Transcript of a sponsored BriefingsDirect podcast on making the journey to improved data-center operations via modernization and creative sourcing in tandem.
Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: HP.
Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.
Today, we present a sponsored podcast discussion on improving overall data-center productivity by leveraging all available sourcing options and moving to modernized applications and infrastructure.
IT leaders now face a set of complex choices, as they look for ways to manage their operational budget, knowing that discretionary and capital spending remain tight, even as demand on their systems increases.
One choice that may be the least attractive is to stand still as the recovery gets under way and demands on energy and application support outstrips labor, systems supply, and available electricity.
Economists are now seeing the recession giving a way to growth, at least in several important sectors and regions. Chances are that demands on IT systems to meet growing economic activity will occur before IT budgets appreciably open up.
So what to do? Our panel of experts today examines how to gain new capacity from existing data centers through both modernization and savvy exploitation of all sourcing options. By outsourcing smartly, migrating applications strategically, and modernizing effectively, IT leaders can improve productivity, while operating under tightly managed costs.
We'll also look at some data-center transformation examples with some executives from HP to learn how effective applications and infrastructure modernization improves enterprise IT capacity outcomes. And, we'll examine modernization in the context of outsourcing and hybrid sourcing, so that the capacity goals facing IT leaders can be more easily and affordably met, even in the midst of a fast-changing economy.
As we delve into applications and infrastructure modernization best practices, please join me in welcoming our panel: Shawna Rudd, Product Marketing Manager for Data Center Services at HP. Welcome, Shawna.
Shawna Rudd: Thank you.
Gardner: We're also here with Larry Acklin, Product Marketing Manager for Applications Modernization Services at HP. Welcome, Larry.
Larry Acklin: Hello.
Gardner: And, Doug Oathout, Vice President for Converged Infrastructure in HP’s Enterprise Services. Welcome, Doug.
Doug Oathout: Thank you, Dana. I'm glad to be here.
Gardner: Let me start with you, Doug. We're seeing some additional green shoots now across the economy, and IT services are also being taxed by an ongoing data explosion, the proliferation of mobile devices, use of social media, and new interfaces. So, what happens when the supply of budget -- that is to say, the available funding for innovation in new applications -- is lacking, even as the demand starts to pick up? What are some of the options that IT leaders have?
Tackling the budget
Oathout: Dana, when you look at the budgets still being tight in the tight economy, but business is starting to grow again, IT leaders really need to look strategically at how they're going to tackle their budget problem.
There are multiple sourcing options, there are multiple modernization tasks as well as application culling that they could do to improve their cost structure. What they need to do is to start to think about how, and what major projects they want to take on, so that they can improve their cash flow in the short-term while improving their business outcomes in the long-term.
At HP, we look at: how do I source products that are more beneficial to me -- outsourcing cloud and such -- to give us a better economic picture, and also using modernization techniques for application and infrastructure to improve the long-term cost structures.
At HP we also look at modernization of the software, and we look at outsourcing options and cloud options as ways to improve the financial situation for IT managers.
Gardner: Looking at this historically, have the decisions around outsourcing been made separately from decisions around modernization and infrastructure? Is it now time to bring two disparate decision processes together?
Oathout: Yes. In the past, companies have looked at outsourcing as a final step to IT, versus an alternate step in IT. We're seeing more clients, especially in the tight economy, that we have gone through, looking at a hybrid model.
How do I source things smartly that are non-mission critical or non-business critical to me to the outside world and then keep the stuff that is critical to my business within the four walls of the data center? There is a model evolving, a hybrid model between outsourcing and in-sourcing of different types of applications in different types of infrastructure.
Gardner: Let's go to you, Shawna. When we think about the decisions around sourcing, as Doug just pointed out, there seems to be a different set of criteria being brought to that. How do you view the decision-making around sourcing options as being different now than two, three or five years ago?
Rudd: Clients or companies have a wider variety of outsourcing mechanisms to choose from. They can choose to fully outsource or selectively out-task specific functions that should, in most cases, be able to provide them with substantial savings by looking at their operating expenses. Alternatively, as Doug just pointed out, we can provide many transformational and modernization type of projects that don’t require any outsourcing at all. Clients just have a wider variety of options to choose from.
Gardner: To you, Larry. As folks look at their current infrastructure and try to forecast new demands on applications and what new applications are going to be coming into play, are they faced with an either/or? Is this about rip and replace? How does modernization fit differently into this new set of decisions?
Acklin: It's definitely becoming a major challenge. The problem is that if you look purely at outsourcing in order to have additional investment for innovation, it will take you so far. It will take you to a point.
There needs to be a radical change in most businesses, because they have such a build-up of legacy technology, applications and so forth. There needs to be a radical change in how they move forward so they can free up additional investment dollars to be put back into the business.
Realigning the business and IT
More importantly, it's necessary to realign the business and the application portfolio, so that they're working together in order to address the new challenges that everyone is facing. These are challenges around growth: How do you grow so that, when you come out of a tough economy situation, the business is ready to go.
Investors are expecting that your company is going to accelerate into the future, providing better services to your market. How can you do that when your hands are completely tied, based on your current budget?
You know your IT budgets aren't going to increase rapidly, that there may be a delay before that can happen. So how do you manage that in the interim? That’s really where the combination of modernization and using various sourcing options is going to add additional benefit to be an enabler to get you to that agility that you want to get to.
Gardner: Larry, what would be some of the risks, if this change or shift in thinking and approach doesn't happen? What are some of the risks of doing nothing?
Acklin: We call that "the cost of doing nothing." That's the real challenge. If you look at your current spend and how you are spending your IT budgets today, most see a steady increase in expenses from year-by-year, but aren't seeing the increases in IT budgets. By doing nothing, that problem is just going to get worse and worse, until you're at a point where you're just running to keep the lights on. Or, you may not even be able to keep up.
The number of changes that have been requested by the business continues to grow. You're putting bandages on your applications and infrastructure to keep them alive. Pretty soon, you're going to get to a point, where you just can't stay ahead of that anymore. This is the cost of doing nothing.
If you don’t take action early enough, your business is going to have expectations of your IT and infrastructure that you can't meet. You're going to be directly impacting the ability for the company to grow. The longer you wait to get started on this journey to start freeing up and enabling the integration between your portfolio and your business the more difficult and challenging it's going to be for your business.
Gardner: Doug and Shawna, it sounds as if combining the decisions around modernizing your infrastructure and applications with your sourcing options is, in a sense, an insurance policy against the unknown. Is that overstating the opportunity here, Shawna?
Rudd: I don’t think so. Obviously, to Larry’s point, it's not going to get any cheaper to continue to do nothing. To support legacy infrastructure and applications it's going to require more expensive resources. It's going to require more effort to maintain it.
The same applies for any non-virtualized or unconsolidated environment. It costs more to manage more boxes, more software, more network connections, more floor space, and also for more people to manage all of that.
The risk of managing these more heterogeneous, more complex environments is going to be greater -- a greater risk of outages -- and the expense to integrate everything and try to automate everything is going to be greater.
Working with a service provider can help provide a lot of that insurance associated with the management of these environments and help you mitigate a lot of that risk, as well as reduce your cost.
Gardner: Doug, we can pretty safely say that the managed service providers out there haven’t been sitting around the past two or three years, when the economy was down. Many of them have been building out additional services, offering additional data and application support services. So, IT departments are now not only competing against themselves and their budgets, they are competing against managed service providers. How does that change somebody’s decision processes?
Oathout: It actually gives IT managers more of a choice. If you look at what's critical to your business, what's informational to your business, and you look at what is kind of the workflows that go on in your business, IT managers have many more choices of where they want to go source those applications or those job functions from?
As you look at service providers or outsourcers, there is a better menu of options out there for customers to choose from. That better menu allows you to compare and contrast yourself from a cost, service availability, and delivery standpoint, versus the providers in the marketplace.
We see a lot of customers really looking at: how do I balance my needs with my cost and how do I balance what I can fit inside my four walls, and then use outsourcing or service providers to handle my peak workloads, some of my non-critical workloads, or even handle my disaster recovery for me?
So IT managers have choices on where to source, but they also have choices on how to handle the capacity that fits within their four walls of the data center.
Gardner: Let’s look at how you get started. What are some of the typical ways that organizations explore sourcing options and modernization opportunities? As I understand it, you have a methodology, a basic three-step approach: outsource, migrate, and modernize.
Let’s take each one of these and start with outsourcing smartly. Shawna, what does that mean, when we talk about these three steps in getting to the destination?
Rudd: From an outsourcing standpoint, it’s simply one mechanism that clients can leverage to facilitate or help facilitate this transformation journey that they may be looking to, as they go on to help generate some savings, which will help fund other maybe more significant modernization or transformational efforts.
We help clients maintain their legacy environments and increase asset utilization, while undertaking those modernization and transformation efforts. From an outsourcing standpoint, the types of things that a client can outsource could vary, and the scope of that outsourcing agreement could vary -- the delivery mechanism or model or whether we manage the environment at a client’s facility or within a leveraged facility.
All those variables can bring value to a client, based upon their specific business requirements. But then, as the guys will talk about in a second, the modernization or the migration and the modernization yields additional savings to those clients’ business.
So, from an outsourcing standpoint, it’s that first thing that will help generate savings for a client and can help fund some of the efforts that will generate incremental savings down the road.
Gardner: The second step involves migration. Who wants to handle that, and what does that really mean?
Oathout: Let me start and then I'll hand it over to Larry. When we talk about migration, we can look at different types of applications that migrate simply to modern infrastructure. Those applications can be consolidated onto fewer platforms into a more workflow-driven automated process.
We can get a 10:1 consolidation ratio on servers. We can get a 5-6:1 consolidation ratio on storage platforms. Then, with virtual connectivity or virtual I/O, we can actually have a lot less networking gear associated with running those applications on the servers and the storage platform.
So, if we look at just standard applications, we have a way to migrate them very simply over to modern infrastructure, which then gives you a lower cost point to run those applications.
Gardner: Now, not all applications are created or used equally. Is there a difference between what we might refer as core or context applications, and does that come into play when we think about this migration?
Oathout: Oh, it definitely does. There are some core applications that are associated with certain platforms that we can consolidate on the bigger boxes, and you get more users that way. Then, there are context applications, which are more information-driven, and which can easily continue to grow. That's one of the application areas that continues to grow, and you can't see how fast it's going to grow, but you can scale that out onto modern platforms.
As you have more work, you have more information, and you can grow those systems over time. You don't have to build the humongous systems to support the application, when it’s just starting out. You can build it over time.
There's a lot we can do with the different types of applications. When you look at modernizing your applications and look at modernizing infrastructure, they have to match. If you have a plan, you don't have to buy extra capacity when you start. You can buy the right capacity then grow it, as you need it.
Acklin: Let me add a little bit to that. When we look at these three phases together, we ordered them this way for a specific path to minimize the risk as part of it. Outsourcing can drive some initial savings, maybe up to 40 percent, depending on the scope of what you're looking at for a client. That's a significant improvement on its own.
Not every client sees that high of a saving, but many do. The next step, that migration step that we’ve talked about, where we’re also migrating over to a consolidated infrastructure, allows you to take immediate actions on some of your applications as well.
In that application space, you can move an application that may be costing you significant amounts of the dollars whether it be, license fees or due to a lack of skilled resources and so forth on a legacy platform. Migrating those or keeping the application intact, running on that new infrastructure, can save you significant dollars, in addition to the initial work you did as part of the outsourcing.
The nice thing, as you do these things in parallel, is that it's a phase journey that you are going through, where they all integrate. But, you don't have to. You can separate them. You can do them one without the other, but you can work on this whole holistic journey throughout.
The migration of those applications, basically leaves those applications intact, but allows them to have a longer lifespan than you may typically would. A great example of this is, if you had an application that you want to eventually replace with a ERP system of some sort, or that business process is going to be changed in the future in some way, but we still need to do something about this cost-saving problem today.
It's a great middle step. We can still drive significant 40-50 percent saving, just through this migration phase of moving that application onto this new infrastructure environment and changing the way that those cost structures around software and so forth are allocated towards that. It frees up short-term gain that can turn around to be reinvested in the entire modernization journey that we're talking about.
Gardner: So, if I understand that correctly, when we get to the modernization phase, we've been able to develop the capacity and develop a transformation of the budget from operations into something that can be devoted to additional new innovation capacity.
Acklin: Right. Then as you continue that journey, you're starting to get your cost structures aligned and you're starting to get to a place where your infrastructure is now flexible and agile. You’ve got the capacity to expand. When you move into that modernized phase, you're really trying to change the structure of those applications, so that you can take advantage of the latest technology to run cloud computing and everything operating as a service.
Future technologies allow us to enable the business for growth in the marketplace. Right now, many of our applications handcuff the business. It takes months to get a new product or service out to the market. By changing over to a service-oriented model, you're saving a lot of cost component here, but you're adding that agility layer to your applications and allowing your business to expand and grow.
Gardner: Before we go to some examples, I'm curious about what happens. What benefits can occur when you play these three aspects of this journey together?
There is sort of a dance, if you will, of three partners. When you apply them to the specific needs, requirements, and growth patterns within specific companies, what types of benefits do we get? Is this about switching to a more pay-as-you-go basis? Is this about reduced labor or improved automation?
Let's start with you, Shawna. What are some of the paybacks that companies typically get when they do this correctly?
Some 30 percent savings
Rudd: They can achieve about 30 percent savings, obviously depending on what they outsource and how much they outsource. Those savings will be achieved through the use of best-shore resources through the right sizing of their hardware and software environments, consolidation, virtualization, automation, standardization, processes, and technologies.
And, then they'll achieve incremental cost savings. As Larry said, it can be upward of 40-60 percent from migrating some of that low-hanging fruits, or those applications that are easily lifted and shifted to lower cost platforms. So, they'll reduce the associated IT and application expenses that are also the ongoing management expense. Then, as they continue to modernize those environments, they'll achieve additional efficiencies and potentially some additional savings.
In that scenario, in which they have combined everything, when they work with a single source provider to help them go through that journey and help facilitate that journey, the transitions, the hand-offs, and all of that should go much more smoothly.
The risk to the client, to the client's business, should be better mitigated, because they're not having to coordinate with four or five different vendors, internal organizations, etc. They have one partner who can help them and can handle everything.
Gardner: Doug, to you. When this is done properly, what are some of the high-level payoffs? What changes in terms of productivity at the most general level?
Oathout: The big thing that changes, Dana, is that when you go through this journey at the end, IT is aligned to the businesses. So, when a business wants to bring on a new application or a new product line, IT can then respond and stand up a new application in hours instead of months.
They can flex the environment to meet a marketing campaign, so you have the ability to do the transactions when a major TV advertisement goes on or when something happens in the industry. You get the flexibility and you get the efficiencies, but what you really get is IT is acting as a service provider to the line of business, and IT is now a partner with the business versus being a cost center to that business.
That's the big transformation that happens through this three-step process. IT is now seen as adding value to the business versus just being the cost center, and the paybacks are unbelievable.
You move from deploying an application in months to two hours. The productivity of your IT department gets two or three times better. You can now plan to run your data centers or your IT at normal workloads. Then, when peaks come in, you can outsource some of the work to service providers or to your outsource partner.
Your actual IT is running at average load, and you don't have to put all the extra equipment in there for the peak. You actually outsource it, when that peak comes. So, at the end of this journey, there is a whole different business model that is much more efficient, much more elastic, and much more cost-effective to run the business of the future.
Gardner: Larry, to you. What are your more salient takeaways in terms of benefits from doing this all correctly?
Don't have to wait
Acklin: I’ll just add to what Shawna and Doug have said already. One of the bigger benefits that you achieve is that the business doesn't have to wait. Many times, if you're a CIO, you have to tell your business-owners that you've got to wait. "I need to go through. I'm in the midst of this outsourcing operation. I'm trying to change the way we're providing service to the business." That can take time."
The idea of putting the outsourced, migrated, modernized phases together is that they're not sequential. You don't have to do one, then the other, and then the other. You can actually start these activities in parallel. So, you can start giving benefits back to the business immediately.
For example, while you're doing the outsourcing activities and getting that transition set up, you're starting to put together what your future architecture is going to look like for your future state. You have to plan how the business processes should be implemented within the application and the strategic value of each application that you currently have in your portfolio.
You're starting to build that road map of how you are going to get to the end state. And then Even as you continue through that cycle, you're constantly providing benefits back to both the business and IT at the same time.
You really build that partnership between the two. So, when you reach the end, that is the completely well-oiled machine working together -- both the business and IT -- to reach their objectives.
Gardner: Let’s look at some examples that we mentioned earlier. This can vary dramatically from organization to organization, and coming at this from different angles means that they might prioritize it in different ways. Perhaps we can look at a couple of examples to illustrate how this can happen and what some of the payoffs are. Who wants to step up first for an example on doing these three steps?
Oathout: I'll go first. One example that we worked very closely was in services with our customer France Telecom. France Telecom transitioned 17 data centers to two green data centers. Their total cost of ownership (TCO) calculation said that they were going to save €22 million (US $29.6 million) over a three-year period.
They embarked on this journey by looking at how they were going to modernize their infrastructure and how they were going to set up their new architecture so that it was more flexible to support new mobile phone devices and customers as they came online. They looked at how to modernize their applications so they could take advantage of the new converged infrastructure, the new architectures, that are available to give them a better cost point, a better operational expense point.
France Telecom is a normal example where you consolidate 17 data centers to two, but it’s not abnormal when a company goes through this three-step process, to make a significant change to the IT footprint, make a significant change in how they do their business to support the lines of businesses that require new applications and new users to come online relatively quickly.
Gardner: Doug, how would you characterize the France Telecom approach? Which of the three did they emphasize?
Emphasis on migration
Oathout: They really emphasized the migration as the biggest one. They migrated a number of applications to newer architectures and they also modernized their application base. So, they focused on the last two, the modernization and the migration, as the key components for them in getting their cost reductions.
Gardner: Okay, any other examples?
Acklin: I'll talk about another one. The Ministry of Education in Italy (MIUR) is another good example, where a client has gone on this whole journey. In that situation, they had outsourced some of their capabilities to us -- some of their IT management. But, they were challenged with some difficult times. The economy hit them hard, and being a government agency, they were under a lot of pressure to consolidate IT departments globally.
It’s a very, very large organization built up over the years. Most of the applications were built back in the early 1980s or earlier than that. They were mainframe-based, COBOL, CICS, DB2 type applications, and they really weren’t servicing the business very well. They were really making it a challenge.
In addition to all of the legacy technologies, the CIO also had the challenge of consolidating IT departments. They had distributed IT departments. So, they had to consolidate their IT departments as part of this activity.
On top of all that, they were given the challenge to reduce their headcount significantly due to the economic crisis. So, it became a very urgent journey for this client to go on, and they began going through that. Their goal was, as I said, reducing IT, improving agility, being able to respond to change, and doing a lot more with a lot less people in a consolidated manner.
As they went through their transformation, they went through the whole thing. They assessed what they had. They put their strategy together and where they wanted to go. They figured out what applications they needed and how they were going to operate.
They optimized the road map for them to reach their future state, established a governance program to keep everything in alignment while they went on this journey, and then they executed this journey.
They used a variety of methods for modernizing their applications and migrating over to the lower cost platforms. Some of them they re-architected into new service-based models to provide services to their students and teachers through the web.
At the end they ended up seeing a 2X productivity improvement and return on investment (ROI) in less than 18 months. They reduced their app support by over 30 percent and they reduced their new development cost by close to 40 percent.
Those are significant challenges that the CIO took on, and the combination of improving their applications and infrastructure through outsourcing and modernization model helped them achieve their goal. The CIO will tell you that they could never have survived all the pressure they were under without going on a journey like this.
Gardner: Shawna, do we have a third example?
No particular order
Rudd: This is an example, not naming a specific client, but also making another point, that the things we're talking about don't have to occur in this particular order -- this one, two, three step order.
I know of other clients for whom we've saved around 20 percent by outsourcing their mainframe environments. Then, after successfully completing the transition of those management responsibilities, we've been able to further reduce their cost by another 20 percent simply by identifying opportunities for code optimization. This was duplicate code that was able to be eliminated or dead code, or runtime inefficiency that enabled us to reduce the number of apps that they required to manage their business. They reduced the associated software cost, support cost, etc.
Then there were other clients for whom it made more sense for us to consider outsourcing after the completion of their modernization or migration activities. Maybe they already had modernization and migration efforts underway or they had some on the road map that were going to be completed fairly quickly. It made more sense to outsource as a final step of cost reduction, as opposed to an upfront step that would help generate some funding for those modernization efforts.
Gardner: For those folks who see the need in their organization and understand the rationale behind these various steps, where do they get started, how can they find more information? Let me start with you, Doug. Are the information resources easily available.
Oathout: Well, Dana, there are a ton of different places to start. There's your HP reseller, the HP website, and HP Services. If a customer is thinking about embarking on this journey, I'd contact HP Services and have them come out and do a consulting engagement or an assessment to lay out the steps required.
If you're embarking on the journey on modernization, contact your HP reseller and HP seller and have them come show you how to do consolidation and virtualization to really modernize your infrastructure. If you're having the conversation about applications, contact HP Services. They can look at your application portfolio and show you the experience that they have in modernizing those applications or migrating those applications to modern equipment.
Gardner: Any additional paths to how to start from your perspective, Larry?
Acklin: Let me add to that. If you're in situation where you think modernization, but you're not positive, you're still trying to get a good understanding of what's involved, go on one of these trainings. We offer something that's called the Modernization Transformation Experience Workshop. It's basically a one-day activity workshop, a slide-free environment, where we bring you and take you through the whole journey that you'll go on.
We'll cover everything from how to figure out what you have, what you are planning, how to build the road map for getting into the future state, as well as all the different ways that will impact your business and enterprise along the way, whether you are talking technology infrastructure, architecture, applications, business processes, or even the change management of how it impact your people.
We go through that entire journey through this workshop. So you come out understanding what's you're getting yourself into and how it can really affect you as you go forward. But, that's not the only starting point. You can also jump into this modernization journey at any point in the space.
Maybe, for example, you've already figured out that you needed to do this, maybe you've tried some things on your own in the past, but really need to get external help. We have assessment activities that allow us to jump in at any point along this journey.
Whether it's to help you see where there are code vulnerabilities within your existing applications that visually show you what those things look like and where opportunities are for modernization, or whether it's to do a full assessment of your environment and figure out how your apps and your infrastructure are working for your business or, in most cases not working for your business, it allows you to jump in at any stage throughout that whole journey.
As Doug mentioned, HP can help you figure out the right place for beginning that journey. We have hundreds of modernization experts globally who can help you figure out where to start.
Gardner: Do we have any other closing thoughts on the process of getting started?
Acklin: Let me just mention one other item. We talked about this cost of doing nothing. Don't let any fears or doubts about this journey stop you from beginning the journey. There are many things that can get you in trouble with that cost of doing nothing. That time is coming for you, when you're not going to be able to make those changes. So, don't let those fears stop you from going on that journey.
An example of this is financial. Many of our clients we talk to, don’t know how they would pay for a journey like this. Actually, you have a lot of options right in front of you that you can take advantage of. Our modernization consultants can give you some good methods on how to cover this, how to put things together like these three phase activities, or how to go on these journeys that can still work for you even in tough financial times.
Gardner: Great. We've been talking about improving overall data-center productivity by leveraging available sourcing options as well moving to modernized applications and infrastructure. I want to thank our guest for today's panel. We've been here with Shawna Rudd, Product Marketing Manager for Data Center Services at HP. Thank you, Shawna.
Rudd: Thank you.
Gardner: And Larry Acklin, Product Marketing Manager for Application Modernization Services at HP. Thank you, Larry.
Acklin: Thank you.
Gardner: And Doug Oathout, Vice President of Converged Infrastructure at HP Enterprise Services. Thanks, Doug.
Oathout: Thank you, Dana.
Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. You've been listening to a sponsored BriefingsDirect podcast. Thanks for listening, and come back next time.
Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: HP.
Transcript of a sponsored BriefingsDirect podcast on making the journey to improved data-center operations via modernization and creative sourcing in tandem. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.
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