IT Services Industrialization 2.0

Fred Giron

Mobility, cloud, and smart computing will drive tremendous growth and significant changes in the IT industry over the next few years. My fellow analysts have brilliantly covered these topics in the past few months.

I would like to build on these views and focus more specifically on the productivity race that the IT services industry and its clients have been in during the past 10 years or so. While IT services vendors have managed to improve their output levels in order to protect margins in a market of severely eroding price points, I believe they will rapidly reach a plateau if they continue to use traditional methods. Instead, the most successful IT services firms of tomorrow will increasingly leverage disruptive methods in order to fulfill the client expectations to always “do more with less.”

Ever since the Internet bubble burst a decade ago, clients have pushed their providers to find ways to provide them with continued price decreases for similar or greater output levels. This was achieved thanks to two main levers to decrease the amount of resources required to run IT systems by end user firms:

  • Fewer resources: Optimizing the utilization of resources in order to reduce their consumption. For example, most projects around asset management, infrastructure standardization, consolidation, and virtualization yield the most evident returns as sources of productivity improvement. This is the case in particular in developed countries where companies need to cope with multi-layered legacy technologies that render IT systems as complex and expensive to maintain.
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Buyers Scrutinize SaaS Contracts More in H1 2011, As Deal Sizes Grow

Liz Herbert

The growing realization for SaaS buyers is that if they overlook the details of their SaaS contracts, chances are they’ll pay for it later. Forrester analyzed the thousands of inquiries we receive every quarter to understand the hot button topics in the SaaS space for the first half of 2011. When it comes to on-demand services, we found that people paid more attention to the following three factors in the first half of 2011 than ever before: 

  1. Pricing and discounts. It came as no surprise that people are most concerned about money and are looking for guidance around SaaS pricing and discounts more than anything else. Many of our clients want to benchmark themselves against peers. For example, one client asked, “Is there some benchmark data to compare pricing on B2C web portal (PaaS or SaaS) solutions?” Forrester’s take? Unlike traditional software, most SaaS pricing is publicly available on vendor websites. However, pricing and pricing models are still in flux for many emerging areas of SaaS. Even in more established areas, like HR and CRM, discounts can range as high as 85% for large or strategic clients.
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Thoughts On Strategic Partnerships From Infosys Leaders And Clients

Duncan Jones

I’m in Las Vegas attending Infosys’s Connect 2011 client event, and one of the recurring themes in sessions and side conversations has been the nature of Strategic Partnership. The phrase risks becoming a meaningless cliché, so I was interested to research what it actually means to Infosys execs and clients. I got some interesting, varied perspectives.

A large CPG company’s central IT group described its interpretation in a couple of sessions. It demands, among other things, a strong cultural fit, a commitment to win:win solutions to problems, and regular meetings with partners’ CEOs. This group has 12 “strategic partners” who get a lead role in a specific area, but may not even be considered in other areas, even though they have good solutions in their portfolio. I might argue the semantic point about whether this means they are merely ‘important, at the moment’ rather than ‘strategic’. However, the key point is that the two parties’ commitment to making the partnership work creates a better, stronger commercial framework than any legal agreement could deliver.

Raj Joshi, MD of Infosys Consulting, described his group’s Value Realization Method (VRM) that formally tracks each project’s expected business benefits from the initial project business case through design and implementation and onto ongoing value delivery. Joshi stressed the importance of shared incentives, such as risk/ reward sharing commercial models, in ensuring projects’ success.

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Why Do We Let Software Sales Reps Behave Like Tourist Souvenir Hawkers?

Duncan Jones

I’ve just had a negotiation lesson from Number-one-Daughter, who has been studying in China for a year. I’ve just returned from beautiful, vibrant Beijing  (北京) where my wife and I met her, to see the city and to help her get her luggage home (which explains the 6 pairs of ladies’ shoes in my suitcase and makeup in my carry-on — at least, that’s my story and I’m sticking to it).

Chinese souvenir stall

Author and wife on the Great Wall of China

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The New Power Of Sourcing And Vendor Management -- Reflected At Forrester's IT Forum

Christopher Andrews

After two weeks at Forrester’s IT Forums (in Las Vegas and Barcelona) the Sourcing and Vendor Management research team came back more energized than ever. Why? We were able to spend a week interacting with our clients, who all face diverse challenges, yet remain very optimistic about the strategic value they can provide to their IT and business counterparts. While it's an exhausting week for all of our analysts, we love this week (second only to our own team's Sourcing and Vendor Management Forum in November) because of the chance to interact with all of you.  

 Coming back from this conference, I realized a few key themes had dominated my conversations with clients:

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The Next Three Weeks Are Very Important To Microsoft, And That Gives Buyers Leverage

Duncan Jones

A couple of months ago I was blogging from sunny Barcelona with the Red Sox 0-6. Now I'm in Barcelona again for our IT Forum, but this month its raining heavily here, while back in UK we officially have a drought. But the good news is that Boston is 6-0,  at least in Yankee Stadium. A lot can change in two months.

The same is true in IT.  Just now, Microsoft faces threats to its strong market position from many directions, and Steve Ballmer is under pressure, but strong results for its June fourth quarter could deflect the flak. That's one reason why sales teams will have greater incentives than ever to close Enterprise Agreement deals in the next couple of weeks. Hopefully if you're negotiating an EA right now, whether a new deal or a renewal, you've read my report Consider These Five Criteria When Choosing A Microsoft Volume Licensing Program and maybe even had an inquiry call with my colleage Christopher Voce or me. One common question we get is whether the stated deadline to accept an offer is real, or will the same deals be available in the last days of the quarter or even in the subsequent months? The short answers are Yes, it is, and no, they won't." Microsoft has its own deal approval processes that take time to complete, and though it won't want to reject Purchase Orders, it may have problems processing them if they arrive too late.  And the deals available almost certainly wont be as good next quarter because sales teams will still have 9 months remaining in which to recoup any shortfall.

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ERP Versus Best-Of-Breed — Emptoris' SAP-Shop Customers Give Their View

Duncan Jones

My tireless research of sourcing and vendor management technologies has brought me to Barcelona, for Emptoris’ EMEA customer conference. I’d like to assure my colleagues in Boston, still cold and still "0 and . . .",  that I’m not writing this while sitting in the sunshine at an open air café, sipping a cold cervesa and watching the lightly clad señoritas walk by. I’d like to assure them that, but I can’t, because this is exactly what I am doing. Hopefully you’ll also be able to experience Barcelona if you attend our IT Forum here in June: http://www.forrester.com/events/eventdetail/0,9179,2510,00.html

I saw some very good presentations by customers about their implementations of Emptoris’ sourcing site. As a fearless analyst, I asked the question about the elephant that, while not actually in the room here in Barcelona, is certainly present in the customers' IT environment, namely SAP. All the speakers were procurement professionals in supposedly SAP-shops, so why had they chosen Emptoris over SAP’s sourcing and CLM products?

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Cloud Strategies On The Brain

Bill Martorelli

Recently, it seems that IT professionals cannot turn around without seeing another industry announcement involving the word "cloud."  I am guilty too -- in fact, the SVM team at Forrester has written extensively on the topic of what cloud strategies mean to sourcing and vendor management professionals.  Cloud impacts every technology, service category, industry vertical, geography, and company size differently. But despite impressive growth in software-as-a-service, infrastructure-as-a-service still takes a back seat to more conventional outsourcing “towers.”

My colleague, Wolfgang Benkel, and I recently published The Forrester Wave™: Global IT Infrastructure Outsourcing, but we realize there are unique regional considerations, which we covered in separate market overview reports for North America and Europe. In terms of what client references told us about what they are actually outsourcing from their IT infrastructure outsourcing providers, services like help desk, deskside, and storage management predominate, while old (which are on their way out, i.e., mainframe) and the new (which have tremendous growth potential, i.e., IaaS) technologies are among the least represented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We will present the findings from this Wave in a teleconference on May 12, 2011. Click here to register for the teleconference now.

KPMG-Equaterra highlights Outsourcing Advisor Consolidation

Bill Martorelli

KPMG’s recent acquisition of Equaterra signals some new dynamics in the market for outsourcing advisory services. The acquisition creates an intriguing combination of capabilities encompassing high-level consulting services for tax, supply chain management and IT strategy with Equaterra’s proven outsourcing transaction strengths. Moreover, it confirms a mini-wave of industry consolidation following TPI parent company’s Information Services Group (ISG) acquiring long-time benchmarking specialist Compass (more recently, ISG acquired public sector specialist STA Consulting).  

The mini-wave of consolidation may seem paradoxical given that growth has returned to the outsourcing marketplace. Forrester believes the overall market for such services will grow 7.1% to $254B this year. If the outsourcing market is again growing, why are the winds of industry consolidation blowing? Although the opportunity is broadening, large mega-deals that firms like TPI and Equaterra grew to prominence on are getting scarcer and scarcer. Moreover, clients are taking a more holistic view of outsourcing alongside evaluating shared services and other organizational dynamics, creating the need for a broader value proposition extending beyond transactional services. Although many outsourcing advisory firms have gone down this path with strategy and research services, the KPMG-Equaterra combination creates an unusually strong combination. KPMG, which heretofore had lagged principal competitors PwC and Deloitte in the scale of its outsourcing advisory service, should benefit substantially from the addition of Equaterra’s resources and capabilities.

Please vote in our Unfair Licensing Policies survey

Duncan Jones

As promised in a previous blog post: Which Software Licensing Policy Is The Unfairest Of Them All? , we've launched a survey to find out what sourcing and vendor management professionals think about some common software licensing policies.  This isn't about bashing powerful software companies, but about building a consensus behind a campaign to bring software licensing rules up to date - i.e. protection of innocent buyers, rather than regime change.  I've narrowed an initial list of 30 questionable policies down to this Foul Fifteen of candidates for the (un)coveted "Unfairest" award:

1.       Double charging for external users

2.       Prohibiting or overcharging for anonymous users

3.       Maintenance on shelfware

4.       Counting cores instead of processors

5.       Counting all processors in a server, even if partitioned

6.       Upfront license purchase only, not phased in line with project milestones

7.       Maintenance repricing

8.       Insisting on purchase of all licenses before implementation starts

9.       Product enhancements packaged as new SKU’s

10.   Licensing by deployment, even if unused

11.   Charging for use of modules that customers cannot control or track

12.   Retaining right to change licensing policies at any time

13.   Multiplexing – definition is unclear or too wide

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