Tag: enterprise

Old Wine in Old Wineskins | Sherpas in Blue Shirts

A famous teaching of Jesus explains that it’s a mistake to pour new wine into old wineskins because it will burst the skins and both the wine and the wineskins will be ruined. New wine belongs in new wineskins. I think we’re seeing this principle playing out in technology – where the consequences are profound.

New wine expands and grows fast; so it requires a supple, pliant container to allow for that expansion. Old wine is stable and mature; it does better in a stable, consistent environment.

For the most part, now that the cloud experiment is over, we see that new technologies and functionalities have many of the properties of new wine. They are effervescent, change continually, move quickly and often rely on heavy iteration. They constantly expand and change. They are best suited for new architectures such as cloud infrastructure and SaaS services. New technologies also have new requirements; thus, they require new structures, new and more flexible governance vehicles to allow them to capture their full value.

Legacy applications, the systems of records in which enterprises have invested hundreds of millions of dollars, are mature and were designed for their traditional environments, which tightly govern change. They are in data centers that have the requisite management support and requisite talent pools.

The services industry is starting to recognize the profound truth of the new and old wineskins: At this point in time, legacy applications are best left in their old, original containers where they can continue to operate in a mature fashion. Old applications or systems of record need to remain in their existing frameworks or architectures. They should be changed only slowly. Furthermore, new functionalities and technologies need to go into new wineskins, or architectures, that allow for and encourage agility and other attributes that support evolving change.


Photo credit: Flickr

Digital Is Shading Out Cloud | Sherpas in Blue Shirts

Three years ago global services industry was abuzz that the world would be set on fire by cloud computing. Today, although CIOs and senior executives, accept the cloud model and are looking to implement it, they are increasingly excited about infrastructure and the digitization of business. The digital revolution is shading out cloud, capturing the imagination and mindshare of the C-suite.

Cloud is certainly important, but its impact is just starting to take traction and already the C-suite is moving on to a new horizon. My, how short our attention spans are.

Although digital can incorporate aspects of cloud computing, its impact compared to cloud is enormous in proportion and potential.

I wonder what will be next in line to capture our imaginations and how quickly that will come to gain prominence.

 

The Downside for Enterprises in Automating | Sherpas in Blue Shirts

Service delivery automation is obviously powerful. But there’s a downside and potential risk for enterprises in the shift to automation.

Benefits include reducing the number of FTEs in a process and therefore reducing the cost. And automation can be applied without changing the system of records. Plus the implementation cost is significantly less than traditional reengineering of ERPs, and it can be driven from a business unit or from the process owner instead of the IT department.

The challenge comes in the automation layers on top of and between an organization’s system of records. They are highly sensitive to changes in underlying systems, and most organizations will struggle to maintain the automation layers.

As an example, if a system of record or a government website, or a website from which the automation tool pulls data changes in any way, the tool or robot could make a mistake or could stop working. So these tools need to be carefully monitored and constantly adjusted or tuned to the changes in underlying systems. It’s not realistic to believe the underlying system of records will be static; like all systems, they change. And even small changes will require retuning the robots.

Lack of monitoring and adjusting the automation layers opens up risks. For example, it could turn type-1 errors (such as making a mistake in a manual process on one invoice, which is a problem but recoverable; you have a $10,000 or $20,000 or $100,000 problem) into type-2 errors (making a mistake on all your invoices, resulting in millions of dollars of problems).

The automation layers will be fragile and can even break. So it’s clear that service delivery automation requires constant attention and maintenance to deliver on its promise. Many IT organizations have the capability to implement the automation files; it’s the monitoring and adjustments that they will struggle with. The significant risks are a strong argument for using third-party providers.

Challenger’s Advantage | Sherpas in Blue Shirts

Every morning in Africa a gazelle wakes up knowing that it must outrun the fastest lion. Every lion wakes up knowing it must outrun the slowest gazelle. So when the sun comes up in Africa, you’d better be running. We see this happening in the services world — as cloud and as-a-service models move into mainstream adoption and trump labor arbitrage, everybody is running and the hunters become the hunted.

It’s clear that the services world is changing due to the new technologies and models. Historically the dominant players in one era failed to make the transition and become dominant players in the next era. Established dominant hunters do not know how to behave or succeed as game; the emergence of a super predator disrupts the natural order.

The dominant providers really struggle with making the change. They talk about it. Their senior executives recognize the need. They have structured their business to perfection to facilitate the incumbent model. It’s very difficult and very unusual for them to successfully transition to a new model. We see this time and time again.

Here’s a real-world example. I was on an airplane and headed home after a meeting with senior executives of a major IT provider. At the meeting they laid out their commitment and strategy to cloud and as-a-service models and the massive investments they made and are facilitating to make to facilitate this transition.

On the airplane I sat next to another executive from the same company. He was returning from a trip to South America where he advised clients about future technology. He spent most of the trip spouting scorn and ridiculing that the new cloud technologies are not appropriate to run enterprise-class applications and stating confidently that they would never replace or threaten the existing order.

Think of the confusion and conflict customers face when they hear dueling and contradictory positions coming from the same company. They are much more likely to adopt a provider that is completely aligned with the new models. This is why, historically, challengers succeed.

A similar situation occurred when I returned from a provider conference where top execs laid out their grand vision. But less than a week later Everest Group observed the provider working in a client account and the account team espoused exactly the opposite of what the senior leaders said.

We see similar behavior within Indian firms. They make the most money when they deliver work from a low-cost location (ideally a tier-3 city) with the most junior people (the freshers). That’s the heart of the pyramid, the heart of their factory model and it achieves the highest margin a service provider can make. Incumbent providers with factory models have high turnover as they constantly push to the next generation of junior people coming in.

They do this even though they know their customers want less turnover and more work delivered onsite at the client or at least in country as they want more customer intimacy. So their needs and commercial interests are unaligned.

We see providers’ executives making big announcements about more people delivering services in country and on site. But what their salespeople say and what the management and operations people do is the opposite.

In the above examples, providers’ employees did not buy in to the new models. And this is but one of a thousand different points of alignment that needed to happen. The incentive structure, organization structure and underlying technology enablement must change. And the hearts and minds of employees need to change.

Customers aren’t stupid. And they do change providers. We’ve seen a big jump in challenger models across the board in outsourcing. Increasingly the challenger has an advantage over the incumbent. They’d better be running.


Photo credit: Flickr

The Innovation Dance Floor is Getting Crowded | Sherpas in Blue Shirts

The innovation dance floor is getting awfully crowded with a lot of eager participants. CIOs want to re-establish their traditional role of custodian of technology driving innovation. CMOs wants to be at the forefront of using innovation to change the customer experience and outreach. Data scientists are using the new analytics tools and want to participate in innovation strategy. And as I blogged recently, an IBM study found even chief purchasing officers are making a bid to join the innovation party. Unfortunately, they’re all joining the product managers, who are historically in a slow dance; so not only is the dance floor getting more crowded, but there are also a lot of different beats that they’re dancing to.

Each of these positions has its own point of view, its own agenda, and sees innovation differently. On the plus side, this provides for a rich mix of opportunity. But on the downside, few innovative ideas have come out of committees.

The IBM study indicates that CPOs are attempting to become more strategic and influential and they believe they are more critical to the enterprise. So by necessity, they have to better align with the corporate strategy and therefore want to participate in developing strategy.

I think it opens up even bigger questions:

  • In what areas will they seek to set strategy?
  • Do CPOs have the right background and perspective to do this?

Particularly in the area of services, which are an important ingredient to a change strategy and require deep understanding of the business and how to shape or manipulate the components to create a differentiated position as an advantage, CPOs may struggle as the champions of change.

Enterprises need to protect the innovation strategy

My view is that CPOs are not the right people to influence innovation. Their idea of innovation is do it at half the price rather than doing something different. A data scientist, for example, can get at a certain kind of innovation because they bring a fresh, different capability to the table. I don’t see purchasing bringing something fresh and different.

So this poses some very significant questions to the enterprise:

  • How do you allow for innovation?
  • Who do you want driving it?
  • How do you protect innovation from amateurs who may not be helpful?

Problems for service providers

With purchasing and other departments trying to crowd onto the innovation dance floor, service providers wanting to bring new innovative ideas or capabilities will have to navigate a gauntlet of powerful stakeholder groups. It certainly makes for an intriguing tango.


Photo credit: Piotr Pazola

As-a-Service Implications for IT | Sherpas in Blue Shirts

One of the great struggles in today’s enterprises is the ongoing shift of influence from the CIO community into other stakeholder groups. I’ve blogged about this before. An important aspect of this influence shift is the fact that IT has increasingly become unaligned with business goals. But the pendulum is now swinging back. The mechanism the pendulum is using is the as-a-service offer set.

During the recession, companies focused on cost reduction and operational excellence, and IT increasingly lost touch with the business. Purchasing departments focused relentlessly on driving up unit costs and countless operational process improvement vehicles to further lean out organizations. As a result, IT organizations became more efficient — but also less aligned with business needs.

Business users reacted by demanding greater focus on business outcomes and began taking things into their own hands and purchasing as-a-service offerings.

The as-a-service path is a reorganization

One of the benefits of the as-a-service model is that it creates a seamless linkage between business functionality and delivery. And it cuts through layered IT organizations, reorganizing according to business functionality.

As a service

The benefits that an organization extracts once it goes down this path is tight alignment by business functionality — close to functionality on demand — and far more flexibility. It enables focusing on the business impact of technology. Businesses can move more quickly and flexibly to adopt the functionality and also scale their consumption to usage.

The implications for IT are enormous in that it requires a rethinking of the classic IT functional organization, which has been in place for the last 15 years. It requires a reconceptualization of the following aspects:

  • How IT is organized
  • How assets, services and software are procured
  • How IT is measured and managed

The benefits of the functionality and scaled consumption to usage are extremely powerful and can only continue to reshape how IT is delivered. But the reconceptualization of IT is far from trivial. It is not just a new pose for IT. The as-a-service model fundamentally reshapes the IT philosophy on how it’s organized, procured, measured and managed.

Remedying IT Overcapacity | Sherpas in Blue Shirts

Too much. That’s an accurate assessment of IT environments in most, if not all, enterprises. They have more data center space than they need and more servers than they can use at any point in time. They have more software operating systems, middleware, and enterprise licenses than necessary. They also have more of the wrong resources and never enough of the right resources in application development and maintenance. The as-a-service movement seeks to address this, but the journey to get there isn’t as simple as it appears.

So how much overcapacity is present in enterprises? At every level there seems to be a 25-50 percent overcapacity in IT. Since IT varies from 1-7 percent of revenues, the 25-50 percent overcapacity is in the range of 40 percent overcapacity overall.

As we at Everest Group look at applying as-a-service principles into IT environments, we see an opportunity to remove 40 percent of the IT cost by eliminating the wastage in service capacity. But the journey to achieve this as-a-service cost benefit is neither quick nor easy.

Renegotiating enterprise licenses takes time and often requires waiting until they expire. Reconceptualizing the infrastructure and application support is also complicated and requires a resolute effort and substantial patience.

It can take a year to three years to complete the journey. But the benefits are very substantial, starting with a 40 percent cost reduction in IT — a heady prize for the journey. In a future blog I’ll discuss other benefits.

Enterprise Technology 2015: Heavier Apps, More PaaS, Troubled Security… and more | Sherpas in Blue Shirts

As enterprises freshen their technology mandate for 2015, they stand at the cusp of a multi-dimensional interplay of agility, flexibility, and rising security considerations. Beyond the usual SMAC stack, enterprises are also grappling with challenges to the status quo in terms of faster application development, automated IT operations, the Internet of Things, and process fragmentation.

Following are five technology trends that rose to the top of our list for the important role they will play in enterprise technology in 2015.

    1. Mobile Apps – Will Need a RethinkThe IBM-Apple partnership to tackle enterprise mobility is a significant development that validates our earlier hypothesis. However, the enterprise apps now require a rethink. These apps were conceived to be “light weight” and easy to use, focused on a specific range of capabilities. But, due to increased adoption and constant demand for additional functionality, enterprises are going against this fundamental tenet by coding in multiple features that are making mobile apps heavy and difficult to use. Yet, this same “overhead bulk” has become compulsory to provide features such as analytics across apps usage, offline access, and cloud collaboration that help enterprises perform meaningful tasks. In 2015, enterprises will need to walk a fine line between honoring the basic principles of mobile apps and the persistent demand for increased functionality.
    2. PaaS – The Needle Will Move FurtherWhile Platform-as-a-Service (PaaS) has been touted as the “next wave” since its inception, it never fulfilled its purported potential of adding meaningful value. However, enterprise technology may see that change in 2015 given the push from leading vendors such as Microsoft (Azure), IBM (Bluemix), Red Hat (OpenShift), Salesforce (Salesforce1), and AWS (Elastic Beanstalk). The PaaS business case will be enhanced by IaaS providers offering “PaaS-like” features (which is already happening), as well as PaaS platforms getting integrated with IaaS (e.g., the recent partnership between Apprenda and Piston Cloud). Although we do not believe PaaS will become the face of the cloud, we indeed expect 2015 to push its adoption within enterprises.
    3. Cyber Security and Open Source – Conundrum Won’t be SolvedThe Sony hacking scandal reiterated the importance of enterprise security – which is often taken lightly as compared to most cool next-gen initiatives – and has turned cyber security into a top priority for 2015. However, with the proliferation of Open Source Software (OSS) in enterprises, this “insecure” perception will surge. Enterprises are aggressively looking toward OSS with a host of next-generation technology areas such as cloud (OpenStack), Big Data (Hadoop), mobility, IT operations automation (Chef, Puppet), and content management (Drupal, Joomla!). With marquee B2C corporations such as Netflix, Samsung, and Facebook already having undertaken major, well-publicized OSS initiatives, other traditional enterprises will be pushed hard, despite a concern for security. Google teaming up with Samsung to include Knox (additional enterprise security features) to make Android more appealing for the enterprise is a step in answering this conundrum. However, it won’t be solved in 2015.
    4. Battle for Container Supremacy – Docker Will be ChallengedApplication development is getting a relook within enterprises with increased interest in container technology. Docker, the poster child for containers, whose open platform helps developers to build, ship, and run distributed applications, was rocketed in 2014 with competition from CoreOS. While Docker container technology is now supported by most platforms such as Amazon, Google, IBM, Microsoft, and VMware, its shortcomings are becoming visible. Developers believe Docker “replaces” virtualization but provides limited platform-type support, and its containers are becoming resource intensive. Moreover, given Docker’s early foray into container management, it will be pitted against the might of Google Kubernet and AWS, as well as nimble players such as Giant Swarm. This may dilute Docker’s focus on developing next-generation container technology, leaving an ample field for competitors to exploit.
    5. Analytics – Focus Will be on Bread and ButterWith millions of dollars invested in data analytics initiatives, 2015 will make enterprises reassess the opportunity cost and value of data. While tools such as Hadoop and NoSQL have greatly reduced the entry barriers to analytics, they have witnessed middling adoption. Enterprises still have a long way to go to embed analytics in their existing processes. Therefore, despite the Internet of Things and wearable devices taking off and generating more machine data for organizations to tap into, these new initiatives will not be an immediate priority for 2015. In 2015, enterprises will get their analytics act together to focus on existing processes, consolidation, rationalization, and targeted spending, with data management, governance, and security taking priority.

Danish physicist and Nobel Prize winner Niels Bohr once commented that, “prediction is very difficult, especially if it’s about the future.” So, please join us out on the limb. What are your predictions for 2015 enterprise technology?

HP Rebooted | Sherpas in Blue Shirts

With continued momentum in its turnaround strategy and a raft of announcements at HP Discover, the technology giant appears reset and rebooted. Its strategy to focus on products and services supported by cloud, analytics, mobile, and security, the so called “new style” of BPO and IT is paying dividends with a number of new contract wins. At the same time, HP’s cost cutting measures are increasing profitability, as commoditization pushes prices and revenue down.

HP Discover week saw a raft of announcements from the company including:

  • Disaster Recovery as-a-Service Agreement for HP Helion OpenStack in partnership with Symantec
  • Expanded consulting and support services including HP datacenter care and HP consulting for software-defined infrastructure
  • Enterprise services for Office 365
  • A new HP Enterprise Services contract to support business expansion by Ted Baker, awarded to HP Enterprise Services and its partner, OCSL

These announcements follow the publication of HP’s FY14 results on November 20, which showed HP’s turnaround to be on track.

Focusing on HP Enterprise Services, the FY 2014 operating margin of 3.6% reversed the downward trend of the previous two years but revenue at $22,398 million continued to shrink (-7% y/y). There is still some way to go before the new style of services help halt the revenue decline. There is a legacy of older style services contracts that HP Enterprise Services will have to handle for now. Not all clients are ready for change but some are and the proportion will go up steadily over time as more organizations upgrade and transform their capabilities. HP Enterprise Services is making progress by winning contract renewals and expansions based on its new style of services. It won 11 out of 12 deals that it bid for against competitors such as Accenture, Capgemini, Genpact, IBM, and Wipro in 2014 to date. The wins included three contract expansions, four renewals and, four new logos.

The strategy to focus on new style of IT and BPO is to continue enhanced with new commercial models. The focus on HR, F&A, customer engagement, and digital is to continue with HP taking more advantage of state of the art technology such as service delivery automation (SDA). Cloud, big data, mobile, and security are inherent to the new style of IT and BPO. These, HP can support on its software-defined infrastructure which should give it a clear advantage over some competitors.

It is a no brainer for HP to flex its technology muscle and to focus on the so called new style of services. The question is why it took so long for this to become a strategy for the company. It is thanks to Meg Whitman’s ability to mobilize HP that the strategy has been implemented and the turnaround is working. She has been able to do what her predecessors failed to do – set the course and get buy-in internally. Other measures have included a renewed salesforce armed with enhanced offerings to go to market with and a reorganized group to support sales.

Next is the planned split of HP, as part of which it will be divided into two separate companies:

  • Hewlett-Packard Enterprise will deliver technology infrastructure, software, and services
  • HP Inc. will deliver personal systems and printing

When the split is completed the new companies will be able to focus on their core strengths and growth. The challenge for HP is not to let the task of separation distract senior managers from supporting sales and ensuring that the ship remains on course.


Photo credit: Juan Ignacio Sánchez Lara

Sales Strategy Shift in the Cloud Services Market | Sherpas in Blue Shirts

The fact that enterprises are making a strategic intent shift to cloud and as-a-service models changes more than the service delivery model. It also changes the value proposition and therefore causes implications for provider’s sales strategies. For starters, the focus turns away from the provider’s capabilities.

Sure, those capabilities are still important. But with the new models the focus shifts to the customer’s needs.

The old strategic intent and value proposition was to achieve cost savings. Providers presented offer-based solutions touting the provider’s services. For example, a provider selling to a potential client in the P&C insurance industry might describe the kind of clients it services and how many clients it has, as follows:

“We have 25 clients in the P&C space with five million policies, 1000 analytics professionals with advanced statistical knowledge. We have 5,000 FTEs in eight offshore, nearshore and onshore locations. And we have a platform-based solution.”

Competition would take place on which provider’s offer is the most compelling to the customer. Typically in an offer-based solution the winning provider would be the firm with the most experience in the industry that targets the customer’s areas at appropriate price points.

But cloud and as-a-service solutions focus on the customer’s needs. This gives providers the opportunity to shift to needs-based messaging, as in the following example for a P&C insurance company:

“P&C insurers are battling high expense ratios, coupled with low interest rates globally. This is putting strains on their finances. Our solution can help you automate underwriting and shorten quote times by up to 60 percent, improve fraud detection by over 40 percent and facilitate early identification for subrogation helping improve overall margins.”

One of the most significant implications of the enterprise shift to the cloud is that focusing on needs-based messaging instead of the provider’s capabilities offer-based messaging will change the brute force product-selling mechanism that has come to define the market as we know it.

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