Cisco Services Leverages Software Assets To Transform Its Services Value Proposition

Fred Giron

As you’re all well aware by now, a perfect storm of technology innovations — including cloud, analytics, mobile, and social­ ­— is fundamentally disrupting the way your company engages with its customers (as well as employees and partners). For service providers in particular, the main challenge is understanding how to best leverage these technology innovations to remain relevant and ultimately generate more business value. So it’s exciting to see a service provider like Cisco Services come up with new offerings that respond to this challenge in innovative ways.

I met with Cisco Services Asia Pacific Japan and China (APJC) executives last week in Seoul to discuss their strategy in Asia. I wanted to highlight a few takeaways that I believe will be important for sourcing professionals in Asia and beyond:

  • Cisco Services is a key enabler of Cisco’s overall transformation. Cisco Services used to be a captive consulting organization providing support and technology services for a product company. In a recent analyst call, John Chambers identified Cisco Services as one of the main levers that will help Cisco transition from a transaction-oriented to an annuity-based business model and help the company become the largest IT company globally. The company’s aim is for Cisco Services to represent 24-26% of total revenues in the next 3-5 years. These goals are extremely audacious; achieving them will require huge efforts from Cisco, including some targeted acquisitions in the services space.
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Mobile World Congress 2013 Barcelona: Cheaper, Better, Faster, Broader

Clement Teo

My trip to the Mobile World Congress in Barcelona this year drew mixed emotions: excitement over the vast changes in the mobile world, followed by frustration at having my laptop bag stolen. The last time I was there, in 2008, Motorola was a phone and infrastructure manufacturer, Nortel Networks was still in business, and Nokia Siemens Networks was barely a year into its merger.

Today, Nortel (and my bag) is but a distant memory, Motorola Mobility is part of Google, and others, like Alcatel Lucent, have battled to stay relevant in an age of cheaper products and services. Nokia Siemens Networks, for instance, is today a more focused, leaner company, recently announcing a return to profitability after quarters of losses. Even the venue has shifted from the old grounds to a newer, larger facility.

The GSM Association (GSMA) projects in a global report that developed economies will save US$400 billion in healthcare costs from mobile health services by 2017, and a reduction in carbon emissions of 27 million tons (the equivalent of planting 1.2 billion trees) via smart metering technology in the same period. 

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Nasscom 2013: Real Changes To Indian IT Services Are Underway

Christopher Andrews

I am just back from the whirlwind that is Nasscom India Leadership Forum 2013 in Mumbai, India. The Nasscom event is the premier event for the Indian IT services marketplace. Besides meeting great people, eating too much wonderful Indian food, and seeing action star and local legend Amitabh Bachchan in-person, the event provides a chance to check the pulse of the most important geographic hub for the IT services marketplace. 

Here are some of my key findings from the trip:

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Local Outsourcing Providers Should Be On Your Radar In China

Gene Cao

Over the past three years, multinational companies’ (MNCs’) approach to outsourcing in China has steadily matured as they seek to leverage broader outsourcing models and source from a combination of global providers and local Chinese providers.

In my latest report, Lessons Learned From Outsourcing In China: Part 2, I analyze the key outsourcing trends and approaches to help sourcing and vendor management (SVM) professionals at MNCs select the right local outsourcing suppliers. As part of this analysis, I’ve highlighted the main service capabilities of local Chinese vendors broken down by service model and profile the different types of service providers that currently operate in China.

Key findings from the report include:

  • MNCs are adopting sophisticated outsourcing approaches in China. Many MNCs are shifting away from a pure global service provider approach to a broader shortlist that also includes Chinese providers. SVM professionals at MNCs appreciate local providers’ broader geographic coverage, lower outsourcing cost and more flexible service deliverables.
  • MNCs are also diversifying their outsourcing requirements. After signing the first wave of outsourcing contracts in the past five to 10 years, MNCs are becoming increasingly comfortable considering more sophisticated outsourcing contracts, such as best-of-breed selection, vertical outsourcing, etc.
  • Local outsourcing service providers are continually improving their capabilities. To approach more MNC clients in China, local providers have enhanced their geographic coverage in remote cities, accelerated consolidations, recruited senior talent for improved depth at key positions and aggressively recruited fresh graduates to manage costs.
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Parallels Partners With Global SIs To Deliver SMB Cloud Services

Clement Teo

In business, it’s very rarely just about what you know, but also who knows you, that determines success or failure.

At their global analyst summit last week, Parallels’ CEO, Birger Steen, welcomed Cisco and IBM as new global systems integrator partners, joining the likes of Microsoft and Symantec. In fact, Cisco has even taken a small equity stake in the company, meaning they will jointly go to market to deliver cloud services. Parallels and Cisco also agreed to expand joint development, marketing, and industry initiatives. While there was no similar equity investment as part of the IBM deal, both companies will jointly engage with large telcos and service providers to offer an integrated IBM/Parallels solution.

Here are some other key takeaways from the event:

  • Parallels noted that the global SMB cloud services market grew to $45 billion in 2012 and will reach $95 billion by 2015, with a CAGR of 28% (see its SMB Cloud Insights research report). In fact, both Cisco and IBM view Parallels as a gateway to tap the growing SMB need for cloud services (see Tim Harmon’s report Opportunities In The SMB Cloud Services Market).
  • The momentum Parallels is gaining from expanded global SI partnerships is paralleled (pun intended) by its moves to better leverage the growing cloud investments being made by large telcos as they move from simply “getting into the cloud” to actively converting their customers from using on-premises apps to cloud apps. Already, companies like American Movil have started to offer SaaS and IaaS services to their Latin American users using the Parallels marketplace platform, thanks to a Cisco-led deal.
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SAP’s Maintenance Price Hike Should Concern Sourcing Professionals And Their CIOs

Duncan Jones

On Monday, SAP communicated that it will increase the price of standard support on new contracts by 5% from July 15, 2013, from 18% to 19%. SAP’s announcement claims that the increase is necessary: “In order to ensure the same high level of quality support in the future.” That justification is disingenuous, in my opinion. SAP already makes a very healthy profit on maintenance. (SAP does not report its margin on maintenance revenue. For 2012, it reported 81% gross profit on software licenses and maintenance combined.) Moreover, third-party support providers (3SP’s) like RiminiStreet can provide better support at half the price or less.

SAP’s other justification is equally unconvincing. It states that within the standard support package “there is ongoing expansion of value, for example a continuous flow of innovation through Enhancement Packs.” SAP reinvests 14% of its revenue in R&D, but I estimate that 90% of that goes on developing new products such as Hana that you have to pay again for if you want them. (SAP disputes this estimate but did not provide an alternative figure.) That would mean that Enhancement Pack development represents around 1% of revenue, insufficient to justify charging double what 3SP’s charge, let alone a 5% price increase.

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Telcos Aggressively Entering The IaaS Market In Asia Pacific

Clement Teo

Demand for infrastructure-as-a-service (IaaS) continues to grow strongly in Asia Pacific. In fact, our Forrsights Budgets and Priorities Tracker Survey, Q2 2012 found that 43% of Asia Pacific organizations had prioritized IaaS as an IT strategy, up from 33% in 2011.

This presents an opportunity for both established cloud service providers like Amazon Web Services (AWS) and Rackspace and new entrants such as telcos to offer IaaS to enterprises in the region.

While telcos have not typically been an obvious choice for enterprises considering IaaS in the region, they have introduced capabilities over the past 12 months that compete head-on with AWS and Rackspace — from entry-level “rent a virtual server” offerings to fully hosted and managed IaaS. As outlined in my “Telcos Are Lining Up Broad IaaS Offerings For Asia Pacific Enterprises” report, players in this space include AT&T, BT, NTT Communications, Orange Business Services (OBS), SingTel, Tata Communications, Telstra, and Verizon.

What does this mean for sourcing and vendor management professionals?

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Asia Pacific Tech Market To Grow By 4% In 2013

Fred Giron

The Asia Pacific (AP) growth engine did not fire on all cylinders in 2012, leading Forrester to revise its IT purchases growth forecasts for the year. While Australia, South Korea, and several ASEAN tech markets are showing continued solid growth, in other markets like China, India, Japan, Malaysia, and Vietnam, political leaders are struggling in the face of growing economic problems. My colleague Andy Bartels and I, with the help of Forrester’s AP analyst team, have recently published our revised IT purchase growth forecasts for 2013. Here are our key expectations by country:

  • 2012’s slowdown in China will be short-lived. Despite a slowdown in 2012, China continues to attract intense vendor interest because of its size and potential for further growth. The expected government stimulus efforts in the country will offset factors such as weak demand from businesses and governments. The slowdown in 2012 (+9%) is therefore likely to be short-lived, with stronger growth resuming in 2013 (+10%).
  • India’s IT growth will remain slower than expected through 2014. 2012 (+7%) was a relatively lackluster year for the tech market in India. Worse than expected economic growth, combined with political gridlock on economic reforms, kept the tech market from reaching its full potential in 2012. While we expect the public sector to drive India’s IT spending growth, the impact will be limited through 2014 due to the parliamentary elections scheduled for that year.
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New Year’s Resolutions For Sourcing Professionals: Eat Less, Exercise More, And Implement Strategic Software Sourcing

Duncan Jones

Avoid the 2013 holiday rush – start your year-end software negotiations now! Have you just about recovered from several adversarial, transactional software procurement negotiations last month? Have you resolved to avoid a similar situation next year? Then Forrester’s Strategic Software Sourcing Playbook can help you.

Apparently 38% of Americans made weight-related resolutions in 2012, and 67% of people with gym memberships never use them. So my advice is to shun anything you’ve seen in a TV infomercial (“we called it Lunacy because you’d have to be mad to buy it”) and instead make your New Year's resolution to be more strategic and proactive in your software buying in 2013. Our Playbook, launched today, explains how to do that.

Reactive, adversarial software buying is ineffective in the new business technology (BT) world of self-provisioning, cloud deployment, and mobile access. IT sourcing professionals' colleagues bypass them in the sourcing process, while powerful technology vendors expect more revenue from them than they can afford to provide. Software sourcing professionals rarely have alternative suppliers that they can use as negotiation leverage, so you need something more than your natural charm and belligerence if you are to be effective. Forrester's solution is a strategic approach that aligns the commercial model for each supplier with its place in the enterprise's software sourcing strategy.

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HCL Technologies Is Coming Of Age In Asia

Fred Giron

HCL is the fifth-largest India-centric IT service provider in terms of revenue (after TCS, Infosys, Cognizant, and Wipro). While it only derived about 15% of its global fiscal 2012 revenues from markets outside of Europe and the US — slightly lower than the four larger Indian firms — HCL has built a strong base in Asia and now boasts more than 300 customers served by more than 8,000 employees. I recently attended HCL’s Asian analyst event in Sydney; below are some key reasons why I believe that you should consider HCL on your shortlist of systems integrators (SIs) and outsourcing providers:

  • Flexibility. When I asked some of HCL’s Australian, ASEAN, and Indian clients what characterizes HCL’s approach to managing client relationships and delivering projects, most mentioned “flexibility” and “HCL is easy to work with,” particularly  during the transition phase in outsourcing contracts.
  • Co-innovation focus. HCL’s Asia growth strategy is both focused (on a limited number of vertical and horizontals) and pragmatic. Starting small with staff augmentation deals, the company invests in relationships to develop its presence and its expertise with its clients’ challenges — 2% of the revenue generated from clients is reinvested in the engagement as an innovation budget.
  • Local commitments. HCL has increased its regional presence via local management and delivery capabilities and local partners, including universities like Singapore Management University; IT companies like Lippo Group in Indonesia; and government, such as its work on the Mobility Lab initiative for EDB in Singapore.
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