I D C A N A L Y S T C O N N E C T I O N

I D C A N A L Y S T C O N N E C T I O N David Tapper Vice President, Outsourcing and Managed Services T h e B u s i n e ss Value of Managed Servi c e s i n Optimizing Productivi t y, D r i vi n g D ow n C o s t s, a n d E n s u r i ng a M o r e Ag i l e E n t erprise October 2013 Recent IDC research shows that strategic business imperatives for enterprises are centered on driving down operational costs, strengthening customer relationships, and improving financial management. However, the biggest challenges these organizations face in executing their corporate strategy include the inability to focus the right people and resources on strategic initiatives, lack of available investment funds and resources, and inadequate linkages between their IT environment and how business processes are managed. Now add to the mix a much more rapidly changing market, the need to drive product innovation, an expanding array of security and regulatory requirements, and increasing pressure to serve more customers and do so globally. Enterprises must make critical decisions to ensure that their investments in technologies, particularly for newer capabilities such as cloud, social, mobile, and analytics, can support these business requirements. To meet these challenges, enterprises are turning to managed services to help optimize the value of their IT investments so that they can achieve their corporate imperatives. The following questions were posed by IBM to David Tapper, vice president of IDC's Outsourcing and Managed Services research, on behalf of IBM's customers. Q. What are the key purchasing factors buyers need to assess to determine which managed services would be most effective in meeting their organization's business and IT needs? A. Today's marketplace offers buyers an array of what are referred to as "outsourcing" options that range from the more traditional engagement where buyers use services as simple as remote monitoring to the opposite end of the spectrum in which buyers utilize full-blown business process outsourcing (BPO). Cloud services can be used across the spectrum. Along this range of outsourced services are what are referred to as "managed services," for which buyers need to assess four key factors to determine the combination that would be most effective in meeting their organization's business and IT needs. First and foremost is the issue of talent. Enterprises need to assess if the role of managed services is to help enhance existing skills and/or expand their talent pool by gaining access to new skills from the provider, particularly in emerging spaces (e.g., mobility, social, cloud, analytics) or if the organization prefers to internally invest in upgrading talent and skills on its own. IDC 1576

Just as significant as the issue of talent is determining whether to utilize a dedicated managed service or managed services delivered as a shared service. This includes the emerging use of private and public cloud services, respectively. In selecting the appropriate service, buyers will need to balance many factors, such as optimizing costs and aligning spend with cash flows, which can be supported by using a shared service (public cloud); gaining access to best-in-class industry standards, for which using a shared service might also be preferable; or meeting strict regulatory and security issues and protecting strategic intellectual property (IP), which will likely require the use of more dedicated environments. Third, when it comes to capital investments involving IT technologies (e.g., server, storage) and facilities (e.g., datacenters, operations centers), organizations need to determine whether to own assets and maintain capex responsibilities or shift management and ownership of these assets to a service provider by moving to an opex model. This requires assessing the financial benefits that can accrue to an enterprise by owning assets (e.g., tax shield/depreciation) versus those gained by having the provider procure and own these assets (e.g., purchasing power). Additionally, enterprises need to determine the degree of criticality of the talent required to procure these assets: Should they retain this talent or let a third-party provider handle it? The fourth factor involves the selection of where a buyer wants its IT assets located. This is critical when it comes to determining financial and quality-of-service benefits that could be gained through a provider's scale of infrastructure (e.g., datacenters/hosting centers) and extensive operational capabilities versus the risks of a client not having complete physical control over assets located onsite. Q. What are the key drivers and reasons organizations look to use managed services? A. IDC research shows that there are four major factors for which buyers use managed services to achieve corporate imperatives and execute their corporate strategy: First and paramount is optimizing financial management; enterprises want to use managed services to help lower both capex costs and opex costs, which can then free up funds for additional investments. This is driven by internal cost-saving initiatives and what could be the high costs of upgrading to new infrastructure technologies. When it comes to talent and skills, buyers want to leverage managed services to give them access to resources, staff, and capacity as well as critical industry knowledge and expertise. The result is that enterprises can focus their people on the strategic initiatives needed to ensure success while letting the provider of the managed service focus on managing their IT environments. Managed services can also help enterprises ensure greater agility as well as quality and consistency, according to buyer feedback. Buyers view managed services as enabling time to market by helping speed up implementation of applications across business units, increasing operational efficiencies, and ensuring consistency of service through standardized global delivery. Buyers increasingly use managed services not just to optimize current capabilities by improving existing processes and adding functionality to installed technologies but also to adapt to market shifts through fundamental redesign of existing architecture using strategic technologies (e.g., virtualization, mobility) and emerging business models (e.g., SaaS/cloud services). 2 2013 IDC

Q. What are the key challenges and concerns facing buyers in utilizing managed services? A. Enterprises indicate that security and systems performance are top concerns when using managed services. When it comes to security, buyers need to understand that providers not only have a full array of security capabilities, whether that involves managed firewalls, intrusion detection (ID), security event and incident management, identity and access management services, and incident response capabilities, but also have a thorough understanding of critical security compliance and business issues. Linked to security is the need for providers to deliver on SLAs, particularly in areas such as availability, speed of provisioning, and responsiveness. In a world in which downtime or the inability to launch a new application to support a new business initiative can have critical financial and business repercussions, providers need to assure buyers that they are making critical investments in tools, technologies, and with the adoption of cloud services, infrastructure (e.g., virtualized services; hosting capabilities) to avoid these potentially disruptive situations. As with all options, buyers fear losing control over the management of their IT environments. Enterprises want to be reassured that providers can implement key capabilities to support buyer need for control. This must include robust governance and organizational capabilities, such as a program management office (PMO) to support aligning business objectives with service delivery; tools and technologies, such as dashboards, to provide transparency of service delivery; and escalation procedures to ensure prompt resolution of potential problems but with greater focus on automation that eliminates these problems. Part of the issue of control is related to costs. Many buyers may have difficulty calculating the potential cost savings of managed services and have expectations that the ROI is not significant enough. Ultimately, providers of managed services need to offer proof points that highlight how managed services can provide significant cost savings as well as a strong ROI to help buyers justify making the investment in these services. Q. How are enterprises using managed services as part of incorporating new capabilities such as cloud, mobility, social media, and analytics? A. The majority of enterprises want their provider of managed services to go beyond just operating their IT technologies. They expect their provider to incorporate what are referred to as professional services (consulting, integration) via which the provider can deliver valueadded capabilities. Increasingly, buyers want their provider to extend these capabilities beyond just standardizing and optimizing their technology environments to transforming and fundamentally redesigning these environments using new technologies (e.g., virtualization, mobile, social media, analytics) and business models (e.g., SaaS/cloud services). On the mobility front, enterprises expect service providers to deliver a fully integrated set of offerings that include developing and integrating applications while also providing ongoing management of mobile applications as well as devices, including the rapid adoption of bring your own device (BYOD). These offerings also have to support a full array of mobile technologies and platforms (e.g., iphone, Android, Microsoft) and a diverse set of business processes and applications such as salesforce automation, customer support, marketing, and location-based services. For social media and analytics, organizations are looking for providers to utilize these capabilities for such needs as customer care support across a set of multichannel options (e.g., Web chat, social, text, voice) and analysis of business operations to ensure optimal performance. 2013 IDC 3

Buyers also increasingly look to providers of managed services to offer an extensive set of cloud services and SaaS, whether private or public. In particular, IDC research shows that an organization's road map to using cloud services is driven by priorities of different business application environments. Some of the top environments that enterprises are shifting to cloud-based delivery are CRM, messaging, data warehousing, and finance and accounting along with infrastructure involving server and storage capacity, referred to as IaaS. Additionally, enterprises are blending new models of delivery (cloud) with established models as part of bundled services to enable access to new capabilities while ensuring a controlled migration from legacy environments to cloud-based delivery. Q. How have managed services enabled organizations to deliver business value? A. The results of a recent IDC study commissioned by IBM involving eight enterprises from divergent geographic locations, all of which use IBM managed infrastructure services, highlight the significant financial and business benefits that organizations gain from using these types of services. Beginning with enterprises' need to improve financial management and costs, this study showed that enterprises using managed services can achieve well more than 20% cost savings and an ROI of more than 200%. From a cost savings perspective, organizations are able to drive down operating and capital costs that can involve datacenter construction, consolidation of infrastructure footprint and application licenses, and more streamlined training. Captured within ROI are significant business benefits beginning with productivity. IBM managed services are shown to significantly increase availability of IT environments from servers to networks by decreasing downtime by more than 80%, which enhances and optimizes end-user productivity. The productivity of IT employees also increases because they have more time to focus on deploying newer capabilities, including deployment of new application functionality or business processes. Further, IBM managed services also enabled faster time to provisioning both infrastructure (e.g., virtual servers) and applications by reducing provisioning times upwards of more than 60%. This further enabled the IT staff to help organizations pursue new initiatives, make changes more quickly, and introduce newer functionality. An additional impact of achieving these higher levels of service capabilities is the ability of organizations to respond to audits much faster and with greater frequency. Collectively, these resulting gains from using IBM managed services are enabling organizations to achieve their corporate objectives of improving financial management, driving down costs, strengthening customer relationships, driving product innovation, shortening time-to-market and product development cycles, and adhering to critical regulations. A B O U T T H I S A N A L Y S T David Tapper serves as program vice president for IDC's Outsourcing Services research team. Mr. Tapper manages a group of analysts dedicated to developing research for IT outsourcing, business process outsourcing (BPO), and global sourcing, also referred to as offshore/nearshore. Mr. Tapper also provides strategic thought leadership on the transformation of the services industry to newer models of delivery including cloud computing and software as a service (SaaS). 4 2013 IDC

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