Gartner: Utility Computing as Sourcing Solution

I’m attending Gartner’s Symposium ITExpo 2005 in San Francisco. If you’re focused on IT management, this is an event worth coming to. You’ll get good, broad insights and useful data on trends, have access to Gartner analysts for one-on-one meetings, see plenty of enterprise management product demos in the exhibit hall, and hobnob with people struggling with the same problems you face. (Though I must say that this show doesn’t seem as collegial as the outsourcing event Gartner hosted in April. Maybe it’s the scale of the conference, but people aren’t as chatty as they were in LA.)

At any rate, here’s some data from a session by analyst Allie Young, titled, “Converging Trends in Outsourcing: Moving Toward the Light.” (Ms. Young is co-authoring a book on multi-sourcing with associate Linda Cohen, which will show up from Harvard Business School Press in the fall.)

• Infrastructure outsourcing -- the mature form of sourcing -- is a $146 billion business.
• Application outsourcing is currently a $35 billion industry.
• Business process outsourcing adds up to $112 billion -- and shows the strongest growth of any sourcing segment.

Gartner estimates that management services totaled about 52% of the services market in 2000. Why is that so important? Because it consists of the sorts of functions that frequently don’t need custom outsourcing solutions yet get them anyway -- at premium prices.

Gartner folks are talking a lot about utilities at this show -- IT delivered on demand, with variable pricing. One solution serves many customers. Through 2008, Gartner predicts, more than half of “new outsourcing deals will include IT utility service components. By 2010, infrastructure utilities will reduce data center operating costs by 40%.” When you see those ads for IBM’s On Demand or HP’s Adaptive Enterprise, you’re viewing those vendors’ branding of their utility solutions. For your part, it’ll mean standardizing and consolidating some of your processes so they can be served up as utilities.

If you’re a manager who leads an IT organization that’s considered simply a major cost sinkhole, the utility scenario may provide a route to regaining what Gartner calls “credibility” among your organization’s business leaders. The fact is that business value is created after the IT work ends. You may be able to exploit utility computing’s advantages and “demonstrate a direct, measurable link between services and business value.” That’s not always (if ever) possible for customized solutions. That will, of course, involve building what Ms. Young calls a “measurement culture.”

On the topic of offshoring -- what Gartner prefers to call “global sourcing” -- Ms. Young said Gartner predicts that through 2008 “75% of outsourcing engagements that use global sourcing will be suboptimized because of their tactical, cost-focused emphasis.” Her advice for gaining more value: Select your model carefully (captive vs. outsourced); map the location you offshore to to your company’s global locations; select your projects carefully; and progress from cost savings to value gains.

The session offered plenty more -- on BPO, sourcing strategy and execution and how to evaluate your organization’s readiness for sourcing. But I have another session to attend now.