HfS Research attended Cognizant’s annual analyst meeting earlier this week. And while we attend many of these sessions over the course of the year, Cognizant is at present the darling of the IT offshore services and outsourcing industry for its consistent and impressive growth and positive levels of customer satisfaction, so we thought we’d share some impressions with our readers.
Cognizant's "Future" Quandary: more of the same?
Cognizant is driving its momentum through a framework it calls The Future of Work, a compelling, if undifferentiated, model that integrates thinking about emerging technologies, social media, globalization and the millennial worker. We believe it is the last category that has a shot at actually becoming a winner for the company—everyone else is also talking about the other three, so that’s just really become a race to execute.
However, given that talent makes or breaks this business, and given that the vast majority of Cognizant’s 100,000+ employees are – and will – continue to be millennials, this is a really smart area of focus. If (and this is a big if) it can lend its young-worker expertise to clients, it becomes even more compelling. We don’t see any outsourcing provider with this level of focus and commitment to this topic. Many will talk about it, but with Cognizant the issue feels real, and there are funds and resources committed to it. It will be interesting to see if the same messaging and programs work with Indian millennials as they do Western ones—even if this is the most global generation yet. Work cultures and attitudes can vary greatly across regions and HfS Research sees these differences as real impediments to implement this strategy globally.
Don’t expect any big changes from Frank and his team. It is fairly clear that the answer to the question “What next?” is “More of the Same.” This may not be a bad thing, especially for Cognizant stockholders and employees—they’ve had a good run and would like to see it extended. But we are analysts, not investors, and we crave the bold, the disruptive, the innovative. We’d like to see Cognizant take its enviable industry position and really shake things up, stand the whole offshore business on its head. With $2 billion sitting quietly in the bank, it could make some interesting acquisitions, or even commit to buying up a bigger slice of the BPO market. However, all of the large offshore players have a lot of cash sitting around, and all are reluctant to use it – especially where deals involve stock-dilution. Moreover, with several of their potential acquisition targets merging together (for example Genpact/Headstrong and EXL/OPI), the number of affordable attractive acquisition candidates is diminishing.
What Cognizant does have, is the genuine trust of many of its customers and is in a great position to engage clients in its innovations, beta-projects and break-throughs.
Some additional thoughts after some very productive time with Cognizant’s senior executives:
A lot of focus was on industry-specific solutions and platforms that at times made it sound like Cognizant could become a software company. Every provider struggles with that change and cognizant is no different. While everyone was disciplined in saying that services would be the focus, a few let it slip out that they would not object to a licensing model. And Frank himself made a point of continuing to seek “non-linear” revenues. One way to do that is to sell software.
Brand matters at Cognizant. There is a conscious investment and a high level of professional branding muscle being dedicated to building the brand. HfS sees this a strong long-term investment, but expects the brand that emerges to remain conservative—we’d love to see someone, anyone, in this industry be bold with their brand.
Cognizant is comfortable with its lower margins and correlates them directly to growth. The transparency is refreshing, but one wonders whether investors will continue to reward this strategy when growth inevitably slows down, or when a competitor decides to imitate the strategy.
The company says it paid the highest bonuses in the industry last year. Its clients should be pleased that Cognizant is making an effort to keep employees happy.
The company is sponsoring moves into adjacent white spaces in each of the primary verticals it serves. We’re not sure this will pay off in big ways, since the market is limited and there are contractual limitations in most deals that prevent them from taking knowledge gained at one client and re-selling it to another. These moves don’t feel big enough to make an impact company-wide, but we’ll reserve judgment for a year or so to see how many of these actually take hold and become profitable offerings.
Cognizant needs a much more aggressive BPO strategy to further its business process ambitions. Cognizant seeks to position itself as a Business Process solutions company, a big move from an ADM shop (albeit a very good one), where is can blend together analytics insights and business process process depth, underpinned by IT platforms. It’s obvious they have a lot of work to do. They must grow their BPO business, currently a small fraction of the total, and they must gain many more clients where they are delivering bundled services that include the application, their IP, and the business process, at a minimum. We have deliberated for some time that an acquisition would accelerate this process for the firm, potentially allowing them to leapfrog their competitors. However, with such a strong IT culture and a management team currently lacking a BPO DNA, you do wonder if this is the true direction for a company that has built its foundations on offshore IT work with large US enterprises. IT services competitors such as Accenture, Capgemini and IBM all have BPO at the forefront of their global offerings with multi billion-dollar business units. That is some difference.
HfS Takeaways
While the concepts in the Future of Work are not new, they are difficult to execute and Cognizant seems to be putting its money where its mouth is, even though it is doing so in smaller bites than we would like to see. If indeed Cognizant becomes the first to truly execute against all four major ideas in the framework, especially if it can successfully address the millennial worker internally and externally, it will earn many more years of a leadership position. The client examples the company provided of the framework in action seemed like a bit of a reach, but in fairness, at least they are taking their ideas to clients and trying to make something happen beyond the regular old delivery. Cognizant admits it will take time for all four concepts to stick in the same environment, another refreshing bit of transparency. If, instead, the framework fizzles into the pool of discarded marketing ploys and they can’t “sell” it internally and externally, you can expect to see very little movement in how and what they do. For the time being, that could be a good thing, but one has to wonder whether the company is too enamored with its success now, and that is making it too conservative and too vested in preserving the status quo.
Keith Strodtman, HfS Research Fellow, was in the Big Apple to attend ADPs’ analyst day. And for the very few of you who don’t know Keith, he was recently running Ceridian’s HRO business for many years, until joining the HfS Research family… so picture the dynamic 🙂
Here’s his report as the firm tries to move beyond payroll. Take it away, Strodders…
Strodtman puts ADP under the glass. Click to read the HfS RAPIDInsight.
ADP Analyst Day Report Out
Fresh off of its solid third quarter earnings release, ADP hosted its annual Analyst Day meeting on May 4 in New York City. The event was held at the New York Hilton, the traditional site of the former HRO World conference that for many years served as an annual “reunion” for those of us in the HRO industry (R.I.P. HRO World). ADP executives, including CEO, Gary Butler, Regina Lee, President of Major Accounts and Small Business, Carlos Rodriguez, President of National Accounts and Employer Services International, Mike Capone, Corporate Vice President and CIO, Jan Siegmund, Chief Strategy Officer and President of Added Value Services and several other senior executives delivered an information packed day full of product updates, market updates, and key initiative overviews. In this post, I will provide a few of the key observations from the event. For a comprehensive report of the day’s information please read my HfS Research Rapid Insight report found at hfsresearch dot com.
Most people are familiar with ADP as a payroll processor, but few providers can claim the broad range of other HR services that ADP has to offer. It HR services include:
Payroll
Benefits administration
Talent management (recruiting and pre-employment screening, performance and succession, learning, and compensation)
Time and labor management
Retirement services
Professional Employer Organization (PEO) services for smaller organizations
Small employer health insurance services
Employer tax services
Most of these services can be delivered in a traditional service bureau model, SaaS, or business process outsourcing (BPO) model.
Keith Strodtman, HfS Research Fellow (click for bio)
A big part of the analyst day was devoted to providing updates on ADP’s key technology initiatives. The company has been investing heavily in a technology refresh over the past several years and they had a lot to show. Product managers demonstrated Workforce Now HCM, the Workscape compensation module, Vantage HCM, and ADP Mobile.
Workforce Now was originally released 18 months ago and already has over 10,000 customers using it. It was originally targeted at companies with less than 1,000 employees. Since then, ADP has refined its target for the product to focus on less complex customers some of which may have more than 1,000 employees. In fact, the company reported that it has more than 70 customers with more than 1,000 employees on the product. Product managers did demonstrations of version 3.0 of the product and it was clear that a number of user enhancements have been made since the initial release.
Vantage HCM is ADP’s new solution targeted at the complex domestic customer market. Like Workforce Now, the product is an integrated suite of HR, benefits, payroll, talent, and time and labor functionality. The product represents a pretty significant leap forward from its predecessor product, ADP Enterprise. Vantage HCM is about to enter pilot customer implementations, launch is planned in the fall, and general availability is targeted for the first quarter of 2012. The company has plans to introduce a global system of record capability in 2012 or 2013, specifics were not provided.
Both Workforce Now 3.0 and Vantage HCM sport ADP’s new Revolution Interface, a rich Web 2.0 interface that provides a user experience that is more like a consumer web experience. A new integrated database, new talent management capabilities, improved search, enhanced workflow, social media integration, and built in business intelligence are some of the new capabilities that should be appealing to customers.
ADP Mobile is the company’s new mobile application that works with both Workforce Now and Vantage HCM. It is evident that ADP has learned a lot from its first mobile solution, ADP RUN, which is targeted at small businesses. I had a chance to play around with the mobile application and found it to be intuitive and functional. ADP Mobile will be available natively on the iPhone and iPad and as a mobile web application for other hand-held devises such as Blackberry and Android.
I was surprised by the speed with which ADP is refreshing its technology platforms. We have come to expect rapid development from smaller technology companies who don’t have a lot of legacy systems and customers but it is a new experience to see a company with such a large legacy base move with such relative speed. It should be interesting to monitor market reaction as the refresh moves into the larger market segments with Vantage HCM.
The HR BPO business is going strong at ADP. They now have over 160 customers live on the large market BPO offerings: Comprehensive Outsourcing Solutions (COS) and GlobalView, with over 80 customers each. The lower mid-market offering, Workforce Now COS, has over 500 customers. A recent ADP/PwC total cost of ownership studies show that COS customer save on average 40% over the cost of performing the same HR processes in-house. Look for the company to continue to invest in broadening the global reach of its BPO service, now available in about 70 countries.
ADP is clearly not the company it was a decade ago. Now with a broad range of HR solutions beyond payroll and technology that can compete well with so called “best of breed” solutions, it will be hard to ignore Big Red in the HR service market.
With that Great Nasty Recession finally behind us, are organizations increasingly turning to outsourcing their IT and business processes, or are they looking at other sourcing strategies to optimize their operations?
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Whether you buy, sell, advise or analyze outsourcing services, YOUR opinion is critical for our new study we’re conducting with our professorial friends at the Outsourcing Unit of the London School of Economics.
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Coincidentally, our resident utility player, Esteban Herrera (COO and SVP Research) has a long background in the Utilities space.
So we knew when he teamed up with Reetika Joshi, HfS Research Contributing Analyst for BPO Strategies, we’d see a great result. Now that the report is available on HfSResearch.com, Esteban has taken a breath to give you some background on what he and Reetika uncovered. Take it away Esteban…
Utilities: Next Practices for a Stealth Outsourcing Giant
Shhh… Don’t tell anyone, but while most of us weren’t looking, the utilities industry quietly racked up $25 billion in annual spend on outsourcing—that’s in the US alone! How did this happen? How did this get past the regulators and the unions? Who knew that outsourcing would not only grow, but stick, in this most conservative of industries?
The next generation business platforms for the industry will be built not by utilities themselves, but by collaborative alliances of clients, outsourcing providers, and hardware and software vendors. From plug-in electric cars to alternative sources to a flood of new regulations to demand-response-based pricing, the requirements for change in the industry are simply too many, too frequent, and too capital intensive for each company to develop on their own. It simply is not efficient for the industry if each company builds out its own platform for the next generation business model.
How utilities are being “bullied” for the first time in their long history, with major change (and even the rate of change) being dictated by regulators, customers, and (yikes!) even competitors; and how outsourcing can be a part of the response
As the grid becomes the network, the roles of IT and T&D are on a collision course which will force unprecedented technology and process integration
How some utilities are successfully leveraging outsourcing to ease the demand for talent brought on by the boomer retirement crunch
Which processes and functions have been successfully outsourced to date, and what the future holds
Why it makes good business sense to partner with providers on AMR/AMI, regulatory compliance, smart grid, and next-generation CIS efforts
What industry-specific challenges to expect, how they can lead to failure, and how they can be mitigated
Esteban Herrera, COO, HfS Research (click for bio)
HfS Research believes there are significant differences in the needs and expectations that each industry has around outsourcing. Providers do well to spread horizontal expertise across industries, but they’ll earn their stripes (and lots of customer loyalty) if they also master the vertical expertise. That’s why we are the only outsourcing analysts to have launched a rotating series of vertically focused reports to help buyers understand what outsourcing can do for them next, in their language. For a first taste of this vertically focused coverage, HfS research clients can download this rich new report here. Stay tuned for coming coverage on the other Energy industry, Oil & Gas, as well as Health Care Payer and other verticals.
Tony Filippone, Research VP, Governance, Sourcing & Healthcare Strategies (click for bio)
When Tony Filippone joined us recently, we knew we were in for a treat. Not only is he a recognized expert in the fields of governance and healthcare, but he’s also a heck of a speaker (he did, after all, snag an MA in Communication Management from the USC’s Annenberg School for Communication).
So, we couldn’t wait to sit down with Tony for a podcast recording to hear what’s in store for you in the coming months, now the “Governator” is officially onboard, and has bags of free time to dedicate to us with the Lakers NBA ambitions emulating the political aspirations of Donald Trump.
So… sit back, relax and enjoy this edition of the HfS Podcast, with Tony “The Governator” Filippone.
EXL: Fine wines, fine insurance and now some very smart Bulgarians
EXL and OPI, two of the smaller Finance and Accounting BPO (F&A BPO) providers, and both recently touted as acquisition candidates in HfS Research’s 2011 F&A BPO market landscape, have tied the knot in a surprising merger, in this rapidly-consolidating and transmutating BPO market. Not only that, HfS has officially uncovered the undisputed proven fact that Bulgaria is home to the world’s second-most intelligent people, according to MENSA’s IQ scores. Yes, EXL now has an operation there.
Already this year, we have seen bold moves from HOVS to acquire SourceCorp and Genpact with Headstrong. It appears that the leading “pureplays” (whom we won’t be calling pureplays anymore) are seeking to bolster their scale, service portfolio and industry competency, while several of the larger IT-centric outsourcers watch curiously from the sidelines as their BPO heads anxiously try to convince their boards of tech-lovers that offshore IT services growth isn’t infinite, and if they don’t invest in their BPO competencies soon, will face a very tough task to infiltrate this market in the future.
I have long-admired EXL as a business, since the early days of its IPO – its clients are like a who’s who of insurance giants. EXL has focused expertise in complex areas of insurance, namely risk management, analytics and compliance, in addition to transactional process. It has also been quietly developing its excellent LifePRO platform for or life, health and annuity insurance.
Here’s why this is an excellent acquisition:
EXL has struggled to broaden its client portfolio outside of the insurance sector. OPI brings a host of clients from the services and manufacturing industries.
OPI brings some sales chops to the party that EXL has sorely lacked. While EXL has developed an excellent reputation in niche circles within insurance and BPO, is has struggled to develop an aggressive sales organization, anywhere near comparable with the likes of Genpact, of even WNS. OPI has punched above its weight over the years, largely thanks to an excellent sales organization, which includes some former KPMG partners who came across with the formation of the firm, bringing with them a strong CFO network. OPI also has sales offices in Dallas, Houston, Atlanta, Chicago, LA, New York and DC. If EXL can retain this talent, it has a ready-made front-end to get itself into larger deal discussions. One little-known fact about EXL is the it has one of California’s finest winery tycoons on its board, which will be a strategic bonus when attempting to convince OPI’s management to put off retirement for a couple more years…
OPI adds to EXL’s European and India delivery competency. OPI has a small, but not insignificant, 440-seat operation in Sofia, Bulgaria, that adds to EXL’s existing European center in the Czech Republic, which was formerly Schneider Logistics’ captive operation. Bulgaria’s advanced education was ranked 5th amongst all countries in sciences and 11th in mathematics, according to The World Bank and The Economist, in 2005. Ranking 2nd in the world in IQ tests (MENSA International), Bulgaria also ranks 2nd in the world in SAT scores. The country also has some German, French and Italian language competency. Not bad for F&A huh?
What does this mean to the macro outsourcing environment?
One of the BPO industry’s prized assets just got a lot more expensive. Several of the billion-dollar offshore providers have long-eyed EXL as an acquisition to bolster significantly their BPO competencies – and HfS has been repeatedly informing the market that rumored acquisitions of EXL were baloney. Those outsourcers which could have significantly benefitted from acquiring EXL aren’t (yet) prepared to invest serious money in BPO and are pursuing “organic” growth strategies, while hoping to pick up bargain captives (which don’t really exist, but one can dream). This strategy is now backfiring, with fewer and fewer realistic and affordable acquisition candidates now available.
BPO-centric outsourcers are developing real enterprise delivery competency to compete effectively for the larger-scale deals. While a year ago, many were arguing that BPO “pureplays” were a dying breed, we are seeing several of them acquiring and developing additional scale, consultative, technology and process competency to compete with large-scale outsourcers. The term “BPO Pureplay” is quickly being replaced by “BPO-centric outsourcer”.
Still trying to figure out what we do? Still wondering what all these mischievous-looking chappies are up to? Well, your thirst for knowledge can finally be slaked by attending our hastily-convened special webcast, where we’ll be joined by our friends and partners at the Sourcing Interests Group (SIG) for a one-hour interactive session entitled HfS Research Up Close and Personal on May 5 at 2:00 pm ET.
SIG President and CEO Dawn Evans will join HfS Founder and CEO Phil Fersht, along with HfS COO Esteban Herrera, new HfS Research Governator VP Tony Filippone, and HfS VP of Marketing Mark Reed-Edwards for an hour-long look at HfS. You’ll find out more about the exciting new partnership between HfS and SIG, where we’ll discuss the prolific HfS research agenda, the burning sourcing topics facing todays’ enterprises, plus what’s in store for 2011. We’ll also talk about how how you can get involved, access our research and collaborate with HfS analysts and other SIG members about next practices for sourcing and business:
For a business even to consider outsourcing its operations, is a resigned acceptance that it’s not running them very well and it may as well source to a provider that can try and do a better job at it. At the very least, outsourcing will reduce costs and they’ll continue to plod along with more of the same.
Most people still claim they really outsource to save money – of course that’s an immediate benefit, but you wouldn’t even be considering it, if you had operations in place that were really good.
For example, this company wouldn’t have to do a lot of outsourcing:
“We have world-class HR, where we attract and keep top talent to run our business”
“We have superior finance, where we close the books in a week and our management can make rapid, informed business decisions”
“We have great customer support which upsells our products and makes our customers love us”
“And we have great IT brains that works with our business units to develop the applications our departments need, while automating processes to enable the business to be run efficiently.”
If your business is at the point where you view your IT support, HR, finance, procurement, customer service etc. as largely low-value administrative functions, then your functional heads and their supporting teams have failed you. I’m sorry, but if your business operations were run in a manner that could add significant value to your organization, you wouldn’t consider outsourcing them for a minute. I’ve been covering outsourcing for more than a decade, and I still believe in the value that great finance, HR, procurement and IT can give to a business, and it’s a crying shame that so many businesses today are giving up the ghost of finding this value within themselves – they know their business and their institutional processes the best, and looking to ship them off to a third-party is the final admission that their people have failed them. Here’s the hard evidence:
This recent HfS Research study of 209 US and European enterprises found that six-out-of-ten large enterprises are considering outsourcing to achieve more effective global operations. Yes, 90% are looking to save money, which is a clear short-term motivation, but the simple fact that over half of all business are also looking to re-engineer their processes, and achieve greater effectiveness into the bargain, is one major admission that their own operations are not good enough.
Why are so many business seeking to improve their operations?
I blame our education system – and this is endemic across many first-world countries. Why are we not producing enough graduates who are schooled in the value of developing great human resources functions, passionate about providing great talent management to business? Why are we not producing enough finance people, trained to develop a deep understanding of the complex global business needs in todays’ environment? Why are we not producing customer service leaders who believe the customer is still king? Why are we not producing enough IT grads who can apply real business logic to application workflows? The list goes on…
In India, we’re now starting to see several of their leading service providers hire kids straight from high-school at 18, bypassing a university system that clearly isn’t giving them the right training that most businesses today require. Conversely, in China, their education system is tightly interwoven with their economic development. But what about the US, the UK and other countries, where everyone is supposed to go to college and and get some some of degree, before graduating to face a genuine relevance gap between whatever they studied, and those skills employers actually need today?
In the olden days, graduates would start at the bottom, processing invoices, answering the phones etc. and work their way up the company. In today’s environment, if those staff are readily available in other global locations with more relevant training, a more willing attitude – and prepared to work for less (and not have a crippling student loan to repay), that’s where you’ll take your operations.
These are some of the core issues that are really failing today’s businesses, and outsourcing is merely a symptom of these core issues – not the cause! Preventing outsourcing to overseas locations is only going to punish our businesses which are crying out for a support infrastructure that can keep them competitive in today’s markets. The key is to serve up onshore talent that is primed, trained and ready for the needs of todays’ businesses.
Side-note to readers to clarify some points: There is no hard answer to my thoughts outlined in this post, and this is a complex, sensitive topic with many nuances. I am observing long-term macro trends that are shaping corporate behavior. The irrelevance of many college degrees to suit today’s business needs, combined with the financial impact on graduates’ early-stage career behavior, is having a major indirect impact on many businesses’ ultimate decisions to outsource. What is clear, is that there needs to be a complete overhaul of how young talent is developed in our educational system, if government leaders want to fight this ongoing trend of its leading enterprises looking overseas, not only to save money, but to access talent that is ready and willing to be plugged into their operational support functions. It’ll take a long time to reverse this trend, and you do start to wonder if it’s already too late…
In the short time Keith Strodtman has been with us he’s already produced an insightful piece on the Future of Work. And now he’s out and about. On April 19, he went to NorthgateArinso’s analyst day and filed this report as well as a new RAPIDInsight. Take it away, Keith…
NorthgateArinso’s HR and payroll outsourcing roots stem back to its days as a payroll service provider in the United Kingdom called Peterborough Software, later called Rebus Human Resources Services. Northgate Information Solutions acquired Rebus in 2004. Over twenty acquisitions later the company has emerged as one of the largest pure play HR service providers in the world, offering HR outsourcing, HR technology, and HR consulting services. At its analysts and advisor day in Atlanta on April 19th, several of the company’s executives provided an overview of their recent accomplishments, their growth plans, how they operate their business, and the latest on euHReka, their global HRMS solution.
Keith Strodtman, HfS Research Fellow (click for bio)
For those not familiar with NorthgateArinso (NGA), the company, now owned by the private equity firm KKR, was formed when Northgate, the largest payroll service provider in the UK acquired Arinso, a Belgium based HR systems integrator and HRO provider in 2007. While Arinso had a presence in the United States prior to last year, the company made a big splash in the US market in 2010 when it acquired the HRO business of Cincinnati-based Convergys. Smaller acquisitions in Europe and the Asia Pacific region have rounded out the company’s service delivery capability around the globe. According to CEO, Mike Ettling, the company has the assets it needs to compete in the global HR market and has now cemented its focus on customer service improvements and growing the business to $1B in revenue over the next few years.
There is evidence that the company is making progress toward those goals. Despite a challenging economy, the company grew revenues 8.5% in its 2009/2010 fiscal year and increased win rates in its HRO business. The company has made significant investments in its core technology platforms, established an extensive global delivery infrastructure, created a massive library of process standards, is in the midst of a company-wide rollout of Six Sigma, and has been developing the culture and skills it thinks are required for execution excellence and improved customer satisfaction.
NGA has developed an extensive service delivery network spanning more than 30 offices around the world. Major delivery centers can be found in India, Philippines, Malaysia, China, Spain, Argentina, Brazil, Canada, and the United States. They serve thousands of customers from these centers, including 100 global HR BPO customers. One of the fastest growing areas for NGA is global payroll, a service that currently counts about 400 customers.
One of the more interactive parts of the analyst day was during the euHReka overview and demonstration – you have to love the passionate debates between technology leaders and technology analysts. While certainly not the only arrow in NGA’s technology quiver, euHReka is clearly the most critical to the company’s growth plans. The solution can be deployed in both an on-demand (SaaS) model and on-premise at the client site. NGA claims 50 customers currently use euHReka around the world. One final note of interest on the technology front was news of a soon to be announced learning solution partner that will be tightly integrated with euHReka.
Under the leadership of Ettling and several new management team members that include US industry veterans Trey Campbell, Paul Hutchinson, and Brad Everett, the company has bolstered its leadership team with a lot of HRO experience. This combined with several marque wins in 2010 and several more promised in the near future, I don’t expect NGA to remain the relatively unknown brand, at least in the North American market that they once were.
While most of you were out toasting the Sunday dawn sunrise with a glass of Cristal, after a marathon night of ballroom dancing and karaoke, HfS analyst Brian Robinson was busy pouring over the issues surrounding the now-infamous Amazon Cloud-outage. So what better than that 1,301st perspective you must be eagerly craving… over to you Mr Robinson:
Amazon’s Cloud outage created significant buzz in the markets this weekend: Google’s news archive showed that by mid-day on Friday nearly 500 news sources were reporting on the topic with over 1,300 articles written. I was surprised to see how little coverage some other world events received, many of which are arguably more important. And then I saw a true media casino – the upcoming Royal Wedding.
A quick review of Google stats shows that over 11,000 articles have been written from between 600 to 1,400 sources. It’s not hard to imagine why the Prince has asked for a two year hiatus from the intense pressure and scrutiny post the wedding. I bet Amazon wishes it had a similar ‘get out of jail free’ card to use this weekend. But as a public company, they don’t. Nor have they earned their seat amongst the world’s largest service providers, which has its privileges.
Going forward, Amazon can expect a similar spotlight to highlight both its successes and failures. Why? The Cloud offering is a disruption to the tried and trusted IT and BP services model. Much is at stake and whether it likes it or not, Amazon is one of a few companies that now sits at the fulcrum. I am certain Amazon will improve their response to and management of similar situations should they reoccur. As important, I hope the other participants in the sourcing ecosystem (i.e., buyers, research groups and consultants, and providers) also gain some much needed perspective:
Perspective #1
Buyers: Know your customers’ availability requirements inside and out
Not that M. Zuckerberg and Facebook need any more airtime, but Mark gets his customers’ uptime requirements. As quoted from the Social Network, “…the difference between Facebook and everyone else, we don’t crash, ever! If those servers are down for even a day, our entire reputation is irreversibly destroyed!” Mark understands the value his customers put on availability – do you? Moreover, do you know what you have contracted for and how you are compensated if failure occurs? If not, then it may be worth investing some resources into finding out. Granted, Facebook has a single platform to worry about. Large enterprises have poorly integrated, multi-vendor supported, multi-technology beasts of systems, so there are more points of failure and determining who exactly was responsible for an outage could take longer than measuring the customer impact of said outage.
Perspective #2
Research analysts and consultants: provide pragmatic and objective advice
Traditional media outlets are responsible for reporting on the issues that may impact both customers and businesses. As respected and experienced industry analysts, our responsibility is to further focus discussions on the facts without feeding the media frenzy.
Following a review of the articles written immediately after the incident, I noticed a couple of comments from respected research houses that rained down on the future prospects of Cloud computing. Are these houses becoming as conservative as the IT organizations they influence?
Other, more pragmatic analysts, shared views similar to my own. For example, Vinnie Mirchandani, makes it clear that all service providers have delivery issues but few rarely receive the same media scrutiny. He goes on to propose that all public providers should face the same level of transparency. Although not pragmatic, his point is clear: Amazon has been singled-out: not for what is abnormal in the industry, but for bringing to market a disruptive service that some look to discredit.
Bottom line, big enterprises do not call the media when their own, mostly ancient, data centers take the shape of pears. We are quite certain this happens with more frequency than in outsourced data centers of both the “traditional” and “new” variety. Big data center providers are at greater risk, which is why their data centers tend to be more reliable—but they have downtime too. In fact, traditional providers are just more adept at handling it because, well, it happens more often than any of us ever get to hear about.
Perspective #3
Providers (really the new guys/gals on the block): experience counts in the lion’s den
The world’s largest service providers have many more years of experience than you do – some with 20 with others reaching 30. Yes, your technology is disruptive, but that does not mean you need to drudge through the same pitfalls that your predecessors have already navigated.
Brian Robinson is Senior Analyst, HfS Research (click for bio)
The best organizations will reflect on what has already been learned from the industry veterans and incorporate it into their service delivery plans. This includes, for example, robust disaster recovery plans and proper communications plans. Today’s largest providers have perfected how to be profitable while managing their client expectations and guarding against future failures. They did not learn these lessons overnight, and today’s new companies will benefit by hiring managers that can bring this to light.
And finally here’s even more perspective—the questions we should really be asking:
What is the relative reliability and security of the “new” Cloud offerings from Amazon? Are these offerings objectively a greater risk? Bring us data—not innuendo!
How much money was lost as a result of this outage? We know the damage done to the Amazon brand, but what about its customers’ brands?
