Tuesday, May 18, 2010

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.

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Thursday, May 13, 2010

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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