Horizons Inquiry 2013 The Multi-Sourcing and Service Integration Challenge

Transcription

1 Horizos Iquiry 2013 The Multi-Sourcig ad Service Itegratio Challege

2 Executive overview I respose to growig CIO cocers about multi-sourcig ad service itegratio ad maagemet (SIAM), CIO Coect has udertake a six-moth research project to ascertai the views of thirty leadig IT executives ad twety IT vedors. The study has foud that all IT orgaisatios have adopted some level of multi-sourcig ad service itegratio, but these approaches seem isufficiet to cope with the rapid chages takig place i regards to the busiess demad for IT services ad withi the IT supply sector itself. Our fidigs suggest most IT orgaisatios cotiue to focus the majority of their efforts o maitaiig back office systems of record, such as Oracle ad SAP. The emphasis, here, is o efficiecy ad stability. I stark cotrast, frot-ed busiess ivestmet i digital techologies ivolves emergig areas such as data aalytics, mobility ad social media. Frot office IT applicatios require solutios i weeks ad moths, rather tha years or decades, ad attract a etirely differet breed of vedor, such as public Cloud providers ad ext geeratio applicatio developmet houses. May CIOs express strog views cofirmig such treds, but few if ay have a appropriate operatig model that spas both back ad frot office. Most traditioal IT vedors are i a similar positio due to their depedece o busiess models based o log-term auity reveues. Etrepreeurial vedors who are prepared to work with the ew geeratio of public Cloud ad applicatios houses are few ad far betwee. Oly the UK govermet seems to uderstad the problem, puttig i place a strategy to respod to the ew digital eviromet. I this report we seek to aswer the key emergig questio of how CIOs ca equip themselves to mediate i the ew demad/supply eviromet for IT solutios ad services. We examie the chages takig place across the demad/supply IT ladscape, ad coclude that a etirely ew operatig model is required. This ew model will have SIAM as its core capability, eablig orgaisatios to source all IT services ad systems as commodities ad o a much more flexible basis. Busiess Demad IT Mediatio Service Provisio Our survey cocludes that the large majority of CIOs must adopt ew IT operatig models to bridge traditioal ad emergig busiess requiremets for IT. Such models should embrace a far greater diversity of vedors, ragig from the traditioal hardware suppliers ad system itegrators such as IBM ad HP, to ext geeratio Cloud providers such as Amazo, Google ad Salesforce. CIOs recogise that successive geeratios of outsourcig have depleted their iteral resources to the poit that a full repleishmet of skills, processes ad tools will be ecessary to create a future-proof operatig model. 2 Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege

3 A revolutio i digital busiess from iside-out to outside-i The majority of the CIOs admit they are pre-occupied iside with large-scale systems of record or iside-out systems that support back ad middle office fuctios, such as fiace ad supply chai. Oly a few blue chip busiesses have itegrated iside-out systems across differet parts of the world to alig with global operatig models. Large maufacturig ad service orgaisatios refer to regioal systems that are globally icompatible, despite havig a commo software heritage such as SAP or Oracle. out Maagers are, therefore, frustrated i their attempts to stadardise the core busiess processes ad fuctios that are supported by systems of record. The majority of IT effort is cosequetly focused o itegratig these large systems so that the busiess ca capitalise o its ERP ivestmets. I the words of the CFO of a global oil ad gas compay: We eed to harvest our multi-billio dollar ivestmet i SAP before embarkig o ew IT programmes. Such a iside-out focus appears cogruet with the fact that the majority of IT orgaisatios report through the fiace fuctio, where the drivig measures for back office IT performace are cost efficiecy ad stable performace. This focus is i cotrast to IT related developmets i other areas of may orgaisatios that focus o gaiig competitive advatage ad growig market share i.e. systems of differetiatio. Busiesses have experieced a dramatic shift i strategy ad operatios i the aftermath of the 2008 fiacial crisis. IT cosumerisatio has become a edurig way of life durig this period. A decade after the failed promise of the early 2000s dotcom boom, e-commerce has fially peetrated ito every aspect of our workig ad social lives; Silico Valley, the epicetre of digital iovatio, is ackowledged as a potetial Death Star for may established idustries i the comig decade. Agaist this backgroud of dramatic chage, executives have pursued a rage of IT strategies ad techiques to esure their compaies remai ahead of competitors. These have led to a rapid uptake of ew digital applicatios ad public Cloud services i the frot office. I may cases, the IT orgaisatio has provided iput ito such outside-i solutios, but CIOs admit that a growig proportio of IT ivestmet is ow takig place outside the ifluece or cotrol of the IT fuctio. This decetralisatio is likely to lead to a fragmetatio of systems ad data that bares remarkable similarities to the era of ed user computig i the 1980s. I this ew outside-i digital world, IT must respod to a differet set of performace parameters, icludig: creatig busiess value (such as reveue growth), achievig busiess agility (respodig i weeks rather tha moths or years) ad havig a appetite to take risks (preparig to fail as well as succeed). CIOs believe their busiess peers expect to see tagible busiess beefits i the first weeks of a ew IT project, promotig a much faster approach to system developmet compared to the traditioal cascade approach. To quote oe CIO: A 60% solutio delivered i days or weeks is better tha a 100% solutio delivered i moths or years. The prospect of growig fragmetatio betwee back ad frot office systems seds alarm sigals to CIOs ad board members. Such fragmetatio could create isurmoutable problems, as data is uable to cross boudaries, which i tur restricts how orgaisatios ca use commercial iformatio. The IT commuity must act ow to drive coherece across frot ad back office systems. CIOs must iform busiess parters of the immiet dagers of fragmetatio ad establish ew forms of corporate goverace that deal with the emergig Cloud eviromet. Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege 3

4 A chagig vedor world Just as busiess demad for IT is udergoig a quiet revolutio, so too is the supply-side commuity. The domiat IT vedors, such as Acceture, CGI, IBM, HP, Oracle, ad SAP, have busiess models based o log-term auity reveues, icludig outsourcig cotracts ad software liceces. Such auity reveue models correspod to large-scale systems of record, or iside-out solutios. These traditioal vedors boast huge reveues ad still accout for 80%-plus of corporate IT expediture. But as IBM s recet results demostrate, reveues are decliig gradually at 3% to 5% per aum, mirrorig the iteral cost efficiecies demaded by CFOs across core software ad hardware platforms. Curret IT Sped Traditioal system itegrators recogise the threat of a ew geeratio of IT service providers, but they have great difficulty trasformig their complex orgaisatios. Public Cloud threates log term outsourcig ad software licecig cotracts, yet i the words of oe leadig CEO: It is hard for a $100 billio corporatio to tur o a dime!. CIOs of traditioal IT orgaisatios ad their strategic vedors are becomig locked i a deadly embrace. A radical chage, rather tha a icremetal movemet, must take place if the CIO is to remai as the primary mediator betwee IT supply ad demad. Most traditioal IT vedors promote private Cloud solutios that help large orgaisatios optimise their estates by cosolidatig data cetres ad applyig virtualisatio techiques. However, this private Cloud approach is a stopgap ad offers little i the way of outside-i solutios. Vedors must recogise that a etirely ew paradigm is emergig, amely the cosumerisatio of IT services through the emergece of global IT utilities that are based o cocepts such as Ope Compute. Compaies such as Facebook ad Google are settig the tred here, removig the middlema by buildig their ow hardware ad achievig a quatum improvemet i efficiecy. Some of the large global baks are adoptig similar tactics. Pay-as-you-go model (Cloud) Auity Model (Outsourcig) 2025 ad beyod I cotrast, sped o outside-i IT solutios is explodig. The aual reveue growth of public Cloud providers ad idepedet applicatio specialists ca be as much as 40% or higher. This growth is reflected i the dotcom style reveuebased market valuatios of Cloud providers like Workday, Salesforce ad ServiceNow. Aalysts predict that public Cloud services will accout for 20% of the global IT services marketplace by By 2025, Cloud could be the domiat chael for all IT ad busiess services, eclipsig the oligarchs of today s IT sector. The reaso for such expoetial growth is simple. Public Cloud services ca be adopted i weeks or moths by busiess executives ad provide commo stadards aroud the world. The CIO of a leadig isurace broker commeted that a HR Cloud service such as Workday is the oly practical ad cost effective meas of achievig a global stadard across a twelve moth period. Public Cloud providers frequetly bypass the IT orgaisatio ad sell directly to busiess executives. This is creatig a proliferatio of Cloud providers across larger orgaisatios, with little cotrol or visibility from withi IT. Pay-as-you-go model (Cloud) Auity Model (Outsourcig) Most CIOs will see the gradual erosio of private Clouds as they trasmute ito public IT utilities. This move will destroy outsourcig models ad create sigificat challeges for traditioal vedors, uless they too build ad operate public IT utilities o the scale of Amazo ad Google. Microsoft appears to be the frot-ruer i recogisig such a reality with its lauch of the Azure platform ad Office 365. The future will be all about providig IT ad busiess services i a more flexible ad agile maer, rather tha through mega-cotracts based o 5 year terms ad fixed prices ad it will create a ew ecoomic order withi the IT sector. 4 Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege

5 Assessig the gaps i today s IT orgaisatios Virtually all IT orgaisatios i our research have chose the outsourcig route as the preferred meas of operatig IT platforms. Most CIOs admit such arragemets have bee far from perfect, fallig far short of origial expectatios. Sourcig advisors such as Quatum Plus state that over 80% of outsourcig cotracts fail to deliver agaist the stated busiess case ad our observatios suggest 25% of these failures result i premature cotract termiatio or reegotiatio. May outsourcig vedors commit to iovatios durig the lifecycle of each cotract, but few have delivered o such promises. I short, outsourcig has ru its course ad is i eed of radical surgery. A wholesale developmet of a ew SIAM fuctio is required that cotais the key skills, processes ad tools to cope with the emergig supply/demad IT eviromet. However, our research suggests CIOs are approachig this critical issue slowly. Some 50% of CIOs have ot cosidered SIAM as a stadaloe fuctio. A further 20% have appoited a lead SIAM maager to develop plas, but oly 23% have implemeted a full SIAM solutio. 60 SIAM Adoptio Cycle The progressive depedece o third parties over the last few decades has depleted IT orgaisatios i areas such as skills, methods ad tools. Most iteral resources are ow dedicated to maagig exteral vedors, rather tha respodig to busiess requiremets. To refer to the commets of oe leadig utility CIO: Today, 80% of my IT resources are ivolved i operatioal tasks ad 20% i respodig to busiess requiremets. I five years time, I would expect the reverse to be true. I short, a fudametal trasformatio will take place from ruig legacy IT, or systems of record, towards the creatio of ew platforms focused o systems of differetiatio. Busiesses expect their IT orgaisatios to have skills that support both the frot ad the back office. This split implies a very differet way of operatig o behalf of IT, with much greater emphasis o fast prototypig ad flexible sourcig. IT should be the eabler of busiess chage, especially i the emergig digital era. The CIO should provide the visio to architect the digital busiess i associatio with his/her peers. Oe CIO suggested a chage i job title to Chief Coectio Officer is appropriate. The devolutio of operatios to third parties has also reduced iteral visibility ad cotrol of key processes that lie at the heart of ay successful IT orgaisatio. Such processes have become widely distributed amogst exteral service providers, leavig the host orgaisatio to plug ay gaps with maual itervetios ad Excel spreadsheets. This artisa approach is both costly ad uteable whe attemptig to provide a cosistet level of customer service. I the words of a fiacial services CIO The IT orgaisatio eeds its ow ERP system to moitor ad maage performace Have ot cosidered SIAM so far Appoited a SIAM lead to thik thigs through Issued a formal request to suppliers for SIAM Already implemeted a separate SIAM fuctio Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege 5

6 Future IT scearios a partig of the ways Our research suggests blue chip (more tha 50,000 staff) ad mid-sized (circa 10,000 staff) compaies are takig very differet approaches to the emergig supply/demad IT ladscape. At the very top ed of the scale, fiacial services compaies who sped upwards of $10b to $15b o IT services recogise they ca opt for their ow Ope Compute eviromets, where they create global IT utilities of a similar scale to Amazo ad Google. This approach eables them to cut out the hardware suppliers ad system itegrators, reducig costs by as much as 50%. Such orgaisatios are adoptig a flexible brig your ow device or applicatio policy that represets a walled garde or private apps store withi the global utility. May Cloud providers are cosequetly movig rapidly ito ed-to-ed busiess services, such as fiace, huma resources ad supply chai. Leadig CIOs of mid-sized orgaisatios are icreasigly cosiderig themselves as fullyfledged busiess, rather tha IT, service providers. They expect may aspects of operatioal IT to be embedded i the busiess services they buy off the shelf. Oe CIO of a eergy compay was surprised whe asked whether he outsourced his service towers. He o loger has sight of such towers, give that they are itegral to the busiess services he buys from exteral Cloud vedors. At the ext level dow, CIOs of global firms ad large govermet departmets that sped i the regio of $1b to $5b o IT, expect to retai strategic vedor relatioships, despite admittig to shortfalls i the curret outsourcig model. Key IT vedors typically subdivide ito ifrastructure providers, such as HP, Fujitsu ad IBM, ad applicatios providers such as Acceture ad TCS. The approach here is to select a best i breed parter for each service tower, creatig a small ecosystem of qualified operators. May CIOs operatig i this multi-sourced world seek to ehace their ow iteral service itegratio fuctio that bids the ecosystem together. This approach ecourages greater flexibility of supply, with the ultimate goal of complete commoditisatio of the primary towers. It also icreases visibility ad cotrol over costs ad performace. The overwhelmig majority of CIOs at mid-sized firms have give up ay hope of dealig with their traditioal strategic vedors due to a complete lack of day-to-day accout maagemet ad support. They expect such providers to cover all eeds, from back office to frot office. Our research suggests 42% of orgaisatios ited to stay with their strategic IT vedors, with each occupyig a sigle service tower. Oly 13% ited to ope up idividual service towers for multi-sourcig betwee vedors. The rest (45%) ited to abado large players i favour of agile suppliers, especially public Cloud providers. 6 Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege

7 A future target operatig model for IT services CIOs cosistetly suggest that the multi-sourcig of best i breed IT services will remai core, eve if the parterships evolve from log-term outsourcig cotracts to short-term tactical relatioships with ext geeratio public Cloud suppliers. Oly a few CIOs recogise that the IT departmet is evolvig ito a busiess service orgaisatio. However, most CIOs admit that they are ot prepared for the trasitio ad believe a complete trasformatio is ecessary to achieve a more flexible approach to IT sourcig. Our research suggests the factors that motivate the itroductio of a full service itegratio model iclude: the eed to icrease trasparecy withi existig supply cotracts (18%), the eed to achieve a radical overhaul of curret outsourcig cotracts that appear to be failig (30%), further exploitatio of the public Cloud market (33%), ad a wish to migrate to a more flexible sourcig model (18%). UK govermet departmets ofte take the lead here, with the public sector digital strategy released i 2012 callig for a idepedet SIAM fuctio. This idepedece is recogised as key to eablig a breakup of traditioal supply moopolies ad the creatio of a resposive marketplace for IT services. The Cabiet Office has approved a IT operatig model that carefully defies the SIAM compoets, with thirty key operatig processes. Compaies such as ATOS, Lockheed Marti ad Mozaic Services have already wo cotracts to help govermet orgaisatios implemet a stadard SIAM operatig model. Typical savigs associated with the SIAM approach lie betwee 20% ad 40% of the curret IT budget. I the UK govermet s SIAM model, the service desk ad associated operatioal processes such as icidet maagemet are cotaied withi a sigle fuctio. This separate SIAM fuctio has the skills, tools ad processes to esure that iterfaces with IT vedors coform to a defied stadard, simplifyig cotractig ad helpig to automate operatios. New tools are emergig that provide CIOs with dashboards o all aspects of IT services, icludig both commercial ad operatioal parameters. Here SIAM becomes the core capability of ay medium to large scale IT orgaisatio, eablig a higher degree of sourcig flexibility ad busiess agility Drivers to adopt SIAM Migrate to a more flexible sourcig model Icrease trasparacy withi existig supply cotracts Exploitatio of the public cloud market Achieve a radical overhaul of curret Outsourcig cotracts Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege 7

8 What are the critical elemets of a SIAM-based IT operatig model? Capgemii is a otable exceptio here as it is already active globally i providig SIAM services Our research suggests the beefits of adoptig a SIAM model are heavily biased towards busiess agility, with 67% of CIOs statig this is the umber oe beefit. However, a additioal 17% believe SIAM opes up possibilities for multi-sourcig through icreased commercial flexibility ad trasparecy. Just 10% of CIOs are iterested i improvig service levels, ad 7% i helpig speed up the itroductio of ew suppliers. Discussios with CIOs ad vedors clarify the three key aspects of ay future SIAM model: Iteral owership of the ed-to-ed processes agaist which all IT vedors will eed to comply Iteral owership of a commo set of tools that cotrol commercial ad operatioal performace; agai, all IT vedors will eed to comply with such tools Iteral owership of the key skills that are required to defie ad operatioalise a full SIAM strategy So, how might a IT orgaisatio migrate to a SIAM-based operatig model? IT vedors ad CIOs suggest a umber of differet optios, ragig from a complete i-house trasformatio programme to a full outsourcig of the SIAM fuctio. Where a IT orgaisatio has made a decisio to retai all aspects of service itegratio ad maagemet, the mai activities are likely to iclude: Assessmet of the maturity of iteral IT capabilities, icludig a review of skills, processes ad tools agaist a future SIAM operatig model Desig of the future state, icludig key operatig processes withi the SIAM fuctio ad stadard cotractig priciples for exterally acquired IT services Re-toolig of the IT maagemet platform, icludig a migratio from legacy systems ad vedor relatioships to the ew operatig model Hirig ad traiig of appropriate skills to ru the ew operatig model, with a likely reductio i umbers due to icreased automatio of IT processes Timig for a full SIAM implemetatio varies ad our research suggests 29% of CIOs expect to start a SIAM implemetatio withi the ext 12 to 24 moths. A further 28% ited to implemet SIAM oe or two years ahead of a major re-compete, eablig the orgaisatio to have greater flexibility 8 Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege

9 ad cotrol over future sourcig optios. Some 29% aticipate itegratig SIAM ito a broader RFP durig a major re-compete of existig outsourcig arragemets, such as a ifrastructure reewal. Oly 14% expect to issue a separate SIAM RFP at this stage. Recet experiece of SIAM implemetatios suggests a 12 to 18 moth trasitio period. This timeframe must be built ito ay future IT trasformatio pla. For orgaisatios that are deterred from udertakig a full trasformatio, the secod optio is to buy SIAM services. This arragemet ca be accomplished at several differet levels: Purchase a maaged service that ecompasses some or all of the key SIAM tools ad processes; some IT vedors offer maaged services already as a software as a service Egage a parter to take o, trasform ad work out the ew operatig model leavig the CIO i full cotrol Outsource the etire SIAM fuctio to a qualified IT vedor, preferably oe that is idepedet of all service towers I reality, few, if ay, of the traditioal IT vedors are prepared to take o SIAM idepedetly because of the small reveue flows that are geerated whe compared to the mai service towers. Capgemii is a otable exceptio here as it is already active globally i providig SIAM services. Some recet deals, such as those siged by Rolls Royce ad Astellas, have eabled the SIAM provider to participate i oe or more service towers o a Chiese wall basis. The public sector has bee more rigid about applyig the idepedece priciple, ecouragig pure play SIAM compaies, such as Mozaic Services, to emerge Beefits of adoptig SIAM Speed up supplier itroductio Improve service level Icreased Commercial flexibility Busiess Agility Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege 9

10 All roads lead to SIAM Profoud chages are takig place i the provisio of IT ad busiess services. CIOs recogise that traditioal IT operatig models based largely o strategic outsourcig parterships caot respod to a rapidly chagig supply/demad ladscape. Istead, the preferred optio is to separate the sourcig of idividual IT services from the service itegratio fuctio, or SIAM layer. IT orgaisatios that make such a move will be able to wi back cotrol of IT operatios ad exploit chages i supply. Our overall view is that i the mid-term, three to five years, IT will become progressively embedded i ed-to-ed busiess services, may of which will move to exteral Cloud providers. The issue of IT sourcig will gradually be replaced by busiess service sourcig, as IT is embedded i Cloud-based busiess services. Service itegratio will trasced curret IT boudaries to become the operatig orm across all fuctios, placig it at the core of the busiess model Ed-to-ed IT Services Multi-Sourcig uder IT SIAM IT embedded i cloud based busiess services Ed-to-ed Busiess Services Sourcig uder Busiess SIAM 10 Horizos Iquiry 2013, The Multi-Sourcig ad Service Itegratio Challege

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12 CIO Coect is the leadig IT leadership commuity i the UK. Formed i 1996, CIO Coect provides exclusive isights ito techology maagemet issues, ad acts as a uique hub for the exchage of best practice i areas of IT strategy, leadership ad goverace. As such, CIO Coect keeps CIOs i the kow, facilitates powerful coectios ad supports them with advice that eables great decisio takig. CIO Coect coducts a limited umber of focussed Iquiries each year, respodig to key challeges ad opportuities voiced directly by our commuity, which icludes over 4,000 CIOs ad IT vedor executives across Europe. About the author: Roger Camrass is the Director of Research for CIO Coect. He has bee ifluetial i shapig successive waves of techology-iduced chage from digital ifrastructures i the eighties; reegieerig i the ieties ad e-commerce i recet years. He is a graduate of Cambridge ad MIT ad a well-respected author ad preseter. For more details cotact: Adre Peppiatt Service Itegratio Director Tel: adre.peppiatt@capgemii.com Roger Camrass Research Director Tel: roger.camrass@cio-coect.com About Capgemii With 130,000 people i 44 coutries, Capgemii is oe of the world s foremost providers of cosultig, techology ad outsourcig services. The Group reported 2012 global reveues of EUR 10.3 billio. Together with its cliets, Capgemii creates ad delivers busiess ad techology solutios that fit their eeds ad drive the results they wat. A deeply multicultural orgaizatio, Capgemii has developed its ow way of workig, the Collaborative Busiess Experiece, ad draws o Rightshore, its worldwide delivery model. More iformatio about our services, offices ad research is available at The iformatio cotaied i this documet is proprietary Capgemii. All rights reserved. Rightshore is a trademark belogig to Capgemii.