The New World Order of ITO: The View from the Inside-Out

By Outsourcing Center, Patti Putnicki, Business Writer

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The New World Order of ITO: The View from the Inside-Out

If you look back on the transforming world of IT over the past few years, it’s easy to chart the stages. First, there was denial that anything needed to change. Then came the fear of cloud and the perceived lack of control associated with this agile, new delivery model. As we move to 2013, we usher in the Acceptance stage with increased adoption propelled by a growing nonchalance around what the supporting infrastructure “looks” like. Somehow, the details just aren’t so important anymore.

“We have finally removed the part where clients care about the specific storage or network provider or what processors are being used. Instead, they’re saying, ‘I need compute or I need database,'” explained Chris Mankle, chief technology officer of Xerox’s Information Technology Group. “We’ve abstracted; we’ve moved up to the next value level.”

According to Mankle, today’s ITO customers have shifted focus—concentrating more on the “what I need to do,” instead of having to understand exactly how the sausage is made.

“We’re watching the evolution of compute-as-a-utility play out,” Mankle said. “The entire eco-system of ITO is changing, with companies focusing on business value instead of the more traditional efficiency models.”

Michael Marzullo, worldwide applications management offering manager for HP, also sees a dramatic shift happening in the space.

“In 2013-2014, I don’t see us pitching labor arbitrage,” Marzullo said. “With cloud, it’s all about agility, connectivity and speed. We’re changing how we, as providers, do things—becoming more flexible and using new technologies to add value.”

So, what exactly do today’s ITO clients perceive as value?

“They want their IT to work, fit into their budget, be accessible and scalable, and ‘oh, by the way, we want to use our own devices’,” Marzullo said. “Our clients want us to manage the complexity on the back end to provide simplicity to their end users on the front end.”

Changing a Mindset

While the talk is “cloud,” cloud is really one component of the “as a Service” (aaS) model—something that is far more than technology alone.

“So many clients see cloud and the aaS model as a technology play, but they’ll never get the cost benefits if they look at it this way. The aaS model is a combination of the infrastructure and the managed service support—all of the operational aspects—baked into the unit-based pricing,” explained Doug White, senior vice president of Cloud Infrastructure Services for NTT DATA. “If you look at most IT budgets, around 50 percent of the costs map to FTEs to run the environment. With the aaS model, companies can scale up quickly, but they can also do it without adding those five extra people to support the additional server they need. “

According to White, this also means that tomorrow’s corporate IT organization will look much different than it does today.

“Going forward, you’re not going to have an IT department with database administrators or system administrators—all of that is part of the aaS model. The impact on required FTEs is significant,” White said. “One good example is a $1 billion insurance company we worked with this year that used to handle their own hosting in their own data center. By transitioning to an aaS environment, that company now has a three-person IT department instead of a 35-person department.”

These aren’t the ‘rebadged’ individuals of yesterday’s ITO; these are positions that just aren’t necessary with a utility model in place. That’s a concept that some legacy CIOs have a difficult time accepting.

“The buyer of IT will ultimately be the CFO as we move forward with this model,” White said.

Faster, Bigger, Better

As companies embrace the inherent freedoms of a more nimble, industrialized IT environment, they’re also using technology differently. Traditional marketing is supplemented—and sometimes replaced—by social media. That’s a different infrastructure layer. To compete, providers have to be geared up for whatever the “next big thing” might be.

“You have to be able to allow access to higher volumes, allow for parallel usage and be able to ramp up quickly, adjust pricing dynamically, and make provisioning easy,” HP’s Michael Marzullo said. “Change is speed and ITO can’t be a big lumbering giant. Providers now have to interact with clients as nimbly as the technology itself. The more the utility model is adapted, the faster provisioning must become.”

The Open Source Impact

One of the big enablers of aaS is the integration and the underlying tools that support the distributed environment.

“Traditionally, these cloud-based, as a Service environments are managed using one of the large, pre-integrated platforms on the market today,” NTT DATA’s White said. “But, as IT is commoditized, it also becomes more standardized, with more open sourcing—and that’s going to have a significant impact.”

According to White, open sourcing not only drives prices down but enables providers now using the more established management platforms to eventually create their own open-sourced tools.

“This open framework makes managing the multi-vendor environment easier today, and it will continue to make things easier in the future,” he said. “That speed, that ease becomes the differentiator, along with the supported value-adds.”

Value-adds, like creating tools for big data, using algorithms and analytics to help companies make use of the barrage of data that flows into their environments. Or, as White explains it, “finding the information in a sea of data.”

More Specialization

As the way organizations purchase IT changes, Xerox’s Chris Mankle believes delivery mechanisms will evolve as quickly as the deliverables themselves.

“Companies and government agencies now have the ability to choose what value they want to buy, knowing that the infrastructure will support multiple ecosystems (platforms),” Mankle said. “I think we’ll see the emergence of smaller, boutique firms, each focusing on a single platform or area, whose sole job will become handling migration, while the cloud and traditional IT providers —who have made the infrastructure investment—will handle the ongoing support and maintenance.”

While Mankle doesn’t see the absolute end to the large company/one provider approach, he does see a future state that’s dramatically changing.

“With the explosion of the cloud delivery model, ITO has become like an airport. To be profitable, you need enough airplanes coming in and out to fully utilize the gates and bring enough people in to populate the parking lot, buy the concessions and fully utilize the airport’s infrastructure investment,” Mankle said. “Look around. The consumerization of IT is blowing up the enterprise market. And, we haven’t even begun to see the full impact yet.”

Let the games begin.

About the Author: Ben Trowbridge is an accomplished Outsourcing Advisor with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. 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 valuable insights and guidance to buyers and managed services executives. Contact him at [email protected].

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