CloudBees, Python for Google Apps, and Ruby for EngineYards. These preferences bind clients to a specific platform offering, as they believe that a PaaS solution typically works best with its preferred or native language. However, to scale their business and appeal to a broader set of application developers, these providers are beginning to widely support multiple programming technologies.

Infrastructure-as-a-Service (IaaS) Providers

IaaS providers are desperately claiming agnosticism in running any application on their infrastructure. They believe as their offerings are pure infrastructure, developers are free to choose any programming mechanism and build applications. However, they also realize that the developer community finds value in a PaaS solution as it reduces their burden of handling various time consuming, nitty-gritty application development tasks. Therefore, many IaaS providers are moving up the stack and creating PaaS solutions on top of their infrastructure offerings, in partnership with leading cloud platform providers such as Iron Foundry or LongJump.

Indeed, many cloud infrastructure players are also partnering with cloud database companies and calling themselves PaaS providers. They are unable to decide whether they truly want to embrace the cloud or just rehash their existing offerings and cloud-wash them with marketing buzz. Regardless, their attempts are to at least make some noise around IaaS, SaaS, and PaaS and position themselves as “integrated” cloud providers.

Software-as-a-Service (SaaS) Providers

Large SaaS providers, such as Salesforce.com and NetSuite, have created their own versions of PaaS, and Workday partnered with Force.com to offer customers a platform on which to customize its solution. These moves not only allow extension of these companies’ basic offerings and integration with other applications; they are smart strategies to convert clients to their platforms. Therefore, these PaaS solutions end up being the “relationship builder” between a technology provider and the client.

Clearly, IaaS providers are realizing that cloud infrastructure is a low-profit, commoditized business and that they must move up the value chain. PaaS providers understand that they need to scale their offerings and that may require them to enter the IaaS market either organically or through partnerships. And SaaS players are already creating PaaS solutions to provide value added services.

The reality is…not all cloud service providers will be able to endure, and many will get consolidated or go belly up. The survivors, who aspire to be big, will be those that offer services across different cloud layers, either through in-house offerings or partnerships.

The Whys, Hows and How Nots of Buyer-Driven Service Level Redesign | Sherpas in Blue Shirts

Understanding the importance of effective service level agreements (SLAs) that are practical and create business value, most buyers design contract SLAs that are generally within provider’s control, are measurable, promote convergence of interests, and usually have a proper baseline. However, many buyers feel a need to reassess and redesign their service levels at some point during their contracts’ lifecycle.

Our interactions with a large and diverse group of buyers and service providers have shown that service level redesign is typically driven by one or more of four key reasons:

  1. Unmet or wrong SLAs: Service providers typically meet their contractual SLAs. When they don’t, it generally implies a flaw in the SLA design that needs to be addressed. For example, buyers may be capturing the wrong metrics. Or, they may have established the wrong targets for the right metrics.
  2. More business value: Buyers believe they are achieving insufficient value from their sourcing engagements, in terms of cost, flexibility, responsiveness, business alignment, etc. They may spend too many people and financial resources on defining service levels, yet fail to see material benefits from the service levels.
  3. Requirements change: Buyers’ business and IT requirements may have changed during the contract period – e.g., a newer baseline, regulations, evolving technologies, delivery models, provider capabilities, etc. – and these must be reflected in newer service levels. On the flip side, incumbent providers or competitors may be offering better engagement terms, payment options, or delivery models than when the contract was originally inked.
  4. Sourcing strategy change: Buyers that earlier outsourced to just one provider may be experimenting with multi-provider sourcing, and the different capabilities, services, and delivery models must be reflected in the SLAs when the services are split among providers.

The core of the SLA redesign process is to understand the mistakes made during contracting and execution. It also requires an effort in visualizing at least three to five years into the future understanding the IT environment that will be sufficient to cater to the business demand. Therefore, this also requires an understanding of evolving business needs.

The process itself consists of four steps, as outlined below:

SLA Redesign Process

This process is relatively easy for buyers that early on missed the basics of good SLA design such as practicality, manageability, collectability, measurability, etc. Understandably, it is harder for buyers that are satisfied with their provider’s performance but want to evolve the relationship to the next level to extract more business value.

Yet, whichever category they fall into, we have time and again seen buyers reducing the number of SLAs, believing it will lead to lesser complexity, simpler governance, and reduced cost. However, doing so may not solve the problem as they may end up removing even the “must have” SLAs.

Additionally, we frequently see buyers incorporating metrics that on the surface appear good but in reality cannot be concretely measured or clearly defined, such as innovation, collaboration, next generation delivery, etc.

SLA redesign is a challenging task that  must take into account not only cost and efficiency, but also the evolving competence of service providers, peer benchmarks, an understanding of the past, knowledge of business priorities, and, above all else, analysis of its necessity.

What have you experienced with SLA redesigns? What were your drivers, challenges, results, and outcomes? Do you have good, bad, or ugly to share with your peers?

Cloud and Outsourcing, an Alliance for a Newer Evolution | Gaining Altitude in the Cloud

Originally published on Global Services


In most cases, leveraging cloud delivery models, be it in application, infrastructure, or platforms, implies being served end-to-end by an external vendor unlike the typical “do-it-yourself” products. Therefore, in a way, the cloud is driving the IT consumption towards an “external vendor” model, which is also a type of outsourcing.

Most of the discussions around cloud’s impact on outsourcing services take a monolithic view of the industry. The focus is to take an extreme position, such as “outsourcing is dead”, or perform a very broad analysis based on the evolving role of CIOs, changing demand in enterprise IT, cloud eating into traditional sourcing, etc. This makes for good reading but is not necessarily a thoughtful analysis of the real impact. The need of the hour is to drill down into each type of global sourcing service and analyze the impact of cloud delivery models.

To analyze the impact of cloud delivery models on globally-sourced services, one needs to understand both of these in the right context. For IT outsourcing and the impact of cloud, there is a need to differentiate between the type of services delivered such as application development, application implementation, application maintenance, “keep the lights on” infrastructure services, service-level driven managed services, and transformational services. Cloud delivery models will have a spectrum and not a binary impact on this market. Different services, providers, business models, and investments will see different opportunities and challenges.

One major “non-technology” challenge from cloud models is the shifting of budgets from a typical IT department to businesses. Everest Group and Cloud Connect Enterprise Cloud Adoption Survey indicate an increasing role for business users in deciding IT spending. As outsourcing providers have access generally to IT and procurement departments, they will witness significant challenges to penetrate the business side of a buyer in accessing “business IT” budget. Moreover, enterprise IT shops that have so far not outsourced, may directly leverage a cloud service, reducing the potential role of an outsourcing provider. To pre-empt this, the provider may need to offer integrated cloud and outsourcing services.

The relevance of cloud models should also be seen from newer or existing investments the buyers make in enterprise IT. For transforming the existing investments (e.g., ERP, CRM, other business applications, and infrastructure) to the cloud, it is difficult to believe that typical global sourcing buyers will prefer any other vendor over the enterprise-class providers. For example, if they have to transform ERP platforms to a cloud infrastructure, they would generally prefer a renowned enterprise class ERP and cloud service provider over a pure-play cloud hosting provider.

Read more on Global Services

Remote Infrastructure Management – “Gearing Up for the Big Leagues” | Sherpas in Blue Shirts

Everest Group’s just released research on Remote Infrastructure Management (RIM) services shows that the overall infrastructure services market, which was already undergoing significant changes due to various factors, is being further disrupted as RIM adoption takes center stage.

Let’s take a step back before we talk about RIM’s current state. Over the years, our RIM-focused research analyzed the growing challenges offshore providers, who pioneered RIM industry, faced in offering services that went beyond typical low-cost infrastructure monitoring. As their aspirations grew, and more buyers became willing to engage, those providers began offering newer RIM services, such as delivering from offshore locations those infrastructure services typically provided at onshore by competitors. Yet, the core value remained remote low-cost helpdesk and status quo monitoring of infrastructure assets, which experienced a significant growth across buyer landscape.

However, now we are witnessing substantial growth in the adoption of offshore infrastructure services that are moving beyond the typical RIM offerings. Our discussions with various buyers have revealed a clear evolution in the delivery and market messages of offshore infrastructure providers. Most of them are marketing and selling their portfolio of infrastructure offerings as “new service X,” “new service Y,” and “RIM,” unlike earlier years when they solely focused on RIM as a generic brand for all infrastructure offerings. This messaging effort is backed by changes in delivery model, engagement terms, transitioning process, investment in tools/automation, and various other related initiatives.

One example of this strategy is the willingness displayed by large offshore providers to open nearshore and onshore delivery centers to serve bigger customers. The typical 100 percent offshore ratio in RIM is dropping to around 80-85 percent as the providers offer higher value-added services that are normally delivered from client locations.

Remote Infrastructure Management Services

We are now seeing RIM providers gearing up to enter this new, big league. While cost savings is still the core tenet, their strategy is to move up the value chain, grab larger market share, and create more “downstream” opportunities for pure RIM services.

Traditional infrastructure and managed service providers that were already facing challenges due to stagnation in their core market and reduction in mega size, multi-towers, multi-years deals, are getting further squeezed by RIM providers. RIM providers are squarely part of this disruption, and are tweaking their delivery model, market messages, buyer engagement strategy, and investment focus to exploit this opportunity.

Offshore Providers and the Cloud – No Datacenter Is Not a Choice! | Gaining Altitude in the Cloud

As large IT services buyers increasingly embrace cloud-based delivery, offshore IT services providers are being forced to innovate beyond their traditional strengths of labor arbitrage, process excellence, and delivery maturity. Indeed, as these providers witness their application services reaching wallet share saturation in the large buyer market, there is growing perception in the industry that if they do not offer “next generation” services they risk losing even their traditional business.

Granted, these providers are not sitting idle. They have created “cloud advisory” teams and executed multiple application migration/porting engagements as part of their global services contracts. But the crux of cloud opportunity lies in the transformational nature of these engagements, which invariably involves owning IT infrastructure.

Our discussions with enterprise IT services buyers point to three types of roles for offshore providers, which extend beyond typical SaaS implementation and integration. These roles will also require services related to consulting, architecture, application migration, etc.

Cloud Offshore Providers

Offshore providers possess varying degrees of competence for these roles, but to remain relevant, they must continue to invest in newer capabilities. Today, a select few are investing in areas such as cloud management platforms, consulting services, readiness assessments, and migration services to move beyond simplistic cloud engagements. However, most lack a comprehensive datacenter-driven cloud infrastructure service, which is needed to drive transformational engagements.

One of the key findings in Everest Group’s recently released Cloud Vista research study was that more than 50 percent of large cloud-related engagements – and even most application transformation deals – contain a significant amount of infrastructure transformation, but offshore providers have scant presence in these engagements.

Cloud Adoption Drivers

It is becoming abundantly clear that offshore providers need to swiftly tackle the area of cloud infrastructure services. One of the biggest challenges they must overcome is their lack of willingness to invest in owning datacenters, instead opting to relegate core datacenter operations to the partners. Many buyers convey their disappointment with this type of partnership model, believing it can at best support running IT operations, but that it is not appropriate for enterprise class cloud infrastructure services that can assist them to variabilize their costs and access self-service, consumption-linked infrastructure.

Given their general reluctance to own large scale datacenters, offshore providers may at least evaluate “white labeling” hosting providers’ datacenters so that they can offer cloud infrastructure services which will allow them to calibrate their investments while simultaneously serving their buyers. Given that white labeling of datacenters is an accepted practice and even large scale datacenter service providers white label datacenters from other core datacenter operators (e.g., Equinix), this model will find acceptance with the buyers.

Offshore providers need to understand that for a game changing paradigm such as cloud, there always will be a risk associated with investments. The days of cherry picking attractive contracts are over, and they can no longer walk away from complex deals that do not meet their sweet spot. Therefore, they must inculcate a culture of risk taking, and invest in areas outside their comfort zone, especially in cloud infrastructure services. The cloud is changing buyers’ sourcing strategies, and offshore providers that fail to change accordingly risk losing their relevance and even their traditional business.

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