The Offshore Analytics Making Sense of Data to Make Cloud IaaS: How secure is

Landscape Pg 10 Money Pg 19 the user? Pg 24

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May 2011

The gateway to the global sourcing of IT and BPO services

The
Promise
of
IaaS
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Global Services
A CYBERMEDIA Publication
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Cyber Media (India) Ltd.
E. Abraham Mathew
Directory of Services President

Newsletter Ed Nair
Editor
A regular digest of key industry happenings. ed@cybermedia.co.in
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Digital Magazine
Associate Vice President
The fortnightly digital magazine features research satishg@cybermedia.co.in
reports, articles and experts’ views. Available on Smriti Sharma
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Webinars Smita Vasudevan

smitav@cybermedia.co.in
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April 2011
features

12
The Promise of Iaas 12
by Smita Vasudevan and Sourabh C. Pushp
Enterprises find building new data centers expensive, emerging
SMBs need to scale up infrastructure fast.

Analytics Outsourcing: Making

Sense of Data to Make Money 19
by Smriti Sharma
Analytics outsourcing has crossed the chasm from being a nice-to-


have proposition to a need-to-have practice.


xperts


10

“The Offshore Analytics Cloud IaaS: How secure is the user? 24
Landscape is Strengthened by by Kumar Parakala, KPMG
an Entire Ecosystem”
by Smriti Sharma Platform BPO: The Growth Trajectory
Excerpts of an interview with Reetika Joshi, Senior Research for the BPO Industry 26
Analyst at ValueNotes Sourcing Practice and co-author of the by Jui Narendran, Head - ValueNotes Sourcing Practice
HFS analytics report titled ‘Where offshore analytics is heading
in 2011.’
Usage-Based Pricing: the Promise
and the Reality 28
By Nigel Hughes, Global Services Director, Compass
Management Consulting

Global Services Digital Magazine

Next Issue:

2011 GS100
2011 GS100 research by Global Services & Neo Group
recognizes and celebrates service provider excellence.


 
C


OMING SOON


 

 
  

 
 



  

  
  
Editor’s Note
New Opportunities in
Global Sourcing: IaaS
and Analytics
O ne of the biggest changes in the services industry is dictated by how
enterprise applications ISVs predict and present the roadmaps for
their products. I was hosted by SAP at its annual Sapphire Now event
at Orlando this month. Attended by a record 6600 people and over 200
partner companies, the opportunity for services this year seemed robust.
Companies such as SAP, Oracle, and Microsoft are hugely reliant on a
partner ecosystem largely comprising services companies.
My conversations with companies such as Accenture, Capgemini, HCL
Axon, HP, TCS, CTS, CSC, Infosys, Neoris all point towards increased
Ed Nair services work in areas such as analytics, enterprise management, mobility,
Editor and cloud-based applications.
ed@cybermedia.co.in Cloud-based computing is no doubt the flavor of conversations at all
technology gatherings. In the enterprise applications area, the prospect of
on-demand applications delivered on SaaS platforms is now mainstream.
Together, IaaS But using cloud to deliver infrastructure services has been at the door for
and analytics quite a while. It is now being explored with great interest by organizations
outsourcing, present both large and mid-sized.
new opportunities Our cover story this issue is on exploring the potential and possibili-
to organizations in ties of infrastructure-as-a-service (IaaS). It is very clear that enterprise IT
infrastructure sourcing would be majorly disrupted by IaaS in the next few
terms of both global
years, but there are many caveats too. The story gives a bird’s eye view on
sourcing and business the area and some decision pointers for organizations pondering over new
value. infrastructure decisions.
Analytics is to business as diagnostics is to healthcare. And analytics is
eminently suited to being delivered offshore. The special report on analytics
outsourcing scopes out the potential in this area and offers perspectives on
the drivers of the growing trend.
Together, IaaS and analytics outsourcing, present new opportunities to
organizations in terms of both global sourcing and business value.
As a companion resource to our coverage on infrastructure services, our
May webinar titled ‘Understanding Emerging Models on Infrastructure
Management’, with Amit Singh, Partner, Avasant, covers the area in detail
and provides thorough insight into sourcing paradigms thereof. Do register
on our site for the webinar or download the webinar recording. GS
Harbinger Systems Expert offshore product
development partner

Your partner Mobile & Web 2.0 apps,

Enterprise & E-Learning
in technology Software

innovation From innovation to

market leadership

Copyright © 2011 Harbinger Systems Pvt. Ltd.

All Rights Reserved.
Analytics Outsourcing

“The Offshore Analytics

Landscape is Strengthened
by an Entire Ecosystem”
Excerpts of an interview with Reetika Joshi, Senior Research Analyst
at ValueNotes Sourcing Practice and co-author of the HFS analytics
report titled ‘Where offshore analytics is heading in 2011.’

by Smriti Sharma

GS: What are the key catalysts for AO?
RJ: The case for global
delivery of analytics is gain-
ing momentum. There are
two primary reasons for
this: enhanced efficiency
and relatively lower costs.
However, business value
plays a far greater role in
analytics delivery than pure
cost arbitrage and efficien-
cy. Thus, a third emerging
Reetika Joshi aspect is the strengthening
of an entire ecosystem of
offshored business intelligence, market research, IT and
BPO services in tandem with analytics.
For many less complex offshoring activities, the cost of
labor is the most compelling driver for offshore outsourc-
ing. In more specialized areas such as analytics offshoring,
cost is a driver, though it is not the most important one.
The availability of highly qualified professionals, contextual
domain expertise, operational risk, the reliability of critical
infrastructure and market integrity are instead pivotal.
l Leveraging IT and BPO offshoring experience and
ecosystem Companies with existing outsourcing relation-
ships are looking to leverage their IT-BPO offshoring
experience to source analytics solutions, preferably from
the same service provider. In most cases, the third-party
service providers developed analytics solutions in a bid to
move up the value chain.
l Availability of cross-functional, multi-skilled tal-
ent As the scale and scope of analytics expanded to
accommodate several core functions, the delivery of
analytics called for maintaining highly specialized
manpower across more diverse domain areas. This
manpower often remained under-utilized. Given their
high cost, companies increasingly started looking
at third-party service providers to help. Increasing
demand for analytics also led to the emergence of pure
play analytics service providers. These providers have
teams with deep domain knowledge, technology and
statistical expertise.
l Cost arbitrage for low-end analytics. According to
HfS Research, for a typical analytics project, talent costs
constitute approximately 60% to 70% of the total costs.
With other costs (infrastructure, etc.) significantly lower
than in onshore locations, cost arbitrage can range up to
50% for offshore locations.
l Reduced time to market With increasing competition
and the urgency to obtain first mover advantages, it has
become imperative for firms globally to access talent to
provide pertinent data supported by thorough analysis at a
faster and more efficient pace. Offshore delivery centers are
attractive as they come with faster time to market and also
provide accompanying support services on a 24x7 basis.
GS What exactly does the offshore analytics area cover
in terms of scope?
RJ: With greater usage of analytics and increasing com-
plexity, there is a tendency to break analytics projects

10 GlobalServices www.globalservicesmedia.com May 2011

Analytics Outsourcing
into distinctly executable parts and outsource to dif-
ferent specialized teams. Accordingly, there are four
levels in the analytics services mix, in ascending order
of complexity:
1. Data entry/de-duplication: This includes every-
thing from cleaning to maintenance and actual. It is a low-
end service and offers low revenues to service providers. A
large chunk of KPO-centric analytics work (almost half ) is
dedicated to data preparation.
2. Intuitive analytics: This entails running the
models and generating new insights on a continuous
basis. The outputs for these services may be in the form
of dashboards, reports (of different frequencies), alerts,
etc.
3. Model building: This is an advanced level of
analytics, where models are designed to predict various
business outcomes. Statisticians and econometricians
build models focusing on business problems/opportuni-
ties at hand. In terms of offshoring, modeling is done by
captives as well as third-party vendors depending on the
maturity of the clients’ in-house teams.
4. Solutions: Solutions generally entail “bundled”
analytics components, delivered to clients to address
their needs. Providers take a consultative approach
and leverage technology to deliver value. The aim is
to render the client self-sustaining and create a unified
analytics delivery mechanism. This may be done by
deploying an analytics platform or other tools.
These constitute the main standalone analytics offer-
ings prevalent today. Beyond this, there are a variety of
embedded or value-enhancing analytics components
that are offered by IT/BPO providers. These include
analytics to improve the efficiency of processes, identify
problem areas or sub-processes with cost-saving poten-
tial, and provide reporting and MIS for existing proc-
esses. These services often are embedded as part of the
solution to the client (as value-adds) without additional
cost.
11 GlobalServices www.globalservicesmedia.com
GS: Who are the key service providers and how are they
evolving?
RJ: The offshore analytics landscape has changed over the
last decade from one dominated by captives of large com-
panies, primarily in India. Today, the industry features a
large number of vendors offering end-to-end specialized
analytics solutions to specific verticals. High-value third-
party analytics solution providers are focused on providing
value beyond cost arbitrage by leveraging a combination
of onshore-offshore delivery models and the use of tech-
nology.
Third-party offshore analytics service providers can be
broadly classified into four categories. The grouping is
primarily based on company origin, affecting the strategic
intent and objectives behind offering analytics services.
The strategic intent of service providers in various
groups differs, depending on their overall business focus
and aspiration. A strong desire to move up the value chain
in order to improve profitability and boost the top line is
common across all service providers.
GS: Expand on the issue of data security in AO.
RJ: There are workarounds for companies that are hesitant
about outsourcing analytics due to data security issues.
Several vendors offer onsite delivery teams (at client
premises, client country, etc.) when data cannot reach
offshore. Companies also may want to look at creating
captive centers offshore that specialize in analytics, to
maintain better control of company or customer data.
GS: What are the new areas and adjacencies for AO?
RJ: The opportunities for service providers may be
looked at in terms of horizontals and verticals. Vertical-
wise, retail and CPG, banking and financial services,
healthcare insurance and telecom look to be the strongest.
Horizontal opportunities include sales and marketing ana-
lytics, followed by supply chain management, logistics,
operations and web analytics. GS
May 2011
Tools & Technologies

The
Promise
of
IaaS

12 GlobalServices www.globalservicesmedia.com February 2011

Tools & Technologies

“Enterprises have been moving high-value application workloads

to the cloud, as vendors prove their availability, security and
monitoring solutions.”

Tim Beerman, Vice President,

Managed Hosting Product Management and Engineering for Savvis

“While cloud computing has its share of

issues, when properly setup and utilized
provides tremendous value. It lets a
product company like July Systems focus
on the product building and less on the
infrastructure.”
Vikas Murthy, CTO, July Systems.

“There are three broad future trends to expect in IaaS-buyers to

become more educated, industry specific segmentation to take
place and a fair amount of hybrid cloud models to come up.”

Chirajeet Sengupta, Research Director, Everest Group

13 GlobalServices www.globalservicesmedia.com February 2011

Special Report

The Promise of
Infrastructure as a Service
Enterprises find building new data centers expensive, emerging SMBs
need to scale up infrastructure fast. The answer seemingly lies in
Infrastructure as a Service (IaaS), a model of cloud-based delivery.
Where do we go with IaaS?

by Smita Vasudevan and Sourabh C. Pushp

M
ounting demand for computing Bright prospects
resources by enterprises around the Positive demand and supply side factors indicate that
world, rapidly changing technology adoption levels for IaaS will be on the rise in the near future.
needs and complex business environ- Increasing data center expenditure by enterprises and emerg-
ments have all acted as catalysts for the growth of ing SMEs (small and medium enterprises) eying significant
Infrastructure as a Service (IaaS). In the face of investments in IT infrastructure are fueling demand in this
new challenges, businesses are moving away from space. At the other end, a competitive IT market is driving the
the traditional model of procuring and owning IT supply of IaaS. Gartner’s Cloud Computing Special Report on
infrastructure to a model in which infrastructure IaaS suggests that the segment is set to grow nearly threefolds
is sourced as a service. This external services-based from $ 3.7 B in 2011 to a whopping $ 10.5 B in 2014. There
approach to delivering IT services is termed as is currently a lot of hype going around IaaS and an increasing
Infrastructure as a Service or IaaS. The shift is a number of enterprises are showing interest in this area. Gartner
manifestation of cloud-based delivery in a utility estimates that over the course of the next five years, enterprises
computing model. will be spending $112 B cumulatively on SaaS (Software as a
“The shift is because these new environments offer Service), PaaS (Platform as a Service) and IaaS. United States,
an almost immediate fix to some of the most signifi- Western Europe and Japan will be holding a major share of the
cant hurdles that drive escalating IT costs,” according global cloud market.
to Steve Garrou, Vice President, Global Solutions
Management at Savvis. Enterprises are seeing benefits
in outsourcing their infrastructure needs over mak-
ing huge capital investments on buying the resources
physically. IaaS enables them to procure the necessary
IT resources from a service provider on an on-demand,
pay-as-you-use basis. This difference in the functioning
and pricing model of IaaS promises to significantly cut
down costs, support scaling up, and bring efficiencies
that may not have been possible otherwise.
The evolution of IaaS is the result of advance-
ments in the world of technology. Rooted in the
erstwhile web hosting model, the pervasiveness of
virtualization and maturity of utility computing
coupled with cloud-based access has made IaaS a
clear possibility. Source: IDC June, 2010

14 GlobalServices www.globalservicesmedia.com May 2011

The Promise of Infrastructure as a Service
Providers
What does it offer ?
Free Support
Security Features
Load Balancing
Virtual Private Servers
Subscription Type
Inbound Bandwidth
Price
Outound Bandwidth
Price
Base Plan Cost
Base Plan Details
Additional IP Cost
Source: http://cloud-computing.findthebest.com
15 GlobalServices www.globalservicesmedia.com
Comparison Of Some Leading IaaS Providers
Rackspace GoGrid Amazon Savvis
The Rackspace cloud GoGrid is a small, One of the pioneers Savvis is one of the
consists of three independent service of cloud computing, broadest and deepest
major services: Cloud provider. Its primary Amazon offers cloud in the industry. It has
sites, Cloud Files focus is its Xen-based services such as an above-average
and Cloud Servers. cloud IaaS. It's service Amazon S3 or EC2. customer portal
Rackspace Servers is managed by a multi- Amazon's Auto Scaling and strong history
provide unlimited server control panel feature of EC2 allows it of delivering utility
online storage and operated by ServePath to automatically adapt offerings. Savvis has
CDN. In addition to the and features an API. computing capacity to VMware based IaaS
online control panel site traffic. (Symphony).
the service can be
accessed through API.
Yes Yes No Yes
Bootable Mode Failover Features Backup Storage Critical Data Privacy
Critical Data Privacy Persistency Persistency Data Protection
Data Protection Backup Storage Snapshot Backup Failover Features
Persistency Critical Data Privacy
Backup Storage Data Protection
Snapshot Backup Snapshot Backup
Yes, Free of cost Yes, Free of cost Yes, with a charge Yes, Free of cost
Yes, Free Yes, with a charge Yes, with a charge Yes, with a charge
Use Based Use Based and Use Based and Use Based and
Subscription Plans Subscription Plans Subscription Plans
8.00¢/GB 0.00¢/GB
10.00¢/GB
22.00¢/GB 29.00¢/GB 11.00¢/GB
1.50¢/h 8.00¢/h 8.50¢/h
256 MB RAM,10GB 0.5 GB RAM,10 GB 1.7GB RAM,160GB Flexible month-to-
local storage,10 Mbps local storage,Free local storage,1 EC2 month plan
Network Throughput inbound traffic. Compute Unit
2.00$/month
May 2011
Special Report
Evolving, not yet mainstream
The market for IaaS shows huge potential but is still imma-
ture and in an evolving phase. There are numerous providers
in this space and many more are coming up foreseeing the
opportunities. But there is lack of appropriate benchmark or
standards to compare the services offered by different provid-
ers. These services generally follow a consumption model that
is based on pay-as-you-use, on-demand and self-service strate-
gies. Yet there are lots of underlying differences.
IaaS has still not found a place as a mainstream offering,
though industry players believe that this is soon going to
change. “Adoption of IaaS solutions primarily includes test
and development workloads. While this has been the major
adoption model for IaaS, we are seeing production workloads
moving to the cloud. Enterprises have been moving high-value
application workloads as vendors prove their availability, secu-
rity and monitoring solutions,” according to Tim Beerman,
Vice President, Managed Hosting Product Management and
Engineering for Savvis.
More often, business specific areas are maintained and
controlled in house, while common IT requirements like
storage, hardware, operating system and so on are outsourced.
A deciding factor in this case is usually what areas does the
business find critical and does not want to be controlled by
an external organization. Another factor is how efficient is the
internal IT system in handling complex situations.
Services offered
There are different types of providers in the IaaS space.
Some of them are offering this service as an extension to their
traditional line of web hosting services, while there are many
new players who are purely focused on IaaS. Providers also
differ significantly in terms of their size of operation. There
are large-sized providers who offer a comprehensive portfolio
of services as well as niche players with few selective offerings.
“Starting at a high level, IaaS services come in both public
(multi-tenant, shared infrastructure) and private (dedicated
infrastructure for single client). Differences between providers
include the underlying hardware class, the virtualization solu-
tion, network connectivity options, security implementation,
monitoring capabilities and performance, to name a few,” says
Beerman. Other than public and private, there are community
and hybrid models as well. The cost, level of privacy and so on
usually varies for all these models. For instance, a community
cloud has lesser users than a public cloud and so the cost per
user tends to be higher, while the level of privacy is better than
in the case of a public cloud.
According to Gartner’s Magic Quadrant for Cloud
Infrastructure as a Service and Web Hosting, 2010 report,
there are again three different ways in which IaaS is used by
customers. This includes Self-managed, Lightly-managed and
complex-managed IaaS. The level of control and management
16 GlobalServices www.globalservicesmedia.com
and the objective varies in all these cases. Self-managed IaaS is
normally used by customers with basic IT needs such as test
and development and in this case all the operational control
is retained in-house . In Lightly-managed IaaS, a part of the
operational control is retained by customers while there is
some intervention by the providers. Complex-managed IaaS
are used by customers who have very complex and fast chang-
ing IT systems that need to be fully operated and controlled
by service providers.
Along with cloud services, providers may also offer a set of
optional managed and professional services. Management of
the server, infrastructure software, storage, security and other
network devices is what providers usually offer as part of their
managed services. Professional services would include services
related to hosting like capacity planning, security auditing,
performance testing and so on.
IaaS customers are more often served on a pay-as-you-use
basis, though providers may at times also give the option of
multi year agreements on which enterprises can avail dis-
counts. As the the market is in an evolving phase, providers
continue to change and upgrade their services frequently.
Amazon, Savvis, Rackspace and Gogrid are the leading
global providers of IaaS. Here is a quick comparison between
their services and cost and pricing structures.
Buyer expectations
There are different types of buyers in the IaaS space
and accordingly their needs vary. Primarily, there are enter-
prises that were using the web hosting model and are moving
towards cloud IaaS and then there are others that are new and
are trying to test and experiment to see if it can be beneficial
to them. Another differentiating factor is the size of these
enterprises. Large enterprises already have significant invest-
ments in IT infrastructure, so their objective is mainly to cut
down costs and bring efficiencies through IaaS. Whereas small
and medium enterprises look for growth and also aim to avoid
huge capital investments on purchasing IT infrastructure.
Real benefits : July Systems, a mobile media company
uses Amazon’s cloud computing services to cost-effectively
scale its business. “At July we have seen flexibility and cost sav-
ings as key benefits to an IaaS cloud based infrastructure. It has
helped July Systems achieve unprecedented scale to meet the
demands of the millions of users that access our platform each
day. With the support of our IaaS service provider we are con-
stantly growing our footprint and crossing major milestones
like our recent announcement during Cricket World Cup,”
says Vikas Murthy , CTO, July Systems.
“While cloud computing has its share of issues, when
properly setup and utilized provides tremendous value. It lets
a product company like July Systems focus on the product
building and less on the infrastructure,” adds Murthy.
May 2011
The Promise of Infrastructure as a Service

Issues involved : Most enterprises, though ready to adopt The third party’s access to company data should be secured as
IaaS, are not really aware of the numerous services available all the data hosted on the cloud are not protected under intel-
in the market. Also, there are security and privacy related lectual property rights.
issues that influence buyers. According to a report by Ernst &
Young on IaaS Trends and Perceptions in India, 72 per cent The way ahead
of the respondents pointed out that data privacy and security Choosing the best service provider is one of the most
issues are the most significant concerns in the adoption of significant decisions companies face when venturing into
IaaS. When asked what elements were essential to moving the IaaS space. Not all service providers have the appropriate
more critical applications to the cloud, in Savvis’ March 2011 industry and technology experience to replace the in-house IT
research study with Vanson Bourne, 64 percent responded infrastructure for a company. So, the choice is not risk free. It
with full security implementation, followed by high avail- necessitates any company to assess IaaS providers carefully.
ability (54 percent). Enterprise-level performance was also Buyers should understand their needs well and opt for
required by 47 percent of respondents. a provider that is best suited for their requirements. Some
other key questions to consider here are- Is the hosting pro-
Data security and privacy 4%
88% vider able to understand your business and the overall needs
8%
of your company? Is the provider flexible in its service-delivery
21%
75%
approach? Is the provider having adequate expertise, scale and
SLA compliance 4%
geographical coverage and using technology that is not only
58%
Cost competitiveness
13%
29% up to date, but also stable and widely compatible with other
58%
technology standards?
Portability and interperability
13%
25%
Service providers must understand specific needs of
4%
46% each buyer segment and be able to offer services accord-
Vendor support network
ingly. The objective of different enterprises for adopting
42%
13%

Pricing models
42%
46%
IaaS will be different. Providers should offer support and
13%
services that are in line with their customer requirements.
Past track record
38%
38%
They should also be able to show their customers how
4%
21%
by cutting down their IT cost they can save resources for
Source: Ernst & Young – Cloud adoption in India growth and expansion.
According to Chirajeet Sengupta, Research Director,
Legal issues involved Everest Group, “There are broadly three things to expect in
According to Nixon Peabody LLP’s report ( Laurin H. IaaS in the future-buyers to become more educated, under-
Mills, May 13, 2009 ) the most prime legal issues are: standing when, where and how to go about implementing
• Location: where’s the data ? IaaS. Secondly, industry specific segmentation to take place
Your data could be stored in any country and you may not in terms of services and lastly, a fair amount of hybrid cloud
even know where the data center is situated. The location fac- models to come up.”
tor thus raises the question of legal governance over the data. As enterprises become more aware of the opportunities
For instance, if there is a conflict between the cloud vendor and benefits, there will be a great difference in the way they
and the customer, issues may arise regarding which country’s approach and adopt IaaS. “Clients want capacity when they
jurisdiction will be followed. need it and want to only purchase it when they want it. IaaS
• Security: who has the access ? approaches offer this flexibility and in the years to come will
The strongest security threats to cloud computing include no longer be considered an alternate delivery model, but a
insecure application interfaces, malicious insider threats and strategic choice for some critical solutions as companies seek
traffic hijacking. Cloud computing facilitates the storage of greater flexibility and the need to satisfy a diverse end-user
data at a remote site, so it is critical for the data to be protected. base,” says Garrou, about the future trends and opportunities
in IaaS.” GS

17 GlobalServices www.globalservicesmedia.com May 2011

 COUNTRY-IN-FOCUS
Ensuring Global Visibility
A special feature for countries to showcase their uniqueness
There are numerous outsourcing destinations that exist as
great alternatives to India and China.

Inviting Countries to showcase

capabilities that accentuate
their uniqueness.

Examples of Country-in-focus feature

Egypt Philippines Jordan

JORDAN

For more information write to satishg@cybermedia.co.in

Special Report
Analytics Outsourcing:
Making Sense of Data to
Make Money
Analytics outsourcing has crossed the chasm from being a nice-to-
have proposition to a need-to-have practice.
by Smriti Sharma
I
n a globalized economy, information and data are
the backbone of a business. However, merely having
access to numbers is not of much use. Rather, it is
analytics—the interpretation and application of data
—that makes businesses thrive.
Analytics has been titled as the smartest weapon in the
corporate quiver. This credential can be attributed to the
fact that sans analytics it is difficult to sustain competitive-
ness. Data analytics arm an organization with significant
analyses - that highlight upcoming business roadblocks,
hidden trends and key insights- on which management can
base strategic plans and operational policies.
With ever growing competition and globalization,
analytics has become critical for all businesses to support
tactical and strategic decision making. Today, companies
can choose from a host of platforms and services-based
tools that can be deployed to make intelligent use of infor-
mation enabling business decisions that impact both top
line and bottom line.
Analytics is basically the application of computing
resources, operational research, and statistics to solve busi-
ness and industry problems. It covers areas like- marketing
analytics, predictive and strategy science, credit risk analy-
sis and fraud analytics.
Viral Thakker, executive director, Performance and
Technology services, KPMG stated segments that this
service encompasses:
1. Marketing & Customer Analytics: Data mining
and management to understand consumer behavior.
Example: Telecom and internet companies gen-
erate a large amount of customer data during their
19 GlobalServices www.globalservicesmedia.com
interactions. By analyzing these, they understand
customer buying patterns that helps identify poten-
tial cross-selling opportunities, improve marketing
efficiency and ROI from campaign strategies (e.g.
direct mail campaigns). Similar analytics is performed
for credit card companies, retail, and many other
businesses.
2. Risk Management Analytics: Analytics for high risk
businesses. In such businesses, profitability depends on the
ability to increase profits by retaining low risk customers
and at the same time reducing losses.
Example: In the insurance industry predictive
models are developed that predict expected claim
amount depending on past data. This data analysis
also helps in detecting fraud, predicting defaults and
bankruptcy.
3. Operations Analytics: It includes IVR analytics,
demand forecasting and demand management, perform-
ance and productivity, customer satisfaction analysis, col-
lections efficiency, etc.
Example: Analytics is used to analyze IVR data to iden-
tify user segments based on usage preference and redesign
the IVR strategy accordingly.
4. Finance & Investment Analytics: It includes equity
research, investment analysis for PE-VC funds, investment
banks, etc. This is perhaps one of the leading segments of
analytics usage.
Example: Organizations make use of financial analytics
in market-size estimation, competitive analysis and intel-
ligence, apart from identifying investment opportunities,
due diligence or during M&A analysis and strategy.
May 2011
Analytics Outsourcing: Making Sense of Data to Make Money
This extremely essential ‘game-changer’ does not
naturally plug into the outsourcing model. The reason
being level of data sensitivity is very high. Due to this,
some clients set up captive units to deliver analytics,
instead of outsourcing. However, the last decade has
witnessed third-party providers gain significant expertise
in analytics.
The offshore analytics market
US, UK and to some degree, the rest of Europe are
major markets served by analytics service provider. Since
these mature markets embrace experience in offshoring
business processes they are now moving up the value
chain and are willing to outsource knowledge serv-
ices. Some providers are also focusing on Australia and
Japan.
Main contenders in terms of delivery destinations are
India, China and Eastern Europe. Others include near-
shore countries to the US such as Mexico and Costa Rica,
and offshore destinations such as Singapore and Sri Lanka.
Vendors may be from these or other destinations, but they
need to have delivery capabilities in at least one of these
destinations.
Genpact’s Analytics and Research department has a
large concentration in America and a large portion of their
current revenue comes from this region. It has footprints
in Europe, China, India and Australia. In the coming
years, it is expecting to grow significantly in Europe and
Asia-Pacific Region.
Most of WNS clients are based in the United States and
European Union region. It is also expanding its client base
in the Asia-Pacific region. As their practice is a horizontal
offering within WNS, most of their clients are spread
across several industry verticals, including financial serv-
ices and insurance, retail, CPG, healthcare, professional
services, travel and leisure.
WNS provides analytics services from five offshore
delivery locations in India, and one nearshore location
Source: HfS Research, 2011
20 GlobalServices www.globalservicesmedia.com
in Bucharest, Romania. Amongst the India locations,
Gurgaon has the largest employee strength in research
& analytics division, with over 800 people, followed by
Mumbai, Bangalore, Pune, and Chennai.
Activecubes, a global firm providing Analytics Services
with associated Technology Solutions, focuses on US,
Australia and India from the geographical perspective. From
an Industry angle our focus markets are Pharmaceuticals,
Financial services and Retail-CPG industries. As of now,
its main offshore location is Bangalore and it plans to
expand to more locations in India as well as international
locations.
According to HfS Research titled ‘Where Offshore
Analytics is Heading in 2011’, Fortune 500 companies
are the big-league clients for this knowledge service.
Enterprise from verticals such as FMCG, BFSI, and tel-
ecom are significant buyers for offshore analytics service
providers. Service providers are also targeting mid-sized
clients to move up the value chain. Some providers are
also looking at tapping the rapidly growing domestic and
regional markets. Large IT-BPOs and KPOs are trying to
cross sell analytics services to their existing clients. KPOs
and BPOs need to create specialized capabilities to service
parts of analytics projects and eventually take a vertical
approach to growth in their chosen area to move up the
value chain.
Key drivers
Leveraging specialized skill sets, access to affordable
resources and better utilization of resources, achieve scale
across geographies and business units, overcome corporate
silos, establish and industrialize best practices, stand-
ardization of the disparate analytical processes, establish a
well-defined delivery model...are some of the key drivers.
Thakker pointed out drivers on the demand as well as
supply side.
The demand drivers of analytics outsourcing include:
• Analytics significantly enhances the client service
organization’s ability to generate top-line revenue.
However, a significant shortage of highly-skilled
knowledge professionals in the developed nations
is making recruiting of such professionals very
difficult.
• To remain competitive, organizations have realized
the need to use analytics to reduce time to market
for their services and products in areas such as mar-
keting, product development, product launches,
strategic decision making, etc.
• Thus, offshoring high-end services not only ensure
access to professionals at a significantly lower cost,
but also ensure a gain in competitive advantage for
the customers.
May 2011
Special Report
Some of the drivers of analytics outsourcing from the
supply side are:
• Global as well as Indian vendors have demonstrated
their capabilities to execute high end knowledge
work efficiently. Vendors are moving up the value
chain and are using high-end analytics as a differen-
tiating factor for their service offering.
• Due to the high availability of skilled labor espe-
cially in countries such as India, vendors are able to
provide the clients with contextual domain expertise
which is an important driver for analytics outsourc-
ing. Moreover, due to the relatively standardized
nature of analytics and a growing awareness of the
increasing quality of education systems in favored
offshore locations, this segment has seen a spurt in
terms of supply.
• The technology and telecommunication develop-
ments have also helped the Analytics Outsourcing/
offshoring industry to grow, by making real-time data
available and rapid data processing and analysis.
Are concerns over security justified?
Management of intellectual property (IP) and conflict-
of interest issues are more demanding in analytics out-
sourcing and KPO than in BPO, where data protection
and privacy concerns dominate.
Pankaj Kulshreshtha, senior vice president - Analytics
& Research articulated, “I’ve been doing this for 13 years
now and I have seen companies evolve to a level where they
do not worry much about security. We work with 12 out
of 15 pharma companies so obviously we have a very legiti-
mate way of addressing their concerns around data security
and intellectual property protection. This is the case across
financial services and majorly other areas too.”
From infrastructure prospects, Kulshreshtha added,
“We make sure that we create a completely secure environ-
ment that is as secure as our customers would like. We
have situations where a part of dedicated team is placed
in an enclosure, that even I as a business leader require
written permission to enter. People inside that enclosure
do not have access to any other mail apart from customers
mail. They work directly on customers systems and have
the same data security systems applied as would be applied
to any analyst sitting in the customers own facility.”
Some significant issues that could emerge are:
• As ownership rights between service providers and
receivers become blurred, debate over intellectual
property ownership and management of statistical
analysis models are likely to increase.
• When the same regulatory restrictions vary by coun-
try, conflict-of-interest management issues concern-
ing violations of insider trading rules may increase.
21 GlobalServices www.globalservicesmedia.com
• V
 endors would need to have stringent internal meas-
ures to prevent any IP data infringement. Formal
qualification assessments, certifications (such as ISO
27001 certification in data security) and periodic
competency reviews would become essential.
Future aspects
In this space there are many captives, people who still
want it to be an in-house activity as they consider it to be
their core capability or core differentiator. But then, there
are significant sizable integrated players that are now devel-
oping in the market. Kulshreshtha spoke about where this
whole discipline is going, “I think there will be a little bit
of convergence of the whole software and business intel-
ligence side; whereby you do things like setting up data
warehouses and then setting up analytical process on top
of them. IT companies always did data warehousing type
of work they did not do so much of analytics type of work
on top of that, Where else, we worked the other way, we
used to do more of analytics services kind of work and we
have not done much of data warehousing side. All these
areas will emerge.”
Second thing, he pointed, that is already happening
is people are going to drive their solutions to the market
with tag such as the one IBM uses. Genpact also use that
tag, which was launched as smart enterprise processes.
Genpact is addressing this business along with some other
parts of their business as smart decision services. Other
folks are going to use words such as analytics, intelligence.
Increasingly lot of third party players will go to the market
with solutions that are woven around smart intelligent
type of theme.
Third thing, from Kulshreshtha’s viewpoint, is that
social media explosion that is going on will transform the
base of how analytics is done. Right now a lot of analytics
is done that analyzes the data companies produce around
buying behavior. However, there is very little that is done
in this space in terms of understanding what people
are saying about certain brands, what people are saying
about experience with certain products and services. As
text mining and knowledge discovery type of technolo-
gies evolve to next level what will happen is we will find
completely different ways of solving the problems that
we currently solve using the hard data that is currently
used.
Some of the emerging areas highlighted by Thakker
v Customer analytics for the energy and utilities sector
(smart metering)
v Fraud analytics in retail banking
v Cyber-analytics to detect cyber crime and acts of ter-
rorism, cyber risk management, foreign espionage, intel-
lectual capital theft, etc.
May 2011
Analytics Outsourcing: Making Sense of Data to Make Money
v Learning analytics to assess students’ academic and
extra-curricular progress, predict future performance, and
identify potential issues
v Cloud based BI tools could see proliferation
v Social network data mining for customer analytics
v ‘Big data analytics’ – Big data refers to the tools, proc-
esses and procedures allowing an organization to create,
manipulate, and manage very large data sets and storage
facilities
Arun Kharbanda, business unit head- Research &
Analytics, WNS Global Services opined, “The next decade
will be very different from the last one, with structural
shifts in demographics that will reflect more prominently
in the international trade and economics, where outsourc-
ing will no longer be a choice. The KPO industry in India
has gone through a “concept selling” phase in the last few
years for a majority of clients who have so far utilized BPO
services. At the same time, some clients have been able
to create a competitive advantage for themselves through
establishing Analytics Centers of Excellence programs that
have resulted in improved decision making across multiple
business groups, markets and geographies.”
“Some of the new opportunities we see are from indus-
try verticals that were hitherto not very active in AO,
such as Shipping & Logistics, Manufacturing and Supply
Chain. From an offering standpoint, web and web related
services are very much in demand from the market, as are
22 GlobalServices www.globalservicesmedia.com
Key service providers
BPOs- Genpact, Evalueserve, WNS, EXL Services
IT companies- Wipro, Infosys, TCS, HCL, HP
Specialized MR firms- Ugam, Marketics, eClerx,
Annik Systems
High-end analytics- Aranca, Copal Partners
Traditional MR companies- AC Nielsen, CRISIL
Boutique R&A firms- ValueNotes, SG Analytics,
Netscribes
Financial services- JP Morgan
packaged solutions that combine consulting services with
delivery”, added Kharbanda.
Analytics Outsourcing started with financial and mar-
keting functions. Some of the first companies to take
advantage of this were the MNC’s when they set up cap-
tives in India. Initially the heavy lifting in terms of data
analysis was being outsourced. Then came the higher
end statistical modeling. Ramachandran K, Executive
Director & Head – Healthcare, Activecubes articulated,
“Nowadays, high end business consulting (based on the
data) is also being outsourced. Next will come a time when
companies in India will start services where they will own
data and provide consulting / analytics based on the owned
data as well as customer data.” GS
May 2011
 xperts by Kumar Parakala, KPMG

Cloud IaaS: How

secure is the user?
All eyes towards the ‘Cloud’

C
loud computing is a prom-
ising IT services’ delivery
model and today’s eco-
nomic situation contin-
ues to favor the cloud. This model
requires a limited amount of invest-
ment on the customer’s side. The
adoption of cloud will be driven by
businesses that are reshaping them-
selves, as it enables the creation of
more efficient business models and
ecosystems.
While Technology has often been
a savior during the downward eco-
nomic cycles, it has also been domi-
nated by concepts and trends that are
several times like fads which come
and go. By now it is a well established
fact globally that cloud computing is
here to stay. According to a 2010
survey conducted by KPMG, 59
percent of the participants believed
that cloud computing is the way
forward.
Statement : cloud computing is the future model of IT
Source: From Hype to Future: KPMG’s 2010 Cloud Computing Survey
KPMG Cloud survey results
The cloud service models -
Infrastructure as a Service (IaaS),
Platform as a Service (PaaS), Software
as a Service (SaaS) - will drive increas-
ing business and IT activity, resulting
in hybrid architectures to manage
and a new cloud IT mission.
In another KPMG survey on
Cloud adoption patterns, we found
that planned adoption for IaaS and
SaaS service models is the high-
est. Sixty-eight percent of the ini-
tial respondents indicated that they
largely plan to adopt either the SaaS
or IaaS service models.
Even though IaaS benefits* have
been enjoyed by its users even before
PaaS and SaaS gained acceptance,
with penetration across industries,
there still is a caveat: Is the cloud
IaaS really that reliable and safe?
Did the ‘Cloud’ burst?
Recently, during a routine scaling
activity at a leading
Cloud service provid-
er in the US the traf-
fic shift was executed
incorrectly causing
a domino effect of
failures that led to
website crashes at its
clients’ end. This is
not actually the first
time that a cloud
service went haywire.
The media has earlier
reported minor cases
of temporary failure during the test-
ing phase of the cloud services pro-
vided by their vendors. This leading
provider later apologized and prom-
ised to compensate every affected
customer using this service even if
their sites were not down by offer-
ing a 10 day free credit. One such
incident will not bring the world
to a stand-still. However, users have
started asking the question of the
Cloud’s reliability and other service
providers have learnt the lesson with-
out burning their fingers.
Large enterprises could pos-
sibly recover from such a mishap
in the future but the real impact
could be for the Small and Medium
Enterprises (SMEs) who might not
able to bear the cost of recovery.
SMEs are moving up the value-chain
of their cloud service requirement.
According to independent research
firms, the worldwide SME spend on
the Cloud is expected to reach USD
100 billion by 2014 with business
applications, application develop-
ment/deployment, system infrastruc-
ture software, storage and servers,
being some of the key areas of spend-
ing. Hence cloud’s outage could be
catastrophic on them. On a whole
every user will get adversely affected
if the cloud fails to serve the pur-
pose for which it was built in the
first place- reliable, on-demand and
cheap computing resources with a
pay-as-you-go pricing model.

24 GlobalServices www.globalservicesmedia.com May 2011

Infrastructure Management
How to save yourself in a
‘hailstorm’?
Cloud’s failure can happen; this
would occur regardless of the pro-
vider’s size or brand. The impact will
be felt by all: the user, the provider
and the end customer. Some of the
important suggestions that could
help prepare the user from facing a
cloud mishap or outages are high-
lighted below:
Developing infrastructure
redundancy : Cloud is not a magic
wand to deliver the best and like any
other service which is critical it is
typically relied upon multi-vendor
support system. Spreading the risk
across several servers on multiple
Availability Zones across geographic
regions and possibly multiple ven-
dors could be one such solution.
Companies can have multiple sets of
infrastructure hosting their backend
including one of their own and others
from the service providers. Seamless
integration between the user’s and
the service provider’s infrastructure
will become essential in this case.
However, all this comes at a cost. So
there is trade-off between data secu-
rity and opportunity cost.
Establishing the ‘purpose’ of
cloud usage : Organizations that can
afford infrastructure redundancy by
having their own infrastructure could
have their mission critical business in
Source: KPMG’s The Cloud: Changing the Business Ecosystem, 2011
25 GlobalServices www.globalservicesmedia.com
Benefits of using IaaS for data
center requirements
• A cost effective model.
• Business are able to focus
on core activities.
• Management of peak loads.
• Incorporates
concepts related to green
computing.
Source: KPMG’s The Cloud: Changing the Business
Ecosystem, 2011
the cloud. For the more conservative
users, it is advisable not to have mis-
sion critical systems or processes in
the cloud and initially test it with
simpler processes or services getting
delivered. Alternatively, it will be a
good decision to take expert advice
from cloud advisors before internally
deciding on the adoption of cloud.
Developing the ‘right’ architec-
ture : One of the key characteristics
of a website that could be hosted on
the cloud and still manage the risk of
outage is the underlying architecture
that can make it capable of operating
in a risk prone zone. Without elabo-
rating on the technical aspects which
are many and rather complex involv-
ing single vs. multi-host dependen-
cies, time-outs and retries, partition-
ing read and write data, etc., let me
just say that one needs to architect
one’s app to suit the inherent cloud
fault tolerance and elastic character-
istics. For example, deploying loosely
coupled apps into the cloud instead
on migrating tightly coupled ones.
SLAs - Reading between the
lines: Typically, the SLA could
include an ‘availability clause’ of any-
where around 99.95% availability or
an unavailability of around 4 hours
23 minutes in one year. Additionally,
the SLA could define ‘unavailability’
as the unavailability of one particu-
lar service which is probably loose-
ly dependent on other service that
failed and has no SLA but causes an
overall failure at the users end. Users
mostly remain unaware of the nitty-
gritty of the SLAs before opting for
cloud services. Again, cloud advisors
come into picture to assist the users
and guide them. However, it will be
unrealistic to have 100% availability
SLAs from most of the vendors exist-
ing in the market. Even market lead-
ers are offering 99.95% availability.
A better option is to be prepared
with a back-up plan.
The verdict!
Coming back to our story, the US
based cloud service provider regained
stability within five days time and
its business as usual again. What the
whole episode actually makes clear
of is the near omnipresence of the
‘Cloud’ and the tools and facilities
that are actually available to handle
any cloud mishap.
On a final note, I would say
‘expect the worst and plan for it’.
Infrastructure failure at times is inev-
itable, be it your own or provided by
the vendor. The best way to tackle
this issue is to be prepared before it’s
too late as the ‘Cloud’ is here to stay.
The verdict is “Cloud IaaS is as
secure as the user wants it to be”.GS
Kumar Parakala is Head of IT Advisory,
KPMG EMA & India and Chief Operating
Officer, Advisory in KPMG in India. He is
also a global head for Sourcing advisory.
May 2011
 xperts by Jui Narendran, Head - ValueNotes Sourcing Practice

Platform BPO: The Growth

Trajectory for the BPO Industry
The current phase in outsourcing is about getting the right
partners to transform your business.

T
he outsourcing of business has moved beyond the hourly or FTE of platform based BPO solutions.
processes has gone well (full time equivalent) based engage- Analysts believe this is also a natural
beyond the labour and cost ments. The BPO industry is now on a progression for the IT service provid-
arbitrage and is not dis- growth trajectory rather than merely ers that ventured into BPO services
cussed as key drivers any more. The survival. in the last decade. Platform solutions
current phase in outsourcing is about gave them an opportunity to increase
getting the right partners to transform Marrying technology to the their footprint among clients of both
your business. Service providers are services services.
intricately linking their performance The introduction and inclusion The diagram below depicts the
to that of their clients. Discussions of technology in service delivery has growth and evolution of BPO serv-
are now around transformation and been the biggest game changer. The ices over the years. The trend has
outcomes, not just about cost sav- outsourcing industry has been all clearly been to include technology
ings. Services also evolved accordingly about technology and it was only a into service delivery and now, it
- from purely voice and back office matter of time before the delivery of seems like technology plays a major
support to multifunctional, multi- business services would be so integral- part.
horizontal. Delivery of these services ly linked to it. This was the beginning Today, the platform BPO serv-
ices straddle both
horizontal services
(F&A, HR etc.)
as well as verti-
calised industry
offerings, such
as procurement.
Infosys, which is
aggressively devel-
oping its offerings,
is concentrating
on the horizon-
tal as well as the
vertical offerings
in HR and pro-
curement. Infosys’
Source to Pay is a
procurement plat-
form solution and
one such example.
Source: ValueNotes research Caliber Point, the

26 GlobalServices www.globalservicesmedia.com May 2011

Infrastructure Management

don’t have to invest in an ERP plat-

form and then outsource some of the
business processes as well. This works
out for the service providers as well,
who are looking to expand beyond
the Fortune 500 companies.
This does not mean that larger
clients or existing clients will not
benefit. Platform solutions will offer
easier and cheaper ways to explore
newer avenues of business. It presents
service providers the opportunity to
help their clients deliver their business
efficiently and perhaps even cheaper.

Is Platform BPO everyone’s

BPO arm of Hexaware launched
Republic in 2010, a multi-tenant HR
services delivery solution based on
Oracle E-Business Suite Release 12.
According to the company, Republic
is hosted and maintained by Caliber
Point and interfaces through a user-
friendly and secure HR portal. Tata
Consultancy Services (TCS) offers
platform solutions in multiple service
lines such as F&A, HR, analytics and
procurement. EXL, with its recent
acquisition of OPI, is likely to benefit
from OPI’s platform based solutions
in the F&A space.
Analysts believe
this is also a
natural progression
for the IT service
providers that
ventured into BPO
services in the last
decade. Platform
cup of tea?
Not all service providers have the
capabilities to develop platform solu-
tions. Currently, we see that the larger
players have created platform offer-
ings. This is because developing a
platform based offering needs high
investments in infrastructure as well.
Moreover, since this model relies on
transaction pricing, mature relation-
ships with clients would be needed.
For the mid-sized service providers,
this may well be an opportunity to
develop platform based solutions on a
select area of expertise.
What is the future of
platform BPO?
The evolution of platform BPO is
actually a gradual shift from the ear-
lier models of BPO. However, plat-
form is in a way BPO on a cloud
model and since this is the way of the
future, it is also most likely to suc-
ceed. Another reason why platform

Addressing the smaller clients

solutions gave them
Platform BPO solutions took
momentum with the recession a cou-
ple of years ago. Cost pressures on the
clients and the need to engage on a
long term basis with the clients have
fuelled investments by some of the
large service providers. Platform based
solutions will probably be a boon to
mid to small size clients, where they
BPO will succeed is the inherent ben-
efit to the clients – in terms of low
an opportunity capital expenditure as well as transpar-
ency in pricing. Therefore, whether
to increase their platform BPO is a win-win solution
footprint among for all is yet to be seen but surely a
model that will see exponential growth
clients of both in the next few years. GS
services. Jui Narendran is head at ValueNotes
Sourcing Practice

27 GlobalServices www.globalservicesmedia.com May 2011

 xperts By Nigel Hughes, Global Services Director, Compass Management Consulting

Usage-Based Pricing: the

Promise and the Reality
The idea of pay-as-you-go consumption of IT resources via
utility models and cloud platforms promises to transform
IT service delivery and the nature of sourcing relationships.
But the transformation doesn’t happen overnight or by
magic, and achieving the benefits requires understanding
and addressing significant organizational and technological
obstacles.

T
he holy grail of utility At a basic level, utility comput- and implementation of “tensioned”
computing lies in the ing, or standard services delivery, pricing mechanisms that create
idea of dynamic, usage- is characterized by clearly defined incentives to drive more efficient
based pricing, whereby and standardized service levels and delivery and consumption of IT.
IT resources are flexibly delivered units of IT functionality based on For example, in a traditional
on-demand in response to business industry standards. These allow environment, a client pays a serv-
requirements. In principle, under service providers – internal or exter- ice provider a specified amount per
a utility model customers pay only nal – to drive significant economies server. The service provider seeks
for what they consume, and don’t of scale. Standardization, mean- to install additional servers, as
have to worry about idle or insuf- while, enables the development that generates additional revenue.
ficient capacity. Service providers,
meanwhile, benefit because they
are able to leverage their expertise
across multiple customers.
It sounds simple and appealing,
and indeed, many organizations
are benefitting from utility-based
models. But in reality a variety
of factors must be considered and
addressed before true utility com-
puting can be achieved. These fac-
tors include organizational obsta-
cles on both the client and vendor
side, as well as complexities around
how IT usage is measured, report-
ed, and priced. In other words,
while the “pay by the drink” anal-
ogy is useful in understanding the
concept of utility computing, it’s a
bit more complicated than that.

28 GlobalServices www.globalservicesmedia.com May 2011

Infrastructure Management
Clients, meanwhile, have little vis-
ibility into how business uses IT. In
a standardized utility environment,
tensioned pricing mechanisms are
applied so that the client organiza-
tion pays a specified amount for
a CPU minute. This creates an
incentive for the service provider
to drive efficiency in the delivery
of that CPU resource, as greater
efficiency equals higher margin.
The customer organization, mean-
while, has an incentive to utilize
CPU resources more wisely, as
every CPU minute consumed has a
cost attached to it.
This visibility into IT delivery
and consumption, coupled with
usage-based pricing and incentives
to deliver and consume efficiently,
underlies the potential of utility
computing and its longstanding
appeal. However, traditional busi-
ness organizations are in many
respects not quite ready for true
utility computing. While paying
only for resources consumed is
appealing in theory, in practice it
means less control over expenditure
and income – a scary prospect for
both clients and service providers.
Under a strictly defined utility
model, a customer that dramati-
cally reduced consumption would
receive a dramatically smaller bill.
That prospect gives pause to serv-
ice providers who need to dem-
onstrate a predictable quarterly
revenue stream to shareholders.
Put differently, a vendor who will
gladly implement a “pay as you go”
strategy will hesitate to support a
“save as you shrink” approach. By
the same token, businesses like to
predict expenditures, and the pros-
pect of unanticipated spikes in IT
costs can be unsettling.
Dr. Gregory Smith, Head
of Cloud Services Delivery &
Technical Solutions for T-Systems
North America, acknowledges that
a predictable revenue stream is a
29 GlobalServices www.globalservicesmedia.com
challenge, particularly with regard
to revenue recognition. However,
he adds, “Most customers achieve
substantial savings once they have
fully transformed into the util-
ity model and are then able to
align and show a direct relation-
ship between business demand and
IT usage.”
At present, most “utility” solu-
tions are based on some type
of allocation scheme. Here, the
resource that a client is to be billed
for has to be allocated first, thus
allowing for predictability and pre-
approval of the expenditure. While
perhaps not true “utility” comput-
ing, this approach does offer the
benefit of flexibility and a more
streamlined process for growing IT
infrastructure, as the provisioning
of new servers can be done in a
matter of hours or days, instead of
weeks or months.
For example, T-Systems charges
a fixed monthly rate for a frac-
tional compute measure called a
“compute slice” based on industry
standards.
The allocation of memory is
another important aspect of utility
computing. “Many applications are
memory-driven rather than com-
pute driven,” says Smith. “Because
the underlying infrastructure for
computing resources is ultimately
a physical server, the ratio of com-
pute capacity to memory is fixed.
This presents challenges from a
service provider perspective, par-
ticularly if oversubscription of
actual resources is not allowed.”
These challenges notwithstand-
ing, allocation models have the
practical impact of driving stand-
ardization across multiple custom-
er environments and making serv-
ices more utility-like. This allows
vendors to leverage economies of
scale and deliver significant savings
to customers.
Organizations that will drive
the utility model to further matu-
rity will be those that are will-
ing to give up predictability for
overall savings, and are willing to
work with cloud providers that
are hungry for market share. Such
customers – Amazon, for example
– include businesses with revenue-
generating applications that need to
scale rapidly. For them, scalability
trumps predictability, and growing
revenues can cover higher costs.
Another example: parallel process-
ing applications that need burst
access to large resource pools.
T-Systems’ Smith adds that cus-
tomer maturity in working with
one or multiple service providers
to manage ITIL processes – such
as request, order, change, incident,
problem management, and others
–is essential to effectively manag-
ing demand.
As client and service provider
organizations actively pursue trans-
formation initiatives based on util-
ity models, both parties need to
temper their expectations against
the realities of the existing envi-
ronment. This requires a detailed
understanding of current opera-
tions and constraints, in order to
quantify the size of the potential
opportunity, identify the obstacles
to achieving it, and charting the
optimal way forward. GS
Nigel Hughes is Director of Global Service
Development at Compass Management Con-
sulting. Bill Huber is Partner and Director of
CPO Services at TPI.
February
May 2011