Tuesday, April 07, 2009

HCM SaaS Provider Workday's Advanced Architecture Brings New Business Agility Benefits to Enterprises

Transcript of BriefingsDirect podcast on how Workday's SaaS delivery model for human capital management applications provides better business intelligence and architectural advantages to end users.

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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 the virtues and paybacks from designing a strong IT architecture.

We'll examine how such architectural benefits promote business agility as a service while lowering total cost for both the deliverer -- and the receiver -- of pure application services. This perspective looks at IT architecture with a new twist, not just in terms of developing architectures on-premises, but ... for architectures that support the providers of services.

We'll take a look at how IT architectural best practices at a software-as-a-service (SaaS) provider help not only that provider's operations. We'll show how the users, the receivers, of those services can benefit in new ways as well.

By examining the experiences and approaches of Workday, a human capital management (HCM) SaaS provider, we can better understand the benefits of modern IT architecture and gaining new levels of business intelligence (BI), innovative search capabilities, and the ability to extend business processes out to mobile devices.

Here to help provide an in-depth look at how proper architecture allows the SaaS delivery model and business agility to come together, we're joined by Stan Swete, CTO of Workday. Welcome back to the show, Stan.

Stan Swete: Hi, Dana. How are you doing?

Gardner: I'm doing well. Workday has had an advantage in that you knew what your goals and objectives were when you started your architectural journey. You knew that you were going to go out as a service and you knew that there were some new modern technologies, approaches, and best practices to take advantage of.

That's a little different from a lot of enterprises that have, in many cases, had decades of IT to adjust and, in a sense, drag along with them. Let's first hear about the level set. When you started out from green field, what things went through your mind, and how was that refreshing, given that you were starting from scratch?

Swete: First, it definitely was refreshing to get the opportunity to start from scratch. I'm sure that if you talk to a lot of IT professionals, they'd all want that chance. At Workday, we had that chance and we started our company with a lot of background in what had gone before in terms of architectures to support enterprise resource planning (ERP).

We had that backlog of information, a list of what worked and what didn't work so well with previous client-server architectures. As you said, just like everyone else, we definitely had an appreciation for all the new developments in technology that make different approaches possible today.

Gardner: Today, enterprises are faced with a number of challenges. They're trying to adjust quickly for very dynamic business environments. They have to watch their costs. They'd like to modernize, but there's a significant time lag between how and when they can take advantage of these modern concepts and when they can't.

Do SaaS providers like yourself allow them to leapfrog by taking advantage of what you've been able to do and then bring those benefits into their business practice?

Complex environments

Swete: We absolutely think it does. You're right. In IT today, people are in a difficult spot. They have complex environments. The complexity has grown for a variety of reasons. Everyone sees the opportunity to modernize and to improve efficiencies, but how do you do that in the midst of a complex environment that is constraining just how aggressive you can be?

That's where SaaS can come in. If you've got a provider like Workday, or someone who's able to take a clean approach, there might be the opportunity to take the right portion of a certain set of your applications and, instead of having to deal with the complexity of managing all the multiple instances and different architectures you might have, use the unified SaaS service as a way to achieve some integration and a way to drive against cost. Today, it's all about cost.

A lot of the discussion around cost has driven IT to look at a variety of dimensions. Just the consolidation of some of the complexities and different instances of architectures that large companies all have is one area where they see opportunity, but they are bound by having to support where they have in place.

Gardner: What intrigues me, Stan, about what you're doing at Workday is that you have gone beyond the concept of just delivering an application or set of applications. You're positioning yourself as a partner for these businesses and how they can then relate to the outside world. You're extending the enterprise boundaries for them, and this notion of business agility as a service kicks in.

Explain for our audience what you mean by extending your value, not just as a provider of applications, but as an extension to enterprise architecture.

Swete: The space we're in is HCM, trying to be the core system that captures all the information about the workforce -- how it's organized, how it's compensated, and what work is actually done.

If you're trying to play that role at an enterprise, you can't be standalone and independent of the enterprise. You're going to have many, many ties into other things that the enterprise has going. You're going to have to be agile, in terms of how your solution can fit into different instances of different enterprises, because everyone has a slightly different picture and puzzle.

What that means to us is that there's a demand on the solutions to be agile, to be able to change shape and to be able to integrate to the variety of different scenarios you have. Otherwise, SaaS doesn't become a productive option for the IT professional to look at, if it's just one-size-fits-all and take-it-or-leave-it. They're going to have to make some trade offs that they can make.

So for us, if we can be viewed as just a solution that can meld itself to fit into whatever else it has got going on and to be an effective core that we can handle in the cloud for them. That's the best way for us to engage.

Gardner: You're also becoming sort of an adjunct and maybe even an accelerant to service-oriented architecture (SOA). If organizations have begun their journey toward SOA, you can provide a catalyst to that as a go-between, a services exchange, if you will, with a number of other providers.

Maybe it's payroll, maybe it's healthcare and insurance benefits, perhaps it's reaching out to partner with other organizations and the labor resources that they have. Do you see it that way -- that this is, in a sense, SOA but as a service?

Embracing Web services

Swete: Absolutely. You mentioned before about us having the ability to look at new and emerging technologies and approaches to architecture. Certainly, we've got the religion of SOA and firmly believe that the right way for us to tie into other systems in the cloud and other systems on-premise of our customers is via SOA and an embrace of Web services.

We embrace that and we think to some extent that it can accelerate SOA adoption within enterprises. Enterprises we talk to all see the technology the same way we do. They all see the appeal of newer SOA architectures, but I go back to the fact that they have the same issue. They have the whole other set of architectures that they've got to be concerned about maintaining.

So, if they can see a segment of their application stack -- in our case, the governance and control of the global workforce -- that absolutely can be an SOA project that we can jointly embrace and can get them down the road toward this new architectural style.

Gardner: For those of our listeners who might not be familiar, Workday is relatively young. You are only few years old. You're based in Pleasanton, CA. You’re focused on HCM, but why don't you fill that out a little bit. Then, let's also talk about the philosophy that you embraced when you started building out your services. Finally, we'll try to take a look under the hood. So, first, a little bit about Workday and then what you have got supporting your architectures?

Swete: I'm happy to introduce the company a little bit. Workday is about a four-year-old startup, as you said, based in Pleasanton. The company was founded by Dave Duffield, former founder of PeopleSoft, and co-founded by Aneel Bhusri. Basically, the company got together four years ago and began development of its products. We launched publicly in November of 2006 and then we had our first version of our HCM business services and two production customers.

Since then, we've grown the customer base up to north of 75 customers, with more than half of them in production. The idea behind Workday, in addition to being a SaaS company and in addition to focusing on HCM, was to focus on enterprises in a space that we define as the upper mid-market and we started with a focus on companies with between 1,000 and 5,000 employees.

In the past two years, we've had great success in selling not only to that target market, but we've been able to move up market and attract larger customers. Today, the average customer we're engaging is probably closer to 10,000 employees than 1,000. So, we'd say that we service companies in a range between 1,000 employees and 20,000-30,000 employees.

We've even attracted larger customers. Flextronics is the example of our largest customer. There are over 200,000 employees, and have selected Workday as a way to consolidate a number of HR instances that they have around the world.

Gardner: Given the fact that you needed to be modern, you needed to be flexible, but you also needed to scale, what were some of your requirements, and what did you end up with in general terms to make this possible?

Success at a high cost

Swete: Let me back up a little bit and just say the other bit of information to toss in about what was motivating us to start the company was just taking a look at the enterprise solution space and starting to identify some of the complexities of owning and implementing these applications.

It's our belief that enterprise applications have driven a lot of success and a lot of value in enterprises, but that success and value has come at a very, very high cost. Essentially the systems come down to being very hard to use, hard to change, and hard to integrate. Those were three thoughts in our heads as we started Workday. We wanted to go after the same space, which is a complex space. There are complex processing requirements and hence, the need to have a solution that’s going to scale.

So, it was taken as a given that we were going to have feature-rich applications that needed to scale to support large work forces, but we wanted to achieve that, while also attacking the issues of being hard to use, hard to change, and hard to integrate.

That's what led us to evaluate the new technologies in terms of how could we take an approach that would allow us to progress against those issues, while still being able to satisfy the enterprise-class functionality that you have to have to play in this game.

Gardner: And what did you decide on?

Swete: The approach we ended up taking, as we took it to the next level down, was that we started to investigate where some of these complexities and difficulties of use came from. As we evaluated the prevalent architecture enterprise systems, that of client-server, there were a couple of dimensions that we looked at.

From the point of view of being hard to use, the user experience for those applications typically was, first of all, designed for a highly trained back-office user and was deployed as a menu-driven application with tons of fields on each particular screen. Then, that user experience was migrated to the Web. So, these were not native Web applications. They're applications that found their way into the browser, but retained their old complexity and difficulty of use.

From the beginning at Workday, we knew we wanted another approach. Rich Internet application (RIA) experiences were emerging and supported by new technologies. We committed ourselves to being an application that was built first and foremost for the browser and one that was also built to consider the needs of not just the back-office, but the rest of the workforce. So, we started to look at technologies like Adobe Flex to give us an ability to be in the browser but to still deliver some of the rich experience that customers expect.

On the side of being hard to integrate, we took a look at the client-server architectures. The way these applications were written was to think about regulatory information that was required. Design a data model to meet that regulatory information and then build the transactions to feed the data model. That gave you a monolithic application that could generate the reporting you needed to satisfy your regulatory reporting, HCM, and financial management.

The integration of other systems to feed data into those systems or to get data out of those systems was left as an afterthought. Integration was not thought about upfront. Integration was not thought about in terms of the new Internet standards we have in the form of Web services, or the new architectural forms and approaches we have in SOA.

From the beginning, we thought about a system that would be able to deal natively with producing Web services to get data out of and back into the application and would treat the conversation with other systems as a first-class conversation, just like the conversation with individual users.

Turning to the ESB

We began an investigation of tools that could help us do that and really looked into the SOA space. We thought that what future state enterprise business applications needed was to embed some of the technologies you find in enterprise service bus (ESB) technologies. So, we've gone ahead and done that.

We do have some of the transformational and delivery options in multiple formats available to us in our data-center, so that the Workday applications can generate Web services. Beyond that, we can transform those Web services into other data formats that might be more meaningful to legacy applications or the other applications we need to tie to. We did a lot of work in that area and came up with the need to embrace Web services and embed in an ESB in our case.

Gardner: You also created what you call an "object management server." Why don't you explain what that is and why that makes sense?

Swete: That comes from the third area of these applications as being hard to change or just the general theme of this discussion today, which is this whole issue of agility. How do you make complex applications configurable, not only when you're initially implementing them but postproduction.

As you move forward, it's not like your business stops changing after you initially implement the enterprise application. Your business is constantly changing, and client-server based applications have shown a real inability to keep up with changing at the pace of anyone's business changes. They've shown a real high cost to be able to change to incorporate new functionality postproduction.

In working on that problem, we took a look at client-server architectures. It's our view that there's a lot of the rigidity in these architectures, and rigidity is what leads to a lack of agility. We think the rigidity in these architectures comes from the fact that you've got a complex logic layer.

Typically, it's multiple languages, but you have an executable that's built out of a lot of lines of program code. Millions of lines of code, in most cases, are backing the logic layer of enterprise systems. That layer has a complex conversation with the relational database, which also has its own complex structure -- typically thousands of relational tables to model all of the data.

Bringing change to that environment is difficult, because changes to the logic layer have to be synched up with corresponding changes to the data layer, and both layers are constantly changing. We decided to take an entirely new approach in this area and embrace an approach that leveraged the concept of encapsulating data with some of the logic into an object.

At Workday, the primary logic server is what we call our Object Management Server. It's a transaction processing system, but it's entirely based on an object graph, and that is just a class structure that represents not only the application and its data, but also the methods that process on that data.

The important difference is that we have that layer and we don't have a correspondingly complex and changing data layer. We have a persistent data store that is a simplified version of a relational database that can persist changes that happen from the object layer. But, as we're developing our applications and changing our applications, we don't need to constantly change the shape and form of the persistence layer. It's an unchanging relational schema that can persist, even as we make changes up in the object layer.

This frees us up to, one, develop our applications more rapidly, but two, to change those applications, even for our customers in production, without having to take the system down and make structural changes to the underlying database.

So, our two new approaches really reduce the coding you do up in the object layer. We try to define the application more as metadata and reduce the complexity of the relational model that you have.

Leveraging modern architectures

Gardner: So, we’ve recognized some of the handicaps of some of the older approaches, recognized the new set of requirements for the modern day, understood that SOA principles can be applied here quite advantageously, and recognized that rich Internet application interfaces are the way to go when the browser is the ultimate client target. Without getting into too much more detail, we've certainly established some improvement in modernization around the architecture. Let's get into a little bit of what that does for you.

We talked in general terms about agility, but there are some interesting add-ons here -- things that you couldn’t have gotten otherwise in terms of benefits. We're not just re-paving cow paths in terms of delivering applications and services. We're actually now able to do interesting things around BI, around scale and customization, and around different services federated to different users, but with more commonality under the hood. That brings more total cost reduction for the end user.

Let's get into what these modern architectures do not only for you in terms of cutting your costs, but advantageously creating new business benefits for your customers.

Swete: When you combine the architecture we talked about with the SaaS delivery model, you get some of these benefit categories. We get benefits in all the categories that you just mentioned, and you're absolutely right. Our view is that it's equal opportunity. There are definitely benefits for the customers that we're serving and, frankly, we think that in the approach there are tons of benefits for us, as a vendor, to take cost out of what we're doing and pass those savings on to our customers.

You named a lot of categories, so let me let me start with one area, which is the benefits we get out of doing more about integration. With an architecture that really facilitates integration and especially, if you combine that architecture with a cloud-based approach or delivery of SaaS, you get what we at Workday call "hosted integration" or "integration on demand."

We use our embedded ESB to do exactly what you just said. We take the ESB and package up integration so that it can be reused across a wide set of customers. The best example of packaged integration within what we call the "Workday Integration Network" is our benefits carrier network.

Here's a solution where Workday has used Web services to tie our HCM solution to a variety of benefits carriers and we offer customers the ability to sign up for this network. They would pay us for the use of the network just as they would pay us for any of other business service that we deliver. What we're able to do is offload the need for them to convey their benefits data out to the carrier and to get information back from the carrier into their human resource system.

This has been a very popular option for most of our customers, because most of our customers are large enough to have multiple carriers. All of the carriers inconveniently have multiple data formats, and the formats are always changing, and the mapping and testing of data access of those formats is always a cost. So, we're able to lift that off of them and just give them a service, which is a tie of all of the carriers they select into the Workday benefit system.

Gardner: Stan, one of the interesting things about cloud and this whole notion of centralizing allows for different things to be done with data. Now, the data is often in little nooks and crannies, in different formats and inside of different architectures. But, as we centralize the architecture, we're also getting more access to different types of data. In doing so, we can do joins, overlays, and comparisons in ways that hadn't been done before at a scale that hadn't been possible, at least at an acceptable price.

Let's get into this notion of BI. What can your architecture bring to the table, and what can your clients start to do in terms of gaining insights into what's going on inside their companies, but just as importantly, in conjunction with their business processes and extended business processes.

Built-in business intelligence

Swete: That's a big question. Built-in BI, as we call it, is absolutely an advantage of our offering. That is what we're offering today and the future that's possible. I can go through maybe a couple of levels on this, because as the customers that we've attracted look at the Workday solutions, they see unusually rich access to data as the first basic offering.

Having an object model that allows us to link more data attributes together than a classical relational database to establish relationship is a lot lighter weight than having to build the foreign key into another table. We're able to cross-link a lot of information that we're tracking inside the object model that we have, and so we're able to offer unusually rich reporting to the customers.

One example is that, just like many HR systems, we can give a straightforward headcount report, but with the Workday system, the headcount report isn't just a flat report in the system. We offer you the ability to give the headcount by organization to link to other information about each organizational entity, get its details if you want to, or see other reports related to that organization, probably more of the point for BI for the actual summary headcount that's in that particular organization, without the need of a third-party tool.

Workday is going to offer you the ability to drill down on that aggregate number, and take a look at the number in terms of all the dimensions that go into it. An HR professional could look at the headcount for an organization and analyze it in terms of gender by business site, for example, or job code by business site. Our transactional application is facilitating multi-dimensional analysis without the need to have to take the data, off load it into an OLAP cube, and then, by a third-party tool, query that cube.

The barrier that we have broken is -- again, going back to client-server systems -- you had these data models that were defined to provide one kind of reporting. Typically, it was regulatory financial reporting or the regulatory HR reports that you have to provide.

Workday provides all of those, but it crosses over into information that could be more interesting to the people who are not just back-office HR professionals, but maybe managers who wanted to get information about their workforce. That is all built into the application, and that's the level of increased BI we're delivering today.

As we look forward into other things we could do, you mentioned reaching across different elements of information. We do a bit of this today in terms of the automated business processing that we offer. We have built-in workflow in Workday and we have a system that is able to track all of the performance of the automated business processes we deliver.

Our BI today can reach across and look into their performance information and give the manager information, such as the average time it took you to do a hire, which department had the longest time to do it, and which department had the shortest time to do it. We'll continue to improve this kind of analytical information over your business performance. We see this as a very valuable area going forward and we'll get richer analytics supported in that space. That's an area that we're verging into.

The third opportunity, which you’ve also alluded to, is the benefits carrier network. There's an ability to drive intelligence across the population of users who are engaging in this network. For example, statistical information about the most widely used carriers might be interesting for any company in the network, whether they have those carriers or not. Usage information about the relative number of people using a carrier inside the company would obviously be interesting.

There is just a large world of opportunity to expand into, but the important thing is that we think as a transaction processing systems, which is what these systems are classically looked at as, we're growing out of that to also provide BI without the need to buy third-party tools to do it.

Social networking

Gardner: We're talking about people here -- workers, productivity, habits. People don't just live in the workplace, they have lives as well, and we have this phenomenon now that's going on around social networking and the ability for people to connect in new and different ways. It seems to me that this offers the potential for yet another large data source to perhaps be compared, contrasted, brought-in, and in some ways leveraged, vis-à-vis what's going on in the HCM apparatus inside the organization.

Swete: You're absolutely right. That actually even widens beyond social networking to the proliferation of productivity tools that get called broadly Web 2.0. For me, what that means is that to be an enterprise application that's relevant in a world where those applications are gaining increased usage, you not only have to have the great system-to-system integration that I talked about before, but you have to be an application that, with good security, is mashup-able, if I can use that non-word.

That's the second dimension of integration that you really can deliver on, if you’re an application that’s built for the Internet, just like the Web 2.0 applications, and certainly Workday is that. The application appears to our users as a Website, and the data in the application is accessible via the Web services I talked before, but you don't always have to construct or communicate in a heavy-duty Web service.

Workday has the ability to have RSS feeds of our data, the ability to instantly tie to emailing systems, the ability to link out to make calls to a phone numbers in Workday. The most popular mashup is always mapping locations of, let’s say, business sites. Workday is wide-open to that type of integration, and we expect that to explode, as the use of our applications reaches out into the workforce.

Gardner: I certainly expect that the ability to integrate to the social tier is becoming all the more important, and can be extremely valuable. I don't think people have plumbed the depths of what productivity benefits are inherent in that.

Swete: People are thinking about that a lot, and there is huge opportunity for a certain class of social network apps to bond with enterprise apps and deliver real value. A great example of that is LinkedIn as an application that really can facilitate a new way to do recruiting, for example. They certainly see that as an opportunity, and it's incumbent upon modern enterprise applications to be able to tie into services such as that, so you can get that kind of benefit.

Gardner: Another important tier to integrate to, or to reach, is the mobile tier. You guys have apparently put some thought into that. Tell us what a SaaS provider like yourself can bring to the table for an enterprise that would love to be able to get more data, more applications, and more business processes extended out to mobile devices across these mobile network.

Widening access

Swete: That's extremely important for us. I think I said this earlier. With our applications, in order to overcome the application being hard to use, you want to work on your native user experience, but you also want to consider that the wider user population is just not always going to use your native user interface (UI). You're going to have people who want to use your application without getting into the pages that your application actually renders. Mobile is a great example of that. We absolutely see widening out access to Workday on the mobile devices.

We're just taking our first step in that direction right now, and this is improving the benefits of the modern architecture. We've been very quickly able to extend the business-process framework that we have. This is the framework that delivers the automated workflow that I spoke about before. We've been able to extend that out so that approvals that are done within that framework can now be completely processed on a mobile device.

We’ve picked the iPhone as the first starting point and we'll be expanding out to other devices. The benefit here is that you get access to the Workday solution without having to be at the mercy of a browser on a tiny device running the rich UI that Workday generates.

We're able to mark-up a subset of our data and have that appear in a native client on the iPhone that you can get on the App Store, just like you get any other iPhone application. Then, with security, you're just utilizing a native app, which is acting on Workday data. We use that for manager approvals, the management of to-do lists, and for enterprise search of the workforce. That's been a successful example of leveraging this modern architecture. We didn't have to go in and rewrite our applications.

Our applications developers merely extended the existing application to say, "for small profile devices here's the data that's relevant to show" and they stopped there. We're able to use the separate UI layer and extend that UI layer to generate a completely different view of what the approval would look like for the mobile device. Then, process that just as if it were a transaction coming in from our own native user experience.

Gardner: I can see where a line-of-business manager could really benefit from this. They've got some ideas about what they want to do with their business. They, of course, have to bring the employees on line. There are going to be approvals, there's going to be a necessity for dealing with the HR department on that.

If they could find a way of entering into that process or workflow around approvals through the mobile device, through these interfaces, do it quickly, and get it automated, I think that might be a very interesting opportunity.

Critical opportunity

Swete: More than interesting. It's critical. If you look at a lot of the managers I know, it's just binary. It's the difference between the using the system and not using the system. Even though we have a very accessible and very user-friendly user experience, we're talking about busy people who use what they use.

They use their portals of information to get access to information on the Web and they use their intelligent cellphones now to get access to information and even to update information.

If we can provide this functionality on the devices that they use, then they will use this. If we can't, then they will get someone else to enter their information into the system, and that's not the way we want it. So, absolutely, it's tying in another theme of Workday as wider access to our applications. We think it's absolutely essential to increase the value that you get from your enterprise applications.

Gardner: One of my favorite sayings is that convenience is the killer application and I think that's what you bring in here, right?

Swete: Absolutely. Mobile is a good place to start with that, but we won't stop there. There is a lot of information that is currently presented well within Workday, but it could be presented just as well within a gadget and someone else's portal. We'll be looking for that opportunity as well. It's a way to put information in front of the people who need to see it without having to draw them into your user experience.

Gardner: Let's move into some examples, perhaps some anecdotes, about how this is being used in the real world and then we'll also look into the crystal ball and see what you might have in mind for the future. Do you have any case studies or anecdotes of how any of your customers have actually put into use, or are getting returns and paybacks from, some of the benefits that we have talked about that have their underpinnings in the architecture?

Swete: I have a couple of examples I think might help. I can go from general to specific. The one general example that I always like to quote is a real payoff and testament to the new architectural approach and combination of the new architectural approach and the use of SaaS in terms of delivering the business services. All Workday customers are always on the current version, and this is very, very different for the world of business enterprise application.

Workday delivers new updates three times a year, and our growing customer population whether they are in implementation or in production, comes up on each of those updates within the six weeks following the initial release of the update.

We did four updates last year. We will do three this year. Just this past month, we have been bringing our user population up to Update 7. If we have had this call two months ago, the only update that anyone would have known about in the customer population was Update 6. Sitting here today, Update 6 is a complete memory, and the only update that anyone knows about, whether they are just implementing on Workday or whether they've been in production for three years, is Update 7. That just brings a whole new opportunity to the customer conversation.

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When we're talking to customers, we're all looking at the same code line and the same set of functionalities. We don't have to think about what version, what tech stack are you on, what version of your database are you on, or what version of Workday are you on? When they are asking a question about a new feature they want, we're all looking at the same feature set. It really helps to facilitate the conversation about what new features might be appropriate for the coming update, to say nothing of what it does for the cost profile of supporting these guys.

We have our stack, and that's it. They all run on it and we're able to keep them current on it. That's the benefit from the vendor side. From the customer side, the benefit they get is new functionality delivered to them, and all the manual work and data conversion work that is still necessary is done by Workday and not by them. They can focus on how they want to implement this new functionality on what timetable.

That's data point number 1 for some of the payback to the new architecture. A lot of us who came from the enterprise space are really impressed and pleasantly surprised at how rapidly we can move production customers and implementing customers forward.

The psychological effect

Gardner: I suppose there's a psychological effect there as well on the receiving end of these services. All of a sudden, you're getting more and better, but you didn't have to pay more and you didn't have to go through the pain of implementation and debugging. In adopting new things in the past there was an actual penalty for adoption, whereas the SaaS model gives you all rewards. It's like "hit me again," right?

Swete: It's absolutely that. As a customer, you avoid the high cost of having to set up QA environments and duplicate environments on-premise, having to deal with data conversions, or having to deal with installation instructions for the software that you've got on your premise. That's all handled by the vendor.

The other thing that's not widely talked about that's also valuable, though, is this notion of chunking up how new features come. We're on a regular clock here. So, three times a year, you're going to get a set of new functionality from your vendor and you are going to get converted to it.

In the on-premise world, where the delivery is deferred, what's building up is just a larger set of functionality that's going to have to get consumed some time at very high cost. Part of the way we look at this is that the incremental approach is just much more cost effective for our customers and for us. We know that, because even in our brief history here, we've had an on-going conversation with our customers about how long we want the update periods to be.

Our first update period was seven months and we delivered a ton of functionality. It was harder for them to consume and harder for us to support the upgrade to it. Now, we’re on a really good balance, where we can have meaningful functionality, but come out in a way that can be readily consumed. I don't think -- well, I don't think, I know the on-premise world just does not work that way.

Gardner: Okay, a quick look to the future before we wrap up, Stan. What are some of the implications from what we've been discussing, perhaps in terms of BI, perhaps in terms of extended business processes, or more of this integration agility?

Swete: Let's focus on the last two. We talked about a lot of the value of leveraging new technology to deliver enterprise applications in a new way and then combining that with doing it from the cloud. That combination is going to profoundly change things going forward.

Today, it's a new option for enterprises to look at in terms of offloading some of the applications that they're trying to support in their existing environment. It's a vehicle for consolidating some of the complexity that you have into a single instance that can be managed globally if you have architected globally, as Workday has done.

As I see that playing out going forward, you'll see more vendors taking this approach and you'll see those vendors partnering. If you think about the combination of modern architectures and cloud-based modern architectures, what will happen when two vendors that have taken that similar approach start to partner in terms of integrated business processing is that the bar will get raised significantly for how tight that integration can become, how well supported it can be, and how it can functionally grow itself forward, without causing high cost and complexity to the consuming enterprise that's using both sides.

As I look in the future, I think enterprises will see an ecosystem of their major application providers be cloud-based and be more cohesive than a like group of on-premise vendors. Instead of having a collection of different architectures and different vendors all in their data center, what they will see is an integrated service from the set of providers that are integrating with Web services in the cloud.

Gardner: So, when the cloud model becomes the common denominator, it allows for a lot more, I don't know, co-existence collaboration but I suppose really just integrated processes.

Swete: It allows for a lot more integrated processes. The key thing with enterprise functionality is you're never done. The requirements are always changing, because business is always changing. What it allows for us is not only cloud-based integration, but the ability to change that integration without placing additional cost on your customer.

That's what's the key is, that you will be able to deliver enhancements to the integration between vendors without getting caught up in how that integration might have been deployed at customer A, versus customer B, versus C. That will allow the same kind of agility we've been talking about. That will allow integrated solutions, the cross-vendor integrated solutions, to keep pace with the change of business, which is absolutely not the case today.

Gardner: I want to thank the sponsor of this discussion, Workday, for underwriting its production and a special thanks to our guest, Stan Swete, CTO of Workday. I really appreciate your inputs, Stan.

Swete: Dana, thanks a lot.

Gardner: We've been learning about how IT architecture is destiny and how a SaaS provider's operations can mean more to its customers and simply lower costs and baseline delivery of services as a Web application. We have seen a multiplier effect, if you will, in terms of how new and additional productivity and agility benefits are gained from a modern architecture regardless of its location and ownership.

This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening and come back next time.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Learn more. Sponsor: Workday.

Special offer: Download a new white paper on Workday's latest update to System 7.

Transcript of BriefingsDirect podcast on how Workday's SaaS delivery model for human capital management applications provides better business intelligence and architectural advantages to end users. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

Sunday, March 29, 2009

HP Advises Strategic View of Virtualization So Enterprises Can Dramatically Cut Costs, Gain Efficiency and Usher in Cloud Benefits

Transcript of a BriefingsDirect podcast on virtualization strategies and best practices with Bob Meyer, HP's worldwide virtualization lead.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Learn more. Sponsor: Hewlett-Packard.

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 the business case and economic rationale for virtualization implementation and best practices.

****Access More HP Resources on Virtualization****

Virtualization has become more attractive to enterprises as they seek to better manage their resources, cut total costs, reduce energy consumption, and improve the agility of their data centers and IT operations. But, virtualization is more than just installing hypervisors. The effects and impacts of virtualization cut across many aspects of IT operations, and the complexity of managing virtualization IT runtime environments can easily slip out of control.

In this podcast, we're going to examine how virtualization can be applied as a larger process and a managed IT undertaking with sufficient tools for governance that allow for rapid, but reasoned, virtualization adoption. We'll show how the proper level of planning and management can more directly assure a substantive economic return on the investments enterprises are making through virtualization.

The goal is to do virtualization right and to be able to scale the use of virtualization in terms of numbers of instances. We also want to extend virtualization from hardware to infrastructure, data, and application support, all with security, control, visibility, and lower risk, and while also helping to make the financial rationale ironclad.

To help provide an in-depth look at how virtualization best practices make for the best economic outcome we're joined by Bob Meyer, the worldwide virtualization lead in Hewlett-Packard’s (HP) Technology Solutions Group (TSG). Welcome to the show, Bob.

Bob Meyer: Thank you very much, Dana.

Gardner: Virtualization is really becoming quite prominent, and we're even seeing instances now where the tough economic climate is accelerating the use and adoption of virtualization. This, of course, presents a number of challenges.

First, could you provide some insight, from HP’s perspective, of how you see virtualization being used in the market now, and how that perhaps has shifted over the past six months or so?

Meyer: When we talk about virtualization -- obviously it’s been around for quite a long time -- it's typically the virtualization of Windows Servers where people start to think about it. For a couple of years now, that’s been the hot value proposition within IT.

The allure there is that when you consider the percentage of budget spent on data center facilities, hardware, and IT operations management, virtualization can have a profound effect on all of these areas.

Moving off the fence

For the last couple of years, people have realized the value in terms of how it can help consolidate servers or how it can help do such things as backup and recovery faster. But, now with the economy taking a turn for the worse, anyone who was on the fence, who wasn’t sure, who didn’t have a lot of experience with it, is now rushing headlong into virtualization. They realize that it touches so many areas of their budget, it just seems to be a logical thing to do in order for them to survive these economic times and come out a leaner, more efficient IT organization.

The change that we see is that previously virtualization was for very targeted use and now it’s gone to virtualization everywhere, for everything -- "How much can I put in and how fast can I put it in."

Gardner: When you move from a tactical orientation to exploit virtualization at this more strategic level, that requires different planning and different methodologies. Tell us what that sort of shift should mean.

Meyer: To be clear, we're not just talking about virtualization of servers. We're talking about virtualizing your infrastructure -- servers, storage, network, and even clients on the desktop. People talk about going headlong into virtualization. It has the potential to change everything within IT and the way IT provides services.

The potential is that you can move your infrastructure around much faster. You can provision a new server in minutes, as opposed to a few days. You can move a virtual machine (VM) from one server to another much faster than you could before.

When you move that into a production environment, if you're talking about it from a services context, a server usually has storage attached to it. It has an IP address, and just because you can move the server around faster doesn’t mean that the IP address gets provisioned any faster or the storage gets attached any faster.

So, when you start moving headlong into virtualization in a production environment, you have to realize that now these are part of services. The business can be affected negatively, if the virtualized infrastructure is managed incompletely or managed outside the norms that you have set up for best practices.

Gardner: I guess it also makes sense that the traditional IT systems-management approaches also need to adjust. If you had standalone stacks, each application with its own underlying platform, physical server, and directly attached data and little bits of middleware for integration, you had a certain setup for managing that. What’s different about managing the virtualized environments, as you are describing them?

Meyer: There are a couple of challenges. First of all, one of the blessings of virtualization is its speed. That’s also a curse in this case, because in traditional IT environments, you set up things like a change advisory board and, if you did a change to a server, if you moved it, if you had to move to a new network segment, or if you had to change storage, you would put it through a change advisory board. There were procedures and processes that people followed and received approvals.

In virtualization, because it’s so easy to move things around and it can be done so quickly, the tendency is for people to say, "Okay, I'm going to ignore that best practice, that governance, and I am going to just do what I do best, which is move the server around quickly and move the storage around." That’s starting to cause all sorts of IT issues.

The other issue is not just the mobility of the infrastructure, but also the visibility of that infrastructure. A lot of the tools that many people have in place today can manage either physical or virtual environments, but not both. What you're heading for when that’s the case is setting up dual management structures. That’s never good for IT. You're just heading for service outages and disruptions when you go in that direction.

Gardner: It sounds like some safeguards are required for managing and allowing automation to do what it does well, but without it spinning out of control and people firing off instances of applications and getting into some significant waste or under-utilization, when in fact that’s what you are trying to avoid.

Shifting the cost

Meyer: Certainly. A lot of what we're seeing is the initial gains of virtualization. People came in and they saw these initial gains in server consolidation. They went from, let’s say, 12 physical boxes down to one physical box with 12 virtual servers. The initial gains get wiped out after a while, and people push the cost from hardware to management, because it becomes harder to manage these dual infrastructures.

Typically, big IT projects get a lot of the visibility. The initial virtualization projects probably get handled with improper procedures. As you come back to day-to-day operations of the virtualized environment, that’s where you start to lose the headway that you gained originally.

That might be from non-optimized infrastructure that is not made to move as fast or to be instrumented as fast as virtualization allows it to be. It could be from management tools that don’t support virtual and physical environments, as we mentioned before. It can even be governance. It can be the will of the IT organization to make sure that they adopt standards that they have in place in this new world of moving and changing environments.

Gardner: For a lot of organizations, with many IT aspects or approaches these days, security and compliance need to be brought into the picture. What does this flexible virtualization capability mean, if you're in a business that has strict compliance and security oversights?

Meyer: Again, it produces its own set of challenges for the reasons similar to what we talked about before. Compliance has many different facets. If you have a service infrastructure that’s in compliance today in a physical environment, it might take days to move that around, and to change the components. People are likely to have much more visibility. That window of change tends to take a lot longer.

With virtualization, because of the speed, the mobility, and the ease of moving things around, things can come out of compliance faster. They could be out of regulatory compliance. They could be out of license compliance, because it’s much easier to spin up new instances of virtual machines and much harder to track them.

So, the same blessing of speed and mobility and ease of instrumentation can take a hit on the compliance and security side as well. It’s harder to keep up with patches. A lot of people do virtual machines through images. They'll create a virtual machine image, and once that image is created, that becomes a static image. You deploy it on one VM and then another and then another. Over time, patches come out, and those patches might not be deployed to that particular image. People are starting to see problems there as well.

Gardner: Just to throw another log on the fire of why this is a complex undertaking, we're probably going to be dealing with hybrid environments, where we have multiple technologies, and multiple types of hypervisors. As you pointed out, the use of virtualization is creeping up beyond servers, through infrastructure storage, and so forth. What’s the hurdle, when it comes to having these mixed and hybrid environments?

Mixed environments are the future

Meyer: That’s a reality that we are going to be dealing with from here on out. Everybody will have a mix of virtual and physical environments. That’s not a technology fad. That’s just a fact. There will be services -- cloud computing, for example -- that will extend that model.

The reality is that the world we live in is both physical and virtual, when it comes to that infrastructure. To have to start looking at it from that perspective, you have to start asking, "Do I have the right solutions in place from an infrastructure perspective, from a management perspective, and from a process perspective to accommodate both environments?"

The danger is having parallel management structures within IT. It does no one any good. If you look at it as a means to an end, which virtualization is, the end of all this is more agile and cost-effective services and more agile and cost-effective use of infrastructure.

Just putting a hypervisor on a machine doesn’t necessarily get you virtualization returns. It allows you to virtualize, but it has to be put on the construct of what you're trying to do. You're trying to provide IT-enabled services for the business at better economies of scale, better agility, and low risk, and that’s the construct that we have to look at.

Gardner: So, if we have a strategic requirement set to prevent some of these blind alleys and pitfalls, then we need to have a strategic process and management overview. This is something that cuts across hardware, software, management, professional conduct and culture, and organization. How do you get started? How do you get to the right level of doing this with that sort of completeness in mind?

Meyer: That’s the problem in a nutshell right there. The way virtualization tends to come in is unique, because it's a revolutionary technology that has the potential to change everything. But, because of the way it comes in, people tend to look at it from a bottom-up perspective. They tend to look at it from, "I have this hypervisor. This hypervisor enables me to do virtual machines. I will manage the hypervisor and the virtual machines, differently than other technologies."

Service-oriented architecture (SOA) and Web services aren't able to creep into an IT environment. They have to come from a top-down perspective. At least somebody has to mandate that they would implement this architecture. So, there's more of a strategy involved.

When we look back at virtualization, the technology is no different than other technologies in the sense that it has to be managed from a strategic perspective. You have to take that top-down look and say, "What does this do for me and for the business?"

At HP, this is where organizations come to us and say, "We have virtualization in our test and development environment, and we are looking to move it into production. What’s the best way to do that?" We come in and assess what they are looking to do, help them roll that up into what’s the bigger picture, what are they trying to get out of this today, and what do they want to get out of this a year from now.

We map out what technologies are in place, how to mix that, how to take the hypervisor environment and make that part of the overall operational management structure, before they move that into the operational environment.

If somebody's already using it and has a number of applications or services they're ready to virtualize, they're already experiencing some of the pain. So, that’s a little bit more prescriptive. Somebody will come in and say, "I'm experiencing this. I'm seeing my management cost rise." Or, "When a service goes down, it’s harder for me to pinpoint where it is, because my infrastructure is more complex."

This is where typically we'll have a spot engagement that then leads to a broader conversation to say, "Let’s fix your pain today, but let’s look at it in the broader context of a service." We have a set of services to do that.

There's a third alternative as well. Sometimes people come to us. They realize the value of virtualization, but they also realize that they don’t have the expertise in house or they don’t have the time to develop that longer-term strategy for themselves. They can also come to HP for outsourcing that virtual and physical environment.

Gardner: It sounds as if the strategic approach to virtualization is similar to what we've encountered in the past, when we've adopted new technologies. We have had to take the same approach of let’s not go just bottom up. Let’s look strategically. Can you offer some examples of how this compares to earlier IT initiatives and how taking that solution approach turned out to be the best cost-benefit approach?

Potential to change everything

Meyer: As an example from an earlier technology perhaps, I always look at client-server computing. When that came out, it had the potential to change everything. If you look at computing today, client-server really did change the way that applications and services were provided.

If you look at the nature of that technology, it required rewriting code and complete architectures. The nature of the technology lent itself to have that strategic view. It was deployed and, over time, a lot of the applications that people were using went to client-server and tier architecture. But, that was because the technology lent itself to that.

Virtualization, in that sense, is not very different. It is a game changer from a top-down perspective. The value you get when you take that top-down perspective is that you have the time to understand that, for example, "I have a set of management tools in place that allow me to monitor my servers, my storage, my network from a service perspective, and they will let me know whether my end users are getting the transaction rates they need on their Web services."

Gardner: Let me just explore that a little bit more. Back when client-server arrived, it wasn’t simply a matter of installing the application on the server and then installing the client on the PCs. Suddenly, there were impacts on the network. Then, there were impacts on the size of the server and capabilities in maintaining simultaneous connections, which required a different approach to the platform.

Then, of course, there was a need for extending this out to branch offices and for wider area networks to be involved. That had a whole other set of issues about performance across the wide area network, the speed of the network, and so on -- a ripple effect. Is that what we're seeing as well with virtualization?

Meyer: We do, absolutely. With the bottom-up approach, people look at it from a hypervisor and a server perspective. But, it really does touch everything that you do, and that everything is not just from a hardware perspective. It not only touches the server itself or the links between the server, the storage, and the network, but it also touches the management infrastructure and the client infrastructure.

So, even though it’s easier to deploy and it can seep in, it touches just about everything. That’s why we keep coming back to this notion of saying that you need to take a strategic look at it, because the more you deploy, the more it will have that ripple effect, as you call it, on all the other systems within IT, and not just a server and hypervisor.

Gardner: Tell us about HP’s history with virtualization. How long has HP been involved with it, and what’s its place and role in the market right now?

Meyer: HP has been doing virtualization for a long time. When most people think of virtualization, they tend to think of hypervisors and they tend to think of it on x86 or Windows servers. That’s really where it has caused this to become popular. But HP has had virtualization in it for quite a while, and we've been doing virtualization on networks for quite a while. So, we are not newcomers to the game.

When it comes to where we play today, there are companies that are experts on the x86 world, and they're providing hypervisors. VMware, Citrix, and Microsoft are really good at what they do. HP doesn’t intend to do that.

Well-managed infrastructure

What we intend to do is take that hypervisor and make sure that it's part of a well-managed infrastructure, a well-managed service, well-managed desktops, and bringing virtualization into the IT ecosystem, making it part of your day-to-day management fabric.

That’s what we do with hardware that’s optimized out of the box for virtualization. You can wire your hardware once and, as you move your virtual components around, the hardware can take care of the rewiring, the IP network, the IP address, and the storage.

We handle that with IT operations and management offerings that have one solution to heterogeneously manage virtual and physical environments. We do that with client architecture, so that you can extend virtualization onto the desktops, secure the desktops, and take a lot of the cost out of managing them. If you look at what HP is about, it’s taking that hypervisor and actually delivering business value out of a virtual environment.

Gardner: Of course, HP is also in the server hardware business. Does that provide you a benefit in virtualization? Some conventional thinking might be, well gee, why would the hardware people want to increase utilization? Aren’t they in the business of selling more standalone servers?

Meyer: Certainly, we're in the business of selling hardware as well, but the benefit comes in many different areas. Actually, more people today are running virtualization on HP servers than any other platform out there. So, virtualization is an area that allows us to be more creative and more innovative in a server environment.

One of the hottest areas right now in server growth is in blade servers, where you have a bladed enclosure that’s made specifically for virtualization. It allows you to lower the cost of power and cooling, lower the floor space of the data center, and move your virtual components around much faster. Where we might see utilization rates decline in some areas, we're certainly seeing the uptake in others. So, it’s certainly an opportunity for us.

Gardner: So, helping your clients cut the total cost of computing is what’s going to keep you in the hardware business in the long run?

Meyer: That’s exactly right. If you look at the overall benefits, the immediate allure of virtualization is all about the cost and the agility of the service. If you look at it from the bigger picture, if you get virtualization right, and you get it right from a strategic perspective, that’s when you start to feel those gains that we were talking about.

Data centers are very expensive. There's floor space in there. Power and cooling are very expensive. People are talking about that. If we help them get that right and knock the cost out of the infrastructure, the management, the client architectures, and even insourcing or outsourcing, that’s beneficial to everyone.

What are the payoffs?

Gardner: We've talked about how virtualization is a big deal in the market and how it’s being driven by economic factors. We've looked at how a tactical knee-jerk approach can lead to the opposite affect of higher expense and more complexity. We've recognized that taking an experienced, methodological, strategic approach makes a lot of sense.

Now, what is it that we can get, if we do this right? What are the payoffs? Do you have examples of companies you work with, or perhaps within HP itself? I know you guys have done an awful lot in the past several years to refine and improve your IT spend and efficiency. What are the payoffs if you do this right?

Meyer: There are a number of areas. You can look at it in terms of power and cooling. So right off the bat, you can save 50 percent of your power and cooling, if you get this right and get an infrastructure that works together.

From a client-computing perspective, you can save 30 percent off the cost of client computing, off the management of your client endpoints, if you virtualize the infrastructure.

If you look at outsourcing the infrastructure, the returns are manifold there, because you're really taking not just the cost of running it. You're actually leveraging the combined knowledge of thousands and thousands of people who understand how to run the infrastructure from the experience they have of doing multiple outsourcing.

So, we see particular gains in power and cooling, as I mentioned before, and the cost of administration. We'll see significant gains in server-admin ratios. We'll see a threefold increase in the number of servers that people can manage.

If you look across the specific examples, they really do touch a lot of the core areas that people are looking at today -- power and cooling, the cost of maintaining and instrumenting that infrastructure, and the cost of maintaining desktops.

Gardner: Doesn’t this help too, if you have multiple data centers and you're trying to whittle that down to a more efficient, smaller number? Does virtualization have a role in that?

The next generation

Meyer: Absolutely. Actually, throughout the data center, virtualization is one of those key technologies that help you get to that next generation of the consolidated data center. If you just look at from a consolidation standpoint, a couple of years ago, people were happy to be consolidating five servers into one or six servers into one. When you get this right, do it on the right hardware with the right services setup, 32 to 1 is not uncommon -- a 32-to-1 consolidation rate.

If you think about what that equates to, that’s 32 fewer physical servers, less floor space, less power and cooling. So, when you get it right, you go from, "Yes, I can consolidate and I can consolidate it five to one, six to one or 12 to one" to "I'm consolidating, and I am really having a big impact on the business, because I'm consolidating at 24 to 1 or 32 to 1 ratios." That’s really where the payoff starts coming in.

Gardner: I suppose that while you are consolidating, you might as well look at what applications on which platforms are going to be sunset. So, there's a modernization impact. Virtualization helps you move certain apps out to pasture, maybe reusing the logic and the data in the future. What’s the modernization impact that virtualization can provide?

Meyer: Virtualization is absolutely an enabler of that in a number of different ways. Sometimes, when people are modernizing apps, they go to our outsourcing business and say, "I'm modernizing an application and I need some compute capacity. Do you have it?" They can tap into our compute capacity in a virtual way to provide a service, while they're moving, updating, or modernizing an architecture, and the end user doesn’t notice the difference. There's a continuity aspect there, as they provide the application.

There are also the backup and recovery aspects of it. There are a lot of safeguards that come in while you are modernizing applications. In this case, virtualization is an enabler for that. It allows that move to happen. Then, as that application moves onto more up-to-date or more modern architecture, it allows you to quickly scale up or scale down the capacity of that application. Again, the end user experience isn't diminished.

Gardner: So, these days when we are not just dealing with the dollars-and-cents impacts of the economy, we are also looking at dynamic business environments, where there are mergers, acquisitions, bankruptcies, and certain departments being sloughed off, sold, or liquidated. It sounds like the strategic approach to virtualization has a business outcome in that environment too.

Meyer: That’s really where the sort of the flip side of virtualization comes in -- the automation side. Virtualization allows you to quickly spin up capacity and do a series of other things, but automation allows you to do that at scale.

If you have a business that needs to change seasonally, daily, weekly, or at certain times, you need to make much more effective use of that compute capacity. We talk a lot about cost, but it’s automation that makes it cost effective and agile at the same time. It allows you to take a prescribed set of tasks related to virtualization, whether that’s moving a workload, updating a new service, or updating an entire stack and make that happen much faster and at much lower cost, as well.

Gardner: One last area, Bob. I want to get into the benefits of managed virtualization as insurance for the future. You mentioned cloud computing a little earlier. If you do this properly, you start moving toward what we call on-premises or private clouds. You create a fabric of storage, or a fabric of application support, or a fabric of platform infrastructure support. That’s where we get into some of those even larger economic benefits.

This is a vision for many people now, but doing virtualization right seems to me like a precursor to being able to move toward that. You might even be able to start employing SOA more liberally, and then take advantage of external clouds, and there is a whole vision around that. Am I correct in assuming that virtualization is an initial pillar to manage, before you're able to start realizing any of that vision?

Meyer: Certainly. The focus right now is, "How does it save me money?" But, the longer-term benefit, the added benefit, is that, at some point the economy will turn better, as it always does. That will allow you to expand your services and really look at some of the newer ways to offer services. We mentioned cloud computing before. It will be about coming out of this downturn more agile, more adaptable, and more optimized.

No matter where your services are going -- whether you're going to look at cloud computing or enacting SOA now or in the near future -- it has that longer term benefit of saying, "It helps me now, but it really sets me up for success later."

We fundamentally believe, and CIOs have told us a number of times that virtualization will set them up for long-term success. They believe it’s one of those fundamental technologies that will separate their company as winners going into any economic upturn.

Gardner: So, making virtualization a core competency, sooner rather than later, puts you at an advantage across a number of levels, but also over a longer period of time?

Meyer: Yes. Right now everybody is reacting to an economic climate. Those CIOs who are acting with foresight, looking ahead and saying, "Where will this take me," are the ones who are going to be successful as opposed to the people who are just reacting to the current environment and looking to cut and slash. Virtualization has a couple of benefits that allow you to save and optimize, but also sets you up for that -- to boomerang you whenever the economic recovery comes.

Gardner: Well, great. We've been talking with Bob Meyer, the worldwide virtualization lead in HP’s Technology Solutions Group. We've been examining the effects and impacts of virtualization adoption and how to produce the best businesses and financial outcomes from your virtualization initiatives. I want to thank you, Bob, for joining us. It's been a very interesting discussion.

Meyer: Thank you for the opportunity.

****Access More HP Resources on Virtualization****

Gardner: We also want to thank our sponsor, Hewlett-Packard, for supporting this series of podcasts. This is Dana Gardner, principal analyst at Interarbor Solutions. You've been listening to BriefingsDirect. Thanks and come back next time.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Learn more. Sponsor: Hewlett-Packard.

Transcript of BriefingsDirect podcast on virtualization strategies and best practices with Bob Meyer, HP's worldwide virtualization lead. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.

Sunday, March 22, 2009

BriefingsDirect Analysts List Top 5 Ways to Cut Enterprise IT Costs Without Impacting Performance in Economic Downturn

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 38 on how businesses should react to the current economic realities and prepare themselves to emerge stronger.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

Special offer: Download a free, supported 30-day trial of Active Endpoint's ActiveVOS at www.activevos.com/insight.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Volume 38. I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions.

This periodic discussion and dissection of IT infrastructure related news and events, with a panel of industry analysts and guests, comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS, visual orchestration system. We also come to you through the support of TIBCO Software.

Out topic this week of March 9, 2009 centers on the economics of IT. It's clear that the financial crisis has spawned a yawning global recession on a scale and at a velocity unlike anything seen since the 1930s. Yet, our businesses and our economy function much differently than they did in the 1930s. The large and intrinsic role of information technology (IT) is but one of the major differences. In fact, we haven't had a downturn like this since the advent of widespread IT.

So, how does IT adapt and adjust to the downturn? This is all virgin territory. Is IT to play a defensive role in helping to slash costs and reduce its own financial burden on the enterprise, as well as to play a role in propelling productivity forward despite these wrenching contractions?

Or, does IT help most on the offensive, in transforming businesses, or playing a larger role in support of business goals, with the larger IT budget and responsibility to go along with that? Does IT lead the way on how companies remake themselves and reinvent themselves during and after such an economic tumult?

We're asking our panel today to list the top five ways that IT can help reduce costs, while retaining full business -- or perhaps even additional business functionality. These are the top five best ways that IT can help play economic defense.

After we talk about defense, we're going to talk about offense. How does IT play the agent of change in how businesses operate and how they provide high value with high productivity to their entirely new customer base?

Join me in welcoming our analyst guests this week. Joe McKendrick, independent IT analyst and prolific blogger on service-oriented architecture (SOA), business intelligence (BI), and other major IT topics. Welcome back, Joe.

Joe McKendrick: Thanks, Dana. Glad to be here.

Gardner: We're also joined by Brad Shimmin, principal analyst at Current Analysis.

Brad Shimmin: Hello, Dana.

Gardner: Also, JP Morgenthal, independent analyst and IT consultant. Hi, JP.

JP Morgenthal: Hi. Thanks.

Gardner: We're also joined by Dave Kelly, founder and president of Upside Research, who joins us for the first time. Welcome, Dave.

Dave Kelly: Hey, Dana. Thanks for having me. It's great to be here.

Gardner: Let's go first to Joe McKendrick at the top of the list. Joe, let's hear your five ways that IT can help cut costs in enterprises during our tough times.

Previous downturns

McKendrick: First of all, I just want to comment. You said this is virgin territory for IT in terms of managing through downturns. We've seen in our economy some fairly significant downturns in the past -- the1981-82 period, 1990-91 period, and notably 2001-2002. Those were all major turning points for IT, and we can get into that later. I'll give you my five recommendations, and they're all things that have been buzzing around the industry.

First, SOA is a solution, and I think SOA is alive and well and thriving. SOA promotes reuse and developer productivity. SOA also provides a way to avoid major upgrades or the requirement for major initiatives in enterprise systems such as enterprise resource planning (ERP).

Second, virtualize all you can. Virtualization offers a method of consolidation. You can take all those large server rooms -- and some companies have thousands of servers -- and consolidate into more centralized systems. Virtualization paves the path to do that.

Third, cloud computing, of course. Cloud offers a way to tap into new sources of IT processing, applications, or IT data and allows you to pay for those new capabilities incrementally rather than making large capital investments.

The fourth is open source -- look to open-source solutions. There are open-source solutions all the way up the IT stack, from the operating system to middleware to applications. Open source provides a way to, if not replace your more commercial proprietary systems, then at least to implement new initiatives and move to new initiatives under the budget radar, so to speak. You don't need to get budget approval to establish or begin new initiatives.

Lastly, look at the Enterprise 2.0 space. Enterprise 2.0 offers an incredible way to collaborate and to tap into the intellectual capital throughout your organization. It offers a way to bring a lot of thinking and a lot of brainpower together to tackle problems.

Gardner: It sounds like you feel that IT has a lot of the tools necessary and a lot of the process change necessary. It's simply a matter of execution at this point.

McKendrick: Absolutely. All the ingredients are there. I've said before in this podcast that I know of startup companies that have invested less than $100 in IT infrastructure, thanks to initiatives such as cloud computing and open source. Other methodologies weigh in there as well.

Gardner: All right. Let's go to bachelor number two, Brad Shimmin. If you're dating IT efficiency, how are you going to get them off the mark?

Provide a wide pasture

Shimmin: Thanks, Dana. It's funny. Everything I have in my little list here really riffs off of all of Joe's excellent underlying fundamentals that was talking about there. I hope what I am going to give you guys are some not-too-obvious uses of the stuff that Joe's been talking about.

My first recommendation is to give your users a really wide pasture. There is an old saying that if you want to mend fewer fences, have a bigger field for your cattle to live in. I really believe that's true for IT.

You can see that in some experiments that have been going on with the whole BYOC -- Bring Your Own Computer -- programs that folks like Citrix and Microsoft have been engaging in. They give users a stipend to pick up their own notebook computer, bring that to work, and use a virtualized instance of their work environment on top of that computer.

That means IT no longer has to manage the device itself. They now just manage virtual image that resides on that machine. So, the idea that we've been seeing with mobile devices making a lot of headway, in terms of users buying and using their own inside IT, we'll see extend to desktops and laptops.

I'd just like to add that IT should forget about transparency and strive for IT participation. The days of the ivory tower with top-down knowledge held within secret golden keys behind locked doors within IT are gone. You have to have some faith in your users to manage their own environments and to take care of their own equipment, something they're more likely to do when it's their own and not the company's.

Gardner: So, a bit more like the bazaar, when it comes to how IT implements and operates?

Shimmin: Absolutely. You can't have this autocracy downward slope anymore to be efficient. That doesn't encourage efficiency.

The second thing I'd suggest is don't build large software anymore. Buy small software. As Joe mentioned, SOA is well entrenched now within both the enterprise and within the IT. Right now, you can buy either a software as a service (SaaS) or on-premise software that is open enough that it can connect with and work with other software packages. No longer do you need to build this entire monolithic application from the ground-up.

A perfect example of that is something like PayPal. This is a service, but there are on-premise renditions of this kind of idea that allow you to basically build up a monolithic application without having to build the whole thing yourself. Using pre-built packages, smaller packages that are point solutions like PayPal, lets you take advantage of their economies of scale, and lets you tread upon the credibility that they've developed, especially something that's good for consumer facing apps.

The third thing I'd suggest -- and this is in addition to that -- build inside but host outside. You shouldn't be afraid to build your own software, but you should be looking to host that software elsewhere.

A game changer

We've all seen both enterprises and enterprise IT vendors -- independent software vendors (ISVs) themselves like IBM, Oracle, and Microsoft, in particular -- leaping toward putting their software platforms on top of third-party cloud providers like Amazon EC2. That is the biggest game changer in everything we've been talking about here to date.

There's a vendor -- I can't say who it is, because they didn't tell I could talk about it -- who is a cloud and on-premise vendor for collaboration software. They have their own data centers and they've been moving toward shutting down the data centers and moving that into Amazon's EC2 environment. They went from these multi-multi thousand dollar bills they are paying every month, to literally a bill that you would get for such a cellphone service from Verizon or AT&T. It was a staggering saving they saw.

Gardner: A couple of hundred bucks a month?

Shimmin: Exactly. It's all because the economies are scaled through that shared environment.

The fourth thing I would want to say is "kill your email." You remember the "Kill your TV" bumper stickers we saw in the '90s. That should apply to email. It's seen its day and it really needs to go away. For every gigabyte you store, I think it's almost $500 per user per year, which is a lot of money.

If you're able to, cut that back by encouraging people to use alternatives to email, such as social networking tools. We're talking about IM, chat, project group-sharing spaces, using tools like Yammer inside the enterprise, SharePoint obviously, Clearspace -- which has just been renamed SBS, for some strange reason -- and Google Apps, That kind of stuff cuts down on email.

I don't know if you guys saw this, but in January, IBM fixed Lotus Notes so they no longer store duplicate emails, They were cutting down on the amount of storage their users required by something like 70 percent, which is staggering.

Gardner: So what was that, eliminating the multiple versions of any email, right?

Shimmin: It was the attachments, yes. If there was a duplicate attachment, they stored one for each note instead of saying, "Hey, it's the same file, let's just store one instance of it in a database." Fixing stuff like that is just great, but it points to how big a problem it is to have everything running around in email.

Gardner: You might as well just be throwing coal up into the sky, right?

Shimmin: Exactly. To add to that, we should really turn off our printers. By employing software like Wikis, blogs, and online collaboration tools from companies like Google and Zoho, we can get away from the notion of having to print everything. As we know, a typical organization kills 143 trees a year -- I think was the number I heard -- which is a staggering amount of waste, and there's a lot of cost to that.

Gardner: Perhaps the new bumper sticker should be "Email killed."

Open, but not severe

Shimmin: Printing and email killed, right. My last suggestion would be, as Joe was saying, to really go open, but we don't have to be severe about it. We don't have to junk Windows to leverage some cost savings. The biggest place you can see savings right now is by getting off of the heavy license burden software. I'm going to pick on Office right now.

Gardner: How many others do you have to pick from?

Shimmin: It's the big, fat cow that needs to be sacrificed. Paying $500-800 a year per user for that stuff is quite a bit, and the hardware cost is staggering as well, especially if you are upgrading everyone to Vista. If you leave everyone on XP and adopt open-source solutions like OpenOffice and StarOffice, that will go a long, long way toward saving money.

Why I'm down on printing is, the time is gone when we had really professional, beautiful-looking documents that required a tremendous amount of formatting and everything needed to be perfect within Microsoft Word, for example. What now counts is the information. It's same for 4,000-odd features in Excel. I'm sure none of us here have ever even explored a tenth of those.

Gardner: Maybe we should combine some of the things you and Joe have said. We should go to users and say, "You can use any word processor you want, but we're not going to give you any money," and see what they come up with.

Shimmin: You're going to find some users who require those 4,000 features and you are going to need to pay for that software, but giving everyone a mallet to crack a walnut is insane.

Gardner: I want to go back quickly to your email thing. Are you saying that we should stop using email for communication or that we should just bring email out to a cloud provider and do away with the on-premises client server email -- or both.

Shimmin: Thanks for saying that. Look at software or services like Microsoft Business Productivity Online Suite (BPOS). You can get Exchange Online now for something like $5 per month per user. That's pretty affordable. So, if you're going to use email, that's the way to go. You're talking about the same, or probably better, uptime than you're getting internally from a company like Microsoft with their 99.9 percent uptime that they're offering. It's not five 9s, but it's probably a lot better than what we have internally.

So, yeah. You should definitely explore that, if you're going to use email. In addition to that, if you can cut down on the importance of email within the organization by adopting software that allows users to move away from it as their central point of communication, that is going to save a lot of money as well.

Gardner: Or, they could just Twitter to each other and then put all the onus on the cost of maintaining all those Twitter servers.

Shimmin: Nobody wants to want to pay for that, though.

Gardner: Let's go to JP Morgenthal. I'm expecting "shock and awe" from you, JP. What's your top five?

Morgenthal: Shock and awe, with regard to my compadres' answers?

Gardner: Oh, yeah. Usually you have a good contrarian streak.

The devastation of open source

Morgenthal: I was biting my tongue, especially on the open source. I just went through an analysis, where the answer was go JBoss on Linux Apache. Even in that, I had given my alternative viewpoint that from a cost perspective, you can't compare that stack to running WebSphere, or WebLogic on Windows. Economically, if you compare the two, it doesn't make sense. I'm still irked by the devastation that open source has created upon the software industry as a whole.

Gardner: Alright. We can't just let that go. What do you mean, quickly?

Morgenthal: Actually, I blogged on this. Here's my analogy. Imagine tomorrow if Habitat for Humanity all of a sudden decided that it's going to build houses for wealthy people and then make money by charging maintenance and upkeep on the house. You have open source. The industry has been sacrificed for the ego and needs of a few against the whole of the industry and what it was creating.

Gardner: Okay. This is worth an entire episode. So, we're going to come back to this issue about open source. Is it good? Is it bad? Does it save money or not? But, for this show, let's stick to the top five ways to save IT, and we'll come back and do a whole show on open source.

Morgenthal: I'd like to, but I've got to give credit. I can't deny the point that as a whole, for businesses, again, those wealthy homeowners who are getting that Habitat for Humanity home, hey, it's a great deal. If somebody wants to dedicate their time to build you a free home, go for it, and then you can hire anybody you like to maintain that home. It's a gift from the gods.

Gardner: What are your top five?

Morgenthal: Vendor management is first. One thing I've been seeing a lot is how badly companies mismanage their vendor relationships. There is a lot of money in there, especially on the IT side -- telecom, software, and hardware. There's a lot of play, especially in an industry like this.

Get control over your vendor relationships. Stop letting these vendors run around, convincing end-users throughout your business that they should move in a particular direction or use a particular product. Force them to go through a set of gatekeepers and manage the access and the information they're bringing into the business. Make sure that it goes through an enterprise architecture group.

Gardner: It's a buyers market. You can negotiate. In fact, you can call them in and just say, "We want to scrap the old license and start new." Right?

Morgenthal: Well, there are legal boundaries to that, but certainly if they expect to have a long-term relationship with you through this downturn, they've got to play some ball.

With regard to outsourcing noncritical functions, I'll give you a great example where we combined an outsourced noncritical function with vendor management in a telco. Many companies have negotiated and managed their own Internet and telco communications facilities and capability. Today, there are so many more options for that.

It's a very complex area to navigate, and you should either hire a consultant who is an expert in the area to help you negotiate this fact, or you should look the scenario where you take as much bandwidth as you use on an average basis, and when you need excess bandwidth, team in the cloud. Go to the cloud for that excess bandwidth.

Gardner: Okay, number three.

Analyze utilization

Morgenthal: Utilization analysis. Many organizations don't have a good grasp on how much of their CPU, network, and bandwidth is utilized. There's a lot of open space in that utilization and it allows for compression. In compressing that utilization, you get back some overhead associated with that. That's a direct cost savings.

Another area that has been a big one for me is data quality. I've been trying to tell corporations for years that this is coming. When things are good, they've been able to push off the poor data quality issue, because they can rectify the situation by throwing bodies at it. But now they can't afford those bodies anymore. So, now they have bad data and they don't have the bodies to fix up the data on the front end.

Here is a really bad rock and hard place. If I were them, I'd get my house in order, invest the money, set it aside, get the data quality up and allow myself to operate more effectively without requiring extra labor on the front end to clean up the data on the back end.

Finally, it's a great time to explore desktop alternatives, because Windows and the desktop has been a de-facto standard, a great way to go -- when things are good. When you're trying to cut another half million, million, or two million out of your budget, all those licenses, all that desktop support, start to add up. They're small nickels and dimes that add up.

By looking at desktop alternatives, you may be able to find some solutions. A significant part of your workforce doesn't need all that capability and power. You can then look for different solutions like light-weight Linux or Ubuntu-type environments that provide just Web browsing and email, and maybe OpenOffice for some light-weight word processing. For a portion of your user base, it's all they need.

Gardner: Okay. Was that four or five?

Morgenthal: That's five -- vendor management, outsourcing, utilization analysis, data quality, and desktop alternatives.

Gardner: Excellent. Okay. Now, going to you, Dave Kelly, what's your top five?

Optimize, optimize, optimize

Kelly: Thanks, Dana, and it's great to come at the end. I don't always agree with JP, but I liked a lot of the points that he just made and they complement some of the ones that I am going to make, as well as the comments that Brad and Joe made.

My first point would be, optimize, optimize, optimize. There's no doubt that all the organizations, both on the business side and the IT side, are going to be doing more with less. I think we're going to be doing more with less than we have ever seen before, but that makes it a great opportunity to step back and look at specific systems and business processes.

You can start at the high level and go through business process management (BPM) type optimization and look at the business processes, but you can also just step it down a level. This addresses what some of the other analysts have said here. If you look at things like data-center optimization, there are tremendous opportunities for organizations to go into their existing data centers and IT processes to save money and defer capital investment.

You're talking about things like increasing the utilization of your storage systems. Many organizations run anywhere from 40 to 50 percent of storage utilization. If you can increase that and push off new investments in additional storage, you've got savings right there. The growth rate in storage over the past three to five years has been tremendous. This is a great opportunity for organizations to save money.

It also references what Brad said. You've got the same opportunity on the email side. If you look at your infrastructure on the data-center side or the storage side, you've got all this redundant data out there.

You can use applications. There are products from Symantec and other vendors that allow you to de-duplicate email systems and existing data. There are ways to reduce your backup footprint, so that you have fewer backup tapes required. Your processes will run quicker, with less maintenance and management. You can do single-instance archiving and data compression.

Gardner: Dave, it sounds like you're looking at some process re-engineering in the way that IT operates.

Kelly: You can certainly do that, but you don't even have to get to that process re-engineering aspect. You can just look at the existing processes and say, "How can I do individual components more efficiently." I guess it is process reengineering, but I think a lot of people associate process reengineering with a large front-to-back analysis of the process. You can just look at specific automated tasks and see how you can do more with less in those tasks.

There are a lot of opportunities there in terms of like data center optimization as well as other processes.

The next point is that while it's important to increase your IT efficiency, while reducing cost, don't forget about the people. Think about people power here. The most effective way to have an efficient IT organization is to have effective people in that IT organization.

Empower your people

There's a lot of stress going on in most companies these days. There are a lot of question about where organizations and businesses are going. As an IT manager, one thing you need to do is make sure that your people are empowered to feel good about where they're at. They need to not hunker down and go into this siege mentality during these difficult times, even if the budgets are getting cut and there's less opportunity for new systems or new technology challenges. They need to redirect that stress to discover how the IT organization can benefit the business and deal with these bad times.

You want to help motivate them through the crisis and work on a roadmap for better days, and map out, "Okay, after we get through this crisis, where are we going to be going from here?" There's an important opportunity in not forgetting about the people and trying to motivate them and provide a positive direction to use their energy and resources in.

Gardner: They don't want to get laid off these days, do they?

Kelly: No, they don't. Robert Half Technology recently surveyed 1,400 CIOs. It's pretty good news. About 80 percent of the CIOs expect to maintain current staffing levels through the first half of this year. That's not a very long lead-time at this point, but it's something. About 8 or 9 percent expected to actually hire. So everyone is cutting budgets, reducing capital expenditures, traveling less, trying to squeeze the money out of the budget, but maybe things will stay status quo for a while.

The third point echoes a little bit of what JP said on the vendor management side, as well as on using commercial software. Organizations use what they have or what they can get. Maybe it's a good time to step back and reevaluate the vendors. That speaks to JP's vendor management idea, and the infrastructure they have.

So, you may have investments in Oracle, IBM, or other platforms, and there may be opportunities to use free products that are bundled as part of those platforms, but that you may not be using.

For example, Oracle bundles Application Express, which is a rapid application development tool, as part of the database. I know organizations are using that to develop new applications. Instead of hiring consultants or staffing up, they're using existing people to use this free rapid application development tool to develop departmental applications or enterprise applications with this free platform that's provided as part of their infrastructure.

Of course, open source fits in here as well. I have a little question about the ability to absorb open source. Perhaps at the OpenOffice level, I think that's a great idea. At the infrastructure level and at the desktop level that can be a little bit more difficult.

The fourth point, and we've heard this before, is go green. Now is a great time to look at sustainability programs and try to analyze them in the context of your IT organization. Going green not only helps the environment, but it has a big impact, as you're looking at power usage in your data center with cooling and air conditioning cost. You can save money right there in the IT budget and other budgets going to virtualization and consolidating servers. Cutting any of those costs can also prevent future investment capital expenditures.

Again, as JP said about utilization, this is a great opportunity to look at how you're utilizing the different resources and how you can potentially cut your server cost.

Go to lunch

Last but not least, go to lunch. It's good to escape stressful environments, and it may be a good opportunity for IT to take the business stakeholders out to lunch, take a step back, and reevaluate priority. So, clear the decks and realign priorities to the new economic landscape. Given changes in the business and in the way that services and products are selling, this may be a time to reevaluate the priorities of IT projects, look at those projects, and determine which ones are most critical.

You may be able to reprioritize projects, slow some down, delay deployments, or reduce service levels. The end effect here is allowing you to focus on the most business critical operations and applications and services. That gives a business the most opportunity to pull out of this economic dive, as well as a chance to slow down and push off projects that may have had longer-term benefits.

For example, you may be able to reduce service levels or reduce the amount of time the help desk has to respond to a request. Take it from two hours to four hours and give them more time. You can potentially reduce your staffing levels, while still serving the business in a reasonable way. Or, lengthen the time that IT has after a disaster to get systems back up and operating. Of course, you've got to check that with business leaders and see if it's all right with them. So, those are my top five.

Gardner: Excellent, thank you. I agree that we're in a unique opportunity, because, for a number of companies, their load in the IT department is down, perhaps for the first time. We've been on a hockey-stick curve in many regards in the growth of data and the number of users, seats, and applications supported.

Companies aren't merging or acquiring right now. They're in kind of stasis. So, if your load is down in terms of headcount, data load, newer applications, now is an excellent time to make substantial strategic shifts in IT practices, as we've been describing, before that demand curve picks up again on the other side, which its bound to do. We just don't know when.

As the last panelist to go, of course, I am going to have some redundancy on what's been said before, but my first point is, now is the time for harsh triage. It is time to go in and kill the waste by selectively dumping the old that doesn't work. It's easiest to do triage now, when you've got a great economic rationale to do it. People will actually listen to you, and not have too much ability to whine, cry and get their way.

IT really needs to find where it's carrying its weight. It needs to identify the apps that aren't in vigorous use or aren't adding value, and either kill them outright or modernize them. Extract the logic and use it in a process, but not at the cost of supporting the entire stack or a Unix server below it.

IT needs to identify the energy hogs and the maintenance black holes inside their infrastructure and all the inventory that they are supporting. That means ripping out the outdated hardware. Outdated hardware robs from the future in order to pay for a diminishing return in the past. So, it's a double whammy in terms of being nonproductive and expensive.

You don't really need to spend big money to conduct these purges. It's really looking for the low-lying fruit and the obvious wasteful expenditures and practices. As others have said today, look for the obvious things that you're doing and never really gave much thought to. They are costing you money that you need to do the new things in order to grow. It's really applying a harsh cost-benefit analysis to what you are doing.

It would also make sense to reduce the number of development environments. If you're supporting 14 different tools and 5 major frameworks, it's really time to look at something like Eclipse, Microsoft, or OSGi and say, "Hey, we're going to really work toward more standardization around a handful of major development environments. We're going to look for more scripting and doing down and dirty web development when we can." That just makes more sense.

It's going to be harder to justify paying for small tribes of very highly qualified and important, but nonetheless not fully utilized, developers.

Look outside

It's also time to replace costly IT with outside services and alternatives that we have discussed. That would include, as Brad said, your email, your calendar, word processing, and some baseline productivity applications and consider where you can do them cheaper.

I do like the idea of saying to people, "You still need to do email and you need still to do word processing, but we no longer are going to support it. Go find an alternative and see how that works." It might be an interesting experiment at least for a small department level at first.

That means an emphasis on self-help, and in many aspects of IT it is possible. Empower the users. They want that power. They want to make choices. We don't need to just walk them down a blind path, tell them how to do mundane IT chores, and then pay an awful lot of money to have them doing it that way. Let's open up, as Brad said, the bazaar and stop being so much of a cathedral.

I suppose that means more use of SaaS and on-demand applications. They make particular sense in customer relationship management (CRM), sales force, and in human resources procurement and payroll. It's really looking to outsource baseline functionality that's not differentiating your organization. It's the same for everybody. Find the outsourcers that have done it well and efficiently and get it outside of your own company. Kill it, if you are doing it internally.

It's really like acting as a startup. You want to have low capital expenditures. You want to have low recurring costs. You want to be flexible. You want to empower your users. A lot of organizations need to think more like a startup, even if they are an older, established multinational corporation.

My second point is to create a parallel IT function that leverages cloud attributes. This focuses again on what Joe mentioned, on the value of virtualization and focusing on the process and workflows -- not getting caught up in how you do it, but what it ends up doing for you.

The constituent parts aren't as important as the end result. That means looking to standardize hardware, even if it's on-premises, and using grid, cloud, and modernized and consolidated data center utility best practices. Again, it's leveraging a lot of virtualization on standard low-cost hardware, and then focusing the value at a higher abstraction, at the process level.

It's standardizing more use of appliances and looking at open-source software. I also have to be a little bit of a contrarian to JP. I do think there's a role for open source in these operations, but we are going to save that for another day. That's a good topic.

This is another way of saying doing SOA, doing it on-premises, using cloud and compute fabric alternatives, and trying to look outside for where other people have created cloud environments that are also very efficient for those baseline functions that don't differentiate. That creates a parallel function in IT, but also looks outside.

I agree wholeheartedly with what's been said earlier about the client. It's time to cheapen, simplify, and mobilize the client tier. That means you can use mobile devices, netbooks, and smart phones to do more activities, to connect to back-end data and application sets and Web applications.

Focus on the server

It's time to stop spending money on the client. Spend it more on the server and get a higher return on that investment. That includes the use of virtual desktop infrastructure (VDI) and desktop-as-a-service (DaaS) types of activities. It means exploring Linux as an operating environment on the desktop, where that makes sense, and look at what the end users are doing with these clients.

If they're at a help desk and they're all using three or four applications in a browser, they don't need to have the equivalent of a supercomputer that's got the latest and greatest of everything. It's time to leverage browser-only workers. Find workers that can exist using only browsers and give them either low-cost hardware that's maybe three or four years old and can support a browser well or deliver that browser as an application through VDI. That's very possible as well.

It means centralizing more IT support, security, and governance at the data center. It even means reducing the number of data centers, because given the way networks are operating, we can do this across a wide area network (WAN). We can use acceleration, remote branch technologies, and virtual private networks (VPNs). We can deliver these applications to workers across continents and even across the globe, because we're not dealing with a B2C, we are dealing with a B2E -- that is, to your employees.

You can support the scale with fewer data centers and lower cost clients. It's a way to save a lot of money. Again, you're going to act like a modern startup. You're going to build the company based on what your needs are, not on what IT was 15 years ago.

My fourth point is that BI everywhere. Mine the value of the data that you've got already and the data that you are going to create. Put in the means to be able to assess where your IT spend makes sense. This is BI internal to IT, so BI for IT, but also IT enabling BI across more aspects of the business at large.

Know what the world is doing around you and what your supply chain is up to. It's time to join more types of data into your BI activities, not just your internal data. You might be able to actually rent data from a supplier, a partner or a third-party, bring that third-party data in, do a join, do your analysis, and then walk away. Then, maybe do it again in six months.

It's time to think about BI as leveraging IT to gain the analysis and insights, but looking in all directions -- internal, external, and within IT, but also across extended enterprise processes.

It's also good to start considering tapping social networks for their data, user graph data, and metadata, and using that as well for analysis. There are more and more people putting more and more information about themselves, their activities, and their preferences into these social networks.

That's a business asset, as far as I'm concerned. Your business should start leveraging the BI that's available at some of these social networks and join that with how you are looking at data from your internal business activities.

Take IT to the board level

Last, but not least, it's time for IT to be elevated to the board level. It means that the IT executive should be at the highest level of the business in terms of decision and strategy. The best way for IT to help companies is to know what those companies are facing strategically as soon as they're facing it, and to bring IT-based solutions knowledge to the rest of the board. IT can be used much more strategically at that level.

IT should be used for transformation and problem solving at the innovation and business-strategy level, not as an afterthought, not as a means to an end, but actually as part of what ends should be accomplished, and then focusing on the means.

That is, again, acting like a startup. If you talk to any startup company, they see IT as an important aspect of how they are going to create value, go to market cheaply, and behave as an agile entity.

That's the end of my five. Let's take the discussion for our last 10 minutes to how IT can work on the offense. I'll go first on this one. I think it's time to go green field. It's time to look at software as a differentiator.

The reason I bring this up is Marc Andreessen, who is starting a venture capital fund with Ben Horowitz. They were both at Opsware together and then at HP, after they sold. Andreesen told Charlie Rose recently that there is a tragic opportunity from our current economic environment. A number of companies are going to go under or they're going to be severely challenged. Let's take a bank, for example.

A bank is going to perhaps be in a situation where its assets are outstripped by its liabilities and there is no way out. But, using software, startups, and third-party services, as Andreessen said, you can start an Internet bank. It's not that difficult.

You want to be able to collect money, lend it out with low risk at a sufficient return, and, at the end of the day, have a balance sheet that stands on its own two feet. Creating an Internet bank, using software and using services combined from someone like PayPal and others makes a tremendous amount of sense, but that's just an example.

There are many other industries, where, if the old way of doing it is defunct, then it's time to come in and create an alternative. Internet software-based organizations can go out and find new business where the old companies have gone under. It doesn't necessarily mean it's all the software, but the business value is in how you coordinate buyers and sellers and efficiencies using software.

Take something like Zipcar. They're not in the automotive business, but they certainly allow people to gain the use of automobiles at a low price point.

I'd like to throw out to the crowd this idea of going software, going green field, creating Internet alternatives to traditional older companies. Who has any thoughts about that?

Morgenthal: On the surface there are some really good concepts there. What we need are state and federal governances and laws to catch up to these opportunities. A lot of people are unaware of the potential downside risks to letting the data out of your hands into a third-party candidate's hands. It's questionable whether it's protected under the Fourth Amendment, once you do that.

There are still some security risks that have yet to be addressed appropriately. So, we see some potential there for the future. I don't know what the future would look like. I just think that there is some definite required maturity that needs to occur.

Gardner: So, it's okay to act like a startup, but you still need to act like a grownup.

Morgenthal: Right.

Gardner: Any other thoughts on this notion of opportunity from tragedy in the business, and that IT is an important aspect of doing that?

Evolving enterprises

McKendrick: I agree with what you're saying entirely. You mentioned on a couple of occasions that large enterprises need to act like small businesses. About 20 years ago, the writer John Naisbitt was dead-on with the prediction that large enterprises are evolving into what he called confederations of entrepreneurs. Large companies need to think more entrepreneurially.

A part of that thinking will be not the splitting up, but the breaking down of large enterprises into more entrepreneurial units. IT will facilitate that with the Enterprise 2.0 and Web 2.0 paradigm, where end users can kind of shape their own destiny. You can build a business in the cloud. There is a need for architecture; and I preach that a lot, but smaller departments of large corporations can kind of set their own IT direction as well with the availability.

Gardner: We're almost out of time. Any other thoughts about how IT is on the offensive, rather than just the defensive in terms of helping companies weather the downturn?

Shimmin: I agree with what you guys have been saying about how companies can behave like startups. I'd like to turn it around a little bit and suggest that a small company can behave like a large company. If you have a data center investment already established, you shouldn't be bulldozing it tomorrow to save money. Perhaps there's money in "them thar hills" that can be had.

Look at the technologies we have today, the cloud-enablement companies that are springing up left and right, and the ability to federate information and to loosely coupled access methods to transact between applications. There's no reason that the whole idea that we saw with the SETI@home and the protein folding ideas can't be leveraged within the company's firewalls and data centers externalize. Maybe it's storage, maybe it's services, maybe it's an application or service that the company has created, that can be leveraged to make money. It's like the idea of a house putting a windmill in and then selling electricity back to the power grid.

Gardner: Last thoughts?

Kelly: I would add one or two quick points here. Going on the offense, one opportunity is to take advantage of the slowdown and look at those business processes that you haven't gotten to in a long time, because things have been so hectic over the past couple of years. It may be a great time to reengineer those using some of the new technologies that are out there, going to the cloud, doing some of the things we've already talked about.

The other option here is that it may be a good time to accelerate new technology adoption. Move to YouTube for video-based training, or use Amazon's Kindle for distributing repair manuals electronically. Look at what the options are out there that might allow you to remake some of these processes using new technologies and allow you to profit and perhaps even grow the business during these tough economic times.

Gardner: So economic pain becomes the mother of all invention.

Kelly: Exactly.

McKendrick: We've seen it happen before. Back in 1981-1982 was when we saw the PC revolution. The economy was in just as bad a shape, if not worse, than it is now. Unemployment was running close to 10 percent. The PC revolution just took off and boomed during that time. A whole new paradigm had evolved.

Gardner: Very good. Well, I would like to thank our panelists this week. We've been joined by Joe McKendrick, independent IT analyst and prolific blogger. Also, Brad Shimmin, principal analyst at Current Analysis; JP Morgenthal, independent analyst and IT consultant; and Dave Kelly, founder and president of Upside Research. Thanks to all. I think we've come up with a lot of very important and quite valuable insights and suggestions.

I'd also like to thank our charter sponsor for the BriefingsDirect Analyst Insights Edition podcast series, Active Endpoints, maker of the ActiveVOS visual orchestration system, as well as the support of TIBCO Software.

This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening, and come back next time.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod and Podcast.com. Charter Sponsor: Active Endpoints. Also sponsored by TIBCO Software.

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Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 38 on how businesses should react to the current economic realities and prepare themselves to emerge stronger. Copyright Interarbor Solutions, LLC, 2005-2009. All rights reserved.