Seeing—And Seizing—The Emerging Consumption-Based IT Delivery Opportunities for the Large Enterprise

Seeing—and Seizing—the Emerging Consumption-Based IT Delivery Opportunities for the Large Enterprise

A WHITE PAPER PREPARED BY CLOUD CRUISER, INC. JULY 2014 Contents

Introduction 1. The Changing Role of Large Enterprise IT 2. The Emergence of Consumption-Based IT Service Delivery 3. The Business Trends Behind Consumption-Based IT Service Delivery 4. The Benefits of Consumption-Based IT Service Delivery 5. Seizing the Consumption-Based IT Service Delivery Opportunity

Conclusion

About Cloud Cruiser

“Indeed the first rule of survival is clear: nothing is more dangerous than yesterday’s success.” – Alvin Toffler Executive Summary

Whether an enterprise has moved to cloud computing, chosen (for the present) to remain with traditional IT computing, or embraced a traditional/cloud hybrid approach, mastering consumption-based IT service delivery is a must in order to thrive in this era of accelerating IT transformation.

To meet the considerable challenges involved, large-enterprise CFOs, CIOs, and their IT teams will need both to develop appropriate IT strategies and to take full advantage of a new generation of IT tools that can provide far greater clarity, control, and choice, especially in such areas as financial management. Specifically, they need tools that can help them as they perform such tasks as planning for data center consolidation, negotiating volume discounts from public cloud providers, comparing costs across service providers, and assisting lines of businesses (LOBs) in making better procurement and other decisions.

As technologies evolve and competitive pressures intensify, such tools are fast becoming an absolute necessity. In a way, the situation is like rowing upstream: not to advance with the help of these kinds of tools is to drop back. Introduction

“When you’re through changing,” the adage goes, By embracing the technology options now “you’re through.” This has certainly been true in available, IT becomes the catalyst for competitive many facets of business over the years, and in differentiation. today’s large-enterprise IT world it is gospel. Leading these teams, of course, are the CFOs For large enterprise CFOs, CIOs, and their IT and CIOs charged with guiding their enterprises departments, however, the key challenge lies not through this transformation: leaders who must in acknowledging this fact of business life but in supply both the vision and the tools and other answering the many related questions they hear resources to deliver the clarity, control, and choice that begin with that pesky word “how.” How, for that will enable IT teams to turn the vision of a example, do they change to best meet their needs superb IT capability into a valuable reality; leaders and those of their various collaborators in the IT who have the opportunity to become true heroes to design, development, and delivery process? How their enterprises. do they best balance budget constraints with This white paper aims to speak to these people, the constant call for new capital and operational offering them our thoughts as well as the insights expenses? How can they do all the right things— and research from numerous industry authorities, those things that reduce costs, save time, add surveys, and studies. In particular, it focuses on one value, and ensure a competitive edge—and do all critical component in the emerging large enterprise of them right? landscape: consumption-based IT service delivery. While these questions resonate with most large Whether an enterprise has moved to various cloud enterprise IT teams, they have a special meaning computing approaches, has chosen to remain (for for those that pride themselves on being the the present) with traditional IT computing, or has IT ground-breakers, technology trend-setters, embraced a traditional/cloud hybrid approach, and creative thinkers—the innovators and early mastering consumption-based IT service delivery is adopters who are passionate about, and committed an opportunity today’s large enterprises must see… to, smooth and speedy IT transformation. and seize.

For those who embrace transformation, the benefits are substantial. These leaders realize that providing IT resources faster and on a more targeted basis gives the corporation distinct advantages. They are have shorter time to market than competitors, more efficient operating costs than competitors, and higher client satisfaction than competitors. The Changing Role of 1 Large Enterprise IT

In recent years, numerous drivers of change have had a dramatic impact on large enterprise IT organizations. One of these has been the growing expectations of users who demand such capabilities as greater mobility, faster delivery, lower costs, and more and better services. Another has been the changing landscape of business itself, which increasingly incorporates new technologies and adopts new organizational and process models to address a variety of internal and client/partner needs. Still another— and one which is already having an enormous impact on large enterprise IT—has been the emergence of new technologies such as cloud computing with its ability to offer benefits such as greater cost savings, productivity improvements, agility, and scalability.

While many IT industry observers have long talked about cloud in futuristic terms, the widespread use of this technology has already become an undeniable reality. Today, for example, cloud already accounts for 23% of all IT spending. And, in a recent Cisco/Intel survey of more than 4200 IT leaders from around the world, respondents noted that—by 2016—they see this figure rising to 27%.

Echoing this survey, consulting firm IHS recently forecast that between 2011 and 2017, cloud-related spending by businesses globally will literally triple, rising from $78.2 billion to $235.1 billion. The firm also noted that, in 2014 alone, spending would increase from $145.2 billion to an estimated $174.2, or a robust 20%.

Global Spending Forecastby Enterprises on Cloud Architecture (Billions of US Dollars) $250

$200

$150

$100

Billions of US Dollars $50

$0 2011 2012 2013 2014 2015 2016 2017

Source: IHS (February 2014) Add to this, Gartner has recently made similar dramatic forecasts. Just three include:

• Between 2013 and 2015, worldwide cloud computing market will grow from $131 billion to $180 billion, an increase of 37%.

• By 2016, the bulk of new IT spend will be for cloud and cloud-related technologies and services.

• By 2017, nearly one-half of large enterprises will not only have private cloud deployments but also private/public (or hybrid) cloud deployments.

Yet, while there is a tendency to see cloud computing in monolithic terms, Chris Howard, research vice president at Gartner, suggests a more complex reality. “There is a flawed perception of cloud computing as one large phenomenon,” Howard recently noted. “Cloud computing is actually a spectrum of things complementing one another and building on a foundation of sharing. Inherent dualities in the cloud- computing phenomenon are spawning divergent strategies for cloud computing success. The public cloud, hybrid clouds, and private clouds now dot the landscape of IT-based solutions. Because of that, the basic issues have moved from ‘what is cloud’ to ‘how will cloud projects evolve’.”

3 Cloud Service Delivery Methods

SaaS PaaS IaaS Consume Leverage Be the Cloud the Cloud a Cloud

JUST ONE COMPONENT OF CLOUD DIVERSITY. Technology blogger Yung Chou affirms Chris Howard’s statement about the very non-monolithic nature of cloud by illustrating the three very different delivery methods of cloud computing: Software as a Service, Platform as a Service, and Infrastructure as a Service, namely SaaS, PaaS, and IaaS. Source: Yung Chou (March 2011) This shift has several key implications.

First, the very culture of IT departments is in the midst of changing from a traditional reactive, order-taking focus to a much more pre-emptive one Promo pitching enterprise social software to companies with IT personnel expected to listen more closely to streamline communication between groups, capture to the specific LOBs they serve and help drive collective intelligence, and increase productivity. Source: blueKiwi website business growth and improvement. A key part of the challenge here, according to Dan Roberts, the A couple of additional findings president of Ouellette & Associates, a consulting are notable here. firm that focuses on IT transformation, is positioning the IT department as the “internal consultant of First, while many have feared that the increasing choice,” as opposed to other available consulting roles of LOBs and third-party service providers will or advisory services. lessen the influence of IT departments, the recent Cisco/Intel survey found otherwise. Worldwide, Second, to work successfully with a variety of 56% of its respondents said they believed that, internal and external constituents, more IT teams in coming years, IT departments would become are becoming highly collaborative in nature. This larger and more centralized, and 57% felt that the means that, in addition to working with various role and responsibilities of internal IT departments other internal and external groups, IT teams will would increase relative to third parties. Indeed, need to become far more aware of these groups’ the survey went on to note that LOBs are funding business perspectives and how they add value. 44% of total IT spending globally. This means, the This will, in turn, increase the IT team’s value to survey report noted, “that the emergence of LOBs these constituents. In fact, many large enterprises— as buying centers for IT is not a long-term prospect, appreciating the need to bring employees from but a reality.” different segments of the business such as, say, IT and human resources more closely together—are Second, there is also a growing call for more even promoting enterprise-wide social networks. comprehensive metrics by IT departments, especially when it comes to business ROI. In the Finally, every organization—because its needs recent Cisco/Intel survey of IT leaders worldwide, are unique—must transform itself in the ways that 76% noted that they believe that IT teams “will make the most sense to achieve its business goals. become more metrics-driven.” In addition, the While spending for cloud solutions is growing, survey report stated: “Along with the more for example, every enterprise will need to assess traditional performance metrics related to system which solution or mix of solutions is optimal: private uptime and security breaches, our respondents cloud, public cloud, hybrid cloud, or hybrid cloud/ expect to see more business-oriented metrics, traditional IT. This, of course, suggests a far more particularly those involving return on investment.” complex IT landscape, one that offers numerous new challenges. The Emergence of the Consumption-Based 2 IT Service Delivery Model

In order to provide the clarity, control, and choice its various business partners will need going forward, more IT organizations are adopting consumption-based IT service delivery approaches. As opposed to traditional approaches, the consumption-based model is one in which a price is assigned for IT services and consumers pay only for what they use. Essentially, it’s the same “metered” approach that a utility company uses to charge for water or electricity. Cloud computing, with its ability to provide IT as a Service (ITaaS), has been key to making it feasible for more and more enterprises. In addition, it offers numerous benefits (such as business agility, lower costs, greater productivity, etc.) over other approaches such as subscription-based pricing models, in which customers commit to the service for designated periods of time.

Specifically, the IT consumption model describes how supply is separated from demand. Users generate services from an approved inventory stored in a service catalog, in which each service has specific pricing. This pricing could either be fixed or variable. And the model can include services brokering, or services from outside as well as within an enterprise’s IT group. “Both sources are equally valid,” notes Ken Oestreich, who has written extensively about ITaaS, “so long as IT still provides common governance, access, pricing, and secure delivery to internal LOB customers.”

“Anyone who thinks the industry isn’t going to this kind of model is kidding themselves.” – Keith Norbie, CTO, Nexus Information Systems The Business Trends Behind 3 Consumption-Based IT Service Delivery

Three business trends in particular are converging to make this consumption-based model extremely attractive for a growing number of large enterprise IT departments.

The first is the fast-growing acceptance of cloud computing technologies, which offer a variety of advantages over traditional IT models. With a cloud capability, for example, enterprises can much more accurately measure the value of their various capital and operating expense outlays; stay competitive by cutting costs and operating more efficiently; and enable LOBs to work more closely with IT to better address specific business needs.

The second is the emergence of ITaaS, which is simply not feasible without a consumption-based model. This has given birth to the IT Infrastructure Library (ITIL), which, in turn, has spawned a service catalog that offers specific pricing as well as self-service provisioning and service level agreements (SLAs). This allows IT to work with LOBs as a “broker of services,” choosing the best possible resource (be it internal or an external third party) to solve a business problem.

And the third is the movement toward data center consolidation and optimization. To achieve economies of scale, reduce footprints, and address other needs, more enterprises are dramatically reducing the number of in-house data centers and centralizing resources. While this makes absolute sense, this often creates numerous problems. Imagine, for example, a company with 30 different data centers, each with its own way of doing things, merging into just two or three centers, at which various departments (that have never done so before) must now share IT resources. Questions often arise like: “Are you delivering the service at a lower cost than we could in a stand-alone environment?” and “How do I know I am only paying for what I use?” Yes, consolidating has its challenges, but, with the right consumption-based tools for measuring output and evaluating resources, everyone involved has a clearer, more complete sense of what’s what. The Benefits of Consumption-Based 4 IT Service Delivery

In an environment driven more and more by • Lower Costs. The right consumption-based business metrics, consumption data must be model and tools can lower costs by giving optimized to provide high-quality information in companies greater control over spending, greater areas such as cost transparency and chargeback, visibility into how services are being used, and supply management, service and consumer the ability to compare costs across different analysis, profit maximization, demand forecasting, platforms and vendors. Actual resource usage, rate modeling, and sophisticated what-if analysis. aggregated by geography, LOB, or application For large enterprises of virtually all kinds, the greatly increases forecast accuracy. IT teams benefits of a consumption-based IT services model broker for lower costs far more effectively. can clearly be compelling. Among them, five that are key include: • Cost Transparency. Consumption-based models and tools also enable LOBs to see in • Agility. Simply put, this model makes enterprises greater detail and depth exactly where their more nimble. They can, for example, shift IT investments went and the value those workloads from one place to another to respond investments deliver. In addition, it provides to a business need more quickly. Or, just by metrics that offer valuable insights into ROI for selecting from a “menu” of offerings in a services different applications and projects. With more catalog, LOBs can pick only the services they detailed and higher-quality information, IT need for only the times that they need it. This departments can better serve LOBs and LOBs agility translates into faster time to market for can make better business decisions. products and services, resulting in increased revenue opportunities. • Productivity. It’s often difficult to measure productivity because IT costs have traditionally • Better Alignment Between IT Service Delivery been difficult to understand and are expressed and Business Goals. By working more closely in terms that do not offer much insight. With together, and by using tools that can more consumption-based models, IT costs can be accurately measure performance and assess expressed in per-unit terms. The cost of a unit value, LOBs and IT teams can better assure that of work or a service can be tracked over time, the value derived from applications or projects showing if the technology decisions made by justifies the IT cost to deliver the solution. With IT are reducing per-unit costs. This is especially data about usage consumption readily available important in an IT environment that is growing. at the LOB level, the partnership between IT and Typically, management views IT costs in total, the LOB increases, leading to better provisioning and the total just gets larger. By presenting facts and more responsiveness. about lower per-unit costs IT can prove improved productivity. Coupling this per-unit cost with increasing levels of consumption by LOB helps justify the increased total spending. Seizing the Consumption-Based 5 IT Service Delivery Opportunity

Making the most of the consumption-based IT and other decisions—they need solutions that can service delivery opportunity depends on two key deliver high-quality information and insight. Simply ingredients. First, the organization must have put, this is the only way they can fully realize the will to commit to IT transformation across the the enormous promise of consumption-based IT enterprise. Second, it must have the wherewithal service delivery. to turn a vision of transformation into a valuable What would such a solution reality. be like? Assuring that enterprises have the will to First, unlike many tools and solutions now being embrace IT transformation is often a major used to perform tasks they were never designed executive challenge for CFOs and CIOs. Perhaps for (such as traditional spreadsheet software), employees—because they haven’t yet experienced this solution must be built from the ground up to a new approach first hand—don’t fully appreciate address the needs of IT teams in the consumption- its dramatic benefits and are unwilling to commit based world. to change…and the hassles that accompany it. Or perhaps these people are simply cynical of all the As such, it must be flexible enough to work “hype” that comes with talk of new technologies effectively in whichever computing environment and processes. Whatever the case, these CFOs a large enterprise’s IT group supports either and CIOs must effectively address objections to now or in the foreseeable future: private cloud, IT transformation and persuasively communicate public cloud, hybrid cloud, traditional IT, or cloud/ not only its potential value but also its absolute traditional hybrid. necessity. It must also be adept at supplying in-depth While the need to communicate a compelling vision business insights to various constituents. for IT transformation might not seem like a big These include: hurdle, IT consultant Dan Roberts has found that • Executive level reporting that enables CFOs and it often is. “Even when [some CIOs] have a good CIOs to keep tabs on their IT spending, resource transformation plan,” he has noted, “communication capacity, forecasted demand is done so poorly that they don’t get people on board or get people driving it across all levels.” • Demand management that helps enterprises understand how customers are consuming Having the wherewithal is usually a matter IT services in a variety of dimensions: by of having the investment money and using it geography, technology tower, service type, and strategically: that is, investing in the resources other categories that will best help the enterprise achieve its IT transformation goals. And—especially when IT • Supply management that enables control of IT groups need accurate, detailed information and resources by monitoring availability valuable insight in order to see present situations more clearly, exert greater control, and exercise • Forecast capabilities that avoid costly greater choice in their buying, resource allocation, overprovisioning and service interruptions • Scenario planning offering “what-if “modeling Such a solution offers CFOs and CIOs capabilities and versioning they simply have never had before. Just imagine, for example, the ability to provide aggregated IT In addition, this solution must offer a variety usage across the enterprise (region by region, of helpful “nuts-and-bolts” cost management application by application, etc.) in order to: capabilities such as: • Plan for data center consolidation • Web-based reports of consumption, both for usage and costs. • Negotiate volume discounts from public cloud providers • Automated IT usage collection across private cloud, public cloud, virtualized platforms and • Compare costs across service providers non-compute resources • Help LOBs make better decisions about • Interactive data transformation facilitating data procuring services that support their specific aggregation and data analytics on a wide variety business needs of dimensions such as geography, provider, tower, consumer, etc.

• Multiple pricing plans which emulate external SEEING THE BIG IT PICTURE: providers such as Fixed, Variable, Tiered, The best IT financial man- Scheduled Pricing, and Resource State Pricing agement tools for today and tomorrow will must be designed specifically to provide clear, accurate, and detailed information that effectively addresses the above needs. As opposed to traditional spreadsheet software and other “make-shift” solutions now in use, such a solution offers extremely attractive features and many significant benefits. The challenge for CFOs, CIOs, and IT teams of course is to sift through the choices vendors are touting to find the tools that actually do deliver on the marketing promises. And the CFOs and CIOs who make the right selection— the one that will give their enterprise the most clarity, control, and choice in IT management and operational decisions—will become the heroes to their organizations. Conclusion

Call it a case of greater expectations.

Part of what unites nearly all of the key trends we see in large enterprise IT today is an expectation for higher value in all its many manifestations. As LOBs collaborate more closely with IT, they will want to hear about innovative IT solutions that can address their specific needs and help their businesses grow and thrive. And, as IT teams look to public clouds and other third-party service and solutions providers, they will be looking for new ideas about how they can positively affect business outcomes in a measurable way and for the technologies and tools that turn those ideas into valuable business realities.

Yes, the bar is being raised, and to meet—and exceed—these greater expectations in a more complex (and sometimes confounding) environment, CFOs, CIO, and IT teams must concentrate more intensely on collaborating with a greater diversity of constituents, leading in innovation, and creating value by making IT departments engines of growth and revenue generation. To do this most effectively, of course, they need the right solutions—ones tailored to today and tomorrow’s IT needs.

There really is no other viable option. In a way, the situation is like rowing upstream: not to advance is to drop back.

“To be sure, the bar for how IT adds value to the organization is being raised.” – Cisco/Intel Survey, 2013 The Company

About Cloud Cruiser

Founded in 2010 and headquartered in Silicon Valley, California, Cloud Cruiser offers an innovative cloud financial management solution that was built from the ground up to support the cloud economy. It maximizes freedom of choice for enterprises and service providers by providing dynamic financial intelligence, chargeback, and billing across heterogeneous IT environments and at all stages of the cloud adoption lifecycle

The company’s key strategic partners include: Microsoft, HP, Cisco, VMware, Amazon, Openstack, and Rackspace.

Cloud Cruiser gives you an end-to-end view of your organization’s IT usage and costs across public, private, and hybrid clouds, as well as traditional IT environments.

The product transforms and enriches your IT data to enable enterprises and service providers to perform the following high-value business use cases: • Showback/chargeback/multi-tenant billing • Service analysis • Consumer analysis • Profit maximization • Demand forecasting • Rate modeling • What-if analysis

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