HP Shows Benefits From Successful Application Consolidation With Own Massive Global Supply Chain Project

Transcript of a BriefingsDirect podcast on how HP tackled an internal multi-year effort to streamline supply chain efficiencies and effectiveness through applications consolidation.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: HP.

Access more information on Application Consolidation.
Read the full-length case study on HP's Application Consolidation.
Learn more about the Application Transformation Experience Workshop.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Today, we present a sponsored podcast discussion on learning about best practices and execution accelerators for large, often global application-consolidation projects. We'll take a look a telling case-study, a massive multi-year application-consolidation project at HP that involved hundreds of applications and thousands of people around the world.

We'll look first at why the Global Part Supply Chain project at HP was undertaken, but just as importantly, why the project needed to be invigorated after it bogged down by sheer scale and complexity. The project quickly became hugely successful, however, and we'll learn how and why.

These are by no means trivial projects, and often involve every aspect of IT, as well as require a backing of the business leadership and the users to be done well. The goal through these complex undertakings is to radically improve how applications are developed, managed, and governed across their lifecycle to better support dynamic business environments. The stakes, therefore, are potentially huge for both IT and the business.

We're here with an executive from HP to look at proper planning and execution for massive application-consolidation projects by specifically looking at an HP project itself.

Please join me now in welcoming Paul Evans, Worldwide Marketing Lead on Applications Transformation at HP. Welcome to the show, Paul.

Paul Evans: Hi, Dana.

Gardner: Tell me why applications are so numerous in many of these extended business processes, about the whole notion of part supply chains, and why that's such a big deal for HP.

Evans: As you can imagine, HP is an extremely large organization. It makes products, as well as sells services, etc. In terms of product, just imagine your average PC, or your average server, and think of the number of components that are made up inside of that device. It runs into hundreds of thousands, whether it's memory chips, disk drives, screens, keyboards, or whatever.

For a company like HP, in the event that someone needs a spare part for whatever reason, they don't expect to wait a significant period of time for it to turn up. They want it delivered 24 hours later by whatever means that suits them.

So, it's essential for us to have that global supply chain of spare parts tailored toward the ones that we believe we need more -- rather than less -- and that we can supply those parts quickly and easily and, at the same time, cost effectively. That's important for any organization that is dealing in physical components or in the provision of a service. You want to maintain customer satisfaction or increased customer satisfaction.

Customer centric

For us, it was essential that a massive global supply chain organization was extremely customer-centric, but at the same time, very cost-effective. We were doing our utmost to reduce costs, increase the agility of the applications to service the customers, and fuel growth, as our organization and our business grows. The organization has got to respond to that.

So the primary reasoning here was that this is a large organization, dealing with multiple components with pressures on it both from the business and the IT sides.

Gardner: With HP, of course, there have been mergers and acquisitions over the years. Suppliers come and go. Product lines may start small, but then ramp up rapidly. So, we're talking about many different organizations and many different applications that had to be brought into this now hopefully lean process.

Evans: One of the primary reasons we had to do this is that HP has been an amalgam of companies like Hewlett-Packard, originally, Compaq, Tandem, DEC. All of these organizations had their own bills of materials, their own skills, and basically this thing has just grown like Topsy.

What we were trying to do here was to say that we just couldn't continue to treat these systems as un-integrated. We had a lot of legacy environments that were expensive to run, a lot of redundancy, and a lot of overlap.

The whole notion of this coming about through mergers and acquisitions is very common in the marketplace. It's not unique just to HP.

The goal here clearly was to produce one integrated solution that treated the HP customer as an individual, and in the back-end consolidated the applications -- the ones we really needed to move forward. And also, a goal was to retire those applications that were no longer necessary to support the business processes.

The whole notion of this coming about through mergers and acquisitions is very common in the marketplace. It's not unique just to HP. The question of whether you just live with everybody’s apps or you begin to consolidate and rationalize is a major question that customers are asking themselves.

Gardner: If you look at this problem from the perspective of IT, of course, you have multiple platforms, legacy applications, and a mixture of different architectures and hardware. And they have their own set of requirements.

But, if you look at it through the lens of the user, many users are wed to that application, even if it's an older interface. They don't really care about what's underlying in terms of infrastructure. They just want to be able to get their work done without being disrupted.

What we have are perhaps multiple agendas that need to be aligned, and politics and persuasion come into play. Tell me what may have gone awry for a period of time with this project and how some of these other issues about multiple agendas can be managed?

Siloed thinking

Evans: Well, this is a challenge in any situation, and this has been true not only with this particular supply chain project with HP, but for all of us. The rationalization that has taken place inside HP around its IT organization and technology is that because we are human beings, most people think in a very siloed way.

They see their suite of applications supporting their business. They like them. They love them. They’ve grown up with them, and they want to continue using them. Their view is, "Mine is perfect to suit my business requirement. Why would I need anything else?"

That's okay, when you're very close to the coalface. You can always make decisions and always deem to the fact that the applications you use are strategic -- an interesting word that a lot of people use. But, as you zoom out from that environment and begin to get a more holistic view of the silos, you can begin to see that the duplication and replication is grossly inefficient and grossly expensive.

We've seen that in HP. We saw it in this particular supply chain situation. We were looking at three totally different solutions in three different companies: Compaq, HP, and DEC. We were looking over 300 applications. Clearly, that was not the way forward, because it wasn't only just a cost-reduction exercise.

If you're looking into the future and saying you need a much faster, speedier, agile situation to be working with, you can't do that in the whole legacy environment.

If you're looking into the future and saying you need a much faster, speedier, agile situation to be working with, you can't do that in the whole legacy environment. It's just something that's tying you down. That problem is not unique to HP. I definitely understand that.

Gardner: When you decided to look into your parts supply chain activities, I understand there were hundreds of applications involved, multiple sites, geographies, and countries. Was this something that was driven by the business? Was it driven by IT? Both? How did the impetus for this begin?

Evans: Well, from the IT side, there was clearly a view from the top down that said living with 300 applications in the supply-chain world was unacceptable. But also from the business side, the real push was that we had to improve certain metrics. We have this metric called Spend-to-Revenue ratio which is, in fact, what are we spending for parts as opposed to what we are getting in terms of revenue? We were clearly below par in those spaces.

We had some business imperatives that were driving this project that said we needed to save money, we needed to be able to deliver faster, and we needed to be able to do it more reliably. If we tell a customer they're going to get the part within 24 hours, we deliver in 24 hours -- not 36 or 48, because we weren't quite sure where it was. We had to maintain the business acumen.

Complexity kicks in

At the same time, when viewed from a technological angle, we were running old, expensive applications. As always, when you're running far too many applications, the complexity kicks in. How does that all work?

This volume of applications -- or applications bloat, as some people call it -- is a real impediment to agility. You just can't move forward quickly with 300 apps in an environment where you know you're probably looking at a tenth of that. It’s a bit like saying, "How could I run fast if I have 300 feet?" You can't. You can do it with two, but you couldn't do it with 300.

So, our whole goal here was to align business and IT in terms of a technological response to a business driver.

Gardner: From the business side, I suppose they're very concerned about business process, primarily, the applications. They're probably not concerned about some of the more strategic, long-term IT implications -- those being how do we better manage applications as a life-cycle.

At that point, it gives IT the opportunity to come and say, "Let's look at this methodologically. How do we now put in the governance, put in the processes where we can create the applications, manage them, but also sunset them appropriately?"

These two people were the drivers. The buck stopped with these people. They had to make the big decisions.

So how does that factor in, that notion of making this a mature process, and no longer a cherry-picking, complex stew of different styles?

Evans: The area you just addressed is probably one of the primary ones. When we submitted the project, we were basically driving it by committee. Individual business units were saying, "I need applications x, y, z." Another group says, "Actually, we need a, b, c." There was virtually no ability to get to any consensus. The goal here is to go from 300 apps to 30 apps. We’re never going to do it, if you could all self-justify the applications you need.

What we did was discard the committee approach. We took the approach, basically led by one person from the business side, who had supply chain experience, and one from the IT side who had supply chain experience, but both had their specialist areas. These two people were the drivers. The buck stopped with these people. They had to make the big decisions.

To support them, they had a sponsorship committee of senior executives, to which they could always escalate, if there was a problem making a final decision about what was necessary.

Randy Mott, the HP CIO, has the direct support of Mark Hurd, the HP chairman and CEO. In my experience, that's absolutely essential in any project a customer undertakes. They have to have executive sponsorship from the top.

If you don't, any time you get to an impasse, there's no way out. It just distills into argument and bickering. You need somebody who's going to make the decision and says, "We're going this way and we're not going that way."

Getting on track

So for us, setting up this whole governance team of two people to make the hard decisions, and their being supported by a project management team who are there to go off and enact the decisions that were made was the way we really began to move this project forward, get it on track, get it on time, and get it in budget.

Gardner: I see. So the impasse -- the bogging down of this process where it sort of went off the rails in terms of an expected time line -- that's where it was bogged down by committee versus committee. It's when you broke through that, almost at an organizational managerial level, that you were able to accelerate. Is that right?

Evans: Absolutely. In my interaction with customers, I see this time-and-time again. We’ve always said that the experience that HP has gained internally we would share with our customers. We even have a regular customer event, where we share all our best practices and we are not afraid to share the things that go wrong. In this instance, when we started by saying let's have a big committee to help my decisions, it was the wrong approach. We were going nowhere. We had to rationalize and say no.

Access more information on Application Consolidation.
Read the full-length case study on HP's Application Consolidation.
Learn more about the Application Transformation Experience Workshop.

Two respected individuals, one from the IT side and one from the business side, who were totally aligned on what they were doing, shared the same vision in what they were trying to achieve. By virtue of that, we could enforce throughout decisions, sometimes unpopular.

eople sometimes do not understand why a particular application is going to get turned off in place of another. But those were the hard realities we had to take to get the cost down and get the efficiency and the effective result.

Gardner: So, we're talking now about decision-making. We're talking about governance. We're talking about the intersection of IT governance with political governance. This is something you can't buy. You don't necessarily purchase a box that does this. This is a combination of technology, professional services, methodology, standards, experience, and even, I would imagine, a change in management among the leadership.

Tell me how HP internally focused across these multiple disciplines -- not just product, not just technology -- and then how that related to what you do with your supply chain customers now?

Evans: A lot of people would say it's just technological problem. You’ve got 300 apps running on old platforms using old technology and you want to use the latest and greatest, the fastest, the smartest ... whatever. But, as we’ve discussed, at least 50-60 percent of the solution has nothing to do with technology. It had all to do with making decisions, making the right decisions that would lead us to the right outcome for the business.

We knew what we wanted to achieve. We knew that we had to be more agile. We had to get our costs down. We had to optimize this whole spend-to-revenue ratio. As always with the supply chain business, inventory had to go down. Going up is not a good plan, because you're paying for parts that are sitting on the shelf.

Agile and sleek

One of the goals was to get the solution so agile and sleek that we didn't have to use air transportation to get parts from A to B. We could use surface transportation. If we could put the parts in the right place, where they needed to be to get to the right customer, rather having to use air, which of course is very fast, but it’s very expensive compared to surface, we could also get a dramatic reduction in the CO2 emission that we were putting out by virtue of that transportation.

There were lots of things here that had nothing to do with technology. They all had to do with business benefits and outcomes that we wanted to achieve, both internally to HP, like saving money, but also to the customers in terms of delivery of a better service.

Some will call them peripheral, and some may call them fundamental, but things like using different transportation techniques to cut CO2 we felt were pretty important.

What we've done as always with these experiences is translate them into how can we be smarter, better, and more helpful to our customers in learning from these experiences. In the whole HP-IT story, we have outpoured so many best practices and good ideas and bad ideas, which we're quite happy to share with people.

But, of course, hindsight is a wonderful thing.

Similarly, we'd like to think that those organizations that are out there with a supply chain challenge could now look at this and say, "Maybe we could do the same thing." Definitely the alignment between business and IT is probably one of the most paramount of facets. Let me do with which platform, which network, which disk drive, or which operating system. You can have a lot of fun with that. But, in this instance, a lot of the success was driven by setting up the right governance and decision-making structure with the right sponsorship.

Gardner: Now, I'd like to look at some of the paybacks. As I understand it, you turned the corner on this project back in 2006. At the time, you didn't realize that these were "the good old days." The agility and lean aspects of processes in a supply chain are great during growth, but they're also extremely important, when there is a contraction.

So, is there an opportunity to look back and say, "Wow. We didn't know it at the time, but by conducting this application consolidation with the proper governance, we were able to dial down on our delivery of products and services when that was required, and now dial back up." That probably is something of a lesson at the economic level, but can we apply some metrics of success from your project? Any thoughts about what the paybacks were, especially in a topsy-turvy general economy?

Evans: In taking the more holistic view and talking to a lot of customers they would say, "Maybe 18 months ago or two years ago, we knew that we had a legacy app problem. We knew we were spending too much on the underpinning infrastructure, but we could sort of afford it. Was it perfect? No. Was it a bit of a mess? Yes. Should we have really been focusing on the legacy apps issue, thinking maybe the economy is never going to sustain what it was?" But, of course, hindsight is a wonderful thing.

Smarter and better

Now, when I am talking to clients, I mean their comments are, "We need to be smarter. We need to be better. We need to retain our customers, deliver better quality of service to our customers, and we have to do it at a low cost." We've seen a massive change in the approach with the legacy environment, whether that’s applications or infrastructure.

Over the last 12 months what people have realized that it is now time for those organizations that want to remain competitive and innovative. Unfortunately, I still see a lot of companies that believe that doing nothing is the thing to do and will just wait for the economy to rebound. I don't believe it's going to rebound to the same place. It may come back and it may be stronger, but it may end up on a different place.

The organizations that are not waiting for that, but are trying to be innovative, competitive, move away from the competition, and give themselves some breathing space are the ones who are going to sustain themselves.

Within HP, we were not in great shape a few years back in terms of our IT spend. It was way too high, and we openly admit that. We had to take some fairly drastic actions, and it is probably well-known and documented. We went from about 6,000 apps went down to about 1,700 today, and we'll probably plateau at around 1,500. We went from 83 data centers to 6.

We're running a better, faster, cheaper organization that is more agile.

We were not in great shape, but we took action. I don’t believe we took action because we knew the economy was going to change. We don’t think we're that clever. We just had to take it, because economically it was just not the right solution, and nor technically.

We had to focus on driving this both from business and IT. As I said in this small example, we went from 300 apps to 30 apps. We had a 39 percent reduction in our inventory dollars. We reduced our supply chain expenses. We reduced the cost of doing next day delivery. We're heading toward reducing our CO2 emissions by 40 percent on those next day deliveries.

But overall, the global supply chain, this measure of spent revenue, we drove down by 19 percent. We're running a better, faster, cheaper organization that is more agile. As you said, it positions us better to exploit situations as they change and feel that they’ve become more of an opportunity rather than a threat.

Gardner: For those organizations that are in some sort of a multi-year approach, looking at their portfolio of applications, probably shocked by how many there are, what the redundancies are, what the actual landscape looks like, but perhaps also a little bit chagrin by the daunting complexity, where do you suggest they start for resources? Is there a way to start thinking strategically about both the technology, the business, and process issues, as well as those governance, operational, and methodological issues?

First, take stock

Evans: A number of people I have talked to say that their biggest challenge is that they don’t know what they’ve got. So, first and foremost, the advice is always that you need to take stock of what you’ve got, because if you don’t know what you are dealing with, then you’ve got a problem.

I’ll give you an example. I spoke to two large organizations at a recent event we ran here in HP. One organization openly admitted they didn't know what their problems were. They knew they had a massive, complex, and growing applications portfolio that was basically losing touch with the business. That was one side.

Another customer openly admitted that they knew the applications that were causing them problems. They said, "We have these 14 apps that are killing us, and we need to do something about it. We need to streamline those apps. We need to use contemporary technology."

They need to use a new software environment that gives them a much smaller code base, if they are moving from COBOL to something like Java or C#, using new database technologies. Using new testing techniques that don’t mean that we load testing to the end of the session. Then, when time gets tight, what gets cut? The testing gets cut.

Underneath all that is the abilitty to save money, which, of course, is fairly important.

That was a good example we used in the supply chain example. We used an HP product, Quality Center, that gave us this process, this rigor that said, "We're going to test things. We're going to throw out different scenarios, and we're going to test it to death. We're not going to test it to death at the end when it’s too late, but we're going to do that throughout the development cycle so that we can make those adjustments and modifications as we go along."

So, we ended up with a high-quality product at the end. Talking to a lot of customers, the speed by which they can develop, as well as modify, applications, and that is connected directly to customer satisfaction, is paramount.

In the financial services industry, your application is your business. If you are in the telco industry, the level of service you can offer is very much aligned to the application. If you can improve the speed, and the momentum you can create in terms of introducing new editions and you can do those with a very high quality and a high level of integrity, then you're heading towards delivering a much better service to your customer.

There are so many lessons learned here addressing what people have in terms of portfolio and then also delivering new, contemporary, revised types of applications and/or infrastructure.
Underneath all that is the ability to save money, which, of course, is fairly important, isn’t it?

Gardner: We talked a bit about the how and the why of this massive application consolidation projects issue, but this specific Global Part Supply Chain project at HP is now a case-study, which you have written up and which is available for people to get some more detail from. Are there are some other resources, sites, or places where they can go for not only learning more about how you solve this problem, but where they can start on their journey or continue the journey.

Open about experiences

Evans: We have always said that we're going to be very open about our experiences, only because I think people don’t want to begin new things. They don't want to be the first to take a leap, but as I said, pretty much every customer in my mind is doing some form of application transformation, whether small, large, or medium scale.

We have always said that the experiences we gain from our own work we would share openly, and sometimes we’re quite happy to say where we did go wrong. In this instance, we’ve written up a case study to give people an insight in more detail than I have been able to provide today. We're going to post that on our portal. If people want to go there, it’s relatively simple.

It’s http://hp.com/go/applicationtransformation, and they’ll find the case-study. They’ll find videos and other materials of other customers who have embarked on these journeys, whether they’ve been driving that from the top down, from an application’s nature, or whether it’s people who are coming in from the infrastructure, who will say, "I have aging obsolete infrastructure that I need to change, but I know there is a collateral impact on my application. How do I go about that?"

We're trying to cover all the bases in terms of those people that are coming with top-down applications, bottom-up infrastructure, or looking to create a new software environment. If they go to that URL, they can find all the materials, and I hope that they might find useful.

The point is that we get this ability to have an elastic environment.

Gardner: Paul, before we close out, perhaps a look to the future. I've heard so much now about cloud computing and software as a service. This is not necessarily just talking about custom, packaged, and on-premises apps. We now need to think about different sourcing options. How does that relate to this process of application transformation and the rationale around where to go for the best economic bang for the buck?

Evans: Cloud is just a part of the application transformation journey. If you think of history over the last 50 years -- and that’s all technology is; it’s only 50 years old in this space -- we’ve done everything inside. We did everything ourselves. We did everything in big machines, crammed everything in, then we’ve gone more distributed. We’ve gone to PCs and all rest of it. We began to spread the web, before we even knew what the word "Web" meant.

Now, we’ve gotten used to interacting with the Internet, and more importantly, the web. We're beginning to say, you know, maybe there are some services that we don't need inside of firewall, or in a private cloud -- so it’s inside but not inside." The point is that we get this ability to have an elastic environment. We haven’t got dedicated systems to run a service that maybe we only want to use 20 percent of the time.

The notion of using the web or technologies that have been formed from the web development is just like falling off a log. We'll argue probably for at least the next 12 months about what is the cloud and what’s not the cloud, but the use of the World Wide Web is a part of our day-to-day business that's irreversible.

We're never going to go backward now, whether it’s just interaction with consumers who want to get questions answered and order a PC or whatever, or the provision of services that we'll use and our customers will use by utilizing the web. It’s just going to be there.

Also, merging with this whole notion of the cloud is mobility. The mobile, the smartphone, or call it what you want, is going to be the most voluminous device that will attach to the web in the future. People are not just going to want to play games, send SMS, and all the rest of it. They're going to email, they are going to want to do things, and they are going to want to interact in a far richer environment than they do today.

I think these technologies are converging rapidly in terms of a notion that says we’ve got to update and transform what we’ve got and at the same time start the more strategic view of what are we going to incorporate going forward. We may not incorporate them today, but we sure need to leave that socket open that says I may want to plug it in the future.

Gardner: Well great. We've been talking about best practices in execution accelerators around large application consolidation projects. We’ve been joined by Paul Evans, World Wide Marketing Lead on Applications Transformation at HP. Thank you, Paul.

Evans: Thanks, Dana.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. You’ve been listening to a sponsored BriefingsDirect podcast. Thanks for listening, and come back next time.

Access more information on Application Consolidation.
Read the full-length case study on HP's Application Consolidation.
Learn more about the Application Transformation Experience Workshop.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: HP.

Transcript of a BriefingsDirect podcast on how HP tackled an internal multi-year effort to streamline supply chain efficiencies and effectiveness through applications consolidation. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.

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IT's New Recipe for Success: Modernize Applications and Infrastructure While Taking Advantage of Alternative Sourcing

Transcript of a sponsored BriefingsDirect podcast on making the journey to improved data-center operations via modernization and creative sourcing in tandem.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: HP.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Today, we present a sponsored podcast discussion on improving overall data-center productivity by leveraging all available sourcing options and moving to modernized applications and infrastructure.

IT leaders now face a set of complex choices, as they look for ways to manage their operational budget, knowing that discretionary and capital spending remain tight, even as demand on their systems increases.

One choice that may be the least attractive is to stand still as the recovery gets under way and demands on energy and application support outstrips labor, systems supply, and available electricity.

Economists are now seeing the recession giving a way to growth, at least in several important sectors and regions. Chances are that demands on IT systems to meet growing economic activity will occur before IT budgets appreciably open up.

So what to do? Our panel of experts today examines how to gain new capacity from existing data centers through both modernization and savvy exploitation of all sourcing options. By outsourcing smartly, migrating applications strategically, and modernizing effectively, IT leaders can improve productivity, while operating under tightly managed costs.

Economists are now seeing the recession giving a way to growth, at least in several important sectors and regions.

We'll also look at some data-center transformation examples with some executives from HP to learn how effective applications and infrastructure modernization improves enterprise IT capacity outcomes. And, we'll examine modernization in the context of outsourcing and hybrid sourcing, so that the capacity goals facing IT leaders can be more easily and affordably met, even in the midst of a fast-changing economy.

As we delve into applications and infrastructure modernization best practices, please join me in welcoming our panel: Shawna Rudd, Product Marketing Manager for Data Center Services at HP. Welcome, Shawna.

Shawna Rudd: Thank you.

Gardner: We're also here with Larry Acklin, Product Marketing Manager for Applications Modernization Services at HP. Welcome, Larry.

Larry Acklin: Hello.

Gardner: And, Doug Oathout, Vice President for Converged Infrastructure in HP’s Enterprise Services. Welcome, Doug.

Doug Oathout: Thank you, Dana. I'm glad to be here.

Gardner: Let me start with you, Doug. We're seeing some additional green shoots now across the economy, and IT services are also being taxed by an ongoing data explosion, the proliferation of mobile devices, use of social media, and new interfaces. So, what happens when the supply of budget -- that is to say, the available funding for innovation in new applications -- is lacking, even as the demand starts to pick up? What are some of the options that IT leaders have?

Tackling the budget

Oathout: Dana, when you look at the budgets still being tight in the tight economy, but business is starting to grow again, IT leaders really need to look strategically at how they're going to tackle their budget problem.

There are multiple sourcing options, there are multiple modernization tasks as well as application culling that they could do to improve their cost structure. What they need to do is to start to think about how, and what major projects they want to take on, so that they can improve their cash flow in the short-term while improving their business outcomes in the long-term.

At HP, we look at: how do I source products that are more beneficial to me -- outsourcing cloud and such -- to give us a better economic picture, and also using modernization techniques for application and infrastructure to improve the long-term cost structures.

At HP we also look at modernization of the software, and we look at outsourcing options and cloud options as ways to improve the financial situation for IT managers.

Gardner: Looking at this historically, have the decisions around outsourcing been made separately from decisions around modernization and infrastructure? Is it now time to bring two disparate decision processes together?

Oathout: Yes. In the past, companies have looked at outsourcing as a final step to IT, versus an alternate step in IT. We're seeing more clients, especially in the tight economy, that we have gone through, looking at a hybrid model.

How do I source things smartly that are non-mission critical or non-business critical to me to the outside world and then keep the stuff that is critical to my business within the four walls of the data center? There is a model evolving, a hybrid model between outsourcing and in-sourcing of different types of applications in different types of infrastructure.

Gardner: Let's go to you, Shawna. When we think about the decisions around sourcing, as Doug just pointed out, there seems to be a different set of criteria being brought to that. How do you view the decision-making around sourcing options as being different now than two, three or five years ago?

Rudd: Clients or companies have a wider variety of outsourcing mechanisms to choose from. They can choose to fully outsource or selectively out-task specific functions that should, in most cases, be able to provide them with substantial savings by looking at their operating expenses. Alternatively, as Doug just pointed out, we can provide many transformational and modernization type of projects that don’t require any outsourcing at all. Clients just have a wider variety of options to choose from.

Gardner: To you, Larry. As folks look at their current infrastructure and try to forecast new demands on applications and what new applications are going to be coming into play, are they faced with an either/or? Is this about rip and replace? How does modernization fit differently into this new set of decisions?

Acklin: It's definitely becoming a major challenge. The problem is that if you look purely at outsourcing in order to have additional investment for innovation, it will take you so far. It will take you to a point.

There needs to be a radical change in most businesses, because they have such a build-up of legacy technology, applications and so forth. There needs to be a radical change in how they move forward so they can free up additional investment dollars to be put back into the business.

Realigning the business and IT

More importantly, it's necessary to realign the business and the application portfolio, so that they're working together in order to address the new challenges that everyone is facing. These are challenges around growth: How do you grow so that, when you come out of a tough economy situation, the business is ready to go.

Investors are expecting that your company is going to accelerate into the future, providing better services to your market. How can you do that when your hands are completely tied, based on your current budget?

You know your IT budgets aren't going to increase rapidly, that there may be a delay before that can happen. So how do you manage that in the interim? That’s really where the combination of modernization and using various sourcing options is going to add additional benefit to be an enabler to get you to that agility that you want to get to.

Gardner: Larry, what would be some of the risks, if this change or shift in thinking and approach doesn't happen? What are some of the risks of doing nothing?

Acklin: We call that "the cost of doing nothing." That's the real challenge. If you look at your current spend and how you are spending your IT budgets today, most see a steady increase in expenses from year-by-year, but aren't seeing the increases in IT budgets. By doing nothing, that problem is just going to get worse and worse, until you're at a point where you're just running to keep the lights on. Or, you may not even be able to keep up.

The number of changes that have been requested by the business continues to grow. You're putting bandages on your applications and infrastructure to keep them alive. Pretty soon, you're going to get to a point, where you just can't stay ahead of that anymore. This is the cost of doing nothing.

If you don’t take action early enough, your business is going to have expectations of your IT and infrastructure that you can't meet. You're going to be directly impacting the ability for the company to grow. The longer you wait to get started on this journey to start freeing up and enabling the integration between your portfolio and your business the more difficult and challenging it's going to be for your business.

Gardner: Doug and Shawna, it sounds as if combining the decisions around modernizing your infrastructure and applications with your sourcing options is, in a sense, an insurance policy against the unknown. Is that overstating the opportunity here, Shawna?

Rudd: I don’t think so. Obviously, to Larry’s point, it's not going to get any cheaper to continue to do nothing. To support legacy infrastructure and applications it's going to require more expensive resources. It's going to require more effort to maintain it.

The same applies for any non-virtualized or unconsolidated environment. It costs more to manage more boxes, more software, more network connections, more floor space, and also for more people to manage all of that.

Greater risk

The risk of managing these more heterogeneous, more complex environments is going to be greater -- a greater risk of outages -- and the expense to integrate everything and try to automate everything is going to be greater.

Working with a service provider can help provide a lot of that insurance associated with the management of these environments and help you mitigate a lot of that risk, as well as reduce your cost.

Gardner: Doug, we can pretty safely say that the managed service providers out there haven’t been sitting around the past two or three years, when the economy was down. Many of them have been building out additional services, offering additional data and application support services. So, IT departments are now not only competing against themselves and their budgets, they are competing against managed service providers. How does that change somebody’s decision processes?

Oathout: It actually gives IT managers more of a choice. If you look at what's critical to your business, what's informational to your business, and you look at what is kind of the workflows that go on in your business, IT managers have many more choices of where they want to go source those applications or those job functions from?

As you look at service providers or outsourcers, there is a better menu of options out there for customers to choose from. That better menu allows you to compare and contrast yourself from a cost, service availability, and delivery standpoint, versus the providers in the marketplace.

IT managers have choices on where to source, but they also have choices on how to handle the capacity that fits within their four walls of the data center.

We see a lot of customers really looking at: how do I balance my needs with my cost and how do I balance what I can fit inside my four walls, and then use outsourcing or service providers to handle my peak workloads, some of my non-critical workloads, or even handle my disaster recovery for me?

So IT managers have choices on where to source, but they also have choices on how to handle the capacity that fits within their four walls of the data center.

Gardner: Let’s look at how you get started. What are some of the typical ways that organizations explore sourcing options and modernization opportunities? As I understand it, you have a methodology, a basic three-step approach: outsource, migrate, and modernize.

Let’s take each one of these and start with outsourcing smartly. Shawna, what does that mean, when we talk about these three steps in getting to the destination?

Rudd: From an outsourcing standpoint, it’s simply one mechanism that clients can leverage to facilitate or help facilitate this transformation journey that they may be looking to, as they go on to help generate some savings, which will help fund other maybe more significant modernization or transformational efforts.

We help clients maintain their legacy environments and increase asset utilization, while undertaking those modernization and transformation efforts. From an outsourcing standpoint, the types of things that a client can outsource could vary, and the scope of that outsourcing agreement could vary -- the delivery mechanism or model or whether we manage the environment at a client’s facility or within a leveraged facility.

Bringing value

All those variables can bring value to a client, based upon their specific business requirements. But then, as the guys will talk about in a second, the modernization or the migration and the modernization yields additional savings to those clients’ business.

So, from an outsourcing standpoint, it’s that first thing that will help generate savings for a client and can help fund some of the efforts that will generate incremental savings down the road.

Gardner: The second step involves migration. Who wants to handle that, and what does that really mean?

Oathout: Let me start and then I'll hand it over to Larry. When we talk about migration, we can look at different types of applications that migrate simply to modern infrastructure. Those applications can be consolidated onto fewer platforms into a more workflow-driven automated process.

We can get a 10:1 consolidation ratio on servers. We can get a 5-6:1 consolidation ratio on storage platforms. Then, with virtual connectivity or virtual I/O, we can actually have a lot less networking gear associated with running those applications on the servers and the storage platform.

When you look at modernizing your applications and look at modernizing infrastructure, they have to match.

So, if we look at just standard applications, we have a way to migrate them very simply over to modern infrastructure, which then gives you a lower cost point to run those applications.

Gardner: Now, not all applications are created or used equally. Is there a difference between what we might refer as core or context applications, and does that come into play when we think about this migration?

Oathout: Oh, it definitely does. There are some core applications that are associated with certain platforms that we can consolidate on the bigger boxes, and you get more users that way. Then, there are context applications, which are more information-driven, and which can easily continue to grow. That's one of the application areas that continues to grow, and you can't see how fast it's going to grow, but you can scale that out onto modern platforms.

As you have more work, you have more information, and you can grow those systems over time. You don't have to build the humongous systems to support the application, when it’s just starting out. You can build it over time.

There's a lot we can do with the different types of applications. When you look at modernizing your applications and look at modernizing infrastructure, they have to match. If you have a plan, you don't have to buy extra capacity when you start. You can buy the right capacity then grow it, as you need it.

Specific path

Acklin: Let me add a little bit to that. When we look at these three phases together, we ordered them this way for a specific path to minimize the risk as part of it. Outsourcing can drive some initial savings, maybe up to 40 percent, depending on the scope of what you're looking at for a client. That's a significant improvement on its own.

Not every client sees that high of a saving, but many do. The next step, that migration step that we’ve talked about, where we’re also migrating over to a consolidated infrastructure, allows you to take immediate actions on some of your applications as well.

In that application space, you can move an application that may be costing you significant amounts of the dollars whether it be, license fees or due to a lack of skilled resources and so forth on a legacy platform. Migrating those or keeping the application intact, running on that new infrastructure, can save you significant dollars, in addition to the initial work you did as part of the outsourcing.

The nice thing, as you do these things in parallel, is that it's a phase journey that you are going through, where they all integrate. But, you don't have to. You can separate them. You can do them one without the other, but you can work on this whole holistic journey throughout.

The migration of those applications, basically leaves those applications intact, but allows them to have a longer lifespan than you may typically would. A great example of this is, if you had an application that you want to eventually replace with a ERP system of some sort, or that business process is going to be changed in the future in some way, but we still need to do something about this cost-saving problem today.

When you move into that modernized phase, you're really trying to change the structure of those applications, so that you can take advantage of the latest technology to run cloud computing and everything operating as a service.

It's a great middle step. We can still drive significant 40-50 percent saving, just through this migration phase of moving that application onto this new infrastructure environment and changing the way that those cost structures around software and so forth are allocated towards that. It frees up short-term gain that can turn around to be reinvested in the entire modernization journey that we're talking about.

Gardner: So, if I understand that correctly, when we get to the modernization phase, we've been able to develop the capacity and develop a transformation of the budget from operations into something that can be devoted to additional new innovation capacity.

Acklin: Right. Then as you continue that journey, you're starting to get your cost structures aligned and you're starting to get to a place where your infrastructure is now flexible and agile. You’ve got the capacity to expand. When you move into that modernized phase, you're really trying to change the structure of those applications, so that you can take advantage of the latest technology to run cloud computing and everything operating as a service.

Future technologies allow us to enable the business for growth in the marketplace. Right now, many of our applications handcuff the business. It takes months to get a new product or service out to the market. By changing over to a service-oriented model, you're saving a lot of cost component here, but you're adding that agility layer to your applications and allowing your business to expand and grow.

Gardner: Before we go to some examples, I'm curious about what happens. What benefits can occur when you play these three aspects of this journey together?

There is sort of a dance, if you will, of three partners. When you apply them to the specific needs, requirements, and growth patterns within specific companies, what types of benefits do we get? Is this about switching to a more pay-as-you-go basis? Is this about reduced labor or improved automation?

Let's start with you, Shawna. What are some of the paybacks that companies typically get when they do this correctly?

Some 30 percent savings

Rudd: They can achieve about 30 percent savings, obviously depending on what they outsource and how much they outsource. Those savings will be achieved through the use of best-shore resources through the right sizing of their hardware and software environments, consolidation, virtualization, automation, standardization, processes, and technologies.

And, then they'll achieve incremental cost savings. As Larry said, it can be upward of 40-60 percent from migrating some of that low-hanging fruits, or those applications that are easily lifted and shifted to lower cost platforms. So, they'll reduce the associated IT and application expenses that are also the ongoing management expense. Then, as they continue to modernize those environments, they'll achieve additional efficiencies and potentially some additional savings.

In that scenario, in which they have combined everything, when they work with a single source provider to help them go through that journey and help facilitate that journey, the transitions, the hand-offs, and all of that should go much more smoothly.

The risk to the client, to the client's business, should be better mitigated, because they're not having to coordinate with four or five different vendors, internal organizations, etc. They have one partner who can help them and can handle everything.

Gardner: Doug, to you. When this is done properly, what are some of the high-level payoffs? What changes in terms of productivity at the most general level?

IT is now seen as adding value to the business versus just being the cost center, and the paybacks are unbelievable.

Oathout: The big thing that changes, Dana, is that when you go through this journey at the end, IT is aligned to the businesses. So, when a business wants to bring on a new application or a new product line, IT can then respond and stand up a new application in hours instead of months.

They can flex the environment to meet a marketing campaign, so you have the ability to do the transactions when a major TV advertisement goes on or when something happens in the industry. You get the flexibility and you get the efficiencies, but what you really get is IT is acting as a service provider to the line of business, and IT is now a partner with the business versus being a cost center to that business.

That's the big transformation that happens through this three-step process. IT is now seen as adding value to the business versus just being the cost center, and the paybacks are unbelievable.

You move from deploying an application in months to two hours. The productivity of your IT department gets two or three times better. You can now plan to run your data centers or your IT at normal workloads. Then, when peaks come in, you can outsource some of the work to service providers or to your outsource partner.

Your actual IT is running at average load, and you don't have to put all the extra equipment in there for the peak. You actually outsource it, when that peak comes. So, at the end of this journey, there is a whole different business model that is much more efficient, much more elastic, and much more cost-effective to run the business of the future.

Gardner: Larry, to you. What are your more salient takeaways in terms of benefits from doing this all correctly?

Don't have to wait

Acklin: I’ll just add to what Shawna and Doug have said already. One of the bigger benefits that you achieve is that the business doesn't have to wait. Many times, if you're a CIO, you have to tell your business-owners that you've got to wait. "I need to go through. I'm in the midst of this outsourcing operation. I'm trying to change the way we're providing service to the business." That can take time."

The idea of putting the outsourced, migrated, modernized phases together is that they're not sequential. You don't have to do one, then the other, and then the other. You can actually start these activities in parallel. So, you can start giving benefits back to the business immediately.

For example, while you're doing the outsourcing activities and getting that transition set up, you're starting to put together what your future architecture is going to look like for your future state. You have to plan how the business processes should be implemented within the application and the strategic value of each application that you currently have in your portfolio.

You're starting to build that road map of how you are going to get to the end state. And then Even as you continue through that cycle, you're constantly providing benefits back to both the business and IT at the same time.

You really build that partnership between the two. So, when you reach the end, that is the completely well-oiled machine working together -- both the business and IT -- to reach their objectives.

Even as you continue through that cycle, you're constantly providing benefits back to both the business and IT at the same time.

Gardner: Let’s look at some examples that we mentioned earlier. This can vary dramatically from organization to organization, and coming at this from different angles means that they might prioritize it in different ways. Perhaps we can look at a couple of examples to illustrate how this can happen and what some of the payoffs are. Who wants to step up first for an example on doing these three steps?

Oathout: I'll go first. One example that we worked very closely was in services with our customer France Telecom. France Telecom transitioned 17 data centers to two green data centers. Their total cost of ownership (TCO) calculation said that they were going to save €22 million (US $29.6 million) over a three-year period.

They embarked on this journey by looking at how they were going to modernize their infrastructure and how they were going to set up their new architecture so that it was more flexible to support new mobile phone devices and customers as they came online. They looked at how to modernize their applications so they could take advantage of the new converged infrastructure, the new architectures, that are available to give them a better cost point, a better operational expense point.

France Telecom is a normal example where you consolidate 17 data centers to two, but it’s not abnormal when a company goes through this three-step process, to make a significant change to the IT footprint, make a significant change in how they do their business to support the lines of businesses that require new applications and new users to come online relatively quickly.

Gardner: Doug, how would you characterize the France Telecom approach? Which of the three did they emphasize?

Emphasis on migration

Oathout: They really emphasized the migration as the biggest one. They migrated a number of applications to newer architectures and they also modernized their application base. So, they focused on the last two, the modernization and the migration, as the key components for them in getting their cost reductions.

Gardner: Okay, any other examples?

Acklin: I'll talk about another one. The Ministry of Education in Italy (MIUR) is another good example, where a client has gone on this whole journey. In that situation, they had outsourced some of their capabilities to us -- some of their IT management. But, they were challenged with some difficult times. The economy hit them hard, and being a government agency, they were under a lot of pressure to consolidate IT departments globally.

It’s a very, very large organization built up over the years. Most of the applications were built back in the early 1980s or earlier than that. They were mainframe-based, COBOL, CICS, DB2 type applications, and they really weren’t servicing the business very well. They were really making it a challenge.

In addition to all of the legacy technologies, the CIO also had the challenge of consolidating IT departments. They had distributed IT departments. So, they had to consolidate their IT departments as part of this activity.

On top of all that, they were given the challenge to reduce their headcount significantly due to the economic crisis. So, it became a very urgent journey for this client to go on, and they began going through that. Their goal was, as I said, reducing IT, improving agility, being able to respond to change, and doing a lot more with a lot less people in a consolidated manner.

At the end they ended up seeing a 2X productivity improvement and return on investment (ROI) in less than 18 months. They reduced their app support by over 30 percent and they reduced their new development cost by close to 40 percent.

As they went through their transformation, they went through the whole thing. They assessed what they had. They put their strategy together and where they wanted to go. They figured out what applications they needed and how they were going to operate.

They optimized the road map for them to reach their future state, established a governance program to keep everything in alignment while they went on this journey, and then they executed this journey.

They used a variety of methods for modernizing their applications and migrating over to the lower cost platforms. Some of them they re-architected into new service-based models to provide services to their students and teachers through the web.

At the end they ended up seeing a 2X productivity improvement and return on investment (ROI) in less than 18 months. They reduced their app support by over 30 percent and they reduced their new development cost by close to 40 percent.

Those are significant challenges that the CIO took on, and the combination of improving their applications and infrastructure through outsourcing and modernization model helped them achieve their goal. The CIO will tell you that they could never have survived all the pressure they were under without going on a journey like this.

Gardner: Shawna, do we have a third example?

No particular order

Rudd: This is an example, not naming a specific client, but also making another point, that the things we're talking about don't have to occur in this particular order -- this one, two, three step order.

I know of other clients for whom we've saved around 20 percent by outsourcing their mainframe environments. Then, after successfully completing the transition of those management responsibilities, we've been able to further reduce their cost by another 20 percent simply by identifying opportunities for code optimization. This was duplicate code that was able to be eliminated or dead code, or runtime inefficiency that enabled us to reduce the number of apps that they required to manage their business. They reduced the associated software cost, support cost, etc.

Then there were other clients for whom it made more sense for us to consider outsourcing after the completion of their modernization or migration activities. Maybe they already had modernization and migration efforts underway or they had some on the road map that were going to be completed fairly quickly. It made more sense to outsource as a final step of cost reduction, as opposed to an upfront step that would help generate some funding for those modernization efforts.

Gardner: For those folks who see the need in their organization and understand the rationale behind these various steps, where do they get started, how can they find more information? Let me start with you, Doug. Are the information resources easily available.

Oathout: Well, Dana, there are a ton of different places to start. There's your HP reseller, the HP website, and HP Services. If a customer is thinking about embarking on this journey, I'd contact HP Services and have them come out and do a consulting engagement or an assessment to lay out the steps required.

If you're embarking on the journey on modernization, contact your HP reseller and HP seller and have them come show you how to do consolidation and virtualization to really modernize your infrastructure. If you're having the conversation about applications, contact HP Services. They can look at your application portfolio and show you the experience that they have in modernizing those applications or migrating those applications to modern equipment.

We'll cover everything from how to figure out what you have, what you are planning, how to build the road map for getting into the future state, as well as all the different ways that will impact your business and enterprise along the way.

Gardner: Any additional paths to how to start from your perspective, Larry?

Acklin: Let me add to that. If you're in situation where you think modernization, but you're not positive, you're still trying to get a good understanding of what's involved, go on one of these trainings. We offer something that's called the Modernization Transformation Experience Workshop. It's basically a one-day activity workshop, a slide-free environment, where we bring you and take you through the whole journey that you'll go on.

We'll cover everything from how to figure out what you have, what you are planning, how to build the road map for getting into the future state, as well as all the different ways that will impact your business and enterprise along the way, whether you are talking technology infrastructure, architecture, applications, business processes, or even the change management of how it impact your people.

We go through that entire journey through this workshop. So you come out understanding what's you're getting yourself into and how it can really affect you as you go forward. But, that's not the only starting point. You can also jump into this modernization journey at any point in the space.

Maybe, for example, you've already figured out that you needed to do this, maybe you've tried some things on your own in the past, but really need to get external help. We have assessment activities that allow us to jump in at any point along this journey.

Whether it's to help you see where there are code vulnerabilities within your existing applications that visually show you what those things look like and where opportunities are for modernization, or whether it's to do a full assessment of your environment and figure out how your apps and your infrastructure are working for your business or, in most cases not working for your business, it allows you to jump in at any stage throughout that whole journey.

As Doug mentioned, HP can help you figure out the right place for beginning that journey. We have hundreds of modernization experts globally who can help you figure out where to start.

Gardner: Do we have any other closing thoughts on the process of getting started?

Acklin: Let me just mention one other item. We talked about this cost of doing nothing. Don't let any fears or doubts about this journey stop you from beginning the journey. There are many things that can get you in trouble with that cost of doing nothing. That time is coming for you, when you're not going to be able to make those changes. So, don't let those fears stop you from going on that journey.

An example of this is financial. Many of our clients we talk to, don’t know how they would pay for a journey like this. Actually, you have a lot of options right in front of you that you can take advantage of. Our modernization consultants can give you some good methods on how to cover this, how to put things together like these three phase activities, or how to go on these journeys that can still work for you even in tough financial times.

Gardner: Great. We've been talking about improving overall data-center productivity by leveraging available sourcing options as well moving to modernized applications and infrastructure. I want to thank our guest for today's panel. We've been here with Shawna Rudd, Product Marketing Manager for Data Center Services at HP. Thank you, Shawna.

Rudd: Thank you.

Gardner: And Larry Acklin, Product Marketing Manager for Application Modernization Services at HP. Thank you, Larry.

Acklin: Thank you.

Gardner: And Doug Oathout, Vice President of Converged Infrastructure at HP Enterprise Services. Thanks, Doug.

Oathout: Thank you, Dana.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. You've been listening to a sponsored BriefingsDirect podcast. Thanks for listening, and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: HP.

Transcript of a sponsored BriefingsDirect podcast on making the journey to improved data-center operations via modernization and creative sourcing in tandem. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.

You may also be interested in:

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• Converged Infrastructure Approach Paves Way for Improved Data Center Productivity
  
  
• Application Transformation Case Study Targets Enterprise Bottom Line with Eye-Popping ROI

Just-in-Time Resourcing Provides Strategic and Productive Visibility into Professional Services Staffing Decisions

Transcript of a BriefingsDirect podcast on how bringing automation and new methodology advances resource utilization from an art to a science.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: Compuware.

For more information on resource utilization, read RTM's whitepaper "The ROI of Resource Utilization -- Measuring and Capturing the Real Business Value of Your People."

Learn more about Compuware Changepoint.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Today, we present a sponsored podcast discussion on how technology suppliers can get the most from resource utilization and management in the global services economy.

The shifts in technology and business models now under way and, in many ways, accelerated by the recession are forcing technology vendors, in particular, to adopt more of a professional services revenue model across their business lines. Increasingly, sellers of IT are finding it harder to win large software and hardware capital purchases contracts, which traditionally followed three- to seven-year obsolescence and refresh cycles.

Buyers of technology moving to IT shared services and software-as-a-service (SaaS) models internally, and off of the capital outlays roller coaster, are increasingly moving to smoother and more predictable operating and charging models outside, beginning with long-term professional services and outsourcing engagements.

Both the buyer and seller of services therefore need to focus on the implementation, integration, and solutions level of value, placing a much larger and more complex burden on the services delivery personnel themselves, as well as those who managing the services.

We’re here to find out some new, best ways of managing and automating the intellectual resources that support the professional services lifecycle. We’ll see how recent research shows that more of a just-in-time (JIT) methodology is required to keep the skills in balance with myriad project requirements and obligations.

Taking charge of the process around professional services fulfillment ensures that the people are well-managed, protected from missteps amid their responsibilities, and better utilized at what they do best.

To learn more about resource utilization and management in the global services economy, please join me in welcoming our panel. We are here today with Lori Ellsworth, Vice President of Changepoint Solutions at Compuware, the sponsor of this podcast. Welcome, Lori.

Lori Ellsworth: Thank you, very much.

Gardner: We're also here with Mark Sloan, Chief Operating Officer of RTM Consulting. Welcome, Mark.

Mark Sloan: Thank you.

Gardner: Let me throw my opening question out to both of you. Why is it that resourcing is such a challenge in professional services organization? Why is this so hard?

Necessary to have

Ellsworth: Just tapping into the comments you made a moment ago, first of all, it's the increased importance of the professional services organization inside a technology company to meet their financial obligations and to promote customer success. The change and the focus on professional services is moving from something that was nice to have to something that is necessary to have to be successful.

Now, organizations have to understand how to get a handle on the people they have working for them, how best utilize them, and how to make sure that your employees, those assets, are challenged and happy, but that you are delivering that service to provide value to your customers.

Gardner: Lori, are we seeing this extend beyond a small portion of companies? Are we seeing this extend to other business lines? Is that where the expansion is coming?

Ellsworth: The first part of the expansion is coming just because of the importance of professional services to technology companies. Software companies are a great example. Historically, companies in that sector may have done mostly product business and less service.

The stakes are higher, in terms of the discipline and the approach that we need to take to manage that part of the business.

To your comments that you made earlier about the change that’s going on in the market and the changes in the economy, services are now necessary to deliver success, and the services business is a very healthy part of the software business and is contributing significantly to the bottom-line.

So, the stakes are higher, in terms of the discipline and the approach that we need to take to manage that part of the business.

Gardner: For those organizations that have been focused on product management, finding the right balance mix in devoting the proper resources to the management of those professional services providers, that’s quite a different ballgame.

Ellsworth: It is. It’s dealing with people rather than product, many different types of attributes that have to be managed, and information you need to understand. Some of the points that RTM deals with every day. You have different issues on the table, when you're dealing with people, and those have to be effectively managed as part of the process.

Gardner: Let’s go to Mark Sloan at RTM. First, tell us a little bit about RTM and what you do, and then let’s hear a bit about this need to shift how companies are relating their business models towards more of a professional services’ portion of the mix.

Sloan: Thank you. RTM Consulting is focused on working with consulting, professional services, and shared services organizations to drive operational improvements throughout the organization.

One of our core areas of focus is in this area of resource management is how can you get the right person in the right place at the right time and drive up utilization, but at the same time, make sure that you're delivering value to your end customers and leaving them satisfied and coming back for more.

Accelerated rate of change

In terms of the shift, I’d agree with Lori’s comments. The economy over the last couple of years has only accelerated the rate and pace of change here. When a software company shows up with its professional services arm, the client is expecting that each and every one of the people who show up is an expert in the software, the technology, and the implementation process. The days of people learning on the job and coming up to speed are long gone.

The challenge today is for companies to get visibility into the type of work that’s coming down the pike, so that they can proactively train their internal resources and be prepared for that work, so that when they do show up, they are the experts.

Gardner: Mark, also tell me about some of the research you’ve done recently, and I'm particularly interested in this notion of JIT. I know that we worked with that 15-20 years ago in the manufacturing field. It's also spread into logistics, transportation, and the supply chain, so it’s been something that’s been permeating across business, but how does it relate to professional services?

In some organizations they are operating at zero idle resource capacity. I know all the CFOs out there would truly appreciate that.

Sloan: In looking into resource management in some of the research we’ve done, we’ve actually taken the principles of JIT manufacturing and directed them to the professional services organization.

Just as 30 years ago, any manufacturing company had big inventories of supplies, finished products, sitting in their warehouse. Ten or 15 years ago, the big services organizations were able to have excess resources on the bench, in the office, waiting for that next project to arrive.

In the services business, these margins have contracted and customers have gotten more savvy in their purchasing. The ability to have a bank and have surplus resources is diminished significantly. In some organizations they are operating at zero idle resource capacity. I know all the CFOs out there would truly appreciate that.

What we’ve done is taken those same principles -- forecasting what the future scenarios look like, what the demands look like, and then translating that back into how many resources you are going to need, the types of resources, the skills those resources need to have. You can, at that right moment, bring on a new employee, go to a third-party contractor to fulfill that demand, or give yourself enough advanced notice to cross-train your existing resources on new technologies, new products, so that they can work across your portfolio and not just focus on one particular area.

Gardner: Before we go into Mark's research and some of the major findings, it sounds as if managing and getting utilization benefits from professional services has moved and is required to now move from being an art to a science. Lori, from your vantage point there at Compuware, is that a good way to look at it?

Ellsworth: That’s a fair statement, and Mark’s comment about it needing to become proactive is really the important thing, in that it can no longer just be people scrambling around the office, trying to find out who is in the office, and plug someone into a slot on an engagement, because you won’t deliver the value.

There needs to be more discipline, more information, and a better process for decision-making and forward planning, so that the organization can scale and scale in a financially successful way, if I can use that expression.

Gardner: Mark, what have been some of the critical success factors that for those folks that have made the transition and moved from the art to more of a scientific, proactive, data-driven approach? What are some of the success factors that they’re finding?

Key things

Sloan: There are two or three key things. First and foremost is the change management aspect. As Lori said, managers historically are used to walking around the office or having on their whiteboard their list of employees in their department available and where they are. Then, late at night, they can think about where they go next.

In a sense, they have to rely on the technology that’s out there to give them visibility not just into their people, but to give them the visibility to the entire organization, so that they're thinking about optimizing what the company does and what the professional services organization does for the end client, and not just how do I optimize what I do with my 5, 10, 15 people and my department.

So, getting managers focused on that is one big thing, but the second critical success factor is laying out some forecast of the future scenarios. What is in the pipeline? What revenue do we think we are going to get? What's the timing in that revenue? And then, translating that back into what are the resource requirements of the different stages of those projects?

By creating that future visibility, you can compare that to resources that you do have in the overall organization -- what gaps there might be in terms of skill sets or just in raw quantity? Then, you will lay out a recruiting plan to get people, a training plan to cross-train people, or contracting plans to source from third-party vendors.

Gardner: Lori, when you saw the research from RTM Consulting and saw some critical success factors, what was top of mind for you? What jumped out?

You need to start with the fundamental. You need to understand your people and their skills and get that view of your business.

Ellsworth: Well, there are four critical success factors, but also the building-block approach. In other words, you need to start with the fundamental. You need to understand your people and their skills and get that view of your business. Then, you can start to add levels of maturity, look at forecasting, look at different models for resource allocation, and bring in project management.

The success factors were very sound in terms of the building-block approach, and how you mature the organization through them. You don’t just go from 0 to 60, turn everything on, and think that your organization is going to be performing very well.

Gardner: What is the change point it's bringing to the table in order to help make these transitions automate, control, develop this as a methodology?

Ellsworth: It's both the automation and the best practices, as organizations start to put the buildings blocks in place and adopt the disciplines and build the processes that work in their business. You can't scale that.

You can make that work within a small team or across a couple of small teams, but if you need to scale that to your entire services organization, including management, and then broaden the picture to other critical stakeholders in the company that need visibility, perhaps sales or others in the organization, you can't scale and reinforce that discipline without automation.

The two really have to go together. One won’t be successful without the other in a large professional services organization. Automation brings the scale factor.

Gardner: And doesn’t the automation also allow for governance, for allowing for the scale that the automation entails, but also to keep it under control?

Critical success factors

Ellsworth: It certainly brings the governance angle. It also brings the ability to measure, and measurement and monitoring is something that Mark highlights as critical success factors. Again, you’ve got a large group of people with a lot of activity going on. There's lots of data, but you have to roll that up to the management level to make it valuable to help drive decisions in the business.

Gardner: For those of our listeners who might not be that familiar with Changepoint, perhaps you can give us a quick encapsulation of its history -- how it got to where it is and what it does?

Ellsworth: The Changepoint solution has been active and working with customers in their professional services organization for many years, going back to the late 1990’s. Our focus has been on driving that view as a professional services organization, but importantly driving that view inside the context of the broader company.

It starts with those building blocks around who are your resources, what are their capabilities, and where are they being utilized. It brings you to the next level of maturity in terms of being able to look at forecasts and do some demand and capacity planning. And then it goes even further from a resource perspective to that professional development side that Mark just talked about. Let's look at the gaps in the next six to nine months. Where can we identify resources and put them on a development plan to fill those gaps?

We're managing the day-to-day business of a professional services organization and going beyond that to deal with project management, engagement management, and right through to billing for a professional services organization and for technology companies that also have a strong product side of a business.

The paybacks can be, and are, significant. First and foremost, is really speed to revenue and cash flow.

We also deliver a project portfolio management capability to allow them to manage products and manage delivery of those product applications.

Gardner: Back to you, Mark Sloan. For those organizations that do this well, making that transition focusing on professional services, getting the right mix, understanding where their resources are, where they are needed, and how to manage those personnel to make them the most productive, what are the paybacks? What do you get from doing this right?

Sloan: The paybacks can be, and are, significant. First and foremost, is really speed to revenue and cash flow. Lori mentioned that doing this in a large services organization is critical and an enabling technology is required to make that happen.

I’d argue the same for small professional services organizations. Having the information that tools like Changepoint can put at your fingertips, you can quickly identify people in your organization that have the right skills, that off the top of your head you might not think of, and staff projects quickly with the appropriate resources, ultimately enabling you to get that revenue.

Billable utilization

Secondly, you start to see a significant lift in overall billable utilization. This is for the professional services organization. Again, by getting better visibility into the skills that different resources have, you realize you have many more people in the organization that can do work than you think of.

For more information on resource utilization, read RTM's whitepaper "The ROI of Resource Utilization -- Measuring and Capturing the Real Business Value of Your People."

Learn more about Compuware Changepoint.

We've worked with a number of organizations where they had a small group of people who are highly utilized -- 80 to 120 percent --because those are the people that the practice leads, the staffing managers, just know intuitively can get the work done. What they don’t realize is that there is a whole trail of people behind that have skills and who maybe just haven’t been on a project yet to deploy those. Increased billable utilization is another.

Other research points to the fact that companies who do this development of staff and get projects started on time are significantly more likely to finish their projects on budget and on time and drive significantly positive customer satisfaction.

Companies that aren’t able to do this -- take an extra five, 10, or 15 days to fill some of the slots on a project -- tend to go over-budget, don’t get it done on time, and, as a result, have poor customer satisfaction. If you think about it, it's back to that mantra, "Do it right the first time." This process helps you do that.

Ellsworth: If I can just add one comment there. Mark’s point is really important in terms of your ability to staff the project at the right time. If you think about technology companies who are out there competing, it's no longer a world where you are competing solely on the basis of the features and functions available in your product.

We’ve found, as we've gone back and studied organizations that have adopted JIT resourcing, that their attrition levels actually decrease.

There is just so much more that your more educated customer is evaluating. In my mind, your services capability that you bring to the table is a clear differentiator for you. Not only the services you have, but your ability to deliver them effectively and in a timely fashion. It's a necessary capability to allow you to compete effectively today.

Gardner: I have to imagine that buy in from the actual practitioners is important. Is there something about this more organized and managed approach, using these tools, that benefits the consultant. Perhaps it reduces the lack of clarity of where they will be next week, or the sense of being yanked around like a yo-yo. Mark, anything anecdotal out there?

Sloan: Absolutely. We’ve found, as we've gone back and studied organizations that have adopted JIT resourcing, that their attrition levels actually decrease. We were curious as to why this happened. What we found when we talked with various practitioners is that people were able to more closely align the work they wanted to do with the work that was out there.

So, just as forecasting your revenue and the resources you are going to need helps services organization, your services employees can now get involved and identify the types of work they want to do. For some of your folks that will be, "I want to go deeper and become the subject matter expert in this area." For others, it will be, "I want to broaden my horizons and get involved with different roles."

It's not that each individual can dictate exactly where they're going to go on every project, but you give them more insight and more control. They become a better part of the process. They feel empowered and enabled and they don’t feel like they are just a body that you are moving from project to project to project. They feel like they can really guide their career much more closely.

Gardner: Lori, this is a competitive landscape. Highly skilled workers are often in demand. So, this plays into the advantage across the board I expect.

What's in it for me?

Ellsworth: It does. I want to add a comment to what Mark just said. I definitely think that you need to think about what's in it for the practitioner. What you find when you are making the change is that you're adding discipline, automation, and maybe some requirements for your practitioners to interact with that automation. You have to think about the "what's in it for me" factor.

As you're adding discipline and increasing maturity, there is participation from the practitioner, if you can position the value to them in terms of increased opportunity or an ability for them to better manage their schedule and not be burnt out. They have access to different opportunities. It's very valuable and can help them actively participate in moving the business forward and not kind of fight against it.

Gardner: This certainly sounds very clear and compelling in theory. Do we have any actual examples where we can look at what's happened? Do we have a use case scenario, something that will give us something a bit more tangible to draw some conclusions from?

Sloan: There are some very specific and real-world examples that companies that we’ve worked with that have adopted JIT Resourcing. I've generally seen a five- to 10-percentage point improvement on their billable utilization.

It's through being able to forecast the work that's coming. They can better align both their employees and their third-party contractors. If work is starting to decline for a quarter, they can reduce their reliance on contractors, get their employees billable, and demonstrate to their employees that there is long-term job security in the organization. That helps them avoid having idle resources.

Customers . . . on a year-over-year basis . . . are able to reduce that non-productive time and therefore the cost of that non-productive time by 16 percent.

A client that we just finished working with had to go back before their investment board. They had achieved a 6.5- to 7-times return on investment (ROI) by deploying JIT Resourcing through improved utilization.

These are all companies that are leveraging technology to support that process to get them to visibility. But, they are really taking on that process change, as Lori alluded to earlier. They're not just deploying the technology and putting it out there. They're going through an effective and constructive change-management process to change the way people are using the available information and drive real positive returns.

Gardner: Lori, some anecdotes form the field. What are companies experiencing when they start to use these things?

Ellsworth: Many of the customers that I am talking to, after they have focused on both the process and discipline side as well as the automation side, will often articulate the benefit they are seeing in terms of something Mark just mentioned, and that is the improved turnaround time or the reduction in non-productive time.

Customers of mine, in Europe for example, are quoting that on a year-over-year basis, they are able to reduce that non-productive time -- and therefore the cost of that non-productive time -- by 16 percent.

Other customers will articulate the value of this entire solution in terms of revenue increase, the focus of getting control over their resources, who they have and how they can most effectively deploy them. Another customer of mine in Europe talks about a 30 percent increase in revenue, linked directly to implementing some of these practices in getting that control over their resources.

Strategic activities

Sloan: We have worked with other services organizations that are designed to support the product. They aren't necessarily managed as a P&L, but the goal is to break-even. They’ve also deployed these processes, plus the goal of increasing bottom line, but were freeing up time for their resources to get involved with more strategic activities.

They've worked with their third-party systems integrators (SIs). They also do work with their product, and it’s enabled them to better train those organizations, so that they can go out and deploy the software more broadly as well. So, it can drive both hard financial benefits, but also additional strategic benefits as well.

Gardner: Mark, are you seeing other verticals or industries or types of organization that can use this? We've been focusing on IT suppliers today, but where does this also go? Is there a role for this in the creative types of professional services, service report, user help desk, that sort of thing?

Sloan: Absolutely. We've spent a good part of the conversation talking about the professional services organizations and driving up billable utilization. The same lessons apply to shared services organizations, internal captive large IT departments managing multiple projects per year to deploy technology.

They can leverage the technology that Changepoint offers to keep track of the people, where they are deployed, what skills they have, what new projects are coming in, and achieve a similar increase in productive utilization of those resources. But to your point, in terms of creative organizations, this would apply to any organization that is focused on moving people with particular skill sets to a unique project.

When we architect a solution for clients, it’s a unique solution taking into account the various constraints and the environment of that client.

That includes engineering services organizations, creative agencies that are moving talent from one project to the next -- anyone who relies on definite skills and knowledge that aren’t just easily interchangeable. This helps forecast where you can get the biggest bang for the buck with those people.

Gardner: Well, it sounds like something to look into. How do you get started? Where do you go to find more information? In addition to getting more information, what’s a typical approach to putting this into actual use?

Sloan: There are a couple of things. The white paper that we published with Changepoint can be accessed off www.compuware.com under Changepoint.

In terms of getting started, when we typically work with clients, we come in and do a quick assess and architect phase where we’ll take a look at how resource management is being done today, compare that to the best practices that we’ve defined for JIT Resourcing, and identify areas where you are strong and areas where there is an opportunity for change and improvement. When we architect a solution for clients, it’s a unique solution taking into account the various constraints and the environment of that client.

JIT Resourcing is a defined approach. We have recognized that there are unique aspects to every business, and can tailor the solution to fit there.

Gardner: Lori, from the perspective of Changepoint, how do you see folks often getting started with this?

Discipline and maturity

Ellsworth: Our approach is very much consistent with what Mark has talked about. Mark and his organization, for example, might be in up front, doing some of that assessment in laying out a roadmap for pure resource management discipline and maturity.

When we participate with customers from an automation perspective, we obviously want to take the same approach. We don’t want to just drop something in there and turn it on. It has to be configured to support their level of maturity. It has to be able to easily grow with them as they expand their capabilities and some of the things they want to do in terms of the resource management discipline.

It’s very much about understanding their level of maturity, the goal or the vision they are driving to, and then the appropriate steps and milestones to get there. That’s important to factor into some of the concepts we’ve talked about like change management within the organization, ensuring adoption of the discipline and the solutions, so that you're getting the return you are looking for and so on.

Gardner: We're just about out of time, but I want to wrap up with a look into the future. It seems to me what we are hearing from the industry around cloud computing has a bearing on more services, more choices for the location of technology, more types of supply chain and ecosystem activities around solutions coming together. It seems that also offers an opportunity for the need for the need for management and automation and bringing people, process, and technology together.

First to you, Mark Sloan. The trends that you see pushing us into the everything-as-a-service era, how does that relate to some of our discussion and the need for these types of tools and methods?

Those processes were developed to deal with on-demand needs for products, because we now are in this era of on-demand needs and services.

Sloan: It’s really only going to accelerate the need to be prepared for on-demand work. You can go back to JIT manufacturing. Those processes were developed to deal with on-demand needs for products, because we now are in this era of on-demand needs and services.

You're going to need to be prepared with the right person at the right place at the right time. By deploying these processes now, you can start to learn the continuous improvement that’s needed, but be enabled as more and more of your clients go to SaaS, but you’ve got to have to deploy people with the moment’s notice.

You're going to get much better at predicting and forecasting what your future needs are, enabling you to align your resources and capabilities accordingly. You want to achieve the benefits we talked about -- speed to revenue, speed to cash-flow, and zero idle resources.

Gardner: Lori, last word to you. Is there anything more to offer in terms of how the future will create more demand through this?

Ellsworth: I would certainly echo what Mark was just talking about in terms of the types of service or the portfolio that companies are going to need to step up to the more traditional capabilities, and then shorter duration, more JIT-type services and different methods for delivery of those services.

It's the need, as it comes back to resourcing, to draw on the broader organization, something that Mark touched on earlier. But, as we're looking at being flexible in the types of services and how we deliver them, it’s more likely that we need to draw on not only our professional services organization, but maybe forward in the cycle to support and backward in the cycle to product development or technical resources.

So, a broader pool of resources comes there to help you respond to customers which just increases the need to understand who those resources are and what they can bring to the table to support these services.

Gardner: We’ve been learning about getting the most from resource utilization and management across global services industries and the economy, particularly with an emphasis on the technology sector, but it certainly sounds like this has applicability beyond that and the more aspects of each company maybe impacted as well.

I want to thank our guests. We've been joined by Lori Ellsworth, Vice President of Changepoint Solutions at Compuware, the sponsor of this podcast. And, we've been joined also by Mark Sloan, Chief Operating Officer at RTM Consulting. Thanks to you both.

Ellsworth: Thank you.

Sloan: Thank you.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. You’ve been listening to BriefingsDirect. Thanks, and come back next time.

For more information on resource utilization, read RTM's whitepaper "The ROI of Resource Utilization -- Measuring and Capturing the Real Business Value of Your People."

Learn more about Compuware Changepoint.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: Compuware.

Transcript of a BriefingsDirect podcast on how bringing automation and new methodology advances resource utilization from an art to a science. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.

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