1. Chapter 7: New Service Models
With the advent of reliable, high capacity networks, local software execution and data storage is no longer the only alternative or the best alternative from a business standpoint
Increasingly, software is designed to operate from geographically distant facilities that can belong to a service provider who delivers common service to many clients
Servers and storage devices are shared among applications and users
Such service delivery offer efficiency and flexibility advantages but poses management challenges for the client company
The client (end-user) company owns little of the infrastructure involved in service delivery and instead pays a monthly fee for a service bundle, which includes technical support services

2. Chapter 7: New Service Models Cont.
when software applications are not run and managed externally, components of the infrastructure that delivers IT services may be outsourced
A company might rent a space in a vendor-owned (service provider) hosting facility rather build its own data center or
It might employ a specialized outside firm to monitor its intrusion detection systems and guard against sophisticated new security threats
The benefits of this kind of “incremental outsourcing” include the following:

3. Benefits of Incremental Outsourcing
Managing the shortage of specialized IT workers
Reduced time to market
The shift to 24x7 operations
Favorable cash flow profiles
Cost reduction in IT service chains
Making applications globally accessible

4. Managing the shortage of specialized IT workers
Incremental outsourcing helps companies overcome the shortage of specialized skills by reducing the need for internal staff a firm must hire
This is especially important to small and medium size businesses that have difficulty attracting and retaining top IT talent personnel

5. Reduced Time to Market
Network-based delivery models help companies develop new capabilities quickly
For example, existing companies can use externally hosted retailing packages to sell over the Web without having to purchase equipment or develop software

6. The Shift to 24x7 Operations
Real-time 24x7 website service availability, requires that company’s computers to remain always on, but in many enterprises, facilities and equipment are not designed for high levels of availability
High availability requires large investments in redundant infrastructure
Because service providers or vendors are able to spread investments across many customers, they can achieve economies of scale that justify large investments
Vendors often can invest in levels of availability and security that individual firms cannot afford

7. Favorable Cash Flow Profiles
Traditionally, IT investments required large up-front or initial cash outlays that only yielded differed and often uncertain benefits (because of high project failure rates)
Subscription-based IT services have a different cash flow profile, where firms pays a monthly fee to acquire service equivalent to those provided by internal systems in the past
With limited and low up-front purchases or investments, payback flow in more quickly, which is important for small and medium size businesses who cannot afford the large up-front investments associated with some IT services
Figure 7.1 compares the cash flow profile of a traditional IT investment with that of a subscription-based service delivered through pre-built external infrastructure

8. Chapter 7: Managing Diverse IT Infrastructures

9. Cost Reduction in IT Service Chains
Centralized service delivery can reduce support costs in many ways
Upgrades to new versions of the software are done centrally, eliminating the need for support personnel to upgrade individual client computers
This will reduce the risk of software piracy because the software is never physically distributed
Also, there is no software inventory to manage by systems administrators

10. Making Applications Globally Accessible
A company’s services is now available for any customer with valid access any where at any computer with a Web browser
Traveling employees can access the same virtual workspace regardless of where they are in the world
Because the IT infrastructure is geographically neutral, and employees can work from anywhere, much of the transportation cost are eliminated
This advantage is combined with the continuing evolution in client devices such as cell phones and PDAs to create new value opportunities

11. Over-the-net Service Delivery Models
Over-the-net service delivery models that have the previously mentioned advantages, may take different forms. For example, many companies now manage certain corporate functions such as human resource administration by purchasing over-the-net services
Many employees manage investment of their retirement plan contributions using a Website owned and operated by a financial services company.
Salesforce.com provides sales force automation to many companies via the “application services provider (ASP) model,
Which entails renting software functionality from a vendor for a monthly fee and accessing the functionality via a Web browser.
Data is stored securely in a central location

12. Over-the-net Service Delivery Models Cont.
The “Web services” model allows for highly dynamic provision of IT services
Instead of establishing a long-term relationship with specific services providers, firms negotiate and purchase services in real-time from an ever-changing market composed of companies offering those services
Models of computing asset use now coming to the fore include “on demand, “utility computing,” and “grid computing”
Figure 7.2(a) depicts an on demand computing environment that includes applications residing on an enabling middleware layer that provides virtualized and performance managed access to storage, server, and network resources

13. Chapter 7: Managing Diverse IT Infrastructures
FIGURE 7.2(a) An “On Demand” Computing Environment

14. On Demand, Utility, and Grid Computing Models
Features of on demand, utility, and grid computing are:
Financial models that make IT services easier and less risky to procure and manage, as well as contracting models based on management of service levels
Restructuring and reengineering of existing applications to make them easier to manage and use
Enhancements to infrastructure to improve interoperability and efficiency in use of computing assets

15. Financial Models
Underlying financial models allows customers/clients to contract for a variable amount of computer power or storage capacity (or both) to be provided by a vendor for a fee that varies in proportion to the amount of power or capacity used
Such contracts may also include pricing that allows handling of surges in the load systems must bear
A customer firm that has to pay for surge capacity only when needed, instead of maintaining it all the time, can realize substantial savings from this arrangement
Sometimes, lease of equipments may be supported by such financial arrangements

16. Information, Processes, Applications Layer
Sometimes, centralizing and communizing applications so that they can be managed in a central data center and accessed from anywhere
Other times, it means large-scale reengineering of business processes and rewriting or replacing with off-the shelf packages large chunks of a company’s applications portfolio
Still other times, restructuring applications might mean replacing existing applications with ASPs or Web services
In all cases, the idea is to better align application functionality with more efficient modes of management and use

17. Infrastructure and Middleware Layers
At the infrastructure level, on demand utility and grid computing refer to steps companies might take to make access to IT services more like access to traditional utilities such as electricity and phone
The critical enablers of this approach to managing IT resources reside deep below the floorboards of the infrastructure, that business users do not see
Middleware must support issues such as:
Provisioning, providing access to new services or additional capacity in an automated manner
Resource virtualization, allows server or storage capacity to be accessed and referenced independent of its physical characteristics or location

18. Infrastructure and Middleware Layers Cont.
Change management, which permits centralized changes to infrastructure
Performance monitoring and analytics, which allow constant evaluation of the performance of computing infrastructure, both in terms of functionality and financial return, and suggests ongoing adjustments to improve the performance or return on investment in computing assets. See Figure 7.2(a)

19. Managing Risk through Incremental Outsourcing
As IT service chains proliferate and mature, companies face the question/decision which service to outsource
Figure 7.3 outlines the steps many companies consider in making this decision
IT services that provide companies with competitive advantages tend not to be outsourced, at least not to vendors that provide similar services to all customers
But when companies find themselves unable to develop a vital capability internally, they rely on outsourcing to acquire the capability

20. Chapter 7: Managing Diverse IT Infrastructures
FIGURE 7.3 Internal versus External Service Delivery

21. Managing Risk through Incremental Outsourcing Cont.
Basically, incremental outsourcing reduces risk, for example when a firm outsourcers only its travel expenses reporting, as apposed to its entire IT organization, risk is contained
However, incremental sourcing offers new and attractive choices to managers seeking to improve IT infrastructure
In the past, managers often faced with two equally unpleasant choices, an all-or-nothing choice:
Do nothing and risk slipping behind competitors, or
Wholesale replacement of major components of computing infrastructure, which risks huge cost overruns and potential business disruptions as consequences of an implementation failure

22. Managing Risk through Incremental Outsourcing Cont.
Decisions to replace legacy networks with TCP/IP based networks have run into the second choice risk
Now for the first time in IT history it is possible to imagine incremental outsourcing paths, ways of getting from A to B and then to C and capturing significant economic benefits without putting the entire future of the firm at risk each time
An incremental outsourcing example: Hosting

23. An incremental outsourcing example: Hosting
The author considers hosting as an illustration of the incremental nature of modern service delivery options
Although outsourcing hosting of a company may on the surface seems like an all-or-nothing choice, a company can precisely determine which management functions it turns over to a vendor
Some basic support functions such as electrical power are necessarily given up, but beyond those, managers can choose the size of the increment of outsourcing
By doing so, managers exercise control over the risks that executing the outsourcing initiative entails

24. An incremental outsourcing example: Hosting Cont.
The Hosting Service Provider Industry
Hosting companies own and manage the facilities that house computers that provide over-the-net services
In online retailing, for example back-office functions (such as shopping cart, checkout, and credit card processing) that enable Web-based consumer purchases often reside on computing platforms in hosting facilities rather than on the selling company’s premises
The benefits of outsourcing hosting are many
An international Data Corporation (IDC) study, for example, found that companies reduce downtime by an average of 87% when they move Web servers into vendor hosting facilities

25. An incremental outsourcing example: Hosting Cont.
Service Levels in Hosting
Table 7.1shows the layers of services a hosting provider can offer
The basic service level is real-estate services is similar to the business of leasing office space, and leaves the management and ownership of networks, computers, and software applications to the customer
In addition to space and utilities, most hosting providers can manage networks, computing equipments, application performance, and even applications
As we move up the levels of service in Table 7.1, the outsourcing increment, the dollars the customer spends and the percentage of effort outsourced grows faster

26. An incremental outsourcing example: Hosting Cont.
Hosting models can be roughly categorized along service level lines, as follows:
Collocation hosting
Shared hosting
Dedicated hosting

27. Collocation Hosting
According to this model, customers rent floor space, connectivity, and power
Customers are required to have the expertise to design, maintain, and operate the equipment
This model supports a wide range of architectural possibilities
Generally provides high availability

28. Shared Hosting
In shared hosting, servers are owned and operated by the hosting provider company and customers purchase space on servers
Multiple customers share a single physical server
The hosting company use sophisticated clustering technologies to achieve highly secure and reliable performance
Although some customers are wary of the degree of sharing implicit in this model, because of its perceived negative implications for security and reliability, this model is becoming more prevalent as companies move to on demand, utility, and grid computing

29. Dedicated Hosting
In dedicated hosting, servers are owned and operated by the hosting provider
The servers are not shared but dedicated to individual customers
Other infrastructure components that provide network and other services may be shared by customers
Usually, dedicated hosting providers offer a complete managed services package that includes everything needed to run the customer’s systems at the required level of security and availability

30. Connectivity Service Providers
Connectivity service providers offer increasingly incremental service levels with much more attractive risk and expense management profiles for customers
Currently customers can purchase various levels of connectivity to the Internet Backbone service such as:
One megabit per second (mbps) of connectivity
Ten mbps, etc.
The options in service provision are multiplying, and infrastructure managers now often can purchase exactly the service increments they want

31. Managing Relationships with Service Providers
When companies acquire IT services externally, they find themselves engaged in relationships with service providers
As the operations of the customer firm and the service provider become intertwined, the customer becomes to rely on the provider’s capabilities as a basis for its own capabilities
Consequently, healthy relationships with vendors are critical to how well a company performs its primary business mission
Mistakes by provider vendors can be costly
Therefore, choosing reliable service providers and managing strong vendor relationships are critical skills for an IT manager

32. Selecting Service Partners (Providers)
The most common process for selecting service providers involves writing a “request for proposal” (RFP) and submitting it to a set of apparently qualified vendors
An RFP requests prospective providers for information relevant to their service capabilities across a spectrum that includes financial, technical, and operational information
Responses from vendors represent the primary basis for the selection decision
However, companies rarely rely entirely on RFP information responses, they instead gather additional information from industry analysts, from other companies that have used the services of providers, and from visits to service provider sites

33. Request for Proposal
There is no single format for writing RFPs, nor are there universally agreed on categories of information or sources that should be consulted in selecting providers
RFPs typically request information in the following categories:
Descriptive information
Financial information
Proposed plan for meeting service requirements
Mitigation of critical risks
Service guarantees
Pricing

34. Relationship Management
Ongoing management processes must be in place so that partners can share information and problems in the service chain and the problems can be solved quickly
Problem-tracking and customer relationship systems, for example must be able to exchange problem tracking information as well as, sometimes customer account information
The hardest obstacles sometimes not technical but “political”
Table 7.4 illustrates the kinds of contractual terms one finds in the SLA (Service Level Agreement) offered by a hosting provider

35. Relationship Management Cont.
SLAs describe the specific conditions by which the service provider is held liable for a service interruption and the penalties the service provider will incur as a result
Managers of some customer firms must manage SLAs with many service providers at the same time
Since many outsourced services involve entrusting data to service providers the SLA needs to contain provisions about a customer firm’s right to control its own data
Customer firms must avoid being locked or entangled in a relationship with a service provider. Managers who take insufficient care in avoiding unnecessary entanglements will find themselves at the mercy of service providers

36. Managing Legacies
Categories of difficulties that arise from legacy systems
Technology problems
Residual process complexity
Local adaptation
Nonstandard data definitions

37. Managing IT Infrastructure Assets
In the old mainframe era, managing the IT infrastructure was easier as the number of computing assets were limited and located in few places in the organization
After the emergence of PCs, Laptops, clients, servers, portable devices, and distributed network infrastructure, a company investments in IT became much more diffused
Computing assets were scattered in large number of small machines located in different building and rooms, thus companies found relatively easy to track how systems were being used and estimate how much value they were providing
The variety of asset configurations in modern IT infrastructures makes certain business questions hard to answer for example:

38. Managing IT Infrastructure Assets Cont.
How are IT investment deployed across business lines or units
How are IT assets being used?
Are they being used efficiently?
Are they deployed to maximum advantage?
How can we adjust their deployment to create more value?
Although never easy to answer, these questions were at least reasonable when assets were centralized, and IT management frameworks over the past decade have focused on reclaiming management control over IT assets
One approach to this problem has been called total cost of ownership (TCO) analysis

39. Managing IT Infrastructure Assets Cont.
IT services are analyzed in terms of the costs and benefits associated with service delivery to each client device
Cost and benefit analysis for IT assets and platforms provides a basis for evaluating a company’s current IT services against new service alternatives
Outsourcing vendors often are asked to bid on per platform basis
These prices can be compared to study results to evaluate a company’s options and identify incremental opportunities for service delivery improvement
Where a firm’s costs of delivering an IT service are out of line with the price at which it can be acquired externally, outsourcing becomes appealing