The Total Economic Impact Of Mindtree Infrastructure Management Services

Transcription

1 A Forrester Total Economic Impact Study Commissioned By Mindtree Project Director: Reggie Lau October 2015 The Total Economic Impact Of Mindtree Infrastructure Management Services Abridged Case Study Focused On Investing In Outsourced Infrastructure Management Services

2 Table Of Contents Disclosures... 3 Executive Summary... 4 TEI Framework And Methodology... 5 Financial Highlights... 6 Interview Highlights... 7 Financial Summary... 9 Mindtree: Overview Appendix A: Interviewed Customer Description Appendix B: Total Economic Impact Overview Appendix C: Glossary Appendix D: Endnotes ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2015, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to

3 3 Disclosures The reader should be aware of the following: The study is commissioned by Mindtree and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis. Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the report to determine the appropriateness of an investment in Mindtree Infrastructure Management Services. Mindtree reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester s findings or obscure the meaning of the study. The customer names for the interviews were provided by Mindtree. Mindtree did not participate in customer interviews. This is an abridged study and only includes summary findings and metrics. Readers can request further details and data tables from Mindtree.

4 4 Executive Summary In October 2015, Mindtree commissioned Forrester Consulting to conduct an abridged Total Economic Impact (TEI) study and examine the potential return on investment (ROI) enterprises may realize by engaging Mindtree Infrastructure Management Services. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Mindtree on their organizations. With 24x7 support, database support we would have had to hire 20 more people worldwide without Mindtree. ~VP of global operations, large US financial institution Mindtree provides technology transformation and execution services. Mindtree Infrastructure Management Services offers outsourcing of data center infrastructure management, end user computing services, application support, and technical support. To differentiate itself, the company brings an applistructure perspective to infrastructure management by focusing on a downward view of applications and user groups as opposed to focusing solely on the core infrastructure. This perspective allows Mindtree to provide better availability, customer service, and tier 1 support for applications through the infrastructure management team. Mindtree also offers proprietary management software, MWatch, which is integrated and used along with a customer s existing tool set. To better understand the benefits, costs, risks, and flexibility of engaging Mindtree Infrastructure Management Services, Forrester interviewed an existing customer in the financial services industry. The interviewed customer s prior vendor had been acquired, and the customer was unsure whether the vendor would continue to service infrastructure environments and operating systems that differed from the vendor s new, post-acquisition road map. An RFP was issued and Mindtree was selected because it was a solution that could partner with the customer s operations team for joint management as opposed to requiring the customer to completely relinquish control and administrator rights. This type of hybrid model and flexibility became Mindtree s competitive advantage over others in the RFP process. MINDTREE INFRASTRUCTURE MANAGEMENT SERVICES NOT ONLY OFFERS HIRING AVOIDANCE BUT ALSO DEVELOPS EFFICIENCIES TO ALLOW CUSTOMERS TO SCALE DEVICES AND OPERATIONS WHILE MAINTAINING STABLE MANAGEMENT COSTS Forrester s interview with an existing customer and subsequent financial analysis found that the customer experienced the risk-adjusted benefits and costs shown in Figure 1. 1 See Appendix A for a description of the interviewed customer. The analysis points to benefits of $19,555,453 versus costs of $9,573,096 over three years, adding up to a net present value (NPV) of $9,982,357. FIGURE 1 Financial Summary Showing Three-Year Risk-Adjusted Results ROI: % Payback period: 6.8 months NPV: $9,982,357 Staff hiring avoidance: FTE Value-added development and support time per year: 59 weeks Source: Forrester Research, Inc.

5 5 TEI Framework And Methodology INTRODUCTION From the information provided in the interviews, Forrester has constructed a Total Economic Impact (TEI) framework for those organizations considering engaging Mindtree. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. APPROACH AND METHODOLOGY Forrester took a multistep approach to evaluate the impact that Mindtree can have on an organization (see Figure 2). Specifically, Forrester: Interviewed Mindtree marketing, sales, and consulting personnel, along with Forrester analysts, to gather data relative to Mindtree and the marketplace for Mindtree Infrastructure Management Services. Interviewed one organization currently using Mindtree to obtain data with respect to costs, benefits, and risks. Constructed a financial model representative of the interviews using the TEI methodology. The financial model is populated with the cost and benefit data obtained from the customer interview. Risk-adjusted the financial model based on issues and concerns the interviewed organization highlighted in interviews. Risk adjustment is a key part of the TEI methodology. While the interviewed organization provided cost and benefit estimates, some categories included a broad range of possibilities or had a number of outside forces that might have raised or lowered the benefit and cost values. For that reason, some cost and benefit totals have been risk-adjusted and are detailed in each relevant section. Forrester employed four fundamental elements of TEI in modeling the value of using Mindtree: benefits, costs, flexibility, and risks. Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester s TEI methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix B for additional information on the TEI methodology. FIGURE 2 TEI Approach Perform due diligence Conduct customer interviews Construct financial model using TEI framework Write case study Source: Forrester Research, Inc.

6 6 Financial Highlights Benefits. The interview determined that the customer experienced the following three-year risk-adjusted benefits: Infrastructure management efficiency $18,855,400. This benefit category consists of five subcategories: o Infrastructure management. Reduced staff hiring demands is the foundation to this benefit category. It quantifies the staff avoidance by the investment needed to start and operate 24x7 support for infrastructure, databases, and servers. For an environment of 400 to 500 devices and hundreds of terabytes in databases with a recent annual growth rate of 100% in storage demand, the customer estimated at least 50 to 70 staff would be needed to support the organization s main business units and its newly acquired business unit. o Ad hoc development and support. This focuses on the value-added work that Mindtree resources voluntarily take on and deliver to the customer. This work can range from deploying new servers to development and management of a SharePoint environment. These tasks are typically not included in the Infrastructure Management Services contract, but Mindtree has exemplified an affinity to offer a positive customer experience first and negotiate differential pricing in the future. The customer s main business units and newly acquired business unit both estimated asking Mindtree resources for ad hoc work at least once per month. The main business units typically offload ad hoc projects that take 75 to 80 hours, and the newly acquired business unit typically offloads ad hoc projects that take 80 to 120 hours. o Ticket and vendor oversight. This centers on Mindtree s ability to manage tickets from end to end and provide oversight to all vendors in the process. In the past three years, more than 99% of the customer s tickets have been initiated by automated monitoring, and an average of 54,000 tickets have been resolved each year. The customer highlighted that Mindtree does not have any issues working with others and there is no finger pointing between Mindtree and other vendors in infrastructure management, unlike other vendors that collaborate in different parts of the organization. o Integration and transition efficiency. This benefit demonstrates how quickly and effectively Mindtree can transition into the customer s environment and replace the incumbent provider. Mindtree inherited an environment without any overlap in service from the incumbent. This situation even went to the extent where certain administrator passwords were not transitioned. Under these circumstances, the customer noted the challenges and highlighted that working with Mindtree closer as a partner instead of an outsourcer has led to a smoother transition and agreement on roles and responsibilities. o Software license and hardware cost avoidance. This speaks to both the management software that could be retired by using Mindtree MWatch and any hardware consolidation efforts that Mindtree delivers. The customer noted a reduction of 70 servers as a result of consolidation projects with Mindtree. Service cost effectiveness of $700,053. This benefit category describes the 15% year-over-year saving based on the annual contract value. Mindtree plans to gain more experience and become more efficient in managing the customer s environment each year. This efficiency gain is translated into a 15% saving, which the customer chose to apply for scale instead of an actual contract value reduction. That is, the customer s annual contract value remained the same each year while the environment and volume of devices under management scaled up. Costs. The interview determined that the customer experienced the following three-year risk-adjusted costs: Mindtree solution cost of $9,465,539. The annual contract is the main portion of this case study s costs. The customer s contract consisted of $3.4 million each year 50% of the contract covered 400 to 500 servers and certain SLAs regarding response times and availability, and the remaining 50% covered nondevice-related engineering, solution support, and customer support. Readers should reach out to Mindtree for specific quotes. Internal planning and implementation costs of $107,557. Internal labor consisted of the group VP s time in initial setup. The VP dedicated 70% and 50% of time to the first and latter six months of the transition, respectively. The ongoing management effort is approximately 1 hour each week.

7 7 Interview Highlights INTERVIEWED CUSTOMER Background For this study, Forrester Consulting conducted an interview with an existing customer that has engaged with Mindtree. The customer is a large US financial institution and has the following high-level characteristics: Annual revenue of over $2 billion and over $150 billion in assets under management. Over 1,200 employees, with approximately 30 full-time staff in IT operations. Global operations requiring 24x7 support. Situation Prior to engaging Mindtree Infrastructure Management Services, the customer s infrastructure management vendor was acquired by a larger IT vendor. With uncertainty regarding whether the existing vendor would continue to support the customer s environment and OS, the customer decided to issue an RFP. We had an RFP with all the big vendors in India and the US we chose Mindtree because they are the best hybrid for us. Some companies wanted us to give 1,000% control, while Mindtree provided dedicated resources but also allowed comanagement, which is what our organization needed. ~ VP of global operations, large US financial institution Solution Mindtree was selected based on its pricing and a model that allowed the customer to remain involved in co-managing the environment. This became a differentiator as other vendors requested more control and access to the customer s environment. The customer engaged with Mindtree for data center infrastructure management, end user support, and application support. The engagement began with the following high-level goals: Co-manage an environment of 400 to 500 devices. Engage with Mindtree for ad hoc work as appropriate. Free up and reallocate internal engineers to value-added projects that have an impact on the business. Business user satisfaction has gone up, particularly because Mindtree has taken root cause analysis very seriously. ~ Group CIO, large US financial institution

8 8 FLEXIBILITY Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for some future additional investment. This provides an organization with the right or the ability to engage in future initiatives but not the obligation to do so. There are multiple scenarios in which a customer might choose to implement Mindtree and later realize additional uses and business opportunities. Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix B). The customer plans to continue to grow its environment as needed while experiencing stable contract pricing with Mindtree. Furthermore, the customer may consider further staff augmentation with Mindtree to cover end user help desk operations. This transition would involve Mindtree staff shadowing and overlapping with the current help desk staff. RISKS Forrester defines two types of risk associated with this analysis: implementation risk and impact risk. Implementation risk is the risk that a proposed investment in Mindtree may deviate from the original or expected requirements, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not be met by the investment in Mindtree, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. Quantitatively capturing implementation risk and impact risk by directly adjusting the financial estimates results provides more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected values considering risk. The following impact risks that affect benefits are identified as part of the analysis: Low adoption rate. Stagnant environments that do not take advantage of year-over-year contract savings and scalability options. The following implementation risks that affect costs are identified as part of this analysis: Increased ad hoc work leading to contract renegotiation. Extended initial transition timeline due to lack of overlap between Mindtree and incumbent. Readers should assess the risks and challenges that your organization may face when adopting a mobile application development platform and developing mobile soldier applications. Risk assessment will assist organizations in both creating risk mitigation plans and adjusting the value of benefits and costs by the likelihood and severity of a risk.

9 Cash flows 9 Financial Summary The financial results calculated for each benefit and cost category can be used to determine the ROI, NPV, and payback period for the organization s investment in Mindtree. FIGURE 3 Cash Flow Chart (Risk-Adjusted) $14,000,000 $12,000,000 $10,000,000 $8,000,000 Financial Analysis (risk-adjusted) $6,000,000 $4,000,000 $2,000,000 $0 ($2,000,000) ($4,000,000) ($6,000,000) Initial Year 1 Year 2 Year 3 Total costs Total benefits Cumulative total Source: Forrester Research, Inc. TABLE 1 Cash Flow (Risk-Adjusted) Initial Year 1 Year 2 Year 3 Total Present Value Costs ($3,769,200) ($4,050) ($3,676,172) ($3,676,297) ($11,125,718) ($9,573,096) Benefits $0 $6,613,370 $8,179,679 $9,028,483 $23,821,532 $19,555,453 Net benefits ($3,769,200) $6,609,320 $4,503,508 $5,352,186 $12,695,814 $9,982,357 ROI 104% Payback period 6.8 months Source: Forrester Research, Inc.

10 10 Mindtree: Overview The following information is provided by Mindtree. Forrester has not validated any claims and does not endorse Mindtree or its offerings. Mindtree combines infrastructure management with software-as-a-service (SaaS) applications to optimize performance and availability and quickly remediate issues. Customers can retain complete control and transparency through MWatch, the management and operations platform. Key components and capabilities include: Data center infrastructure management. Monitor and optimize data center resources 24/7. End user computing. Customized workspace services significantly improve data management, productivity, processes, and security across your company. Application support. Continually optimize application availability and performance. Technical support. Customer profiling and predictive analytics are incorporated into the remote and on-site services portfolio. For more information on Mindtree, go to

11 11 Appendix A: Interviewed Customer Description BACKGROUND For this study, Forrester Consulting conducted an interview with an existing customer that has engaged with Mindtree. The customer is a large US financial institution and has the following high-level characteristics: Annual revenue of over $2 billion and over $150 billion in assets under management. Over 1,200 employees, with approximately 30 full-time staff in IT operations. Global operations requiring 24x7 support. SITUATION Prior to engaging Mindtree Infrastructure Management Services, the customer s infrastructure management vendor was acquired by a larger IT vendor. With uncertainty regarding whether the existing vendor would continue to support the customer s environment and OS, the customer decided to issue an RFP. SOLUTION Mindtree was selected based on its pricing and a model that allowed the customer to remain involved in co-managing the environment. This became a differentiator as other vendors requested more control and access to the customer s environment. The customer engaged with Mindtree for data center infrastructure management, end user support, and application support. The engagement began with the following high-level goals: Co-manage environment of 400 to 500 devices. Engage with Mindtree for ad hoc work as appropriate. Free up and reallocate internal engineers to value-added projects that have an impact on the business.

12 12 FRAMEWORK ASSUMPTIONS Table 2 provides the model assumptions that Forrester used in this analysis. The discount rate used in the PV and NPV calculations is 10%, and the time horizon used for the financial modeling is three years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their respective company s finance department to determine the most appropriate discount rate to use within their own organizations. TABLE 2 Model Assumptions Ref. Metric Value X1 Hours per week 40 X2 Weeks per year 52 X3 Hours per year (M-F, 9-5) 2,080 X4 Hours per year (24x7) 8,760 X5 Working days 240 X6 Annual organization growth 3% X7 Staff annual salary $120,000 X8 Executive annual salary $150,000 X9 Ad hoc hourly wage $75 PY Prior year Source: Forrester Research, Inc.

13 13 Appendix B: Total Economic Impact Overview Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decisionmaking processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders. The TEI methodology consists of four components to evaluate investment value: benefits, costs, flexibility, and risks. BENEFITS Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often, product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line. COSTS Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created. FLEXIBILITY Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point. However, having the ability to capture that benefit has a PV that can be estimated. The flexibility component of TEI captures that value. RISKS Risks measure the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections and 2) the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit.

14 14 Appendix C: Glossary Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Companies set their own discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organizations to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows. Payback period: The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. A NOTE ON CASH FLOW TABLES The following is a note on the cash flow table used in this study (see the example table below). The initial investment column contains costs incurred at time 0 or at the beginning of Year 1. Those costs are not discounted. All other cash flows in years 1 through 3 are discounted using the discount rate (shown in the Framework Assumptions section) at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the summary tables are the sum of the initial investment and the discounted cash flows in each year. TABLE [EXAMPLE] Example Table Ref. Metric Calculation Year 1 Year 2 Year 3 Source: Forrester Research, Inc. Appendix D: Endnotes 1 Forrester risk-adjusts the summary financial metrics to take into account the potential uncertainty of the cost and benefit estimates. For more information, see the section on Risks.