Mitigating Risk in the Race to the Cloud

By Outsourcing Center, Beth Ellyn Rosenthal, Senior Writer

Mitigating Risk in the Race to the Cloud

Editor’s Corner: Ed Anderson, Chief Strategy Officer, CompuCom

Ed Anderson is CompuCom’s new chief strategy officer. He shares his cogent insights on who should move to the cloud, when they should move, and why. He also discusses how racing a sailboat and World War II history taught him important leadership skills.

Q: It seems like IT is at an inflection point. What’s happening?
The outsourcing industry has become better and better at performing on existing infrastructure but is not any better at bringing the best of the future to its clients. It’s like driving a car by looking in the rear view mirror instead of looking out the windshield. We’ve seen this pattern before during those times when major change hits the technology sector.

Too often, clients feel outsourcers do a good job with contract requirements but not with bringing new ideas or helping adjust to major industry shifts. In his book, “The Ultimate Question: Driving Good Profits and True Growth,” Fred Reichheld says we should consider scoring ourselves by taking the percentage of our clients who are promoters minus those who are detractors. I would not want to see the overall score for IT outsourcers.

Q: IT historically runs in cycles. Are we at the end of a cycle?
Yes. I think the next cycle after the Internet is cloud computing.

Q: How long do the cycles typically run?
About 10 years. Business is a process of creative destruction. Last year’s leader is today’s loser. The challenge is to provide innovative customer service and deliver value in a time of dynamic change.

Q: Cloud computing is not IT business as usual. Can companies get the same cost and efficiencies as Microsoft or Google?
Those two companies are in essence creating a super computer and getting 80 percent utilization, whereas corporations typically get 30-50 percent utilization. But they put their data center on a river where the electricity costs are much lower. Most companies will not be able to replicate that scenario. However, there are still many opportunities for enterprises to rethink infrastructure outsourcing and maximize value to the business.

Q: How do you know if this new business model is right for you?
One common mistake is for companies to ignore a compelling new business model because it’s just too hard to change. But that’s not a good idea if the new model gives that company a clear competitive advantage. You can’t ignore the fact that operating a corporate data center is five times more expensive than using the cloud.

Q: You know the cartoons of pioneers with arrows in their backs. Aren’t there a lot of things to worry about when dealing with an immature model like the cloud is today?
There are certainly a lot of things to fix in an immature business model. So no one wants to be the first one to play. Everyone is waiting to see who’s going to make the first move.

Q: What are they worried about?
There are four primary reasons why companies aren’t moving to the cloud today:

  1. Security. Protecting your proprietary and customer data is more important than ever in today’s competitive market. And no one has proven definitely that it’s safer in the cloud.
  2. Customization. Few companies want to give that up, even if they recognize the benefits of standardization.
  3. Integration. Many companies have invested millions of dollars to make their applications work seamlessly together. How do those integrations transfer to the cloud? And who can do it?
  4. Pricing model. The dirty little secret is that buyers are locked into a service provider because the switching costs are high.

Q: What can companies do to mitigate these risks?
Partner with a service provider that can help navigate the stormy sea of change. CompuCom, via our soon-to-be-announced IIMv3 solution, is actively helping our clients create an infrastructure capable of embracing alternative delivery models and innovative technologies — establishing the cloud-ready infrastructure.

I would also recommend deals of shorter duration, for example, three years, because so much fundamental change is just around the corner. This would make it easier to switch if your current provider is not aggressively looking for new and better ways to help the business and create value. Most of our client contracts today are short-term agreements, yet we have a 95 percent renewal rate.

Q: Will SLAs help?
Some companies try to cover every contingency when they write their initial service level agreements. This isn’t a good idea because it inhibits suppliers from bringing in new ideas. Risk does have benefits. At this point in the IT cycle, restrictive SLAs are not the most effective way to achieve the business objectives.

Q: What’s a better way to handle risk?
Try pilots. Use them to carve out new relationships.

Q: How compelling is the cost?
Today, the economics are not yet there. For example, the savings aren’t compelling enough if you go to a hosting model to get out of running your own data center. Also, building a private cloud is expensive because you have to purchase a lot of servers. The current economic climate does not make it easy for a CIO to ask the CFO for a new major capital expense. Before, an adequate ROI might have been all that was required for approval; now it can also be a cash flow issue.

Q: What are the risks in migrating to the public cloud?
Amazon, for example, rents out its excess capacity for the 11 months per year it isn’t required. So how does an enterprise deal with usage demands when it has year-round needs? Won’t Amazon’s first priority be its own customers? That’s why some public cloud providers won’t sign penalty clauses. And that’s one reason why big banks, which demand up-time and usage in the nines, won’t migrate to the public cloud.

Q: What about the Google and Microsoft models?
They both use a hybrid model that could liberate as much as 30 percent of the server space in corporate data centers. I think their model is an exciting place for legacy applications, in that many IT managers don’t know which server is running which piece of the legacy application. So even if a server has low utilization, they can’t risk turning it off for fear of disrupting the business. The hybrid model helps eliminate this risk.

Q: Is there more interest in the private cloud?
Yes. But there is a large capital expense because you are still running software on servers. It is not technology as a utility. It’s an incremental change that mitigates many of the risks because companies are running these clouds in their own data centers using their own tool sets.

Q: How is governance going to work in the cloud?
The challenge is that business lines and users can buy applications in the cloud without going through the IT department. This means IT loses control. So the old governance model won’t work in the cloud. Now, the question for the business becomes: who has the right to deploy an application?

Q: Where did you grow up?
Motown. Then I went to the University of Michigan. I tried out five majors before settling on economics.

Q: How did you get into outsourcing?
In 1982 I joined a PC retailer that sold computers to corporations. It was a natural evolution for our corporate customers to ask us to set up their networks. So we became an IT outsourcer.

Q: How did you get to CompuCom?
This is my second tour. I worked here through the 1990s and early 2000s and was hired to build CompuCom’s services business.

Q: What was the most difficult business lesson you learned on the job?
It was actually at CompuCom. In 1995 we had a customer that was a product distributor. The CEO asked us to help the company cut its costs by tracking the orders of its 23 customers.

At the same time, we were building our Lotus Notes application and thought this would be a good way to outsource procurement. The CompuCom developers said they could handle both projects.

Then the customer suggested we move the application to the Web, which we did. Suddenly CompuCom had a 45 percent growth rate because this product was saving money for all of our customers. So I had to go to our CIO and ask to reallocate resources, which meant killing the Lotus Notes project to concentrate on our success on the Web. It was a difficult trade-off.

Q: What was your most important business lesson?
My family had a cabin on a lake in northern Michigan. We raced 28-foot sailboats; I crewed for my father. It was great bonding with my Dad and my siblings.

One day when I was 13, my Dad said, “Ed, why don’t you be the skipper today?” While I knew how to make the boat go faster, I didn’t know anything about strategy or leadership. So I asked everyone on the boat for their advice. Turns out, you can learn from everybody. And leadership isn’t about ordering people around. We had fun and we won!

This was a pivotal lesson for me. You get the best results when you work in an environment of team spirit. I have carried that lesson into my business life.

And not coincidentally, during my first tenure with CompuCom, we sponsored a well-known sailor in the Sydney 2000 Olympic Games.

Q: What do you like to read?
I’m a World War II buff. I like “At Dawn We Slept, the Untold Story of Pearl Harbor and Miracle at Midway.” That was a cleaner, purer time. I love Douglas McArthur. He was a larger-than-life leader who had personal flaws like all great leaders have.

Q: What do you do for fun?
I play golf with my wife. In golf, there’s no end to the new problems you have to solve. And the worse you are at the game, the more you savor a great shot.

About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].

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