IT on Demand: Why Integrated Services Are Exploding

Transcription

1 Q4 15 IT on Demand: Why Integrated Services Are Exploding Predictable, utility pricing for mobile, network services drive demand By Robin Gareiss President, Nemertes Research Compass Direction Points: ± Digital transformation is changing IT. Digital strategies are pulling more people into technology decisions, while changing the skills needed in IT. Yet 51.5% of companies can t find the right people. ± Capital expenses are shifting to operational. More than two-thirds of companies are spending more on opex, including cloud, managed, and professional services, to offload functions from IT. ± Partners, trusted advisors key to IT success. IT leaders increasingly are relying on their trusted advisors to help them develop and execute on technology strategy. ± As-a-service offerings provide simplification. Integrated, packaged solutions take significant burden off of IT to deliver hardware, devices, services, apps, and support services for a predictable, per-user monthly fee. 1

2 Executive Summary Digital transformation is changing everything about information technology, and even the business itself. As IT morphs from a back-office function, to a knowledge-worker enabler, to an allencompassing, integrated part of every employee and most things in a company, the traditional IT staff s role is changing rapidly. Rather than functioning as a keep-the-lights-on department, successful IT teams are becoming core to business and technology strategy. They are helping their companies build a digital strategy including internal IT capabilities, such as next-generation collaborative mobile environments; digital marketing strategies, such as the company s online presence; and digital business strategies, or the integration of technology into products the company sells. That s not an easy transition, particularly as most companies are having trouble finding people with the skillsets they need to execute on the new business-technology functions. As a result, they must rely on their partners and trusted advisors to offload select IT functions, with flexible rollout schedules. Instead of running every IT capability, IT staff members will manage their partners, who in turn, will handle a variety of capabilities from mobile device programming and management, to LAN/WAN management, to security capabilities, to application development. The demand for integrated, packaged service portfolios, with flexible, utility-based pricing will continue to grow in support of the changing IT environment. The Issue Several major shifts are underway in businesses today, most of them driven by digital transformation initiatives. Exactly what is digital transformation? In short, it s revising how organizations operate in a world in which everything is digital. Innovative CIOs will fight to lead this effort or executives will create a new position (typically a Chief Digital Officer) to take on the task. One innovative IT leader, the CIO of a popular professional sports team, now focuses on how technology can optimize the fan experience in the stadium and how analytics can help coaches evaluate optimal player performance rather than day-to-day technology functions. He relies on partners for that. Enabling a digital transformation means putting in place a strategy for conducting business, in a world where connected sensors deliver information on appliances, cars, and even gym shoes. It also means controlling the company s image, when the brand can go from zero to hero (or vice versa) in minutes on social media. In most companies, digital strategy comprises three main areas. (Please see Figure 1): 2

3 Digital Transformation Strategy Digital IT Digital Business Digital Marketing Figure 1: What is a Digital Strategy? Digital IT This covers what s traditionally been known as IT, such as the internal use of technology for employee-to-employee communications and collaboration. It also addresses how to cope with the accelerating influx of information from sensors, social media, and other new sources on existing resources (ie, networks, servers, security, management tools, etc.). The CIO or CTO run this function. Digital business This encompasses how business models evolve as digitization changes the value proposition of products and services, evaluating when, where, why, and how technology should be integrated with what the organization sells. The business unit leaders, CIOs, CFOs, or newly created positions (Chief Digital Officer, Chief Innovation Officer) are responsible for this area. Digital marketing This defines and leverages a company s digital branding, communications, interaction, and advertising initiatives on social media, Web sites, and search engines, and reconciles it with the non-electronic world. It also evaluates how to better interact with customers, prospects, and partners in an online, always-connected world. The CMO or Chief Digital Marketing Officer runs this group. As part of the digital transformation, a major shift is underway regarding how companies buy technology: Spending is moving from capital to operational expenses. Among the many drivers are predictable, utility-based costs that increase or decrease based upon business requirements. Additionally, buying services vs. products makes IT staffs more agile to respond to business needs and leverage technology in the products and services sold. 3

4 At the same time, most IT staffs are flat or shrinking while demands from the business are increasing and changing requiring new skillsets without new headcount. As a result, they must turn to their partners to take over many tactical functions, while IT leaders retrain or replace staff members so they have new skillsets required. X-as-a-Service offerings help IT organizations meet business demands, while freeing IT leaders to meet burgeoning strategic planning initiatives. IT Spending Changes Two thirds of companies are shifting their IT spending from capital to operational. (Please see Figure 2.) In 2015, they moved 15.9% of their capital expenditures to operational, and in 2016, they expect to move another 19.4%. About 54% of companies started this shift between 2012 and 2015, so the trend and associated results are relatively new. Figure 2: Budget Change [Nemertes IT Outlook benchmark, 2015] The increased operational spending is going toward services from partners cloud, managed, and professional services, primarily. Only 21% of companies plan to use the spending to increase their internal IT staffs, and 15% will spend more on training. (Please see Figure 3.) The spending shift puts new pressure on IT leaders to demonstrate success of each IT initiative. In the past, most new technologies came into the company as capital investments. IT staffs would create a business case showing compelling metrics to help sell the project. But once implemented, the deployments were sunk costs and rarely were they reviewed again. With more operational projects, financial leaders review budgets annually with more scrutiny. Any underutilized services or apps are at risk for budget cuts a big driver for more internal IT marketing and training to increase user adoption. Additionally, even though IT staffs are not 4

5 managing as much technology day-to-day, budget and resources must still be devoted to managing the relationship with the partners. 60% Increases in Operational Spending 50% 51% 40% 30% 30% 28% 20% 21% 10% 15% 0% Cloud Managed Services Professional Services More Internal Staff Training Figure 3: Sources of Operational Spending [Nemertes IT Outlook benchmark, 2015] Drivers of Change Drivers behind the growth in operational spending overall vary by organization. According to Nemertes IT Outlook benchmark, IT leaders identified the following drivers: Strategic move to cloud or managed services to make IT more agile Augment IT staff, since IT headcount is not increasing Buy services that offer expertise not available in-house Intentional movement away from managing infrastructure and hardware internally Services provide ease of use for remote locations Financial or tax benefits One of the financial benefits of operational spending is predictability. Utility-based pricing structures, which incorporate any combination of hardware, software, services, implementation support, security, and ongoing troubleshooting, are gaining steam among IT and business leaders. By viewing new technologies as solutions, IT staffs can buy offerings that combine a multitude of capabilities into one, predictable monthly fee, per user. When a device breaks, apps need an upgrade, bandwidth needs a boost, or employees need help, IT managers don t have to find budget or time to address the issue; the partner handles it. Meanwhile, the IT staff becomes more strategic, helping the company leverage technology to grow the business and revenue. 5

6 One word of caution: IT leaders who adopt the mantra: Out of sight, out of mind will not find success. They must foster the relationship with the provider. For example, even though they do not have to worry about upgrades, they would benefit from regular communications with the partner in an effort to align priorities. That way, when the provider must prioritize which upgrades to do when, chances are greater that those decisions will benefit the company. Transitioning IT Staff Success in managing partners, as well as supporting the corporate digital strategy, requires different skillsets than typically exists in the traditional IT staff. The DNA of IT is changing to support new requirements, and 51.5% of IT leaders say they are having trouble finding the right people. Among those having trouble finding IT staff, 76.5% are shifting capital to operational spending and 60% are specifically moving to the cloud. Legacy Technology expertise Emerging Technology + business expertise Tactical Strategic Focus: Product/app works Focus: Users like interface Whiz-bang coder Manage partner, who employs whiz-bang coder Focus: Bits and bytes Focus: Solutions Often introverted Solid communicator Industry knowledge not required Industry knowledge preferred or required Figure 4: Changing DNA of IT Staffs There always will be a need for technically savvy people within IT just not as many as in the past. Many of those interested in running a technology platform will primarily transition to a service provider, cloud provider, or systems integrator in the coming years. The makeup of the IT staff will steadily shift to new or retrained people with different strengths and skillsets and backgrounds in business, marketing, and communications. (Please see Figure 4.) For example, marketing expertise will help get the word out about new capabilities so employees actually use them and understand how new apps or technologies will make them more productive. Similarly, business leaders must incorporate technology into their products and services to maintain competitiveness; those with business and technology expertise who also are good communicators will be crucial in connecting the dots. 6

7 What Skillsets Are You Seeking in New Hires? Understands our Business Understands Contracts 37.5% 40.8% Understands Regulatory Environment Can Analyze SLAs Has Industry Expertise Understands Technology Integration Project Management 33.3% 30.8% 30.8% 28.3% 28.3% Evaluates Risks and Rewards 20.8% Bridges Old, New Technologies Understands Security and Compliance 1.7% 0.8% Figure 5: New Skillsets in Demand for IT [Nemertes IT Outlook benchmark, 2015] As IT leaders look toward the future, they want technologists who understand the business, along with any combination of expertise in contracts, specific industries, regulatory issues, and project management. (Please see Figure 5.) Indeed, the new-age business-technology professional is being pulled in different directions. IT leaders who emerge successful in this transformation must spend more time and energy on business-unit strategy developments, while still overseeing tactical technology functions. That s where partners come in along with integrated products and services that are easy to buy and implement. As a Service Addresses Multiple Needs The as-a-service model is gaining favor with IT leaders because it takes the pressure off of IT to put all the pieces together to deliver a solution, and instead relies on partners. Various technologies are appropriate for as-a-service offerings, though common ones include wireless and mobility, network infrastructure, UC and collaboration apps, and cloud-based enterprise apps (ie, CRM, ERP, document sharing, etc.) In Nemertes benchmark research, IT leaders say the key drivers for these services are agility, technical expertise, predictable pricing, and keeping up with the latest upgrades and feature sets. Predictable, structured pricing certainly is a draw, but actual rates matter, too. At first glance, rates may appear to be higher than the hard costs for providing the same service internally. But when factoring staffing and other operational costs, as-a-service models often are less Drivers for X-as-a-Service ü Agility ü Technical expertise ü Predictable pricing ü Up-to-data features ü Predictable pricing 7

8 expensive than running the service in-house, particularly for small and midsize businesses that do not already provide 24 x 7 support. Take mobility, as an example. Companies typically budget between $50 and $100 per month per employee for a smart phone and associated services. Those who pay for employee-owned devices reimburse them about $70 per month, according to Nemertes benchmark data. Costs vary based on the device selected, the data required and the international traveling requirements. The true value of as-a-service plans, however, is in the implementation and support services, device warranty, and executive care. Figure 5 illustrates the actual cost of capabilities typically found in as-a-service offerings. With as-a-service offerings, monthly prices range from $30 to $75 per month per employee compared to $233 to buy the device and service separately from any support and implementation. (Please see Figure 6.) One engineering firm estimates it saved $50 to $120 per person by moving to a managed mobility service. The key drivers were predictable prices, streamlined devices to run engineering apps, and 24 x 7 support for traveling employees. Typical*Costs*for*Mobile*Capabilities*#*Internal*Support 1000#person*company Per*employee Notes Device&lease $&&&&&&&&&&&& Assume&243month&term Unlimited&voice,&text $&&&&&&&&&&&& Unlimited&data $&&&&&&&&&&&& Often&combined&plan International&roaming $&&&&&&&&&&&& Base&plan&plus&usage 24&x&7&support $&&&&&&&&&&&& Average&compensation&of&$83,200 On3site&implementation $&&&&&&&&&&&& Average&of&15&minutes&per&device Concierge&service&for&executives $&&&&&&&&&&&& &executives&x&2&hours&per&month Total*monthly*cost $********** Figure 6: Mobility Cost Breakdown [Nemertes Mobility, UC TCO benchmarks, 2014, 2015] The ability to offload all of mobility, or network functions at a branch location, or collaboration apps enterprise-wide, for example, eases the burden on IT staffs. What s more, the as-a-service model typically allows for gradual migration, so IT staffs don t need to do a flash cutover that impacts the entire enterprise at once. They can move at their own pace, by geography of job function. As stated, effective partner management is key to success. Working with a company considered a trusted advisor correlates with success. Trusted advisors differ from strategic partners or commodity providers in that they help their customers develop effective IT strategies and then execute on them. Conclusion and Recommendations As the make-up of IT changes, leaders must look toward new solutions and new partners to fill the gaps. Internal IT staffs will become more strategic and less tactical regarding how the company leverages technology. They need partners who can help them not only be their sounding boards on new technology strategies, but also help them execute on those strategies with offerings that are simple to buy, implement, and manage. 8

9 Nemertes recommends the following:! Shifts to operational spending will result in annual reviews of spending for each service. First, make sure the services IT offers align with employees demands (though discussions and perhaps surveys). Then, make sure employees know what s available and understand how the apps or services will help them do their jobs. Low user adoption could spell death for the technology in question.! Plan for future staffing changes. Evaluate how the company is changing its use of technology and how IT will be involved in digital transformation. Hire people or retrain existing staff to have the skillsets required for success.! Evaluate as-a-service offerings that combine equipment, apps, and service in one, monthly per-user fee; provide predictable, flexible pricing models; and offload implementation and troubleshooting. Not only will these services ease the burden for IT staffs, they often will save money when factoring the staffing costs to provide the same level of service. They also enable flexibility by allowing companies to add the services as needed, perhaps starting with specific locations and scaling when the time is right.! Out of site shouldn t be out of mind, though. When using partners to provide X as a service, make sure to manage the relationship so priorities are aligned.! Work with companies you identify as trusted advisors to gain new perspectives, develop successful strategies, and execute on technology plans. About Nemertes Research: Nemertes Research is a research-advisory and strategic-consulting firm that specializes in analyzing and quantifying the business value of emerging technologies. You can learn more about Nemertes Research at our Website, or contact us directly at research@nemertes.com. 9