Transcript of a BriefingsDirect podcast recorded at the Hewlett-Packard Software Universe 2009 Conference in Las Vegas the week of June 15, 2009.
Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Sponsor: Hewlett-Packard.
Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you on location from the Hewlett-Packard Software Universe 2009 Conference in Las Vegas. We’re here in the week of June 15, 2009 to explore the major enterprise software and solutions trends and innovations that are making news across the global HP ecology of customers, partners and developers.
I'm Dana Gardner, principal analyst at Interarbor Solutions, and I'll be your host throughout this special series of HP Sponsored Software Universe live discussions.
Please welcome now David Gee, vice president of marketing at EDS, an HP company. Welcome back to BriefingsDirect, David.
David Gee: It’s great to be here. Thanks for having us.
Gardner: I'd like to hear what you’re gathering from the many, I suppose you could call them, hardcore IT folks here at Software Universe. With a recession, this isn’t necessarily a fringe IT crowd. This is a core crowd. From EDS’s perspective, sourcing decisions and visions about cloud computing are dancing in folks’ heads. What are you hearing from the crowd?
Gee: In general, we’re different things. One is absolute recognition of the challenging economic headwind and the impact that’s having on overall IT spend. With that as the backdrop, the decision points come down to a couple of things.
One is how you free up more of your IT spend and spend less on maintenance to drive a transformation or innovation. One of the fastest ways to do that is to flip the knob between capital expenditure and operating expenditure and to look at a third party or an outsourcer for some help and guidance. Maybe they can take off your hands some of the less core activities or, in some cases, core activities, so that they can free up cash flow and drive an innovation agenda. We're still in a harsh economic climate, and that’s proved to be a pretty compelling message, particularly this flip between capital expenditure and operating expenditure.
Gardner: Do you think that, at this point in this cycle, we're looking at IT through a strictly financial lens? Are people not necessarily seeing the forest or are they more involved with the trees at this point?
Gee: There are a couple of interesting sound bytes that you hear. "Flat" is the new "up," in terms of what the opportunities are. We're also seeing a recognition that 6 months is the new 12. How do you get to a faster return on investment (ROI)? Don’t show up with a project that has a 12-, 24-, or 36-month timeframe. What is non-core that maybe an outsourcer can help you do?
For example, one of the things we hear people at Software Universe talking about is performance and quality testing, and do you need all the resources in-house to be able to do that?
Or, if you have peak load, why don’t you use a third party to help you do performance, quality, and security testing and, from a software standpoint, maybe even do that in the cloud. You can either use a third party or have it delivered as a service to you inside of your infrastructure.
Gardner: Maybe we should do a little descriptive analysis in terms of terms. We hear, of course, about outsourcing. It’s been around for many years. Now, we’re hearing a lot more about cloud. Maybe the means to accommodating a cloud in terms of provisioning and the underlying infrastructure and what you might get from a outsourcer might be different, but aren’t they essentially the same thing?
Gee: Cloud means a lot of things to different people. Right now, the objective, particularly for large enterprises, is to experiment to understand what the implications are.
Architecturally, it’s very different, particularly as enterprises want to offer services to their end customers. Equally, how does an enterprise deal with or adopt private cloud infrastructure to be able to offer Web services in an architecturally sound, distributed, and scalable way?
First, we can help in a number of different ways from a consulting standpoint, in terms of how to architect around those things. Second, we can build them for our clients and we do that already today in terms of private cloud infrastructure. And, third is to provide maybe just core infrastructure to third parties, and they then build their clouds to offer to the marketplace overall.
There is a spectrum of different things. The inhibitors to cloud are still pretty significant, as they get more and more core to a business process. Email is a pretty good example. There's a lot of new talk in the industry around using third parties as cloud providers for email.
If it’s a mission-critical application and there are regulatory requirements, intellectual property requirements and it’s a core mission critical app,
do you want -- and does it make sense -- to have a third party host that for you as a cloud application? Or, do you go to somebody like EDS, which manages hundreds of thousands of instances of Exchange, for example, on behalf of their clients?
There’s pretty good delineation in my mind that the more core an application is to the functioning of a business today, particularly where the data lives, is a hinge factor on the decision to adopt a cloud service.
Gardner: That probably means that a lot of thinking about cloud makes your job in marketing EDS little easier. Folks are now thinking about the options in that spectrum in front of them, but they might then fall back to wanting to be mission critical and enterprise caliber.
Gee: Yes, and this comes through a sourcing discussion. We have the flexibility and the domain expertise, where we deliver multiple services to multiple clients and multiple business processes to multiple clients in the public sector and financial services and the telecommunication space across the board.
My experience thus far has been that clients are looking for leadership, some direction, and flexibility. Certain things I absolutely want to control and retain within my own firewall. Certain things I'm going to want EDS to help me manage, host, drive down operational cost, and provide some level of innovation -- and to deliver those services as effectively private cloud services to my client base and ultimately to their customers as well.
Gardner: That sort of raises the question in my mind: is EDS a cloud provider?
Creating the model
Gee: No question. In my mind we’re a cloud provider. EDS created the outsourcing industry over 40 years ago. Think about everything that we do today in delivering services to our client base. If you then extend that, those services are effectively cloud-based services, depending on what your definition is. In my mind, we’re absolutely a cloud company.
We’re at the forefront of delivering that in multiple countries, across multiple industries and in some cases, highly mission-critical services for airlines and financial institutions. Do they have a consumer orientation to them? Probably not. In fact, you may not even realize that we're doing that behind the scenes for some of the most well-known brands on the planet.
Gardner: Given that we’re looking at this spectrum of possibilities, there are boundaries that are being crossed in ways that we probably wouldn’t have thought of too long ago. For some of the more conservative thinkers in IT departments, managing those boundaries, which is, I suppose, what you call governance, becomes paramount. EDS has, as you point out, cloud resources, values, and services and HP has governance. Tell me a little bit about how they come together to form something interesting.
Gee: We can actually do a number of different things collectively, now that EDS is part of HP. First and foremost, from an IT leadership standpoint, how do you prioritize what you’re going to do in a harsh economic climate? This would include project and portfolio management (PPM) and matching demand and supply, where demand is always going to be greater than supply of IT resources in this marketplace.
That can be a services led discussion. It could be a software led discussion. And, that capability can also be delivered as software as a service (SaaS) effectively in the cloud. The engagement model is around what you would want sourced in-house. Now, we have this enormous expanded capability to be able to deliver multiple different services in the workspace from a networking and an end-user management standpoint. As I said, service offerings are either number one or number two in every market. So, it’s a pretty interesting place to be right now.
Gardner: Of course, for the foreseeable future, many IT decisions will be viewed through the lens or in the context of the economic conditions and climate. When it comes to factoring a cost-benefit analysis between what you may traditionally have been doing on premises involved low utilization, quite a bit of labor, and manual processes to support those instances of applications and data.
If you wanted to compare that to this new spectrum of options -- outsourcing, cloud, SaaS -- you need to have a pretty good handle on what your true costs are internally. How does that bear on bringing about a rational and therefore lower risk decision process?
Gee: The first data point is about making rational decisions, actually understanding your IT costs. It’s not about the spreadsheet where you’re putting out the IT budget. It’s "What is the cost of service delivery?" In fact, one of things I’m sure, your listeners have been hearing about this week from an announcement standpoint has been around this concept of IT financial management -- the matching of asset management inside of your organization to service delivery, so you understand the true cost and the profit and loss (P&L) of service delivery.
Once you get underneath that, how much can you automate? You want to do a labor-to-technology arbitrage in some cases. What processes can you automate? Do you want to do those yourself or would you want to go to the world leader in automation of certain IT processes and have them handled by EDS in this instance?
That's kind of a two-step process. We also have a lot of process and domain expertise about understanding the costs of IT delivery. We can help you assess what those are upfront to help make an informed decision as to what services makes sense to be outsourced and what other services makes sense to remain inside of your own organization.
Gardner: This decision process, I believe, will go over several years, perhaps 5 to 10 years, across various industries and requires a professional service approach. There are a lot of partners that you work with traditionally. You have your own internal professional services. How would you characterize the role of a professional services and methodological approach to this decision around the granular services decision?
Ecosystem of partners
Gee: There is a pretty rich ecosystem of partners. If you look at the overall outsourcing marketplace, once you take out the five or six largest players, 70 percent of the market is serviced by "other."
If you think about what the opportunities are for third parties who are working with their client base and their customer base to develop options, the main driver today is around cost reduction, or freeing up dollars for innovation. We have a strong relationship with a number of those partners. It can be global, but also region-by-region and, in many cases, country-by-country, where these make the most sense to go do.
There’s a world of opportunity out there. What we're seeing now, as a part of HP, is a pipeline or a funnel, an access to HP’s installed base. There was a limited overlap between EDS’s customer base and HP’s large customer base. We see that as opportunity for growth and we’ll expand our footprint. We’ll also expand our footprint built on the best intellectual property that’s out there in the market.
My hope would be that this would be built on many things that HP does today, but we’re also helping HP build better products as we scale certain things out and have mission critical examples of what’s going on. We'll help improve features and functionality, not just in the software part of our business, but in the hardware and the support services that align with us as well. So, it’s a very healthy connection point.
Gardner: Going back to the decision process for enterprises, where do you start? Do you have a sense of an application, a data set, a particular use case, or a business case? What would be the right low-hanging fruit for stepping into this cloud process?
Gee: There are a couple of different angles to that. One is, how do you deal with the peak load, when you simply don’t have the infrastructure in place or you don’t want to put the infrastructure in place?
QA testing is a pretty good low-hanging fruit, to use your terminology. New applications are coming online, and you’re doing a migration from one version of a large application to the next version of a large application, and the skills and resources aren’t in-house. You can go to a service provider like EDS, for example, to do that or you can have some of that capability delivered to you as SaaS. The two very interlinked.
Another one is to pick key business processes. Service management is another good example. Do I want to have that helpdesk capability and fault resolution in-house or do I go to a third party in the cloud that is dedicated in providing a high quality service at potentially a significantly lower cost with more value to the business?
Again, those dollars get freed up, and what are you going to do with them? Are you going to build an innovative set of capabilities that’s actually going to help your business grow and be aligned with a business objective? At the end of the day, that’s really the value add.
The bottom line
Gardner: Let’s go to a bottom-line question. With the renewed interest, or the building interest, in cloud and what I think would be renewed interest in outsourcing, can we safely say that in two, three, or five years the total cost of IT in large organizations will decrease significantly as a percent of revenue?
Gee: You’re already seeing that. I don’t think there’s any mystery that IT, as a percentage of revenue, will stagnate, as businesses grow. Actually, in dollar terms it might rise a little bit, but as a percentage of revenue, it’ll probably remain flat. If you look at the most recent quarter across the IT industry generically, what you’re seeing is that the PC and server markets have shrunk.
There's no question about it. They've shrunk in dollar terms, year-over-year. The services marketplace is flat or growing at a low single digit, and you’re seeing a shift of dollars or contraction of dollars on the hardware side.
What that will do is create a pent-up demand for a refresh cycle. Historically, that might have been three years, but it’ll go to four or five. It’s going to come, and then the question is do I refresh that infrastructure in-house or do I go with a cloud provider or a outsourcer, for want of a better word, to take that infrastructure on, do the refresh for me, and produce a set of services and a service level that I wouldn’t have been able to do internally.
There's going to be this transformation over the next two to three years and it’s being driven by a contraction in overall spend, but that’s going to have to be made up from a refresh standpoint. Your crystal ball is probably as good as mine, whether that’s a year out or two years out, but it will have to have happen that, at some point, your PC and your service are going to have be refreshed.
Gardner: Well, it certainly seems that there’s a significant amount of important decisions that will be coming to the IT decision makers, and I look forward to tracking that along with you. I want to thank our guest. We’ve been joined by David Gee, vice president of marketing at EDS, an HP company. Thanks so much.
Gee: Dana it was a pleasure to talk to you. Thanks so much.
Gardner: Thanks for joining us for this special BriefingsDirect podcast, coming to you on location from the Hewlett-Packard Software Universe 2009 Conference in Las Vegas.
I'm Dana Gardner, principal analyst at Interarbor Solutions, your host for this series of HP sponsored Software Universe Live Discussions. Thanks for listening, and come back next time.
Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Sponsor: Hewlett-Packard.
Transcript of a BriefingsDirect podcast recorded at the Hewlett-Packard Software Universe 2009 Conference in Las Vegas the week of June 15, 2009. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.