Gartner studies have found that shadow IT is 30 to 40 percent of IT spending in large enterprises, and our research at Everest Group finds it comprises 50 percent or more. Either way, I believe these statistics are an understatement of the shadow IT ecosystem — spending on IT that doesn’t go through the sanctioned enterprise IT shared service function. It’s a big issue, and increasingly complicated. Historically, the increase in complexities, the need for greater security or the need to operate at enterprise-wide scale drove shadow IT out of departments and into the administration of the IT group. That’s no longer the case; thanks to SaaS and cloud products/services, shadow IT can now operate securely at scale. So how can a CIO address the risks and expense of shadow IT?
Users subscribe to many IT services that don’t go through the enterprise IT shared services budget, and enterprise IT doesn’t make the decisions for administering it. Shadow IT includes purchases of SaaS (like Salesforce), AWS cloud and colocation, or Rackspace. It’s also the teams of people hired by the business (but not put into corporate IT) who do development and application support or PC support.
Suddenly, on-shoring is becoming more in vogue. Like many U.S. CIOs and their C-suite colleagues, you may be actively exploring how to duplicate or offset the loss of cost benefits from offshore/labor-arbitrage services. I have good news for you, along with a crucial tip.
Four primary factors are driving U.S. companies to make the move to onshore service delivery … Read more at Peter’s CIO online blog
The IT services industry is going through a tremendous change with the onset of new technologies, geo-political uncertainty, and disruption of traditional business models.
Deal renewals have fallen significantly, leading to intense price competition among service providers trying to meet their top-line revenue expectations. As expected, the pricing pressure is higher in some of the more commoditized services such as IT Infrastructure operations. Indeed, recent Engagement Reviews for numerous North American clients suggests that pricing for some mature services within the IT infrastructure domain, such as storage and backup management, server management, and database management, has fallen significantly. Our analysis suggests that the Indian service providers have upped their ante, and have become even more competitive in terms of pricing.
As a case in point, the per instance pricing for virtual server management has fallen by 25-35 percent over the last 12 months. The fall in pricing for some other resource units has been even steeper.
What’s driving these deeply reduced prices? Numerous solution-related changes have impacted pricing dynamics in this market.
Maturity of internal automation/autonomics capabilities of service providers
While these have largely been buzzwords in the last 12-18 months, we believe that the impact of some of these investments has finally started to show up in deals.
Further improvement of internal productivity
Just when we thought that the solution effort ratios such as servers managed per FTE, databases managed per FTE, etc., had reached their true, optimum levels, we have seen instances of further changes in some of these solution metrics. Some of these can potentially be attributed to the above point.
Complete offshore operations
We are seeing more and more deals where 100 percent offshore delivery is the norm. This enables service providers to quote very competitive per unit pricing. It will be interesting to observe how this metric changes going forward if new regulations come into play by the new U.S. president’s administration.
Increased competition, smaller deal sizes, and deal durations
The past 12 months have been difficult for most IT service providers, with increasing competitive intensity and delayed enterprise decision making due to geo-political uncertainty. As a result, they are going all guns blazing to win new accounts.
Most of this low pricing has been observed in new deal situations. We have seen very few occurrences of providers proactively reducing prices in existing deals, unless faced with the threat of the deal going into a competitive situation. Of course, it would be unfair to expect service providers to reduce unit prices significantly in all deals, since each deal level pricing scenario is very contextual and a deeper analysis of the underlying environment is warranted.
Have you had discussions with your infrastructure provider about recalibrating prices?
A leading car manufacturer dispensed a spare part even before the customer knew it was needed. A doctor knew precisely when a patient took a vital medication. A metro city police department accelerated crime response time. A retailer designed its offerings based on dynamic in-store customer behavior.
Three in every four enterprises have a similar type of story to share about connecting to the “things” of interest and digital enablement of businesses. Recognized as the next big opportunity, the Internet of Things (IoT) is being embraced by enterprises to generate greater value and achieve their business objectives. Indeed, more than 50 percent have already piloted IoT, and the majority are highly optimistic about its returns.
Despite the high level of optimism, there exist numerous unanswered questions and concerns about IoT. Is it being used to the full potential, or are we just scratching the surface so far? Where is industry adoption headed? What risks should an enterprise take? What should an organization do to extract the most out of this investment?
Everest Group’s recently published PEAK Matrix™ report on IoT Services reveals intriguing industry trends, enterprise adoption patterns, probable future developments, and services expectations based on extensive discussions on all things IoT with 30+ enterprises.
IoT is no longer a buzz term
Currently, organizations are leveraging IoT to achieve agility, flexibility, customer centricity, and cost reduction. We identified four types of IoT adopters, based on the adopting organization’s desired outcomes: Optimizers, Engagers, Integrators, and Innovators. Most enterprises are categorized as Optimizers. That is, they focus on solving their operational issues and on infusing efficiency with IoT. Integrators and Innovators – which collectively equal less than 20 percent of IoT adopters – focus on enterprise growth or invest to seize larger benefits from the opportunity.
From an industry perspective, the leading beneficiary of IoT to date has been manufacturing, primarily focused on bringing efficiency to the shop floor. Customer-centric industries such as telecoms and retail are investing to improve ecosystem efficiencies and enhance end-user engagement. Other industries such as agriculture, BFS, and mining are expected to make considerable investments in IoT in the near future.
Substantial hurdles stall rapid adoption Hype aside, the majority of the enterprises are taking cautious steps and embracing IoT in small, incremental stages only. A multitude of challenges such as data security and privacy, storage and rapid analysis of large volumes of data, and availability of a high-speed network at all locations are impeding large scale investments in IoT. Another major hindrance is change management that necessitates significant investment in talent, infrastructure, and processes.
Enterprises need to collaborate with a variety of partners from the vast IoT ecosystem to design, implement, and manage an IoT system. The service provider landscape itself is segregated at this stage, and players across the value chain are trying to capture a larger share of the pie by expanding their partner ecosystem and their internal delivery capabilities.
But you can’t afford to miss the bus!
Despite the challenges, IoT remains among the top three investment priorities for a majority of organizations. To be front runners in the race, they must strategize their IoT adoption in a phased process for enterprise-wide benefit. And they need a transformational vision, investments in innovation and R&D, and a good partner ecosystem to maximize ROI.
The action is equally intense in the service provider camp. While some have up to 20 partners to complete their portfolio, others have acquired up to as many. Players with expertise in operational technology, engineering capabilities, and industry partnerships are best positioned to define success in the IoT services market. We anticipate large-scale convergence and new partnerships to cater to the services demand, which is expected to double by 2020.
Interested in learning more about IoT? Our PEAK Matrix™ report on IoT Services provides deep insights on IoT market trends, expected service market size, implications for enterprise and the service providers, and a detailed evaluation of 16 major IoT services providers.