IT Infrastructure Services,IT Outsourcing/Offshoring,Remote Infrastructure Management(RIM)

The IT Services Cloud : Emerging Trends

2011-12-11T00:41:00.001+05:30

NetworkWorld recently carried Gartner's Prediction for 2012. The summary has predictions, many of which revolve around the buzz that we have been hearing around cloud services, social networking (here in the enterprise context), IT security, smart devices, energy crisis etc.

One that caught my eye, and is against the current known trend at large, is around movement of Asia produced finished goods and assemblies (consumed in US) to Americas (not US per this prediction). While this is not widely discussed, movement of manufacturing and even services bases around the world is not unknown. What has worked well is not necessarily set to work well in future too. In fact if we extend this to IT services : it is not very unlikely that center of gravity of where these services will be delivered, will also move in the coming years. In fact it may move to not have a center of gravity at all and be more diffused than previously known. Several new contenders from Europe (more of East Europe) and those from Far East are already creating shifts in the currently emerged models which moved out of US in the previous decade. These are challenging the current sweet spots in India and other regions for IT services.

What will countries, currently making hay while the Sun shines, do in that scenario? There are naysayers galore which is evident with continued investment in building greater and bigger delivery infrastructure. Like any bubble, these will continue till the trend reversal seems imminent. That will unleash (if this theory which I personally feel is not too far fetched) a string of manifestations which would not be new. Looking at what happened when a disruptive model moved many of these outside US will provide some insights on those impacts.

For now, the view from the trenches does not show this trend at all, probably because the view from trenches is never good to know where things are heading overall. In India, companies continue to grow and many are rightly in a constant effort to find those differentiators and build exit barriers.

In the longer run, companies should focus on building capabilities and resource models which are not geo-specific and should be easily adaptable across cultures and geographies. What then will emerge are leaders in IT services who can front-end with enterprises and get the work done. Where the work happens may not be really relevant. It would then commoditize the services model and turn it into a "IT services cloud", invisible and transparent to the enterprise. The core focus would then be around understanding business imperatives, domain focus and orchestration of service delivery which the clients would value. Where work gets done would then be irrelevant, who gets it done and the process maturity would be key then.

Scale Matters A Lot!

2011-01-09T00:45:00.003+05:30

Recently talking to a friend who is working on a business case for setting up an IT Infrastructure services practice, fact that scale matters a lot come up strongly across various scenarios we discussed. Since several delivery models require 24x7 operations, across various technology (or sub-technology flavors), often times the staffing done is to meet these requirements of having a resource available at all times but the resource may not be fully utilized. However as the scale of operations increase, the per equipment FTE number decreases dramatically and the cost per ticket (as one metric) reduces substantially.

And since this is a services business ( read people's business), a larger scale of operations helps in better employee retention with the employer being able to provide better prospects for job rotation, career progression and varies exposure as the scale of operations increases.

This is one reason which keeps a high entry barrier for this business. While there are several players in the market, many are waiting in the wings to reach that critical threshold which would help them be more competitive and offer a compelling cost case to their prospects.

Hardware Refresh and Software Upgrade

2010-10-03T07:36:00.003+05:30

If there is one thing that distinguishes IT infrastructure services from the general IT services pool in terms of structuring the deal and the impact on (accounting) books, it is the way IT infrastructure space impacts capex decisions of CIOs. While "running the operations" draw opex budget for software services and infrastructure services, the need to refresh hardware (network gear, desktop, servers and other related gear) and upgrade software (to keep pace with OEM support or hardware compatibility) brings in the capex element which makes most long term deals interesting.

When outsourcing for infrastructure services, value being sought is not just in improving service quality, operating efficiency, running cost optimization but also to reduce and smoothen the traditional clunky outflow on account of such refresh and upgrade requirements which are mostly inevitable and a necessity in large enterprises running mission critical environments.

As different service providers come with up different models for addressing these customer imperatives, there are different approaches each provider takes. Some have their in-house financial companies which finance/lease hardware ( these service providers also want to keep such activities on a different accounting book and not let it pull down its operating margins and numbers). There are some others who do not have such options and take this as a "core value prop" pitching it as an advantage of not having any bias to any technology OEM. However with time, since the business of business is business, CIOs may like pure-play show but finally it is where the dollars are saved that they mostly end up going with as finally that's how they get their bonus worked out!

If the enterprise does not own the existing equipment, this becomes a big factor in large deals as they then do not find it attractive to add equipment to their books in the current situation. If they have the equipment on their books, already this gives them a great opportunity to build a business case to use the opportunity to outsource or change their service provider and sell their assets to the new provider.

Revenue and People Count

2010-10-02T08:29:00.002+05:30

Look at the quarterly or annual revenue reports of offshore based IT services companies and almost all report revenues and employee count hand in hand. The unsaid association is that more the number of employees, greater the revenue. So, you read projections each year of each company targeting to hire in the upwards of 20,000 or even 30,000 or 40,000 employees each year!!!!

An interesting study would be the comparison of revenue per employee of these firms with that of their competitors who are primarily pure services non-offshore headquartered or services companies with OEM business as well. And if we want to spread the spectrum and skew the numbers further, we can include the same for software product majors. Will make for an interesting weekend study which I will do one of these days. But the relationship drawn makes one wonder where this will stop. For a $6b-$8b revenue if the employee base needs to be upwards of 150,000 employees, what happens when the firm is say $20b if there is always a linear relationship which has happened till now and firms don't seem to be talking of more value based revenue. What worked well in the past will not necessarily work in the future. As the employee base grows, focus on managing the gigantic resource pool and its aspirations will be crucial.

Increasing Remote Operations in Offshore Operations

2010-01-18T19:56:00.000+05:30

What has probably existed for few years in the US based operations of OEM majors who are also service providers, is now catching up at offshore locations of these and other offshore players. Increasingly administrators are working from home - thanks to the improved network services which are also cheaper along with the reducing costs of a laptop and a mobile phone, not to mention the pervasiveness of chat and video conferencing.

Till 2-3 years back, such were just privileges which some of the senior folks in the offshore operations could enjoy as not everyone yet has a laptop in most offshore operations' teams which work on customer projects. Secondly, the efficiency of home networks (cost and quality) has improved several times. My home broadband has more than 99.99% uptime for the last few years I have been using it in India.

Another advantage of the home worker is the saving in office space along with reduced commute time (and cost) for the worker which motivates them to work well from home. Of course they need to ensure that they have a decent "home office" with no interruptions which is something that many struggle with as most homes are not big enough to have a study.

Other issue that many report is the inconsistent power supply in some of the cities/areas. However these days the power outages are mostly couple of hours in a stretch (as a maximum limit) which is better than the situation few years back and an air card with a laptop ensures that the worker is active even when there is no electricity for few hours at home.

So it is a win-win for the employer and employee but what about the customer? While many companies may not explicitly disclose to their clients the number of work from home workers on the account, most often the quality of service is at par with the workers working from a regular office. And most who work from home still come to the regular office once or twice a week to meet up with their supervisor and some of the face to face team meetings.

Another important "constituent" set are female employees who find it very useful to work from home in a predominantly patriarch society of most offshore countries where the woman of the house is still responsible for cooking and cleaning though it is gradually changing. Many are also able to afford domestic help with the new salaries they enjoy.

So it does sound like a win-win-win for employer, employee and the client. Talking to some such workers - most enjoy the flexibility to handle home and work but yes they do miss the water cooler moments which technology still can't help with!

HP's Acquisition of 3Com

2009-11-17T06:10:00.002+05:30

News that HP has acquired 3Com is news and probably went unnoticed largely. Juxtaposing it with the acquisition of EDS last year, clearly HP has a strategy where these pieces fall into place. While HP cemented its services game plan to meet the challenge from IBM with the EDS acquisition, with the acquisition of 3Com, it is meeting the challenge from Cisco.

Will be interesting to see how the integration of these companies will play out to bring value to HP's revenue and profitability.

"Yes Sir" and No "No Sir"

2009-10-09T08:22:00.006+05:30

I was having a lunch conversation with a colleague who has moved from the IT department of an enterprise to an offshore based service provider's organization. He was sharing his frustration on the lack of assertiveness on the part of most team members in the offshore service provider's team (and in that company in general). Since he had moved from an internal IT organization to a service provider, these were frustrating for him when he was in calls with the client where his colleagues mutely accepted whatever the client asked for --- be it additional scope of work, very aggressive timeline commitments or unrealistic service expectations. They just didn't push back!!!

This is in fact a recurring sentiment I have heard from many on both sides of the table -- those who offshore work to IT service providers and those who provide such services working for offshore based IT service providers. This is in fact a very rampant behavior trait which neither party wants to discuss because one is taking advantage of it and the other is being taken advantage of. Worst, most often the team members don't even realize that there is an option to push back. I am not suggesting that the trait should be a "push back all the time and every where" attitude but there are ways to respectfully and collaboratively correct a client's expectation if they are unrealistic or may have issues which they may not be aware of. Most folks in several offshore based companies just do not acknowledge this and this seems to run through the echelons of power in such companies. I have heard of some companies where the relationship manager says " How can I say NO when the customer is asking for it? He is the after all the CUSTOMER!" for situations where what the customer is asking is just not do-able or practical. What is not understood is that in the process incorrect expectations are set and face-off is deferred to a later time when anyway the expectations will not be met or lead to consequences which are not desirable.

Now, the interesting part --- though most customers who offshore take advantage of this cultural trait ( we will delve more on how much of it cultural and how much of it is anything else), in private they acknowledge that they want partners who can challenge them and say NO when the right answer is NO. They do not want to get a submissive YES for everything because then the service provider team is not bringing value in validating what they think. If, whatever the customer think prevails, there is no check or balance to bring in perspective from similar experiences with other customers. Not just that, many even say that they actually would respect an offshore provider more if they see the teams more balanced and responsive and say NO when that is the right answer.

What is the reason for this seemingly foolhardy behavior?:

There is a bit of a cultural aspect to this given that such conversations happen across cultures. While at one end are customers from the western world ( mostly Americas and Europe ... and I don't want to get into which ones from these two are more aggressive!) who are more aggressive in general, at the other end is a typical Indian or some times even attributed as an Asian trait of not confronting the client directly in business situations.
Another reason and more plausible is also that it just is not there in the DNA of such offshore based IT services companies because they essentially grew through T&M (Time & Material) contracts contributing almost 96% of all their revenues in the last 20-25 years. In a T&M contract, the resources from the service provider works as part of the staff of a manager who is from the customer's side. So, they are essentially executing tasks assigned to them. There is little chance to be asked for opinion in that sense and whatever opportunities exist are not leveraged due to the cultural trait discussed earlier. So, over the years, the organizations have grown on a staple of T&M engagements where their staff has followed what was assigned to them not having much of a chance (or inclination) to speak up to do things differently.
Another reason for I have seen is the "Customer is always right" syndrome which is conveniently used as it means whatever the customers asks or says is to be followed and takes away the "burden" of finding what is better or right if that is not known.
Another reason, which is again highly debate-able and needs to be understood in the right context has to do with the evolution of most of the offshore based IT service providers. In the early years of their formation, the staff they mostly used were from their base countries. However the IT maturity in these base countries was not to the level of what existed in most of the western world where the customers were located. Hence, while the staff started working, they were mostly on a learning curve for some of the technologies as these were new to them. Hence, in those early years, they also lacked the confidence of knowing that they could have a point to make since they knew that the client teams had worked in these systems for a longer time in the past than them and hence they found it more convenient to follow what was being told due to lack of confidence.
Finally, many organizations just do not understand still of what the customer is looking for. They think that by agreeing to what the customer is asking or suggesting, they are making the customer happy and ensuring continued business.

However this today is not limited to traditional offshore headquartered IT services companies. Since many of the employees in the offshore units of onshore headquartered IT services companies have been hired from the offshore headquartered companies, they carry these personal traits too with them in their new organization. This has further contributed to their own challenges in meeting expectations at times in their new organization or at times led to further rifting of the great divide that exists in such companies between their offshore units and their base home units set up onshore in the Americas or Europe. That rift is probably a topic for another post though!

But before I conclude this post, I should say that these are typical traits heard from many people on both sides of the story. This however does not mean that all offshore based IT service providers or all the team members of a particular service provider demonstrate this trait. There are many who are highly appreciated and their clients will tell you how they brought value by brining in perspective that were really brilliant. However, for those who found these traits, the above is an analysis on why it possibly happens given that such a behavior does not help either party in the long run.

Tiered Infrastructure Architecture

2009-10-06T17:58:00.004+05:30

Thanks to the recession, CIOs are busy but not to support the growing demands of business, but instead identifying how and where to save costs and bring sustained value. When the going is good, it seems to pay better to throw more hardware, software and labor at any business requirement because business is growing and someone will pay for it. Studying delta savings and incremental benefits are more of overheads, where the cost of managing them seems to outweigh the benefits accrued. Not any more in these times!

One of the things I have consistently observed is the lack of a consistent approach to a tiered infrastructure architecture. IT infrastructure is mostly set up as chunks of monolithic or patchy systems with no stratification or gradation of the infrastructure or the service quality provided on top of it. While many banking and other enterprises do have "A Class" infrastructure or service for "A Class" business applications, the rest of the applications and their underlying infrastructure is most often a mix of systems acquired over time. It is often not possible to say that we have three kinds of storage infrastructure --- A, B and C which caters to different kinds of storage requirements in terms of these metrics 1. ..... 2. .... and .. 10. ...

An efficient environment should have an enterprise divide its IT infrastructure into two or three grades. Each component (hardware, software, labor) should fall into one of these buckets. It may not be possible to have an air tight environment with no overlap but having at least 80% discipline from the current 10% (or none) will result in cost efficiencies and better manageability. It will also ensure IT is more responsive and participative in growth --- next time a project estimate is made for (say..) setting up a new back office, the project cost would be more reflective of how critical that operation is to business. IT team would first ask how critical that environment is, operational requirements, redundancy requirements etc. for all aspects of IT environment to plan for an optimal set-up instead of an one-quality-fits-all approach where that "one quality" is often an expensive service requirement.

Emerging New Players in Outsourcing Space

2009-10-02T21:01:00.004+05:30

In the last two weeks two major acquisitions were announced in the Outsourcing services space --- Dell acquired Perot systems for $3.9b and Xerox then acquired ACS for $6.4b. These come within a year or so of HP's acquisition of EDS for $13.9b in May 2008.

While each company has its reasons to buy the acquired companies, these deals have few things in common:

The acquiring companies are primarily hardware manufacturers and the companies acquired were services companies. Xerox or Dell did not have any services business contributing any significant amount to the revenue pie
Both these recent deals came during the time of recession (or at least the fag end of it if we believe that is the beginning of the end of the recession). In these times if Dell and Xerox spent time, energy and money to acquire these companies, it must surely be a major event in their history. This is surely not one of those Cisco acquiring yet another technology company ( by the way they acquired Tandberg yesterday for $2.96b) where the fitment is obvious. The acquisitions by Dell and Xerox are much more aspirational than others as they aim to start a whole new service line of revenue for their companies. In fact Xerox's acquisition of ACS is even more aspirational than Dell's where the latter at least was in a related business.

Talking of aspirational acquisitions, Oracle's acquisition of Sun for $7.4b which was sure stunner for most industry pundits.

And not so back in the past, IBM had sold its hardware business (ThinkPad) to Lenovo, exiting from a product manufacturing revenue stream -- which helped it focus on services business and improve profitability in a significant way.

These deals are surely going to have some bearing in the future outsourcing services market. Dell is keen to shake off its PC-business image, whereas Xerox realizes that somewhere the printing and copying industry would head to be a sunset industry as over time people have been printing less, copying less on the whole. This will help each company jumpstart into the services space and meet the kind of companies they aspire to compete with.

Interestingly both Perot and ACS have a fair offshore presence in India. With the acquisition, both Dell and Xerox would also get access to these facilities and delivery models. It would be challenging to integrate these acquired companies and find the right kind of management team which can oversee a different business from their traditional manufacturing business.

Pricing Models and Choice of IT Service Providers

2009-09-14T21:53:00.000+05:30

Among the various pricing models in vogue with the offshore based IT services providers, the key ones are time and material (T&M) and fixed price (FP) models. While there may not be complete data ( or at least I have not seen), on which ones rule the most --- my personal take is that T&M contracts should be accounting for almost 80% of the contracts if not more. The rest are mostly fixed price. There are some others like device based unit pricing, outcome related pricing which may be there in pockets but mostly T&M rules the chart.

This also shows the nature of engagement --- the customer owns the risk in such contracts -- and probably s/he don't mind it as the nature of work outsourced is chopped and packetized to ensure it follows the technologies, processes and skill requirements that already exist. However as corporations move to a managed services environment, if you can rely on your provider, then to help them realize the full potential of their innovativeness and cost-efficiency, one needs to look at pricing models like fixed price, utility based, transaction based or, outcome based. However, the difference across these models (apart from how you assess the charges and the risk ownership) is also the degree of control you, as the outsourcing enterprise, would wield. So, not only does it require a mature, stable and innovative partner with a track record, but it also needs the outsourcing enterprise to agree to let go control, to varying degrees to completely benefit from outsourcing.

It is not uncommon to see most CIOs embark on a roadmap starting with T&M model, with a stated objective to move to other more deeper models gradually, but somewhere down the road that does not happen -- often fuelled by the outsourcing enterprises' staff's need to retain control or due to the lack of leading-the-curve trait shown by the chosen provider. And then, between the choice of going for a new partner in the hope that it will be different or to continue with the current one but with a lower degree of involvement ( and no transition and a whole lot of other stuff to face) organizations often choose to continue with the chosen provider.

So, it is also important to choose a service provider carefully in the first place before you let them in. It is much more difficult than shifting to a new desktop manufacturer ( which in itself is not easy either!) when it comes to changing service providers for IT services.

Service Provider Consolidation

2009-09-08T23:52:00.001+05:30

Many large enterprises over the years find themselves with mulitple IT outsourcing partners who were brought on board at different points in time for different pieces of work. Some times, it is a collated view of opportunistic out-tasking where the cheapest bidder gets small chunks of work till it emerges that the total cost of managing several contracts and service providers, outweighs the benefit of lower cost in siloed contracts.

Among large companies with substantial growth and those with multi-national business spread, it soon becomes apparent that having fewer partners incentivizes them to bring greater value not just with cost but with the quality of work. Clearly, if a customer contributed $5m of revenue, the focus woud be differnt from what it would be if the customer contributed $100m of revenue. It would get greater senior executive review and the outsourcing company would go further to ensure these revenue streams are protected and grow through a partnership.

This, in a free market situation, also acts as an entry barrier for smaller IT outsourcing players ( and actually in any industry with vendor consolidation). .That is why most large companies mature to outsource to few and large IT outsourcing providers only.

In fact, looking at the state of vendor split, size, number of outsourcing providers for an enterprise can actually also reflect on the relative maturity of these organizations in the outsourcing space. Each company has its own journey, driven by its strategy to outsource and its size.

Domestic IT Services Market in India

2009-08-27T23:54:00.000+05:30

Offshore based IT Service Providers from India have interestingly a very modest to negligible play in the domestic IT services market in India. With the exception of those which have a hardware based business in India for couple of decades and who do primarily hardware sale and systems implementation, most of the bigwigs have very little revenue coming from India. For those who have, it is in single digits or roundabouts of their total global revenue. Reason?:

- Core value proposition, including but not limited to labor arbitrage does not apply to customers who can also get work for as much as they do
- Access to competent and skilled resources for customers
- Lack of technology maturity in the domestic technology market
- Rampant insourcing in the industry in general
- Long, low value sales cycle. In comparison the same efforts would yield more and higher value (revenue and profit) business in US and Europe

Having spent few years of my earlier life selling in the domestic market, the experience of selling is also different where the customers' buying behavior is much different and not so sales friendly.

Things are changing, moreso with some of the large government or government backed IT spending initiated in recent years. There are also some large and early companies who are looking at total outsourcing

Why Didn't Recession Boost Offshore Services Revenues?

2009-07-31T23:55:00.001+05:30

The common speculation that outsourcing and specifically offshoring of IT services would rise dramatically in the recession remained just that -- speculation! In fact in the last two quarters, barring some exceptions, the offshored based IT services companies also saw their revenues from new deals fade just like other industries were hit with recession. This is surely merits a study to understand why this is happening. It looks obvious that an industry thriving on reducing operating cost would only benefit in a situation where bulk of their customers (in US and Europe) move to an environment of severe crunch.

What could be the reason? While an empericial study led by interviews on both sides (customers and service providers) can share some data backed insights, following are some guesstimates based on my interaction with people in the industry:

- Outsourcing and offfshoring activities generally require time to execute through a well defined procurement process if it has to be done at a large scale ( to derive larger value of benefit). Hence this was not considered as an exercise to reduce operating cost since the horizon of initiating, getting a new provider and finally breaking even would be over 24 months --- a time horizon much farther away than the urgency demanded.
- This increase in revenue would have come most from companies who had shied from offshoring in the past and would gain most by unlocking this latent chained value in their operations. However these same companies also shied from offshoring now, which would have resulted in further unemployment in their country. This was not a desirable PR move given the focus on increased unemployment due to recession.
- Many of the companies did outsource but not to offshore based service providers. They outsourced to local American or European IT services companies who offered labor arbitrage close to what the offshored based players offered by having India based centers to deliver work. So, while the offshore based players may have resulted in a marginal better value, enterprieses took a stance to outsource to in-country companies which helped without any negative PR of jobs going to companies from other other countries. Of course, at the back-end these US/Europe based companies leveraged labor in other countries.

Clouds In The Sky

2009-06-27T08:57:00.001+05:30

After a long time in the industry has a technology come which people are so excited about – everyone trying to define it and everyone trying to explain what they think it is. It is surprising that still, most articles on Cloud Computing start with defining what the author considers constitutes cloud computing.

Most however seem to agree that a cloud enabled infrastructure enables:

Dynamic provisioning
Scalability and flexibility
Universal access
Computing cost as opex with little or no capex expenses

What is not talked as much as the hype on the cloud but is bound to get relevant as people get into enabling it for their enterprise are aspects related to:

Security on the cloud ( yes, there are people already talking of it) is something which needs to be considered at all levels from application layer to infrastructure layer
Very high dependency on the WAN bandwidth for performance of the applications. Until now, for those enterprises with critical applications on computing infrastructure within their enterprise, they were mostly accessing it over a LAN for a large part of the population typically in the head office. Other users would access it over a corporate MPLS network. Now, everyone does the same and while it is possible to get dedicated access and get the same experience, the network charges are bound to go up
The big challenge of application migration where applications will need to move from existing infrastructure in-premise to cloud infrastructure. This will throw up a whole lot of issues where currently running applications for years will need to be unseated and moved to a new environment or even may be get a parallel application environment stood up in the new cloud infra. However as more critical applications start moving on this path, unless these have been recently deployed, challenges will come forth on getting the exactly same environment in the cloud. It is not unheard of, to have critical applications in large enterprises running on hardware or software systems, some of which are end-of-lifed. They continue to run as the cost of finding an alternative or migrating to the new version or system is much higher than running it with higher maintenance for its useful life before retiring them. It may not be easy to re-create environments which require setting up an old out-of-support version of Oracle for a customer who some part of the ERP is connected to an application which runs on this environment. The older the systems and the more customized the applications, the greater would be the barrier to move them to the cloud.
Lack of control for businesses over IT. Now this is something which seems pretty rampant but not discussed so often : it is not uncommon to find businesses running small (or even mid to large) IT departments outside the “corporate IT” for certain applications and systems that they closely work on. In some F500 companies, if aggregated across teams, this is even upto 50% of the size of the corporate systems. In other companies, while businesses use the common services of “corporate IT” they dictate the requirements : “Well, this is a mission-critical application related to blah blah ... and we need a dedicated environment for this application. We cannot have it share computing power with any other application and need a high-end server with ....” With cloud, to some extent, businesses will lose such control and may not be so amenable to have their applications moved to a cloud.

Overall the adoption to cloud will happen in a phased manner where enterprises will test the waters or rather test the clouds, with some early applications. That process is bound to take a while, but moving test and QA environments would be a better bet for lot of reasons. That is the subject for another post!

Extending STPI Tax Concessions

2009-06-14T22:33:00.003+05:30

15 years back, the Indian government, granted tax concessions (between 5-8%) to enterprises operating under Software & Technology Parks of India (STPI) to give a boost to this (then sunrise) industry. It was considered wise to give this booster shot to help such companies earn more and enjoy a tax concession.

It is now time to decide on either extending or allowing this concession to cease as per the provisions in force. The industry ( which now extends below software companies and includes many ITeS -- IT enabled Services) is rallying to get this extended for another 3-5 years. It will surely help them with a direct impact on their bottomline. If that does not happen, it is likely to adversely impact their earnings by that margin.

While there are no clear clues, it is being widely hoped that the government will extend this concession but negotiate with the industry on the duration. These times of recession are surely not the best to have some more tax outflow but the government has to also look at how this impact tax collections -- which would be a big amount once these tax are brought in force.

For now, the industry groups are waiting for the new government formed to review and come up with a recommendation, but this is surely going to impact most companies operating from India. It is still not clear, if this will impact the pricing levels for future contracts, but surely, it does not help the service providers much and they will then need to take a call if they fork out this extra money from their coffers or try to increase their billing rates marginally -- or most likely as it will be : a little bit of both

Production and Non-Production Support : Experience Matters

2009-05-10T22:27:00.000+05:30

One of the other challenges in maturing (and this one in the IT services space) has been that most of the IT services companies based out of offshore have traditionally been engaging with customers in supporting their non-production environment and have little experience managing production systems. In any bank or a large manufacturing set up the production environment is sacrosanct and critical for uptime and performance. However the rest of the non-production systems like Development environment, Test Environment, Staging Environment are not deemed as critical as business depend on them as much as they do on production systems.

One of the key reasons for offshore based IT services companies having little experience managing production systems is that most of the offshore based IT service providers grew on a staple business diet of application development and maintenance. This resulted in these companies developing expertise, best practices and propositions in this space. However almost all of these activities are centered around the non-production systems. When their application (or an enhancement) development, test, QC activities are complete, these were typically handed over to the onshore based service providers who would be running the customers’ production systems for deployment. Offshore based IT services companies have had little opportunity to get into the production environment due to this and probably made little effort as that space was being dominated by the strong, traditional outsourcing service providers. It was easier to get the bucks coming in doing the application development and maintenance work, as they had cracked that part of the puzzle but these companies did not venture out in the production environment space.

This has come haunting these companies when they eyed the IT infrastructure services space. In this area the customer requires companies to manage their IT infrastructure environment, most of which is in the production space. In this space, the offshore based IT services companies have had little past experience and understanding of the underlying complexities. Also, the maturity of the IT systems in the local domestic market and those in US and Europe are not the same ( the latter being more mature and evolved over a longer period of time).

This is where, often in opportunities which involve support of production systems, traditionally onshore based providers have an edge as they grew in that space. Offshore based service providers are now inching towards this space with some having made more stride than others --- but clearly this can be generalized for the class as a whole.

Lack Of Product Focus in Indian IT Companies

2009-03-14T22:21:00.001+05:30

While so much is written and read about the IT industry in India, two areas stand out and are conspicuous by their absence in all these discussions. And it is not surprising that these are two areas which otherwise in other parts of the world are in many ways the essence of IT industry. These are:

- The hardware industry

- The software product industry

While it may be incorrect to say that these two sub categories do not exist, fact is that these are hardly mentioned, known or existing the form to be reckoned with globally.

While India has made great strides in the space of IT services, the IT product area has not been something that can be written much about. While there have been hardware products designed to some extent, and there is ample cheap labor ( which can be seen in non IT manufacturing growth), core product design has not progressed much. It requires a different kind of rigor which the IT industry is yet to imbibe. Curiously the same IT services companies are working with leading global IT product companies to help in their IT.

Maturity and leadership in IT technologies will get a big boost when IT products are designed, planned and manufactured in India. This is true of several other economies where this can be seen and India should surely be on this track.

Needed : An Indian SOX

2009-01-15T23:14:00.004+05:30

With the Satyam accounting scandal that has not just rocked the Indian IT industry but overall the Indian business community, the need for stricter norms for publicly traded companies is loud and clear. It is surprising that no one is yet talking but just like Enron, Worldcom and other disasters led to the Sarbanes Oxley regulation in the US, this is the right time ( though late) bring about such a regulation to ensure such disasters are never repeated.

That the business of business is business is known, but when businesses go about creating or evaporating wealth by doing pure accounting, the impact is felt across the socio economic levels of not just the country but globally in case of such enterprises.

A lot of Indian IT companies are taking extra pain to demonstrate their transparency and voluntarily going ahead with key disclosures to substantiate their financial position. This is a great booster and helps enhance the credibility of the industry which many perceived to have taken a beating with the events of the past week.

Satyam - The End of A Beginning or The Beginning of An End?

2009-01-11T10:30:00.006+05:30

The events of this week with Satyam Computer Services, India's fourth largest IT services company, has left all shocked and stumped.

Industry associations and government are keen to ensure that this does not in any way dampen the "India story". In a basket of mangoes, there can be a few bad mangoes which does not make the basket bad. Enron did not mean that all American business enterprises indulge in fraud and similarly this is an aberration which needs to be highlighted and quickly addressed.

The customers, employees and shareholders are the most impacted with this. For others, it is more on an "environment news" - but for anyone who is one of these, the damage is closer and devastating for employees and shareholders.

It is good to see that the government has taken up some rare and unprecedented action ( at least to my knowledge) of instilling this confidence by constituting a new board. Once the true state of the finance position is known, the team will chalk out a program to stabilize, recover and then grow.

This is important for Satyam and for the offshoring and IT outsourcing industry from India in general. Something to closely watch and these events just reinforce that nothing can be taken for granted.

Satyam Computer Services : An Acquisition Candidate?

2009-01-04T20:53:00.005+05:30

While a lot has been written recently on the developments at Satyam Computer Services in the recent week, clearly with the directors resigning including the high profile Vinod Dham, it has impacted their image. The recent World Bank issue which reportedly banned any business withthem for few years did not help any further either. There is more news tumbling on the nature of holdings by the promoter but this post is not about these developments really, but their possible impact in terms of a possible acquisition.s

So, is Satyam a good candidate for acquisition by either traditional onshore providers (like IBM) or even offshore players (like Infosys or TCS)? It may not be as easy, even when the time comes after the next quarterly announcements which is expected to clear their holding and cash reserve position. Here are some considerations:

It is too big with over 50,000 employees for a simpler acquisition assessment
It has been aggressive with its pricing, often taking on business with lower margins which may not fit every company's norms
It has a very negative image currently with possisble impact on future earning potential which does not strengthen a case for letting it exist as a separate entity after the acquisition
It would not bring any differentiator to at least the offshore based providers, except access to a resource pool of their employees and the existing customer base. No major technology or service differntiator would be involved.
For onsite based providers, most who wanted an India story have a big India presence already (IBM has over 70,000 employees) and so it may at least appeal to a major onshore based provider which was left behind in building an India story. This probably would be from a European provider as most US based onshore providers already have a big India presence.
While always counted among the top 5 of offshore based players, it was probably the one without a professional management team, when looked at by outsiders. There are others also in the Top 5 who are also led by the founder or his family but with all other factors inclcuded Satyam stood out in that count.
The current economic climate does not motivate many to look at Satyam for an acquisition in an all-cash kind of deal.
There has been a start of exodus and poaching of some of their brighter employees which will only worsen with time, if a promising suitor doesn't move quickly
Satyam has played in most segments but does not lead in many and by too much. The best areas known as its SAP practice and to some extent its engineering services practice.
The promoters have caused damage with the news trickling and their other interests (in real estate etc.) to make any new company do a thorough scrutiny of its books before deciding on it.

Surely a story to keep tab on in the coming weeks.

Chargebacks for IT Infrastructure Services

2008-12-06T22:07:00.001+05:30

While the concept of chargeback has been around for many years now, in reality there are really few organizations which have implemented this really well. But it will also not be wrong to say that almost all organizations have initiated or have some form of chargeback mechanism in place but most of them do not cover all aspects of the services and assets. The easiest form is to charge departments for their spend on project work -- but the tricky part is with the operations and support side.

In its most mature form, it is a CIO's pushback to be taken seriously -- to shape the IT department as a profit center and not as a cost center. However there are several challenges that organizations face. However, this does not stop them from asking for such models from bidders when releasing an RFP.

The fact remains that in few organizations IT department really calls the shots. IT is still considered a support department and not really taken seriously. There are stories of CIOs who changed the way their companies did business - but for that the CIO needs to have a strong vision and leadership style along with a receptive boss who is ready to give him a chance.

Some other factors that have probably contributed to the lack of acceptance:

Overall diminishing cost (seemingly, though TCO may not vary too much) of hardware resources
Pushback from business which would not welcome this as it would make them more accountable and they would not be their careless self when asking for more!
Lack of meaningful model which can be adapted and agreed by all. Given the complexity and variation of demand, it may actually be useful more in very large environments. In smaller ones, it may actually make sense to have some level of aggregation to manage costs
Lack of acceptance and prevelance of service catalogs which are a pre-requisite for a good chargeback model. While ITIL has talked about service catalogs for some time, these are again not easy to implement and need to be really exhaustive and relevant

Am sure they may be more, but these come to mind as key ones.

It is difficult to say if it is good or bad and it rally depends on the size, scale and nature of business. Overall it is surely desirable to make business understand the cost of services they enjoy or demand but there has be a good tracking mechanism.

Maturing Remote Infrastructure Management Capabilities

2008-11-20T20:39:00.002+05:30

RIM service providers are maturing, or so most say, when it comes to developing capabilities up the value chain. Following (in ascending order) are the service areas when it comes to assessing maturity on a single dimension of nature of service delivered. There are other dimensions -- in terms of pool of resources, number of customers, innovation, patents etc. but we will for the sake of simplicity, limit the discussion to the nature of work being outsourced to offshore RIM providers. So, here's the list in ascending order of maturity:

Monitoring : L1 monitoring of events; resolving basic ticket and assigning tickets to L2/L3
Management : L2/L3 support; resolving tickets assigned by L1 teams or system generated and queued
L4 support : L4 or close to OEM technology support
Architecture : Designing of IT Infrastructure
Implementation of mid/high complex infrastructure : includes Storage, Backup, high-end computing platforms
Transformation Consulting : Roadmap and recommendation for transformation
Technology Development : Pioneering new frontiers of technology related to IT Infrastructure

Most IT Infrastructure providers or RIM service providers are today operating at the lowest two levels of L1/L2/L3 support. There may be one off engagements where they deliver higher levels of support at L4. For those higher up in the value chain (in italics above), it is still a space where they have not established themselves.

It is not easy to find resources who have practical experience in those areas at offshore. Competencies are being mostly build with experience being at L1 through L4 levels but that is not easy. Hiring professionals in other geos is an option which some have started to consider but then they cannot use that as a scalable model without upsetting the labor arbitrage.

HP & IBM

2008-11-13T21:02:00.002+05:30

Among the various OEM majors two companies stand out for their coverage and above all "offering mix". Each of these two have a hardware business to reckon with, have a software aspiration (or also a software business to reckon with) and each of course is big in the services play.

Let's look at some of the major competitors in each of these categories:

Hardware : Dell, Sun
Software : (is a big space depending on where you are looking): Oracle, CA, BMC
Services : EDS, CSC, Accenture, Offshore based players like TCS, Wipro, Infosys, CTS etc.

This is an interesting situation because their competitors in each of these three distinct categories are also possible alliance partners or sources of size-able revenue for one of the other category.

Both these companies realize that wooing the service providers who also compete with them is also important for their hardware and software business. Thus it is not uncommon to see HP/IBM presenting and sharing technical details of their hardware and software products with these service providers.

This is an interesting relationship! The two companies are competitors for large deals but also need each other though often the hardare vendors seek them more than the other way. In caseses where the service providers encounter mainframes, of course they would then seek IBM for specific inputs.

On their part, HP and IBM talk of how these distinct teams are different and insulated from each other. The sales rep will give some standard explanation of how his colleagues work on the same deal but they don't talk and the whole of IBM/HP till the top is unaware of IBM/HP teams working on the same deal.

Impact of Recession on Offshore Based IT Services Companies

2008-11-10T11:18:00.005+05:30

I wrote some time back on "Wall Street Meltdown & Offshore IT Players". In the past months the meltdown has crossed over to the oft quoted Main Street and now is on Hosur Road, Whitefield and OMR in India.

The global recession which was being discussed in whispers and "what ifs" is now full blown in terms of acceptance. However the extent of its impact is yet to be known. With the domino effect it has been having this time across various industries ( I was reading last week that in the previous quarter Volvo reported new orders for just under 150 new trucks globally, against a number close to 15000 in the same quarter last year). Unlike the last one, this recession is not limited to or greater in impact to the technology companies alone. In this one it seems that the technology companies will feel the heat as opportunities from various industries they connect with, get impacted. So, the impact is more widespread, it has shaken the fundamentals of economy and business in many countries and has now crept to impact everyone with the government bailouts, mortgages and job losses.

So, what does it mean in terms of its impact to the offshore based IT companies in particular. Here is my take:

The worst is yet to come. What we are seeing now are steadier revenues from business signed few quarters back. Since a large part of the engagements are relatively longer in terms of contract, the real effect of the slowdown will show when the deals that were to be signed now and in future will result in loss of work in the coming few quarters. Some of the short term project work has of course taken a hit and the impact is clear with the layoffs being seein now even in the Tier 1 offshore based IT services companies.
The impact, once in its full by mid of next year, will be the worst that the industry has seen. The positive fall out is that it will make these companies re-think on their "hire more people for more revenue paradigm". All are now sitting on a big employee base with labor cost (salaries) being their largest part of their operating cost which is bound to reduced.Another development that will soon set in is that some new offshoring contracts will get signed in the next 2-3 quarters. These will be related to outsourcing/offshoring those work which the client operations teams could hold off due to fear of losing their own jobs, losing control to an offshore team, due to risks in security which could be now be re-assessed with a higher risk taking ability in the interest to keep the work going. Next quarter we should see traction from mid-sized companies which would want to decide very fast for IT services in general. It is also possible that in case the enterprises have an incumbent, they have already called them and asked for a flat 10%-15% discount due to the business climate. Increasingly this is not unusual and an RFI/RFP issue only adds to the thread in case some large onshore based vendors are not willing to budge.
By next year, almost all would have asked employees to take a pay cut. The focus would also be to create products, upgrade competency and even pursue mid-sized deals (either smaller contracts with large companies but more likely, larger end to end contracts with smaller companies).
Not restricting to offshore vendors, but in general too, this recession will really move up the bars for risk/reward system in contracts. Companies will find innovative ways to structure contracts with contained risks for service providers partially but a big thrust on sharing their fate with the payout with service providers. In absence of much action elsewhere, offshore based vendors are more likely to jump for such deals since their cost base are still relativevly smaller than the larger onshore based companies.
Offshore based providers, again not restricting to them, but they in a big way will start scaling up their sales efforts in non-US markets. Moving sales staff from US to South America, Europe, South Africa and APAC will be a big focus.
When it ends, it will bring the offshore providers back with the labor arbitrage that they were fast losing. It may not put in them in the position they were at the beginning of the century but the frenzy would give way to some more sensible selective pay hikes and not those blanket ones. The attrition (staff turnover) due to volunteered resignations has dramatically reduced though larger number of employees are leaving as they are being asked to.

Throwing Bodies and Hardware : How Do The IT Infra Service Providers Stack?

2008-10-22T17:52:00.006+05:30

Onshore based providers who are also equipment manufacturers (IBM, HP,and now EDS) and offshore based providers (like TCS, Wipro, CTS, HCL) are different in their traditional approach to resolving issues in customer environments.

The onshore equipment manufactuers who are also IT Infrastructure service providers, are known largely to adopt "throw more hardware" principle when faced with performance issues, whereas their offshore based counterparts have seen the "throw more bodies" approach work better. Each has used what costs less and is in more abundance for them.

This approach has led to different levels of expertise and competency for each of them:

For the onshore equipment manufacturers/service providers, with abundance of hardware, they have learned to optimize a lot on other expensive resource - labor. That is the reason, they have a much matured delivery model in terms of maximizing output from resources deployed. Shared services set up is yet another example of how this competency has evolved.

For the offshore based providers, who had abundance of cheap labor, the first place to focus was on how they could optimize the existing capacities in the client's environment. Do more with less of hardware. This has been an area which they are relatively more focused though the onshore equipment manufacturers./service providers have, by virtue of also being more aware of the internals and designs of hardware, also a fair view of this. In the typical service engagement model though they may not be too focused on reducing hardware footprint as it comes cheaper to them.

So, the offshore based providers are kind of disadvantaged in that while their competitors in the onshore equipment manufacturers/service providers, also have a fair view of their area of focus, they do not yet enjoy the same.

This is obviously a maturing stage for both of them as they start from opposite ends of the band. As I wrote in an earlier related post , they are also working to cover what they lack and with time, there will be the need to identify other differentiators when these become common with both.

This discussion does leave onshore based pure service providers (do not manufacture hardware) like Accenture, CSC, Cap Gemini who form the third category of IT Infrastructure Service providers. In some ways they have a bit of both of other categories and do enjoy a go position. Will cover them in another post.

Client Visits

2008-10-19T19:33:00.003+05:30

Anyone working in any IT services company in India will tell you how common it is to have "client visits" - these are visits of high profile CIO, VP-Procurement, Operations Heads and their likes to India to evaluate potential partners in their quest for offshoring IT services.

All these visits have few things in common:

Client teams will typically visit at least 4-5 service providers criss-crossing between at least Chennai, Bangalore and Delhi. Surely Bangalore though as it is the Mecca of offshoring IT services
If the team consists of first-timers to India, visit schedules and agendas are often at the mercy of the service providers who vie for maximum connect time often at the cost of other service provider's time. Extending allocated time is very common, moreso when the client's intend to move from one service provider's office to others the same day.
The visits consist of "floor walkthroughs" where the client teams are taken to the Offshore Delivery Centers where the existing clients are serviced. Many clients (rightly so) insist before starting for the trip from their home country, that they do not want conference room presentations but more of floor walkthroughs - but most vendors will have that elusive "one more last slide" in the conference room sessions
Dinners are most sought after by service providers as it gives good "off the guard" time to connect and also strike a rapport which is just not possible to do when in their home country. Just imagine, trying to get an hour of a CIO's time in his office in his home country .. and how when in India he is literally at the mercy of the service providers with a solid 8 hours (most of them are at least a day visit) to connect.
Many such visits also have parallel tracks where a large team from the client's side is split into various sessions to make most of the time.
Most visits are invariably delayed and run over allocated time
Travel time on roads is heavily underestimated
Each service provider gets the client teams to meet at least 35-40 individuals for various sessions with big teams from their side for each session "just in case a question in that area comes up"

On the lighter side:

No one from the client's team wants to sit in the front seat of the cars after seeing the traffic and how close the traffic moves
Client teams often run out of cards by day 2 or 3 having to give out to everyone they meet and with each visit needing at least 20-25 exchanges with the huge team fielded by the service providers

From a recent example when I hosted a senior team from a major US bank earlier this week: the team had split going rounds of various service providers in major cities. Some of them could not make it to some visits due to burn-outs. They were meeting us in that particular location in addition to a major day long session they already had with our company. They had planned to visit at 6 PM and go up to 9 PM that evening. The team we met was very tired, up that morning at 3 AM for a flight and due to catch another one next morning. Off that flight they were to go direct to another service provider's office for meetings till 8 PM next day. From there they had to rush to the international airport and take the 1 AM flight out back to US!! They finally decided to cut short the visit, dinner and all and head back to their hotel for the much needed sleep.

Hiring Slowdown

2008-10-15T09:13:00.002+05:30

A recently met the head of recruitment for one of the major IT services companies from India. He was looking much slept than his earlier self and the reason became clear in our discussion.

He disclosed how finally there has been a slowdown for recruitments and in his company really a freeze. In the past he had targets to hire 5000 recruits (fresh and experienced) each quarter. One of the key KPIs for his and his team's performance has been "target achievement" for the hiring target. They have added almost 30,000 employees in the last two years!

Thankfully companies are realizing that reckless hiring has to stop and cannot go as they did in the past.

TCS Acquires Citi's Back-office operations

2008-10-11T20:34:00.004+05:30

The acquisition of Citibank's back office by Tata Consultancy Services brings forth the following:

Further validates that offshore captives are passe and no longer hold the charm.
Offshore IT players consider a BPO capability essential to their future growth. This being operations, it gives a credible platform to bring new customers, especially those that are moved through cross-sell from the list of customers for application development and maintenance.
This deal gave TCS a ready pool of 12,000 resources who would be productive from day one and speed-up what would otherwise take at least two years to recruit along with ready infrastructure they come with.
On the new business, part of what TCS pays would be recovered with revenue from Citibank over next few years and that is part of the deal .

Citibank thus becomes TCS larges customer, a position held by GE for some time.

Cloud Computing : The Emperor's New Clothes?

2008-10-07T05:05:00.003+05:30

This article on eweek.com (Oracle CEO Larry Ellison Spits on Cloud Computing Hype) has Larry Ellison blasting the hype around cloud computing. He has been quoted in the article:

The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do. I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop? We'll make cloud computing announcements. I'm not going to fight this thing. But I don't understand what we would do differently in the light of cloud computing other than change the wording of some of our ads. That's my view.

Considering Oracle itself has been riding on the cloud wave, with these comments Larry maintains his image of a straightforward maverick calling a spade what he thinks it is -- a spade.

Is this a case of the Emperor's new clothes? If Larry spoke his mind, surely he has come out in the open on something which everyone otherwise thinks is probably the next big thing in IT services.

Reverse Outsourcing

2008-10-05T17:57:00.008+05:30

This article in Wall Street Journal Business Technology : The Rise of “Reverse Outsourcing” talks of the increasing trend of reverse outsourcing. Couple of key paras:

"While 82% of businesses surveyed said they were satisfied with “sameshore” outsourcing (the industry has adopted several absurd terms to describe where work is done in the wake of the offshore boom ) only 33% were satisfied with offshore efforts. "

“A lot of folks were comfortable taking the work to India, but it turns out they’re even more comfortable taking the work back,” Wilson tells the Business Technology Blog.
That doesn’t mean businesses will start sending more work to outsourcing companies based in the U.S., however. Instead, the desire to have work performed closer to home, which is largely attributable to the need to communicate with the people doing the work, has led to what Wilson calls “reverse outsourcing” – companies based in India opening up offices in the U.S. "

"One area of outsourcing that seems immune to this trend: infrastructure management. Businesses seem happy to let overseas workers monitor their networks and make sure that tech equipment is processing data at the right speeds. The reason, says Wilson, is that infrastructure management is largely automated, so communication isn’t as big a deal. “It’s low touch,” he says. “There isn’t a lot of interaction.”"

Personally I think there are some more layers to peel here to really get to the core of why enterprises prefer "sameshore" outsourcing than just the stated need for better communication.

While Indian companies (like TCS, Infosys, Wipro, Cognizant, Satyam, HCL) may be opening offices on the "sameshore" this will eventually bring them closer to the traditional in-continent outsourcers (like IBM, EDS-HP, CSC, Accenture, Cap Gemini) in terms of operating model and quality of service. Really the very DNA of these companies. The cost, operating style will gradually tend to be the same since a lof of folks then would be local hires bringing with them the style from those other in-continent companies where they worked earlier.

Alternatively, if the Indian companies decide to run the operations with the same style and skills as they run in India, with resources imported from India ( which is not practical) I am sure this will lead to a new category of companies with sameshore operations but still not popular with enterprises outsourcing.

This really is part of the continuing story of IT outsourcing and how it has evolved over the years. The current state of affairs is another section of this story which is bound to evolve with time. Following are four broad phases in which I see this story to have unfolded till now:

Phase 1: In the first wave of IT outsourcing in US (and little later in Europe) companies outsourced to in-continent outsources. These brought workforce closer culturally to theirs and often it also had staff moving from client's rolls to the outsourcer.
Phase 2: With the advent of offshore based providers came an army of culturally different teams with little or no representation from the local population in their sales and delivery teams. They still got business ( though new with little past track records as the in-continent outsourcers) as they promised costs almost 50% down. Enterprises were willing to take that even though the teams were not culturally aligned.
Phase 3: In the next phase a lof IT outsourcing, the in-continent outsourcers noticed the offshore models of newfound competitors and figured out that it was something they could also do - have resources in offshore locations like India, and deliver services from there. It was easier to hire in India with a ready set of trained professionals trained and developed by the traditional offshore based outsourcers from India. So time-to-deliver was not too long and their hired some of the senior folks from these very offshored based outsourcers who knew the tricks of the trade.
Phase 4: It's time to play catch-up for the offshore based IT outsourcers. They realize now that what they miss is a workforce more local to their customers in-continent along with a more culturally aligned workforce to their customers' teams. Often not stated but understood is also that they realize they have been missing on the golf courses where the client CxOs spend time and often get to strike a discussion with sales reps from the in-continent outsourcers. So, they are doing an encore of Phase3 now in the in-continent outsourcers' turf.

This is great levelling match. End of it, with the principle of equillibrium both types of outsourcers will want to get the competitive advantage of others and soon it will be difficult to distinguish between them in a crowd. It would then be time for some other differentiators to play and offshore as a differentiator will really cease to exist in its current form.

Shared and Dedicated Delivery Models

2008-09-28T23:30:00.004+05:30

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

2008-09-28T01:06:00.000+05:30

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

2008-09-25T07:42:00.000+05:30

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

2008-09-20T10:05:00.001+05:30

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?

2008-09-13T10:06:00.000+05:30

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

2008-09-06T10:07:00.001+05:30

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.

Business vs Technical Proposition for IT Outsourcing

2008-08-17T08:27:00.000+05:30

Most offshore-based IT outsourcing companies still look at selling to prospects on the basis of the superiority of their technical proposition. They go at lengths to come out with technical data, analysis, process models etc. All this to prove that they have a better story than competition which is now not necessarily another offshored-based IT outsourcing company. ( It mostly used to be then but now as they look at playing in the turfs of the big boys, this is not always true). So they go to all lengths to woo the CIO and his team and convince them how they are superior technically.

What they miss out is to woo the CFO and sell on the basis of the larger compelling case - the business case. The big boys of the game (IBM, EDS, CSC etc.) have been playing golf and wooing the CFO along with the CIO. The truth is that most often having a strong technical solution (not necessarily the best but even if it is one of the better ones) is a qualifier than being a clincher.

Isn't it so true - "The business of business is business" and so till there is an appealing business case, the CIO may not have the last say.

Reminds me of the sales mantra which I learnt early in my career : Sell to the M-A-N in the account:

M: Money (the person who controls finance)

A: Authority (the person who has the authority to decide/influence the sales)

N: Need (the person in the prospect organization)

The CIO mostly is the "N" while the CFO is the "M". Both or some others will have the "A".

As India based(offshore-based) IT outsourcing companies look at playing larger deals, they need to recognize this and not miss the CFO who may be the reason for those deals that unknowingly swung off while they had best technical solution.

Opex Only IT

2008-08-10T23:49:00.000+05:30

With cloud, SaaS catching up, IT's capex is bound to shrink. With the utility metered model, and with enterprises buying data center services rather than data center, IT expenditure will move to very high Opex and a very low with not nil Capex.

This is what would get CFOs interested into this phenomenon. It will make it easy for businesses to be more flexible and agile. It would be easy to predict expenses and pay higher when you need more (say quarter ends and holiday sale etc.) and not pay for excess capacity when you don't need it. The cloud provider will be able to even out usage spurts across customers and give that advantage.

The only enterprises which will be having high capex will be cloud providers who will finally be the only one buying infrastructure to build and maintain capacities.

IT Enterprise 2.0

2008-08-02T10:55:00.000+05:30

I mentioned the following in my previous post :

"In its ultimate and extreme form which may take many years to materialize hardware will finally be bought and managed by large service providers. Most enterprises will then have a link to the cloud. Think of it like the electricity supply to consumers and businesses. Now we don't need to have generators to produce our electricity but rather depend on a central agency which generates electricity. Replace electricity with computing and storage and you see how these service providers will build and sell computing services. Thus the complexity is pushed to the periphery or the user is distanced from the core."

Data Centers will move to the periphery or away from the enterprises to service providers. As that happens all that goes into the data centers (computing infra, storage infra, systems administration, system management et al). So what will IT Managers do? What would be in the realm of the CIO and the IT Managers once the cloud becomes staple (and stable)?

The focus will then shift on those that are relevant to the enterprise users and not handled by the cloud. All that relates to cloud's performance will be factored in the QoS SLA of the cloud. Here are things that IT departments will then be working on:

Focus on applications, their relevance, efficiency and architecture
Performance of infrastructure that links to the cloud. The network elements linking to the cloud will ultimately decide the quality of service that would be realized
Focus on end user experience of applications. This is something which seems to be long missing out its rightful share.
Enterprise management will be reduced to managing performance of network elements which in all likelyhood will be outsourced to the network provider. Centerstage will be Business Service Management where the ultimate impact and performance at the business performance level will manage. The market for bulky enterprise management tools will suddenly shrink to the cloud providers who will be servicing hundreds and thousands of customers

The Cloud

2008-07-27T09:32:00.000+05:30

There is probably more being written about the cloud than it is probably known about. At a high level it feeds the need for some buzz which sounds logical and true but try explaining it to a CFO and you see why it is still in the err.. air!

Different people seem to have a different view but it is surely one buzz that is difficult to ignore. How it finally plays out is difficult to predict but investments by the majors around surely show that many are betting their dollars on this. And sometimes even if a technology is not the best, if there is so much of hype and dollars it may actually evolve to be something which would worthwhile. If biggies put in their best resources and biggest dollars into this, it could surely turn out better than anything else which may be equally or more promising but does not have this sponsorship.

It means some of these to some:

A virtualized environment run at a very large scale available on-demand
Throwing out the traditional data center out of the window for a completely outsourced model unless you are talking "private clouds" for large enterprises
A move towards a utility model - "pay as you use" model
On-demand provisioning closely linked to the current immediate term dream of virtualized environments

How it will impact technology and business models is to be seen, but here are things that may happen:

Greater focus on impact of network for computing that ever before. The quality link to the cloud would define the quality of service from the cloud.
Emergence of totally new era of providers who are probably not even considered in this space. Google, Amazon who are current first generation implementors of this technology may lead the show directly or indirectly.
Compute technology may move to more simpler blocks than those complicated ones being worked on today. The building blocks of the cloud would be simple commotized pieces.
Technology to improve compute, its availability, its crunching power would move from hardware to software. The differntiators would be in the software and not the hardware as it is today.
Storage would move to the next level as compute is commotized and all the date crunched will need to be stored in various forms.
In its ultimate and extreme form which may take many years to materialize hardware will finally be bought and managed by large service providers. Most enterprises will then have a link to the cloud. Think of it like the electricity supply to consumers and businesses. Now we don't need to have generators to produce our electricity but rather depend on a central agency which generates electricity. Replace electricity with computing and storage and you see how these service providers will build and sell computing services. Thus the complexity is pushed to the periphery or the user is distanced from the core.
Applications (the reason why we need data centers and computing power) will reside in the cloud and be increasingly componentized. The IP will rest with companies who could deliver required functionality by integrating various applications. Bespoke will probably continue but would also be hosted on the cloud.

Staffing Trends For Offshore Based Infrastructue Management Services

2008-07-20T12:20:00.002+05:30

There has been recent news reports that some of the offshore based IT Infrastructure Service Providers are now hiring B. Sc. graduates instead of engineers to be part of the delivery teams. In India B.Sc. programs are three year programs, considered commonly to be the option for interested students in science who could not qualify for an engineering program. Hence it is often considered to be a source of the non-cream layer of students, which is not necessarily true.

However due to this common perception it is true that the average starting salary for B. Sc. graduates is much lower than that of engineering graduates ( so a lower wage group). Also B.Sc. graduates have not had a chance to typically work in Tier 1 companies who used to hire engineering graduates. Hence when they get a job in one of these Tier 1 IT Infrastructure Services companies, they are more likely to stay on and not be part of the high employee turnover statistics which is ruled by the engineering candidates. There is also a belief somewhere that B.Sc. graduates as employees are relatively less ambitious and so willing to be more flexible in accepting various roles.

So when wage bills are shooting and even then employees are hopping around, it is a no brainer that some of these companies are tempted to hire B. Sc. graduates. It only helps that they are more flexible to do take up roles and even do the odd hour shifts as they see as a way to continue in a Tier 1 company.

However if it is a different question if these hirings will impact the quality of service and customer perception. It may not be really untrue unless due care is taken in training and ensuring the right fitment.

Asset Takeover - Why Doesn't It Fly With Offshore Based IT Infrastructure Service Providers

2008-07-17T23:24:00.000+05:30

There are many differences in approach and delivery model of the traditional IT Infrastructure outsourcing firms (like IBM, CSC, EDS etc.) and the relatively newer kids on the block - the offshore based IT Infrastructure Service providers. While that can be a topic for a full book, one of the key differentiators is that most (and probably all) offshore based IT Infrastructure Service Providers do not get into taking over assets of customers' IT environment. These typically are the servers, desktops etc. The traditional biggies in fact have had this as a core streak in their proposition. How they handled it can be differentiated into two parts - those who were hardware vendors and also had a hardware agenda and those who were pure play services companies. Whatever be the way it was dealt it was always a financial engineering subject. It gave a flash on the topline but the bottomline took a hit.

The offshored based IT Infrastructure Service Providers have traditionally evolved as application service providers and never had assets in their deals. The inclusion of such deals causes a lot of concerns, some of which include:

Impact on the bottomline which would make it into single digits which they are not used to and do not consider core to their growth strategy
Lack of a hardware business does not get the extra dollars to offset this "hit" with revenues in some other businesses
Lack of critical mass and economies of scale (across multiple customers) which the biggies have
No related business model like hosting services or data centers with leased servers where the residual equipment can be gainfully deployed
Need for enhanced stickiness as such deals then require a much longer and deeper relationship which the relatively new offshore based IT Infrastructure Service companies have not seen (since they are still new and have not spent as much time in the marketplace)

Now these are the most common but relevant reasons aggregated across various companies. Specifics may vary with companies.

Analysts talking of the emergence of new non-asset linked services and its benefits (which cannot be denied) to the client are only making the market place an exciting place with different players having their own value prop stories.

Captive Offshore Centers

2008-07-16T14:41:00.000+05:30

Let me start with a story:

Traders from far off exotic lands used to get precious gems to a certain village. These were much sought after and sold at a price to the locals. Few smart folks from the village, who liked these gems, wanted to know more about this trade and the trader. So, they found where he comes from and where he gets his precious trade. They figured out that it was futile to pay for these gems those prices when they could get it cheaper if they undertook the same journey from the far off land and brought the stuff to their village.

So they befriended the trader, went with him to his country and found the places to pick those gems. They surely could buy a lot more for the same price that they paid to the trader in their village. However after the initial euphoria of the new find subsided, they found that undertaking this journey to get the gems was taking a toll. They were not able to spend enough time in their village and so their own business was suffering due to the lack of attention. Secondly over a period of time, with some maths they found that the cost of getting the precious finds home was actually more than taking it from the trader! They had initially overlooked the local expenses and costs - the cost of stay in an unknown place, the cost of hiring labor to extract (with a comparatively smaller scale than those of people like their trader friend), cost of security, cost of travel etc. So, while the gems themselves were cheap there, the lack of volumes, lack of knowledge of local conditions, lack of core competency in that space was causing their overall costs to go up.

Finally the smart folks gave up their newfound venture and settled for buying the gems from the trader who visited their village. They could get it at better price than they would have eventually played to get themselves and they were also able to focus on their business.

The story is similar when it comes to offshore captives set up by many enterprises who find it more lucrative to set up an offshore center than to pay a provider to get offshore delivered services. So, while they want to get the benefits of labor arbitrage, they want it do it all themselves.

Over the years, the industry has seen many such captives being closed or sold off. The companies ultimately found that running offshore based delivery centers were best left to be run by companies which understand this business better. They were bogged down by high attrition, escalating cost of labor, lack of opportunities to offer to their employees as compared to service providers and other local conditions.

They still get the gems ( the cost efficiency and improved profits) while they focus on their core business and let the professional service providers run ofshore services for them.

It is no different than the classic "make or buy" decision - only that in this case most companies have realized that "buy" is the way to go. There may be exceptions where a "make" may make sense but then that's what they are -- exceptions!

Watch Out for Hyper V

2008-07-13T08:43:00.001+05:30

One new technology to watch out for is Hyper V. A lot of companies have watched the runaway success of VMWare and always wanted a part of the pie. While VMWare had the early mover advantage, there have been others who have also launched competing products, but Hyper V is different since it is backed by the muscle power of Microsoft.

EMC acquisition of VMWare did boost its arsenals but virtualization is a more natural extension in the server business to Microsoft than a lateral one for EMC. Apart from a superior "connect" with the Microsoft server environment, Hyper V can challenge VMWare tremendously on price. Eventually the decision may be to either go for some superior functionalities with VMWare paying a lot of money or go for the standard stuff that Hyper V brings in at a fraction of the cost.

This will only broaden the market and commoditize virtualization from what is still a big enterprise's domain. Microsoft can even include this is a default service in its OS for servers to really create havoc for VMWare.

Service Desk - The First Port of Call for IT Services

2008-06-30T18:33:00.000+05:30

The importance of Service Desk in an IT support model cannot be emphasized enough. It is the first port of call for any issue the users face. As such its role really spans across various support teams - be it application, system or network support. Be it a nagging Blackberry issue or a slow application, users always call the service desk first and form an opinion of the quality of support by the quality of response they get. One could have the smartest guys in the L2/L3 teams but if the user facing L1 team ( the service desk team) does not inspire that confidence and ability to handle various user issues then, the IT support is always questioned.

It is always a challenge to find smart, motivated team members for the service desk. Those who are good will not stick ( sounds familiar?) and those who stick would want to move into something more technical after few months. Key to handling this team is to build a good career plan and take care of aspirations of these team members.

In an outsourced environment, this is the team which will see the maximum attrition too and so there is the risk of losing client information and knowledge. Since this team goes through a natural learning curve - these acquired latent knowledge of the client's environment is key to a successful continuous improvement program.

While the issues in the Data Center or Enterprise Network will impact a large part of the organization, most users get ticked off with the service desk for what are typically Sev3 or P3 incidents ( Severity 3 or Priority3, which impact just a single user in the organization - like a broken keyboard or a mailbox issue). So, while all efforts in running the show should focus on issues that impact a large set of users (reducing Sev1s and closing them faster), for managing the perception of service the users have - there is no better place than the Service Desk.

Increasing Revenues with Workforce

2008-06-24T00:02:00.001+05:30

Most offshore IT services companies are increasing their employee base by thousands each year. The simple logic for most have been that as revenues increase, the need for people to deliver services also increases. So, as the revenue has increased, so has the number of employees. Essentially they are growing the same way as they grew when they were a fifth of their respective current size in terms of revenue.

Two simple rules can spoil the party:

What works when you are small does not necessarily work when you are big ( or even doesn't necessarily work when you are small but at a different time)
What goes up, comes down

So, while these companies are pushing their employee base in pursuit for more revenues, what will happen when the inevitable slow down happens?

These companies run the exposure of being left with a sea of workforce which is not required and not longer productive on a "bench" for future business. This will result in high cost of retaining these people which will just not be sustainable and result in large scale laying off of employees. This phenomenon of large scale layoffs has hardly been seen in these offshored countries like India. While there have been those occassional companies that went bust resulting in loss of employment but there are just so few that chances are that most techies will have to think hard to think of a company they knew which went bust.

In comparison, software product companies have a fantatistic model when it comes to such co-relation of revenue and employee base. The productivity (dollars/employee) for software product companies is very very high. Once the software is developed and released, there is hardly any incremental cost for selling that same software to any number of customers. They can scale revenues literally overnight by just handling their production (of cutting CDs and license management) while for any technology services company, this is just not attainable as they will need to overnight hire hoards of people which is not possible without compromising on quality of resources.

To delink employee base growth with revenues, most technology services companies are moving towards services which are of higher value. This may include services around their own products (which is not easy as there are hardly any product successes to make it the part of the story) or those related to activities like consulting. The third option is to use strategic innovation driven improvements in delivery IT services. This could be through improved automation and tools or other technology levers which will help drive higher revenues with the same base of FTE count in a project.

Clearly, the industry will belong to those who move from the current cost based revenue model to value based revenue model.

This is already happening and bound to be the gameplan of most Tier 1 and 2 offshore based IT services companies. Since the rules of the game are changing, it agains throws an opportunity for a new player to move in the top league and for some laggards to potentially drop if they don't read the future and act fast enough.

Remote Infrastructure Management

2008-06-22T23:02:00.000+05:30

Today a large part of the services involved in supporting the delivery of IT Infrastructure Services can be delivered from remote. Those that cannot be done from remote are essentially activities like:

end user computing incidents which cannot be resolved remotely
tape management related issues in data centers
standing up new environments or installing new equipment or services (though these are not really operational activities but project-based activities)
face to face business and user interaction

Automation, internet and reliable links has only helped this ability to handle most of the support issues from remote. This has formed the basis of a strong proposition from offshore based players to deliver these services from remote locations with a small team onsite.

The large traditional players have not been behind and in the past few years have South African and South American locations ( actually many more but these are examples) to deliver services, moving from a traditional onsite/onshore heavy model to offshore or near shore heavy model.

On an average more than 90% of the effort in managing IT Infrastructure can now be run from a remote location. With virtualized desktops and other technologies, this will only increase.

What about an old man and a dog data center?

Wave of Virtualization - Case of Desktop Virtualization

2008-06-19T17:19:00.000+05:30

Any "transformation" plan in IT Infrastructure space which does not pay its tribute to virtualization at some level is not a plan.

While there are benefits of virtualization, as it delinks the application layer and the infrastructure layer and creates virtual pool of service layers, it does not come without its own problems. However the case of buying fewer hardware and maxing capacity on investments made makes it strong.

In case of desktops, it is ensuring that technology has come a full circle by moving back to a host-terminal model with thin clients through desktop virtualization. This is what it moved away from, fuelled by the Wintel wave of client-server technology. Having everything at a central place did not deliver a performance each user wanted with the bottleneck at the host. The promise the client-server technology brought was a mix of host and client side computing. Applications were split with a server and client component. Soon this peaked to lead to issues with management issues at the client side and high cost of administration. These include:

Need for hardware refresh periodically fuelled by new OS and cheaper hardware options every few years
Challenges of patch management for OS and application upgrades
Anti-virus management

Most enterprises now have a centralized policy management system where the end-user has limited control on his desktop. Users don't have admin access with ports and interfaces (FDD, USB, CD/DVD drives etc.) locked. Updates are pushed centrally and updates done from the back. So, essentially a desktop is working like a terminal.

Leading the revolution was the largest application ever - the Internet, which delivered everything and more through the humble browser. The browser epitomizes a dumb client with limited configuration and need for little client-side computing infrastructure. Most of the current needs for hardware running browser is due to the operating system on which browsers run. As they evolved (Wintel at work), they required upgraded hardware for a better browsing experience but there are options available to browse with little local computing.

The applications are following this - taking head-on with MS-Office are applications like Google Doc (http://docs.google.com/) or Zoho (http://www.zoho.com/)which now make it possible to work on documents, spreadsheets, presentations and more with a simple browser.

At the enterprise level Sales Force has been the poster boy of Software As A Service.

At these two trends emerge - the applications need to take a lead to make a strong case for low/no computing at the user end. Till then desktop virtualization will mimic the future with assets of the present.

IT Infrastructure Services Offshoring 2.0

2008-06-19T07:45:00.000+05:30

While the offshored leveraged outsourcing industry has grown in the last few years in its first phase of evolution, it will soon need to morph and change the traditional approach due to the now pervasive business environment conditions. Some of these key trends being:

The shrinking labor arbitrage makes a poorer business case by just taking a people-t0-people replacement cost. An offshore FTE used to be few times cheaper to an onsite FTE. They are still cheaper to hire but the difference has shrunk dramatically and continues
Most biggies (Tier 1 outsourcing players) who were traditionally providing services from local countries in US, Europe now have a big offshore story. In fact for some, offshore delivery centers are now comparable in size to traditional offshore based players
Most services are now commoditized except those lock-stock-barrel deals. These deals are typically blended with asset acquisition and re-badging which some of the larger players are embracing but see it impact their operating model and more importantly profit models.
The outside trend of IT being more aligned to business, need for stronger business case and charges linked to business value generated ( including trends like utility computing, transaction based charges etc.). With chargebacks being explored as a sign of maturity in IT ops, the CIO is supposed to lead a profit center rather than a perpetual cost center

With these the following will emerge:

Striation of services, with finer division in SLAs and quality of infrastructure based on the business process being supported
Tremendous focus on SLAs and identifying meaninful metrics for managing the overall Quality of Service
Service delivery out of new havens of offshoring in Asia Pacific and East Europe
Cost pressures which have till now not been felt since the labor arbitrage often masked incidental costs which the companies were ready to absorb due to high margins

In all these the current offshore based companies in IT Infrastructure Management or Remote Infrastructure Management (RIM) will focus more on innovation. They need to innovate themselves to adapt to the changing waves. This will see some existing players drop the race ( as laggards if they fail to read the trend and act) and also see some new players emerge who may not be at the top of the pack in wave 1.0 but will read the trends and emerge ahead in the wave 2.0.

Innovation will come around delivery models to deliver services, automation, costing models and through strategic alliances. There will also be a lot of focus on processes as they will try to run the same from these new found destinations like Asia Pacific and East Europe.

ITIL v3 : First Impressions

2008-06-18T14:49:00.000+05:30

I did my ITIL v2 Foundation certification last year. It was actually the fag end of last year and I initially enrolled to take the test for ITIL v3. It was too late by the time I realized my mistake since I had already entered my credit card information on the test scheduling site. Luckily there was some error in entering the card number and the transaction was nullified and I re-scheduled for v2 for which I had been preparing.

Now few months down the line, I got a chance to overview and skim through ITIL v3. I am still browsing but first impressions:

Has a major thrust on alignment with business in line with the trend where the CIO increasingly is reporting to the CEO or COO and not to CFO or some VP - Admin (!! .. yeah)
Is more cognizant of the use of ITIL in outsourced scenarios. In fact it even recognizes that services will be delivered from offshore
Focus is now on "Service" than elements that form the basis of service. So there are things like Service Strategy, Service Design, Service Transition and Service Operation. Also there are elements like Service Design Package (SDP) and Service Level Package (SLP) and a CMDB like Service Knowledge Management System (SKMS).
Has a more marketing oriented feel and approach - be it the alignment to business or the abundant use of terms "strategy" and "value". It even has its four "Ps" !
It is understands that there are service providers who are increasingly providing such infrastructure support services. It even takes into account the competitive environment for these service providers

Like everything that tries to be current and keeps evolving ITIL v3 is a step to keep the ITIL context relevant and appealing to most decision makers. It continues to be a guiding framework and not prescriptive for specific environments.

Importance Of Service Transition

2008-06-17T23:48:00.000+05:30

The importance of a good transition when outsourcing IT infrastructure services cannot be emphasised enough. A poor transition can even disrupt the outsourcing program and cause a lot of business unrest.

Why is service transition so critical?:

Change of personnel -- either the incumbent provider walks off or an insourced team is displaced (unless most of the existing team is re-badged) -- takes away the operating knowledge which would have built over the years with the incumbent team. Further, the new team will face even more disruptions as they transition and will be more ill-equipped than the incumbent, presenting a double whammy
Change of environment - servers changing to a new provider or moving to a new hosting facility are bound to throw numerous situations ( often some of the servers would have not been shut-down for years and no one would know for sure how they will behave once re-started after the move). More importantly how to fix the issues that may surface when a server misbehaves
Tools/Automation Impact : Most often either the tools change and so will require few weeks at minimum (for mid to large enterprises) to bring some sanity in monitoring and escalation. Most tools for monitoring also have a learning curve (self attained or crafted) which build over time. So, in all this chaos, the tools are not there to monitor the crucial times when business is most likely to get impacted
Differing levels of interest by the stakeholders : While business may be fuming at the decision of IT to change the provider, the outgoing team will (let's say, for lack of better terms) not be interested in a good transition since they are anyway getting impacted professionally and some times personally if they are losing their employment

This is no means an exhaustive list but surely the top ones. Essentially there are too many moving targets and moving guns that come to play. One way to mitigate or minimize the risk is to stagger the transition based on some considerations. If not all targets are moving or if the guns are not moving, it becomes easier. Possible modes could be:

Stagger across regions/geographies
Stagger across service streams (say, Data Center Ops goes first, and then End User Computing and then Service Desk)
Stagger activities (say, the tools will continue from the incumbent till the services are taken over by the new provider's team)
Stagger across different user groups ( say IT goes first and then HR and then ... finally .. yeah you got it - the Finance team!)

There is no silver bullet but what is important is that sufficient thought is spent on this and mid-course mitigation strategies drawn.

Estimation Models For IT Infrastructure Outsourcing Providers

2008-06-16T00:47:00.000+05:30

The need for estimation models when proposing cost elements in large IT Infrastructure Services contracts plays an important role. The models need to cover all aspects of delivering service which impact cost:

Manpower
Tools
Connectivity and enabling infrastructure
Administrative costs like travel and communication
Corporate overheads like physical space and air/light/water etc.

Often companies may use composite rates which combine some of the above into a single unit of rate. These then need to be linked to the volume of work to develop a costing solution with sufficient elasticity but at the same time optimal and competitive.

In the absence of standard models, these have lend a competitive edge to some of the leaders while other companies are trying to find theirs. Since many companies evolved from the application services space, which were typically Time & Material contracts, they find it difficult to have a solid estimation model for fixed priced, managed services contract.

Reliance Communication's Acquisition of Vanco

2008-06-16T00:27:00.000+05:30

This recent news points to a possibly bigger of Reliance Communication than just a network service provider. While it does add the global footprint, it is interesting that this perhaps is their first foray into a virtual telecom service space.

Vanco is a Virtual Network Service Provider - not having it's own extensive network but rather front-ending with customers for network services, in turn sourcing transport from multiple other providers. While this gives them access to multiple providers, possibly dynamic-best-route and a higher degree of business continuity, they suffer from lack of control of services really as they need to depend on their alliance with the real providers, who also are in the same space.

Network services are always provided for customers by local companies. Most offshore leveraged outsourcing companies find it difficult to have a solid answer to the traditional providers or more often the traditional alliance between a local provider and one of the big outsourcing firms who would have jointly worked on multiple engagements in that geography. The offshore based players then attempt to have loose tie-ups for specific opportunities.

If Reliance gets into offshored based IT services, Vanco can provide an alternative thus.

Where to Find Dollars in an IT environment

2008-06-15T11:39:00.001+05:30

Where are those hidden dollars, those waiting-to-be-unchained values in an IT department? There are numerous nooks and corners where there are hidden opportunities to save. Bad times like these throw lot of opportunities to bring cost efficiency. The role of an outsourced provider is so much more critical in such situations. Of course there has to be the right level of motivation as part of the contract to motivate the provider to help the customer find oppportunities to save.

Outsourced providers present themselves with this opportunity by having a view across their engagements of common such opportunities, plus themselves running the operations of a particular customer, having the requisite information to enable such cost saving.

There can be numerous such opportunities but here is a start to list some of them. Can't cover all in this post but will take a beginning:

Unused licenses lying in the enterprise (and many find themselves getting budgets to buy more of the same for new requirements). These are more for end user software like MS Project, Visio etc.
Underutilized hardware in parts or whole
Spare network bandwidth in tier-2 or tier-3 of the networks off the central network topology which is more closely monitored
Groups of support teams (in-house and or outsourced teams) providing services very similar in nature as part of different businesses
Multiple data centers or server rooms
De-centralized environments making it necessary to have lumpy teams across the country or globe doing pretty much the same stuff.
De-centralized purchasing of IT assets

This is just the beginning and more are sure to follow.

Run Book Automation

2008-06-15T11:03:00.000+05:30

The focus in managing IT infrastructure traditionally leverages automation to detect abnormal activity through monitoring of networks, systems and applications. Once an error is detected, it raises an alert for the operator who then logs into the system to identify the possible causes of the failure before taking action to get the service restored.

Move on a couple of decades to present : the focus is now on rectifying the error through automation and not just bringing it to the notice of the operator or the administrator. Run Book Automation products aim to bring this new revolution. Of course there will be learning curves (for the software before it starts being more intelligent like routing tables in routers) and workflows being built in, but clearly these will deliver tremendous value beyond the traditional monitoring tools.

There is a sort of frenzy in this space and majors like HP and BMC have already acquired niche RBA (Run Book Automation) companies while some others continue to emerge as strong players.

This will also bring a lot of value to outsourced service providers, who will be able to provide improved services, with fewer staff and better precision in service restoration attempts when they impact business. Surely one of the top spaces to watch from my perspective.

Bangalore Beckoning

2008-04-20T11:54:00.000+05:30

After a stint in the US, we decided to move to India and chose Bangalore. This was the city we wanted to move few years back but somehow did not get to. Was excited to move to Bangalore and still am - but few things took us by surprise though we were prepared enough and had friends and heard a lot of the goods and bad.

Being the global captial of the offshored IT services world, it shows all over in the way the city has evolved - or rather the denizens of the city -- the city will hopefully evolve and grow the infrastructure which has not been able to keep pace with the growth in the IT services industry.

All over the city, people around seem to be all working for the IT industry. In areas like Whitefield and Electronics City, you can take a roll call of all major outsourcing companies and some large corporations who have chosen a captive out of Bangalore.