IT Service Providers Will Soon Face Operating Model Mayhem

Several recent Forrester reports, including “Mobile Is The New Face Of Engagement,” have shown how new business success imperatives are pushing clients to change the way they leverage IT solutions. In my report “The Move To An Asset-Based Services Play,” I describe how IT service providers will have to adapt to these new rules of engagement if they want to stay relevant to their clients in the long run. In particular, the increased focus on business innovation will push service providers to invest more in the development of software assets — or solution accelerators (SAs) — that provide strong business value to multiple clients.

The move to asset-based services will force service providers to invest in new operating models that differ significantly from their traditional models and are closer to the ones leveraged by software providers. In my next report, I will cover some of the associated best practices in terms of the organization, people, processes, and tools that IT services firms need to implement to make this shift happen internally. Service providers will need, among others, to recruit new skills such as product and portfolio managers, incentivize the creation of software assets, fund and incubate the creation of solution accelerators, and overhaul their partnership management processes.

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Moving From The Horse To The Car: Innovation Or Improvement?

Was the introduction of the Ford Model T an improvement or an innovation over the horse drawn wagon?

As an SVM professional, you may ask, “Why is this question important for me?” But as an ever-growing number of companies invest in innovation, they will realize a significant portion of this can come from the existing relationships with suppliers.

Forrester surveyed over 1,000 IT executives and technology decision-makers in Q3 2011 about which priorities will have the most significant impact on this year’s IT services spend. The top answer, at 56% of the respondents, was the need to innovate and grow their business. In fact, innovation rated higher than the ever-important lowering operational costs (40%)!

To execute on these innovation priorities, you — the SVM specialist — must understand the innovation potential of your suppliers and how to leverage this in the future. Success on this endeavor will require setting the stage. SVM pros need to understand the difference between a supplier-driven improvement — that we expect — and a service or business-focused innovation that needs investment and management. SVM pros can start with three key items: 1) Use an innovation screening checklist to understand who to partner with; 2) educate vendors on business priorities and key stakeholders within the business to enable innovation; and 3) manage delivery-oriented innovation as a part of your daily vendor governance.

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It's Time To Get Serious About Services Innovation

Year over year, Forrester hears from clients who are frustrated with their providers’ inability to provide innovation. In 2011, 60% of respondents to Forrester's Sourcing and Vendor Management Survey cited "Limited ability to define or provide innovation" as one of the top complaints when evaluating their suppliers. The frustrations behind these numbers include:

  • “I have to push my suppliers for every bit of innovation they provide outside of the contract.” 
  • “Vendors consider 'innovation' anything that involves selling me more stuff.”
  • “They say it's innovation, but it’s not even specific to my business.”

Service providers, of course, are eager to market themselves as innovative. They’re competing in a market filled with scrappy upstarts — and they’re all striving to differentiate offerings. Yet they are also frustrated with innovation — the innovation demands of clients. The common complaints we hear from them include:

  • “It’s rare that clients can define what they want when they ask for innovation.”
  • “Our clients always tell us they want innovation. They are just not willing to pay for it.”
  • “We can’t provide innovation for clients if they won’t put us in touch with their business.”
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True Global Outsourcing Should End The Visa Debate

Ever since offshore outsourcing became popular, employment visas — specifically the L1 and H1 visa — have been a source of debate. Indian vendors have needed them to make their offshore model work. US technical employees have feared them because they threaten to take away their livelihood.  

Well, here we are in 2012 and the debate is hotter than ever. The offshore vendors, attempting to accommodate tech-savvy clients’ agility and context requirements, require even more staff onsite in the US. Simultaneously, the US government, struggling to combat unemployment, shore up the dwindling middle class, and get through the 2012 election cycle, is cracking down on visa enforcement. For Forrester clients, this situation has become problematic as their vendors fail to land resources for mission-critical projects and the clients themselves are then compelled to use local contractors to fulfill their onsite needs (one reason staff augmentation vendors are seeing a big uptick in growth).

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Reunion Special: Licensing With The Frenemy

A recent conversation with IBM software executives sheds more light on the topic of software audits. Responding to a blog post we published a few months ago, IBM recognized some of the challenges inherent in an IBM software audit.  They proclaimed that getting through an audit, addressing these challenges, and moving towards license optimization is cemented in Software Asset Management (SAM) best practices. IBM also told us that the causes of client exposures fall into one of three categories:

  • Customers' indifference to their responsibility in an IBM software agreement. Few companies fall under this category, as most decide to be held accountable for their compliance.
  • Loss of deployment control. Complicated licensing structures and poor SAM practices characterize this category. While IBM licenses inherently are complicated, clients add to the complexity when they deviate from the standard contract in an effort to add flexible terms. A common example of a poor SAM practice that contributes to IBM software exposure is the lack of communication between those that procure the licenses/negotiate entitlements and those that deploy licenses.
  • Over-deployment due to non-malicious gross error. While companies may not maliciously over-deploy IBM software in their environments, some innocently deploy them by accident. A common example includes the case of the "golden CD" where software from a CD is mistakenly replicated across the vast server landscape. Additionally, some companies misinterpret their entitlements. An example of this includes deploying licenses based on a misunderstanding of their terms and conditions.
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Should You Be Using Service Level Management Tools?

A couple of years ago, my then-colleague Patrick Connaughton wrote a market overview about service-level management tools, which included a discussion of specific toolsets intended to help customers manage both internal and external services-based relationships. Among the technologies in this space include Digital Fuel, Oblicore, Compuware’s APM, Enlighta, Appirio, and others. Such service-level management tools, as we described them then, reflects one key aspect of toolsets like Digital Fuel and Oblicore, to monitor service levels for both internal and outsourced delivery. But the technologies also have other capabilities, including the ability to create catalogs and manage financial implications of services consumption, both internal and external.

Since that time, challenges in service consumption, including measuring and managing services relationships, have only gotten harder, complicated by the widespread trend toward multisourcing and multi-supplier relationships and new categories of cloud-based services like IaaS on the other. Given these challenges, tools like those described above would seem to have some possible value. Big industry suppliers sure seem to think so: Since we wrote our last report, NewScale has been snapped up by Cisco and Digital Fuel was bought out by VMware, with the goal in part to help customers of virtual solutions and cloud services meter their usage and help charge back for consumption. In addition, KPMG acquired Equaterra, meaning that KPMG also took ownership of Equaterra’s EquaSiis, an outsourcing governance suite developed in conjunction with Microsoft. Oblicore was acquired by Computer Associates just months prior to our report. The acquisitions have in some cases meant a change in focus for the technologies acquired, to fit more cleanly to the broader product and services agenda of the acquirer.

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Turning Threat Into Opportunity: Dell Acquires Wyse

This morning, I participated in an analyst conference call to discuss Dell’s intent to acquire Wyse with Dell President Jeff Clarke, Dell Senior Vice President Dave Johnson, and Wyse President and CEO Tarkan Maner.

According to Dell, the acquisition will help Dell extend its virtualization solutions and create more integrated enterprise solutions from traditional IT hosting to the cloud.

This can potentially be a smart deal for Dell:

  1. Channel partners have experienced healthy growth in this space. Based on conversations with prominent resellers in Q4 2011, many are experiencing explosive growth in client virtualization inquiries and thin client sales. One systems integrator we spoke to has experienced a 40% annual increase in the number of VDI inquiries, while another reseller experienced a 55% YoY increase in thin client sales. 
  2. Dell is now better positioned to address the full range of enterprise mobility projects that are expected to come. Virtualization and consumerization is very much a reality. In terms of hardware and software, Forrester data suggests that over half of companies surveyed are looking to support tablets and smartphones in the enterprise in the near future. Client virtualization software allows these devices (and thin clients) to connect to their enterprise data and applications. 
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