Shared and Dedicated Delivery Models

All traditional IT infrastructure service providers (like IBM ,EDS etc.) have over the years built competency and infrastructure to deliver IT Infrastructure Services through a shared delivery model. Most of the "commoditized" activities like monitoring and service desk (rather helpdesk as in case of many) are shared across multiple customers with the delivery team. This helps them lower costs, build their own processes to deliver services, very importantly have their own set of tools to monitor and troubleticket ( and so reduce cost and have a focused tools strategy across engagements).

Most offshore based (India based really in that sense) IT services companies jumped to the Remote Infrastructure Management (RIM) bandwagon more recently. In the last 3-4 years since their focus they have tried to get into mid-sized and now trying to even get large deals to bid. However their delivery model (for most of them) is a dedicated delivery model where each engagement has a dedicated team, a dedicated tools deployment and runs on processes varying for each customer. This is a big difference from what the traditional players do but is often missed out by clients and not effectively highlighted by these companies.

The India based IT Infrastructure Services or RIM service providers do not have a shared delivery strategy because:

• Most still have an application development and maintenance hangover which really is still their bread and butter. Those engagements have for most parts for most of them being Time & Material (T&M) contracts where the services were delivered and paid on the basis of number of consultants assigned to a contract. Essentially it is a "body shopping" work that most have been doing and so that hangover has continued to now where these large deals are Fixed Price managed services contracts.
• With the exception of couple, none has yet the long term investment horizon to invest in a shared delivery model in advance so that those can be proposed for new engagements. Those that have realized are waiting for a critical mass of engagements before making that investment but that does not happen fast unless they win large deals with a shared delivery model's cost effectiveness and process maturity. Classic chicken and egg!
• Some do not have the maturity and experience to set up one. This applies to some, where the intent is there, need understood but the efforts have not been focused and time-bound.
• The Indian offshore based players have still won many mid-sized and some large deals despite not having a shared delivery model. This has been primarily because of existing relationships on the application side which offered synergy and because they were still cheaper in a dedicated model from offshore than onsite based shared services model of most traditional IT outsourcing service providers. So their present success is jeopardizing their future success.

This move to a shared services model is inevitable. The traditional players realized that few years back and are mature on that front. The sooner the Indian based IT infrastructure service providers realize it, the earlier it would take them to those coveted tables where $1B+ deals are done.

Wall Street Meltdown & Offshore IT Players

The happenings of the last couple of weeks at the Wall Street has for ever changed the way people will look at these companies. Who would have thought in their wildest dreams that the largest retail and investment banks would fall like a pack of cards within couple of weeks. This is a logical 9/11. The one in 2001 had deep impact and was recovered relatively easily because this has had prime physical impact. This one has jolted the very fabric of banking across the world.

I happen to be in US for the past few weeks as this drama was unfolding. In fact I was at the corporate offices of one of these major banks on the day their acquisition was announced and saw the reaction first hand. Unbelievable!

Now what does it mean to the offshore based IT ousourcing players? A lot. And here is why:

• Banking, Financial Services & Insurance (BFSI) as an industry vertical is the largest contributor for almost all IT services companies and certainly for the bigger ones
• These IT services companies have been growing on a "get more (people) to get more (dollars)" mantra. In the past years, in anticipation of the trends as they saw, they have added staff, a large of whom will now be redundant
• US as a region has been the largest contributor across various regions for their revenue and so with the maximum impact in US, they would be hit hard
• As it would apply to everyone, with the sudden deep impact on banks all related and evern unrelated industries will get impacted, eventually eroding the topline and the bottomline

It is very likely that the following fallouts will be seen:

• These offshore based IT services companies will accelerate the process of de-risking by seeking out opportunities in other non-US regions. Many consciously initiated this couple of years back when they saw all their eggs in one basket but it has not been easy. EU is the major destination as the labor arbitrage holds greater promise (which unfortunately continues to be a key revenue generating driver) as compared to other regions like Asia.
• The de-risking will continue in terms of seeking opportunities across major non-BFSI verticals
• It is also imminent that these companies will bring in the first wave of layoffs for their India based workforce which was recklessly bought on board with the "get more (people) to get more (dollars)" mantra. All new hiring and promotions are already a freeze for most - either explicity or implicitly.

So, is it all gloom? Well yes, it is but couple of positives which will take some time to contribute to their growth though:

• A well spread and diverse portfolio of customers across regions and verticals can be expected in future. These IT services companies will not consciously choose where they want to do business.
• A more efficient and cost conscious culture. For most, they have not seen any cost cutting measures. Many already initiated these in the past months cutting travel and communication costs. Earlier with the excessive margins they enjoyed, it was still a value based approach in terms of revenue but now markets will rationalize with a cost based approach

The recession is there now in the US economy and so will spread other economies soon. If US stops producing and consuming others get affected the fastest. People are comparing this to the Great Depression of the 1930s and it surely will take a long time to return to the 2006-07 levels before growth can happen further on.

To a large extent the party has stopped if not over for the offshore based IT outsourcing services companies. It is probably the morning after. Of course there will be evening again and the party will start after some time, but these companies will be more sober then.

Virtualization : View from Ground Zero

While everyone who is anyone or is talking to anyone in the Data Center technology space is using the word virtualization and consolidation like never before, what really is the ground reality? Is it really that magic wand which brings in efficiency, faster time to service, lowers TCO and reduces operations cost? Is it really something that is waiting to happen and companies not embracing it on a wrong track?

Had an interesting discussion with some colleagues and we were talking how different the view can be outside this technology Big Talk on virtualization. In reality when enterprises attempt to draw plans to virtualize, it boils down to identifying the applications which would be moved to virtualized environments. This means that business teams which were enjoying dedicated servers (for critical applications or for other reason) will now have their applications moving to some shared infrastructure with no control or visibility to them. This is something the IT department would be unleashing which would move control away from the business teams to the IT team which anyway they do not hold in high regard often.

So the technology decision moves to a different level where the business teams and their leaders are asked for their consent which does not come easy.

So, what's the plan? Well, things like these need to be mandated from the top. IT teams and their vendors may be at their best in implementing and runnings operations but not necessarily in playing the political game and getting biggies to follow the Pied Piper. Another mitigation strategy is to start with low-risk applications and make it a showcase highlighting what the teams would get in terms of benefits when they potentially lose control.

It is not an easy discussion when finally this is still not a pervasive technology acknowledged beyond the CIO's team.

Exit Clauses in IT Outsourcing Deals

Most first generation outsourcing companies realize that they did not do a good job in firming the exit clause for reverse transition for the incumbent. There is anyways not too much of motivation for an outgoing provider to assist the incoming provider with information after losing the deal. A contract binding them for this will at least some help though it will never be complete and motivated.

Am also seeing that many second generation IT sourced deals have this in fair detail. Eventually enterprises will move to a framework and model where they will decide what they want to retain even as they change providers and the agreements will be more cognizant of the fact that the new service provider will eventually need to go one day and so the exit clauses are important today for tomorrow.

Is A Server, A Server and Only A Server?

How important is it to know about customers business processes when running IT Infrastructure services as a service provider? And the reference is in terms of what application development and maintenance providers need to know, which is relatively a no brainer. The application development and maintenance service provider needs to have a deep understanding of customers business processes to be able to deliver with an appreciation of the impact on the customer's business. For IT Infrastructure though many say a server is a server is a server. Or is it?

There is no denying that knowing customers business is always good if not essential but the question is how much does a service improve in terms of IT Infrastructure services with a knowledge of customers business. Personally I think that if rules exist to priortize incidents, list critical environments in various tiers of service and there is an application to server mapping with critical ones defined then knowing customers business will still be good but it may not result in major differences. There are still areas like batch job management where this information may be more crucial but it may not be making a very big impact overall.

Service Transition : Why Is It Critical

Transition is a very important phase in any outsourcing engagement. The quality of transition often decides the quality of services delivered in the steady phase. A poor transition sets back an engagement by few quarters which may be very crucial in a typical 5-7 year engagement.
Often enterprises do a lot of due diligence on steady state operations plan but transition is that essential cog that gets missed. This ends up being a crucial mistake as this then impacts and upsets the steady state operations.

Another reason why transition requires greater focus is that this is one part of the engagement where the client and the incoming provider jointly do not have as much control as in the later phases. There is often a dependency on external parties like the incumbent provider or outgoing employees with little control over their performance in the transition phase.