tranforming the future of outsourcing

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Ttransformingthe future of outsourcing

The increased competitive nature of the IT outsourcing market in the current economic climate combined with the emergence of cloud services will sooner or later present a real threat to traditional outsourcing models.

Introduction

Change in pricing models:

While traditional outsourcing contracts are primarily based on fixed-pricing and used-time-and-material models, the current trend is a push for more commercial flexibility, leaning towards usage-based pricing models or at least hybrid pricing where both a subscription fee and pay-as-you-use charges are incurred.

Cloud emergence:

While the adoption of cloud delivery models may take longer than anticipated, there is no denying that the emergence of cloud services was a paradigm shift that shook the foundations of the IT industry, and that its continued uptake and development is increasingly shaping the sector. For several decades, customers and providers have relied on stable delivery approaches, customized architectures and solutions and traditional commercial models, with outsourcing and offshoring at the heart of their offerings.

The significance of the cloud model lies not just in changing demands from customers, but in new market entrants. The hype surrounding the cloud has facilitated the flow of investment capital to new entrants (although admittedly so far predomi nantly in the SaaS area) and has encouraged existing companies to invest in this market (Amazon, Google, Microsoft, for example).

According to Gartner, these traditional IT service offerings still represent a significant market share, the top 10 service providers account for 27 percent of the datacenter and utility outsourcing market. But, while demand is somewhat steadying, predictions for cloud-based offerings look promising. For example, global Software as a Service (SaaS) revenues within the enterprise application software market are forecast to surpass $8.5 billion in 2010, up 14.1 percent from 2009. The expectation is that total SaaS revenue will jump from just over 10 percent of the combined markets in 2009 to more than 16 percent for 2014 [22].

Need for value-added services:

While IT service providers are being squeezed by both the current economic downturn and the threat of cloud services, customers are also forced to rationalize their value chains, simplify their business processes and enhance efficiency in the face of increasing competition in their particular markets. They continue to look for strategic partners that support them in optimizing their operations and business processes in both the back and front office, where the significance and value of this external provision far exceeds value delivered by traditional outsourcing.

They expect financial improvements (reduced costs and higher profit margins), innovation (competitive advantage by doing things differently from the competition), efficiency gains and improved agility to help them transform and grow their businesses. Figure 1 shows the results of a survey carried out by Gartner in 2010 highlighting the key drivers for customers to outsource [16]. It reflects that, whilst cost reduction remains the principal objective, increasingly customers are looking for access to resources and capabilities alongside improved flexibility and scalability.

Transforming the future of outsourcing 3

1 http://www.information-age.com/channels/it-services/features/1261003/outsource-evolution.thtml

This paper proposes two parallel and complementary opportunities for the evolution of outsourcing services. The first strategy focuses on evolving transformational outsourcing strategies whereby Atos products and services focus directly on contributing value to its customers’ core business processes. The second proposes that Atos advances its current cloud offerings by developing sector-specific clouds capitalizing on the existing knowledge the company has gained from the many years it has been collaborating closely with customers in specific industrial sectors.

Over the last few decades, outsourcing - the process whereby companies or individuals contract out a function - previously performed in-house to an external provider has become a common practice both in people’s personal lives and the business environment. Personal outsourced services range from supplying electricity and water to more sophisticated services that improve work-life balance, such as online shopping. Equally in business environments, outsourcing is used as a means of optimizing companies’ resources to allow them to focus on core business functions while relying on third parties for non-strategic and commoditized services.

This raises new challenges for IT service providers where there is a requirement to deliver value beyond just cost savings in the commodity services they provide. Increasingly, to build sustainable added value, industry-specific business knowledge will be required to understand and anticipate clients’ current and future directions. This knowledge will be used to customize existing services or create new ones with a direct impact on the customers’ core businesses. These general trends also impact Atos visions and expectations. Atos’ 2009 and 2010 half-year reports [40][41] acknowledge the following facts for IT outsourcing:

Cost reduction and skill shortages remain major drivers for outsourcing.

Outsourcing tends to grow when the economy is weak; however, outsourcing growth stalls in times of uncertainty. This raises expectations for IT outsourcing and BPO in Europe. However, decision cycles are likely to be on hold for buyers and they will be looking for faster ROI and increased flexibility.

Re-negotiation of existing contracts to cut costs and increase flexibility may provide opportunities for consolidating scope and increasing the length of contracts.

Protecting the existing customer base will be critical in 2010.

A significant growth of migration to virtual environments is expected in order to offer flexibility and reduce costs.

Offshore IT outsourcing will increase.

Most bids will present environmental exigency development.

Growth of interest in sourcing management and governance.

The market demands service providers have industry knowledge, flexibility and bring innovation.

In a difficult economical environment, request for services to transform and operate a major part of an information system are expected to continue growing.

Industry domain expertise will be capital basis for selecting the right outsourcing partner. Some analysts believe the outsourcing market will soon fragment into players focused on domain expertise. innovative solution.3

Reduce cost, reduce assets or improve cash flow (economic, financial conditions)

Gain access to resources and capability

Improve flexibility

Improve scalability

Improve agility/reduce processing cycles (speed)

Reduce business risk

0 20 40 60 80 100

Percentage of Respondents2009 2010

Fig. 1. Top Priorities in Outsourcing2: Source Gartner [16]Outsourcing has been widely acknowledged as a source of cost reduction as well as business agility. Outsourcing is, and will remain, one of the main development lines for Atos; Atos is recognized as one of the top three IT outsourcing services providers in Western Europe. Although broadly used, outsourcing is not a panacea. A 2009 survey of chief financial officers of businesses that outsource their IT services by outsourcing consultancy Cognizant revealed that “78 percent of CFOs believed that the value for money they received from IT outsourcing was ‘unclear’, while only 38 percent were confident of the ability of their organization’s CIO to communicate the benefits of their particular outsourcing engagement to the business”1.

In general, traditional outsourcing models are increasingly coming under pressure due to the following factors:

Economic downfall:

The economic crisis hasresulted in greater scrutiny of the value delivered by outsourcing. On average, the number of deals has reduced and they have more focus on cost savings. This situation has lead to a very uncertain and unstable market.

In 2009, customers asked their IT services providers to reduce their prices between fivepercent and 20 percent [22] as a direct resultof the economic downturn and the need to identify potential savings along the entire value chain. This puts more pressure on IT service providers to reduce their own internal costs in order to remain competitive and maintain margins. Common solutions here are offshoring, industrialization of services and automation.

In parallel, IT service providers are experiencing lower demand because of budget declines, market uncertainties and delays in contract signings caused by the economic crisis. All together, this generates a hyper-competitive environment where providers are competing on the basis of cost and the degree of financial and service quality risks they are willing to take, leading to a zero sum game.

Transforming the future of outsourcing2

Transforming the future of outsourcing4 Transforming the future of outsourcing 5

Impact on business

This section presents the three major trends that have the potential to influence the outsourcing landscape in the future.

IT services in new economic sectorsServices are a key sector in developed economies. Industries delivering intellectual content, support, utility, expertise and information have significantly grown over the last three decades, becoming the largest part of most industrialized economies [9]. According to The Organization for Economic Cooperation and Development (OECD), the service sector accounts for over 70 percent of total employment and added value in the European Union [10].

Business services entail a broad variety of services that are provided to organizations rather than to individuals. They cover a broad spectrum of services that are mainly traded in business-to-business transactions. Business-services sectors consist of two broad groups; the operational services that supply relatively standardized services and the knowledge-intensive services that generally produce client-specific services with high knowledge content. The wider group of knowledge-producer services includes business services tackling sectors like transport, logistics, construction, wholesale trade, banking, insurance and telecommunications. These intermediary services apply to a broad spectrum of application domains, ranging from software development to translation services and from equipment provisioning to legal consultancy.

Business services currently count as one of the largest sectors in the European economy and have experienced a remarkable growth both in terms of employment and added value. In the EU, they provide the 8.5 percent of total employment and 15.3 percent of added value. They also contribute to improving the competitive performance of organizations in almost all sectors of the economy in developed countries. Business Services’ application of ICT is encouraged by many factors such as:

Applicability: The intangible nature of many business services makes them suitable for digital delivery.

Demand: To meet new customer demands and expectations.

Quality: To improve the quality and depth of customer relations.

Expansion: To enhance market reach and expand market share.

Efficiency: To increase operating efficiency and gain economies of scale and scope.

Cost reduction: To improve and expand low-cost production and delivery options.

ICT facilitates the introduction of new business models, development of new applications, improvement and reformulation of business processes, enhancement of customer services and increased efficiency throughout the whole value chain.

But, beyond this, over the last two decades, a new ‘sector’ of the economy has developed that neither provides traditional services nor traditional goods, rather pure digital assets. These assets consist in content of all kinds; entertainment, applications, education, advice and services for customers that are consumed mainly by individuals, but also affect traditional business services delivery models.

The OECD [17] recognizes the emergence of this new sector as the main driver of the growth of broadband subscribers from 68 million in 2003 to the 251 million in 2008. The growing number of users has stimulated the creation of new content. Besides, mobile broadband is also beginning to boost content creation and demand.

An increasing share of the content industry’s revenues is produced by products delivered over the Internet, but with market differences across sectors. Advertising is the biggest online market, with revenues of over $30 billion in 2007 and annual growth of 30 percent. One sixth of total computer, videogame and music revenues correspond to this sector. In particular, the online-games market was estimated at $ 11 billion in 2008, representing some 25 percent of the worldwide games market. The development of user content is rapidly increasing, although still not completely viable economically [19]:

Social-networking platforms: online advertising is seen as the main future source of revenue for social-networking platforms such as Facebook or Twitter. Nevertheless, it is still unclear whether revenues will be sufficient to finance the increasing number of participants on these platforms and whether users will be receptive to advertising on these platforms. Although user numbers went up sharply last year, the social-networking industry‘s revenues in America, its biggest advertising market, represented only $ 1.2 billion in 2009, according to market-research firm eMarketer. However, online audience measurement firm Comscore found that more than 770 million people worldwide visited a social-networking site in July 2009, which is an increase of 18 percent from the previous year. The global average time spent on social networks was 22.4 hours per user in August 2009. This represents an enormous potential that has yet to be fully exploited in two areas:

– Participative community platforms, such asWikipedia, of which few generate significant revenues and most content is voluntary.

– Internet publishing and broadcasting platforms, such as YouTube, do not themselves create or own the content being published or broadcasted.

This trend has been enabled and driven by the interaction of technology, global businesses and social change. Its effects go beyond products, reshaping other economic sectors such as telecommunications, financial services, newspapers, books resellers and publishers, and, in the future, it has the potential to affect many others. Above everything else, it is changing the way that people communicate and interact. The trend, known as Hyper-Digitalization by some business analysts, is going to create growth in demand for many IT services, such as infrastructure, communications, security, privacy, distribution of content, storage and management. The sources of this demand are anticipated to be twofold:

On the one hand, existing business services providers adjusting to the new panorama by automating, digitalizing and moving online. The growth potential will lead traditional businesses to consider new ideas in IT and services.

On the other hand, newcomers to the market will emerge providing innovative services over the Internet which will represent new opportunities for IT service providers.

Future of internet: internet of services conceptThe Internet is now a critical infrastructure for the whole of society in developed countries with more than 1 billion users worldwide. Today, more than the academic network was originally designed for, the Internet is used as a business platform and has become part of daily life. It is expected that with the development of wireless technologies, the number of users will grow to 4 billion in a few years. As the number of users, providers, services and connected devices grows, the current Internet is going to face problems, including but not limited to scalability, security and address space limitation.It is expected that the infrastructure of the Internet will continually evolve to support new services, trends and businesses. Low entry barriers for provisioning, brokering and consumption of services are crucial for large and small enterprises alike, acting as service providers and trying to access a worldwide market of potential service users. A broadened concept of a global and open Service Delivery Platform is required for the Future of Internet and Internet of Services vision, going beyond the client-server model for service delivery to support rich mechanisms of global service supply, where third parties have the capability to aggregate services, act as intermediaries for the service delivery and provide innovative channels for consuming services. To realize this vision, an open platform for marketable, able-to-be-composed, value-added services on the Internet is required. Such a platform will need to build upon and extend Web 2.0 concepts to allow for large-scale, community-driven service innovation and engineering, global repositories for value added services and semantic support to enhance and enable automatic composition of value-added services. This will enhance reusability of services and allow reasoning to derive further knowledge. Legal, security, logistics business and technical aspects must be simultaneously addressed for an integral approach to the Internet of Services.

This is a long-term vision, but it is already starting to happen. Apple’s Apps Store Model is the perfect example of it. The combination of a good device, a well-designed, integrated and easy-to-use marketplace, together with an effective payment system based on micro-transactions, and a broad selection of interesting content, delivers a very effective distribution channel for services provided by IT service providers, as well as individuals and SMEs. AppStore is a new model for the delivery of digital services and a clear example of how new ecosystems and service models are emerging.

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Cloud ServicesCloud computing first emerged as Infrastructure as a Service (IaaS), with Amazon’s EC Services (EC2 and EC3) as its de facto figureheads. The evolution of the term is moving on to a more generic approach becoming an alternative delivery and acquisition model in which anything and everything can be offered ‘as a Service’. Cloud computing is perceived as the latest attempt or a general purpose IT utility that is accessible by anyone, from anywhere at any time as a Service.

Cloud computing is the convergence of several trends from the past years and joins a set of technologies and concepts that have been emerging over time: Software as a Service (SaaS), Grid computing, Virtualization, Utility computing and Hosting. Moreover, it is a change in IT users’ behavior; a user’s centre

of attention is now on what the service offers rather that in how it is implemented or hosted, changing their focus from buying tools to enable a functionality, towards the contracting of a third party to deliver this functionality in a elastic and on-demand way in a pay-per-use model. Of course, it is not new, Grid, SaaS and Utility models were already doing it, but it is a clearly a different approach to the classical on-premise, license based models.

Cloud computing and its underlying ‘Everything as a service’ terminology refers to elastic Internet provision of X resources or capabilities. Although there are others, the most-known X-as-a-Service terms are:

Software-as a Service[5] (SaaS) is a model of software deployment whereby an application is licensed for use as a service provided to customers on demand.

Platform as a Service[7] (PaaS) is the set of welldefined APIs that a cloud provider offers developers to implement applications in the cloud provider’s environment. PaaS also refers to the provisioning of a development and testing environment via cloud for a group of developers.

Infrastructure as a Service (IaaS)[6] is the delivery of computer infrastructure (CPU, storage, backup and network) as a service.

In addition to this layered vision, based on the type of products offered, a more-business oriented classification can be provided by analyzing the different flows of services and payments in the form of a generic value network for cloud computing (Figure 2).

The following have been identified as potential benefits of cloud computing:

Reduction of capital investment: Given its outsourcing nature, cloud converts IT into an operational expense, paying per use. Also, in the case of infrastructure provisioning, the risk of overprovisioning or under-provisioning in the datacenter is reduced from a customer perspective.

Scalability on demand: The elastic nature of cloud computing avoids forecasting on compute capacity or demand; it can be swiftly and on-demand adapted to business needs, with no need for over or under-provisioning.

Lower operating costs: Cloud providers achieve economies of scale in their shared infrastructure management due to greater resource sharing, greater levels of architectural standardization and operation, as well as a better consolidation. These benefits are passed along to the customers of these services. These include significantly reduced prices in comparison with traditional offerings. The fact that the on-demand nature of cloud offerings results in a linearly-priced business model must also be taken into account as use increases cost scales directly, but without increases in management complexity or additional overhead.

Metered usage and billing: Different to many outsourcing models based on a fee or a flat rate, cloud is a transparent pay-per-use pricing model. It is not a recurring bill; it is based on real consumption of the service, allowing fine granular IT cost assessment.

Forrester, in its report ‘Is Cloud Computing ready for the Enterprise?’[4] identified the following typologies of users for cloud:

Start-ups: Given cloud’scheap infrastructure and the low investment required: web-based businesses, SaaS, collaboration services, widget providers, mobile services, social networking, etc.

Entertainment industry, mainly gaming and entertainment providers: Due to their need for highlyscalable and temporary systems.

Small businesses: For online businesses, online presence, collaboration and enterprise integration.

Enterprises: Used as a quick and cheap experimentation facility by R&D projects, quick promotions, widgets, online collaboration, partner integration, social networking and new business ventures.

The wider adoption of the cloud model in enterprise environments, despite of all the previously-identified benefits, still faces various challenges with no sufficient mature solutions:

Security: Data security is the principal concern in the adoption of cloud services. Many users only trust systems they have physical control over; systems with corporate firewalls and/or with known processes and audits. To outsource to any other model is not perceived as a secure model.

Regulations: Some regulations require of tracking, logging and auditing of enterprise data that for the moment, are not offered by cloud providers.

Reliability: Nearly all public cloud providers have suffered episodes of service-level failure or unavailability. This severely concerns enterprises that prefer not to outsource services where they lose control.

Service Level Agreement (SLAs) limitations: SLAs provided by current public cloud providers are too limited and not adequate for enterprise environments.

Existing investments: Already-made investments mean that many companies are reluctant to abandon current systems and outsource to cloud providers.

According to Gartner [2], a continuing trend toward IT industrialization has grown in popularity over the past 15 years. IT services delivered via hardware, software and people have become repeatable and usable by a wide range of customers and service providers. This is for several reasons; the standardization and commoditization of technologies; virtualization and the rise of service-oriented software architectures; and most importantly the dramatic growth in popularity of the use of the Internet. These things together constitute a new opportunity to shape the relationship between IT services sellers and vendors, moving from license-based, on-premise models, long dominant in the IT industry, to ‘elastic’ models represented by cloud computing. Although this is not a completely new phenomenon; utility computing, Software as a Service and Application Service Providers (ASPs) had their turn, this is building the foundation for a move from an Internet seen as a ‘communications channel’ to an approach based on ‘the deliberate delivery of services’ over the Internet. Looking once more at outsourcing strategies, the shift to cloud services can be considered more evolutionary than revolutionary, being part of an externalization tendency that has been taking place over the last decades.

Customers started with fully-customized, internally-owned and operated services, followed by the external provision of IT-services through outsourcing activities and are finally embracing the emergence of cloud-based services whereby they buy specific horizontal IT functionality (computing, storage and applications) as a commodity-like service or fully functional standardized services (payment services, sales, CRM, etc.).

Other visions, such as that provided by The Economist in its special report on Corporate IT[3] go further, suggesting that the emergence of cloud computing could change businesses and the economy. If IT services really allow companies to become more modular and flexible, this should foster further specialization. It could become even easier to outsource business processes, or at least those parts of the business that do not constitute a competitive advantage, distinguishing between the core processes and the context. This would also mean that companies will rely more on services provided by others, increasingly forming ‘process’ networks, a term for loosely-connected groupings of specialized firms. Both trends could result in ‘huge clouds’ that provide basic services for a particular sector. On top of these systems, many specialized and interconnected firms could construct their own services.

This represents an emerging opportunity for service providers, such as Atos, that together with a deep knowledge of vertical sectors, have the technical means necessary to make these sector-specific clouds a reality.

Fig. 2. Generic Value Network for Cloud Computing. Source [38]


With the increased commoditization of IT services and the expected adoption of cloud services, Atos is faced with significant challenges on how to maintain its customer base and grow the business while competing not only with traditional outsourcers, but also with many newcomers in this field, like Amazon, Google or Microsoft Online Services.

However, Atos thinks that its larger customers are still pursuing the same goals in outsourcing:

Build an eff icient service-based and client-focused organization

Reduce IT baseline cost

Enable smooth IT integration for acquired or divested companies

Standardize and elevate processes to matchindustry IT standards

Mobilize staff and make the best use of competencies

In this context, cloud services provide only part of the answer as the main issue remains “how to cope with increasing complexity?”.

Considering this, together with the analysis of trends provided in the sections above, brings to light two parallel and complementary opportunities for the evolution of Atos outsourcing services. The first focuses on developing the company’s transformational outsourcing strategies where its products and services have a direct focus on contributing to customers’ core business processes. The second proposes the advancement of Atos current cloud off erings by developing sectorspecific clouds capitalizing on Atos knowledge from the many years it has been closely collaborating with customers in various industrial sectors. The following table maps the identified strategies and challenges presented in section 1.

Strategy 1: Transformational IT OutsourcingSelected Customers | Strategic Focus | Cooperation | Gain Mutual Benefi t

Strategy 1: Transformational IT Outsourcing

StrategicCustomer 1


StrategicCustomer 4Customer 4


StrategicCustomer 3

Strategy 1: Transformational IT OutsourcingStrategy 1: Transformational IT Outsourcing

Customer 3

Strategy 1: Transformational IT OutsourcingStrategy 1: Transformational IT Outsourcing

StrategicCustomer 2

Strategy 1: Transformational IT OutsourcingStrategy 1: Transformational IT OutsourcingStrategy 1: Transformational IT Outsourcing

Customer 2

Strategy 2: Next Generation CloudCommodity Focus | Vertical Ninches | Knowledge | Assets Capitalization

Strategy 2: Next Generation Cloud

CloudSector 1

SaasApl 2

SaasApl 1

Strategy 2: Next Generation Cloud

CloudSector 2

CloudSector 3

CloudSector 4

SaasApl 2

SaasApl 1

Strategy 2: Next Generation CloudStrategy 2: Next Generation CloudStrategy 2: Next Generation CloudStrategy 2: Next Generation CloudStrategy 2: Next Generation Cloud

Economic downtown

Change in pricing models

Cloud emergence

Strategy 1:Transformationaloutsourcing

Strategy 2: Next-generationcloud services

Strategies

Economic downtown

Need for value-addedservices

Challenges

Opportunities

Low

High

High

Revolutionary levels

Evolutionary levels

Business Scope Redefi nition

Business Network Redesign

Business Process Redesign

Internal Integration

Localized Exploitation

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Transformational IT outsourcing Transformational outsourcing focuses on usingoutsourcing strategically in order to achieve transformational business change and manage uncertainty, rather than focusing tactically on reducing operational costs and risks. Although outsourcing is commonly viewed as a mechanism for IT to reduce costs by moving from in-house ownership and operation to an external supplier, it could be evolved to encompass strategic focus, including comprehensive management of critical business processes and the provision of new services to support new business initiatives, or even doing old things in new ways. Transformational outsourcing has to take into account close collaboration between service providers and customers and it requires a deep knowledge of customers’ business processes. The following table contrasts traditional and transformational outsourcing:

Tactical Strategic

Operational focus Business focus

Operational focus Manage uncertainty

Focus on value capture(cutting costs for example)

Focus on creating value(new services and business growth)

Traditional outsourcing

Transformational outsourcing

While the transformational-outsourcing concept sounds simple and many outsourcers will claim that it is already the case, the reality is completely diff erent as the Cognizant survey demonstrates. For real transformational IT outsourcing, it is necessary that both service providers and customers share the principle of stakeholder cooperation as a main driver for managing their relationship. This concept, as integrated into the Stakeholder Capitalism theory, has existed in management literature for a long time [26] [27]. Although it presents a high level of abstraction, it is interesting to understand this theory’s principles and concepts:

The Principle of Stakeholder Cooperation: Value can be created, traded and sustained because stakeholders can jointly satisfy their needs and desires by making voluntary agreements with each other.

The Principle of Stakeholder Responsibility: Value can be created, traded and sustained because parties to an agreement are willing to accept responsibility for the consequences of their actions. When third parties are harmed, they must be compensated or a new agreement must be negotiated with all of parties who are aff ected.

The Principle of Stakeholder Engagement: To successfully create, trade and sustain value, abusiness must engage its stakeholders. Almost every business transaction involves customers, suppliers, communities, employees and financiers. Other stakeholders, such as media, additional civil society representatives, NGOs, etc., are often aff ected or can aff ect value creation.

The Principle of Complexity: Value can be created, traded, and sustained because human beings are complex psychological creatures capable of acting with many diff erent values and points of view.

Fig. 3. summarizes the main characteristics of both strategies, details about each are provided in the following section.

Fig. 4. Five Levels of IT-EnabledBusinessTransformation³. Source [39]

The development of transformational and strategic outsourcing relationships is intended to enhance business value by enabling customers to focus on core competencies. Through deep industry knowledge and flexible and adaptable IT systems, IT service providers support their customers in the acceleration of their intended business transformation goals, be they new business processes as a result of entering new markets or taking advantage of new features, i.e. the marketing potential of social networks in existing markets. Business transformation benefits depend to a high degree on the organization’s ability to modify its organizational conditions (strategy, structures, culture and processes).

3 Venkatraman, N. IT-Enabled business transformation: from automation to business scope redefinition. Sloan Management Review, p. 73-86, Winter 1994

Figure 4 presents a framework for IT-enabled business transformation.


SisterCompany

ParentCompany

Enterprise

BusinessPartner

Clients

RegulatoryAgents

SubsidiaryCompany

Suppliers ServiceProviders

The Stakeholder Capitalism theory relies on an evolution of Porter’s value chain. Porter’s original value chain was understood to be the set of operations that an individual firm had to accomplish sequentially in order to transform its raw material into its final product. The evolution proposed by this theory considers a wider view that encloses the set of processes through which a constellation of actors (employees, customers and suppliers) work together with the final aim of generating value for all actors involved. While Porter’s value chain is product-focused, intra-firm and static, this evolution is meant to be capability-focused, interfirm, evolving and shapeable.

Gartner, in its report ‘The Emerging Global Environment Demands a New Collaborative Enterprise’, gathers some of these ideas. It presents the Business Process Network as the business environment, where enterprises collaborate for common benefit. Collaboration is established among the actors depicted in Figure 5 and the aim of each actor is to optimize the processes in which it participates. Success for each actor is measured by different factors according to their business objectives, but joint and individual success depends on the integrated process that they carry out together.

Outsourcing engagements will greatly benefit from the collaboration forms presented between client and service providers. This approach cannot be applied generically to all customers, given the necessary investment in resources for service providers, but it can be an approach taken based on the strategic importance of the customer.

Atos Global Consulting [42][43][44] is currently working on the provision of an offering tackling the above-presented approach to IT transformation that will be presented externally in Q4 2010. For the time being, the information presented in this White Paper regarding this offering has to be considered for internal use only. The focus of the IT transformation offering is to support customers by identifying their areas of IT which are either underperforming or inhibiting potential business growth, in order to help organizations minimize risk and maximize business return, step by step. In particular, it identifies four areas in which IT transformation can make a significant difference:

The Atos Consulting approach is based on the following key elements:

Identify clear IT objectives. IT transformation engagement is based on a business plan, while KPI identification monitors evolution.

IT transformation considers four axes: people and culture, IT governance, technology and infrastructure and operational Excellence.

Long-term project (2-3 years) using a partnership model with a client.

Plateau-planning approach.

Change management as a key element.

Financial sustainability.

Atos current outsourcing practices now focus on transformational outsourcing; starting with the ‘as-is’ situation and continually transforming customers’ IT operations for consistent improvement while maintaining business continuity and quality of services. The main features of transformational outsourcing are the following:

Organization and process: by deploying well-established standards, like ITIL, to change the organization and improve quality.

Demand management: Atos defines an IT service catalogue suitable for the needs of the business and makes it available through a portal. More than 70 percent of delivered services should be ordered from such a portal, allowing for greater reactivity and efficiency to answer users’ needs.

Technical transformations:

End users: Atos generally proposes the migration of desktop architecture to its ‘Adaptive Workplace’ offering which is its solution to end users mobility and security needs.

Applications: Atos starts outsourcing engagements with a review of the application landscape through its ‘Application Portfolio Rationalization’ offering. It then builds large virtualization and cloud programs together with the customer to improve agility and reduce cost.

The main advantages of transformational outsourcing are:

Guarantee of business continuity during thetransformation.

To provide expertise for transformation that customers do not generally have in-house.

Atos commitment to cost reduction through the decrease of outsourcing fees.

As presented in the ‘Expecting the Unexpected’ Scientific Community Paper, Business Pattern-Based Strategy (PBS) [46] is an enormous opportunity to enhance Atos transformational IT offerings. PBS is based on continuous search for, modeling of and adaptation to new business patterns in the marketplace that have the potential to transform organizational strategy and operations. A business pattern is considered to be a set of recurring and/or related business elements (business activities, events, weak or strong signals, etc.) that indicate either a business opportunity or a threat. Diverse analysts say that looking for and acting on these patterns will become an inherent part of strategic planning and execution to support organizations in their efforts to survive and thrive in a business environment that is in constant transformation and that requires quick and agile responses.

Next-Generation Cloud ServicesIt is widely agreed that the advances and increased adoption of cloud computing will lead towards the commoditization and industrialization of IT Services. Cloud services today range from providing raw computing resources (CPU, storage and network) in the infrastructure layer to SaaS offerings, such as desktop virtualization, CRM or payment application services. It is expected that future advances in cloud services will go further, offering users and service providers the capability to aggregate and broker in a wide ecosystem of available ‘commodity’ services that can be combined and assembled to deliver added-value services. But by looking at the common denominator of these services; that they provide ‘horizontal’ commodity services that can be applied to any IT service, they are not specific to anyone.

A possible taxonomy for cloud SaaS offerings distinguishes the following typologies of cloud services [30]:

Product-centric SaaS platforms: A platform that relies on a core application or product for functionality. A good example of this category would be Salesfoce.com.

Horizontally-aligned SaaS platforms: A platform that attempts to provide common functionality. Under this category we could classify Atos current cloud offerings in virtual desktops.

General purpose platforms: These are platforms that aim to combine SaaS functionalities and provide value-added services on top. Brokers and aggregators would fit into this classification.

Vertically-aligned SaaS platforms: A platform that aims to consolidate common functionality for a vertical industry and provide that functionality as a commodity to its customers, creating an industry-focused ecosystem of highly-specialized applications. These vertically-aligned SaaS Platforms do not exist today. The creation of these niche clouds makes sense for industries characterized by highly-specialized applications, like retailing, healthcare, financial services and many others.

The expected emergence of vertically-aligned SaaS platforms represents a new opportunity for service providers and systems integrators, such as Atos. The experience gained from the development of multiple complex projects in the main industrial sectors using traditional delivery models can be capitalized on internally as assets by the service provider in order to provide customers with better, faster and less-costly solutions.

Agility and innovation

Quality in customer relationships

Operational efficiency

Business intelligence and compliance

How can fully ‘joined-up’ IT help turn market intelligence into compelling new business, quickly and cost-effectively?

How can IT help build the complete client profiles needed to establish durable client relationships?

What opportunities to accelerate process and drive out cost can IT create within the enterprise and across partnership and supply networks?

Can IT be used as a means of busting information silos to create new business intelligence – and streamline compliance too?

Business Imperatives

IT Transformation Implications

1

2

3

4

Fig. 5. Collaborative Enterprise Actors4. Source [23]

4 Gartner, The Emerging Global Environment Demands a New Collaborative Enterprise, 2008


In the IT Services market, there is a trend towards the encapsulation of experience on vertical sectors into assets that service providers bring to outsourcing engagements. A good example of this is Accenture’s airline operations BPO platform (Navitaire). As more experience is gained in specific sectors, a service provider integrates and encapsulates their knowledge into its existing service off ering, demonstrating its experience and knowledge in the field to potential customers in the same sector. Atos strategy is no diff erent. The Global Atos Market Alignment (GAMA) sales reorganization is based on a market-sector approach that aims to better adapt the company’s solutions to the specific needs of its clients in vertical sectors. It is being implemented with a strong emphasis on innovation. First results are a suite of Smart-Mobility services and Atos WorldGrid that regroup all of Atos Smart Energy and Utilities activities into one single off ering. In addition, Atos Worldline has developed a strong portfolio of diff erentiating assets and activities in the three domains of Electronic Payments, eCommunity Services and Financial Markets.

In parallel, there is the continuous trend towards the commoditization of IT as end users do not need to own their own solutions (or assets), but can gain instant access to predetermined functionality from external providers that deliver it as a Service. In this approach, many of the assets/functionality that a final user requires are pre-built in a standardized way. Atos off ers Atos Sphere, which brings together all of its cloud solutions from Consulting, Systems Integration and Managed Services, alongside Atos Worldline’s High-Tech Transactional Services (HTTS).

The combination of both trends can materialize in the realization of vertically-aligned, sector-specific cloud platforms, built on top of horizontal cloud off erings, which leverage the assets (physical and intellectual) that Atos, as an IT service provider, owns.

The five major markets in which Atos operates are: Public & Health, Energy & Utilities, Finance (Banking & Insurance), Telecom/Media & Services and Manufacturing/Retail & Transport. Figure 7 presents revenues per vertical market sector, while the following table presents a summary of Atos position and future developments for each of the vertical markets:

In order to maintain a dominant market position in many of these sectors, and taking into account the decrease in costs of IT services outsourcing, Atos proposes an alternative that goes beyond Business Process Outsourcing for non-core functions. It proposes the increasing extension of its Atos Sphere off erings via the creation of sectorspecific stacks of applications delivered in a SaaS model - vertically-aligned SaaS platforms - that capitalize the company’s knowledge in selected markets. This approach would be a competitive advantage in the cloud market as many current cloud providers (software companies, pure cloud providers and telcos) do not have the deep vertical market knowledge that Atos has. Moreover, this would represent an alternative inside Atos to cope with the industrialization trend customers are pursuing.

As presented in the ‘Top-to-Bottom Technology Provision’ Scientific Community White Paper[47], these vertically-aligned SaaS platforms could be off ered to the customer in the form of Virtual Vertically Integrated Stacks (VVISs) by establishing partnerships with a number of limited stakeholders in specific areas and delivering them based on open standards in cloud models.

General Purpose

Vertical Horizontal

Product-centric

Vertically AlignedSaaS Platforms

General PurposeSaaS Platforms

Product-centricSaaS Platforms

Horizontally Aligned

SaaS Platforms

In Central Government, Atos focuses mostly on infrastructure and application outsourcing and is a major provider of IT services for ministriesin France, Spain, the UK and The Netherlands

In Local Government, Atos focuses mostly on all eGovernment-related subjects. The solution developed by Atos Consulting is used in many municipalities and provides citizens with an easy way to handle rules and legislation, and communicate with local governments

In Education, Atos focuses on the implementation and management of Student Information Systems and introduced the term ‘Olympic Learning’

In Defense, Atos follows the ‘Defense way of working’ (joint and combined) and focuses on NATO-related topics as Network-Enabled Capabilities and Security

In Healthcare, Atos focuses on BPO, Shared Service Centers and eff ective management of support processes

Atos is the first outsourcing provider and eighth largest IT service provider for the financial services market. In banking, Atos focuses mostly on retail banking and corporate and investment banking, and is a major provider of IT services to Europe’s leading banks. Beyond outsourcing, Atos focuses on Target Operating Model design, an implementation and integration solution for key business process functions: eCustomer services in banking and insurance, card payment services, information security, and operation services for business processes, IT applications and platforms

Atos aims to develop innovative solutions in the following areas:

Customer management: diff erentiation, retaining and growing the customer base with online services for banking and insurance, and multi-channel platforms

Operational excellence: setting new standards in cost/income through the use of leading core-banking and core-insurance systems, coupled with Lean business processes

Risk and compliance: enhancing transparency and achieving compliance with more robust Enterprise Risk Management, meeting the Solvency II regulation, improving controls through more eff ective Enterprise Content Management (ECM) and information security

Business Process Outsourcing: to enhance customer service and deliver cost savings in non-core processes, such as card payments, credit collection and insurance back-off ice processing

Financial infrastructure and solutions: enhance business eff iciency with robust and scalable solutions such as clearing and settlement, asset management and brokerage back-off ice solutions

In Western Europe, Atos is one of the top three outsourcing service providers and within the top five largest IT service providers to the telecommunications service provider market

In Telecommunications, Atos focuses mostly on GSM (mobile) and fixed-line telecommunication service providers and is a major provider of IT services to Europe’s leading companies

Beyond outsourcing, Atos provides telecommunications service providers with value-added systems integration services, like OSS deployments (e.g. next-generation intelligent networks and online charging-system deployments), BSS deployments (e.g. provisioning and postpaid billing deployments) and corporate application deployments (e.g. ERP, CRM and HR systems). Atos has a particular focus on BPO services for telecommunications service providers where it, for instance, provides cost-eff ective and eff icient solutions for business processes

Future developments will focus on:

Operational excellence around core processing streams like billing and CRM

Deployment excellence for next-generation OSS, BSS and CRM application stacks

Business Process Outsourcing for standardized business processes

Product Lifecycle Management (PLM): PLM Center of Excellence established in 2009, on-demand PLM Services

Supply Chain Management: domain expertise and proprietary solutions for logistics and warehouse management

Customer Loyalty & Brand Equity: global sourcing services (HTTS and Web 2.0) for customer loyalty, and branding programs for manufacturers, retailers and transportation customers

Atos is the exclusive IT supplier of many IT nuclear digital control systems

Atos is the first prime contractor for the largest deployment of smart meters

In March 2010, Atos launched Atos WorldGrid, an innovative off ering that includes solutions for smart utilities and energy

Beyond IT Outsourcing

Vertical Market Atos Origin’s Position and Future Developments (Source [41])

Figure 7 Atos Origin’s revenues per vertical market. Source [41]

Beyond IT Outsourcing

Vertical Market Atos Origin’s Position and Future Developments (Source [41])

Figure 7 Atos Origin’s revenues per vertical market. Source [41]

11%23%

23%

16%

27%

Public Sector 585

Financial Services 562

Telecom & Media 388

Manuf/Retail/Trans. 690

Energy & Utilities 269

Total in EUR million 2,494 En

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Vertical Market Atos Position and Future Developments Source [41]

Fig. 6. Cloud SaaS Taxonomy and Expected Evolution (partially based on [30])

Fig. 7. Atos revenues per vertical market. Source [41]


Conclusions References

[1] Forrester, Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, 2008

[2] Gartner, Key Issues for Cloud Computing 2009, 2009, ID:G00158484

[3] Gartner, Cloud Computing: Defining and Describing an Emerging phenomenon, ID: G00156220

The Economist, Special Report on Corporate IT: Let IT rise, 2008, http://www.economist.com/specialreports/displayStory.cfm?STORY_ID=12411882

[4] Forrester, Cloud Computing fir the Enterprise Webminar, 2009, http://www.forrester.com/imagesV2/uplmisc/CloudComputingWebinarSlideDeck.pdf

[5] Wikipedia, ’Software as a Service‘, 2009, http://en.wikipedia.org/wiki/Software_as_a_Service

[6] Wikipedia, ’Infrastructure as a Service‘, 2009, http://en.wikipedia.org/wiki/Infrastructure_as_a_Service

[7] Youseff, Lamia; Butrico, Maria; Da Silva, Dilma, Toward a Unified Ontology of Cloud Computing, Grid Computing Environments Workshop, 2008. GCE ‘08 , vol., no., pp.1-10, 12-16 Nov. 2008, http://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=4738443&isnumber=4738437

[8] Forrester, Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, 2008,

[9] Jerry Sheehan, Understanding service sector innovation, Communications of the ACM, v.49 n.7, July 2006

[10] OECD, ‘Growth in Services‘,2005, http://www.oecd.org/dataoecd/58/52/34749412.pdf

[11] Henk L.M. Kox and Luis Rubalcaba, ‘Analysing the Contribution of Business Services to European Economic Growth’, 2007, MPRA Paper 2003, University Library of Munich, Germany.

[12] Kox, Henk L.M. and Rubalcaba, Luis, ‘Business services and the changing structure of European economic growth“, Unpublished, http://mpra.ub.unimuenchen.de/3750/1/MPRA_paper_3750.pdf

[13] OECD, Social and Economic Factors Shaping the Future of the Internet, NSF/OECD Workshop proceedings, 31 January 2007, http://www.oecd.org/document/4/0,3 n_2649_34223_39046340_1_1_1_1,00.html

[14] Dillon, F. (2004) Business transformation outsourcing - a new vision of value

[15] http://www.computerworlduk.com/news/outsourcing/15235/gartner-dontsign-long-term-outsourcing-deals/

[16] Gartner, Survey Analysis: Outsourcing and IT Services Priorities, Europe, 2010

[17] OCDE Information Technology Outlook 2008, Available online, http://browse.oecdbookshop.org/oecd/pdfs/browseit/9308041E.PDF

[18] Gartner, Hyperdigitization Creates Major Opportunity for IT Services Providers, 2010

[19] OCDE ,The Economic and Social Role of Internet intermediaries, 2010, http://www.oecd.org/dataoecd/49/4/44949023.pdf

[20] Gartner, The Future of IT Services: Positive Impacts on Service Provider’s Opportunities, 2010

[21] NEXOF Project, NEXOF Roadmap, 2009, http://www.nexof-ra.eu/sites/default/files/NEXOF_Roadmap_Public_v1.0.pdf

[22] Gartner, Gartner on outsourcing, 2009 – 2010

[23] Gartner, The Emerging Global Environment Demands a New Collaborative Enterprise, 2008

[24] Gartner, From Poker to Bridge: The New Collaborative Sourcing Game, 2009

[25] Gartner, Developing the Culture of Multisourcing Collaboration, 2010

[26] Allen, Franklin, Carletti, Elena and Marquez, Robert S., Stakeholder Capitalism, Corporate Governance and Firm Value (September 16, 2009). EFA 2007 Ljubljana Meetings Paper; ECGI - Finance Working Paper No. 190/2007; Wharton Financial Institutions Center Working Paper #09-28. Available at SSRN: http://ssrn.com/abstract=968141

[27] Freeman E.; Liedtka J., Stakeholder Capitalism and the Value Chain in Operations management: a strategic approach, 2005 - Sage Publications Ltd

[28] Nicholas Carr, The vertical Cloud, The vertical cloud, http://www.roughtype.com/ archives/2007/11/the_vertical_cl.php

[29] Bruce Friedman, The Potential for “Serverless” Healthcare Computing, http://labsoftnews.typepad.com/lab_soft_news/2007/11/sereverless-hea.html

[30] Sinclair Schuller, Taxonomy of SaaS Platforms, http://www.saasblogs.com/2006/12/27/taxonomyof-saas-platforms/

[31] Gartner, The Future of IT Services: Positive Impacts on Service Providers‘ Opportunities, 2010 Beyond IT Outsourcing 15

[32] Gartner, The Future of IT Services: Five Threads to the Industry, and what External Service Providers need to do, 2010

[33] Gartner Steering your Business Through the IT Services and Outsourcing revolution, 2010

[34] Gartner, Value Gap and Consumerization Could Disrupt Traditional IT Service Providers by 2015, 2010

[35] Gartner, The Impact of Cloud Computing on Sourcing Strategy Models, 2009

[36] Forrester, Market Overview of Cloud Service Strategies from Global IT Providers, 2009

[37] Mick Symonds, Atos Origin, Cloud: Its potential for Businesses White paper, 2010

[38] Leimeister, S., Riedl, C., Böhm, M., & Krcmar, H. (2010). The Business Perspective of Cloud Computing: Actors, Roles, and Value Networks

[39] Venkatraman, N. IT-Enabled business transformation: from automation to business scope redefinition. Sloan Management Review, p. 73-86, Winter 1994.

[40] Atos Origin 2009 Annual Report, http://www.atosorigin.com/nr/rdonlyres/acc3ea79-b4cb-4d4d-9053-87cb21ad459a/0/atosorigin2009annualreport.pdf

[41] Atos Origin 2010 Half-Year Report, http://www.atosorigin.com/NR/rdonlyres/AA7D8611-C604-4544-BC53-1F4EA4019EEB/0/atos_origin_2010_half_year_report.pdf

[42] Global Consulting Portfolio ID-Cards Overview, https://km.atosorigin.com/Livelink/livelink.exe?func=ll&objId=51548554&objAction=download

[43] IT Transformation, Sales Advice and Customer Sales Deck, https://km.atosorigin.com/Livelink/livelink.exe?func=ll&objId=56261599&objAction=browse&sort=name

[44] IT Transformation, Bold Change that drives success Brochure, https://km.atosorigin.com/Livelink/livelink.exe?func=ll&objId=56261599&objAction=browse&sort=name

[45] Atos Origin SC White paper, Expecting the unexpected, 2010

[46] Gartner, Introducing Pattern-Based Strategy, 2009

[47] Atos Origin SC White paper, Top to Bottom Technology provision SC White paper, 2010

AcknowledgementsAna Juan Ferrer (Editor-in-Chief)

ZhiSong Lv

Special thanks and acknowledge to my colleagues Adil Tahiri, Jerome Brun and Paul Albada for their contributions to this paper.

About the authorsAna Juan Ferrer is Head of Service Engineering and IT Platforms (SEITP) Lab in Atos Research and Innovation (ARI), the Atos R&D node located in Spain. SEITP Lab’s research topics cover cloud computing, advanced SOA and Green IT. Ana can be contacted at [email protected]

In order to overcome the general decrease of IT outsourcing cost, it proposes two parallel and complementary strategies for this evolution:

Transformational IT outsourcing is now under development by Atos Global Consulting and will be presented in Q4 2010. This paper proposed further evolution of this offering by combining it with Business Pattern-Based Strategy.

The evolution of Atos cloud offerings by realizing vertically-aligned, sector-specific cloud platforms, built on top of horizontal cloud offerings and that leverage the assets (physical and intellectual) that Atos owns in multiple vertical sectors. A possible way of offering these vertically-aligned SaaS platforms could be via Virtual Vertically Integrated Stacks (VVISs) that bring together stakeholders in specific areas and are delivered in a cloud-computing model.

This paper has outlined factors and strategies for the evolution of Atos IT outsourcing services.

About AtosAtos is an international information technology services company with annual 2011 pro forma revenue of EUR 8.5 billion and 74,000 employees in 48 countries. Serving a global client base, it delivers hi-tech transactional services, consulting and technology services, systems integration and managed services. With its deep technology expertise and industry knowledge, it works with clients across the following market sectors: Manufacturing, Retail, Services; Public, Health & Transports; Financial Services; Telecoms, Media & Technology; Energy & Utilities.

Atos is focused on business technology that powers progress and helps organizations to create their firm of the future. It is the Worldwide Information Technology Partner for the Olympic and Paralympic Games and is quoted on the Paris Eurolist Market. Atos operates under the brands Atos, Atos Consulting & Technology Services, Atos Worldline and Atos Worldgrid. For more information, visit: atos.net

For more information:Please contact [email protected]

atos.netAtos, the Atos logo, Atos Consulting, Atos Worldline, Atos Sphere, Atos Cloud, Atos Healthcare (in the UK) and Atos Worldgrid are registered trademarks of Atos SA. June 2012© 2012 Atos.