Cloud computing is the next big change-driver

Written by M Sarita Varma | Updated: May 9 2011, 08:15am hrs
Kailash Attal, head of the Global Practice (Managed Services) division of UST Global Inc, says cloud computing will be the key driver in the Indian IT industry, provided, the cloud is leveraged strategically with outcome-based model and unit-cost pricing. The California-based UST Global is approaching $400 million in annual revenues. After 20-odd years minting management ideas to suit changing global IT climes, Attal says that all new trends have some hand-me-down elements from shop-keepers of old. Its the same. Only, case-to-case, it looks varying, he tells M Sarita Varma, dwelling on the latest trends and shifting strategies in vending new generation services worldwide. Excerpts:

You are credited with creating New Normal Managed Services Engagement methodology for global IT industry, which has now caught on as a differentiating trend. Whatbrought you to this eureka moment

Credits, if any, should go to my Indian childhood. I come from a Marwari business family background. First seeds of a managed services engagement model probably came to me, when I was a little boy, perched on my grandfathers bicycle basket, watching the merchandise moving in the busy streets of a small town in India. You know a managed service model in IT industry, if you have seen a Marwari shopkeeper at work

If he sells bicycles, he takes effort to explain how the new model works.

If there is a new kind of gear, hell bend backwards to get the customer to learn the change in techniques. If there are repairs, he'll volunteer to get it patched up.

Till now global IT sourcing space found value levers only in labour and process arbitrage. But management services engagement model goes beyond these. In New Normal catalyst, I am inspired by the Marwari shopkeepers client engagement model. To get the best out of managed services model, both the service provider and consumers process maturity need to be at par. For this, we should invest heavily in client- preparedness throughout the engagement cycle, especially during planning, transition and stabilisation stages of the managed services journey.

Would that mean there a rethink on the process of evaluating an IT service based on manhours spent

Nobody now wants to buy effort in IT services. All eyes are on outcome. In an outcome model, the service provider is signed up by service consumer for a defined scope to give committed outcomes for a predictable fixed price, while continuously improving the quality of applications and assets. One, there are well-defined set of key performance indicators around effectiveness and quality of service. Two, the outcome-model limits customers business risk through fee at risk through mutually-agreed service-levels. In the new model, the IT partner gives the collaboration platform, knowledge management and performance dashboard, while the client may provide the delivery tools.

What about price advantage in the outcome model

It was because of the pressure on the price, after the recent downturn years that the outcome model came about. Its a win-win situation for service provider and service consumer. There are flexible pricing options, based on scope and the milestones achieved. In some cases, it may be a unit-based arrangement. People do not want to spend on a service thats not 100% utilised. For example, 60-70% of IT costs is pumped on maintenance. Unit-based price arrangements make it possible to bundle service costs with value. Forrester has recently done a study on outcome-based models. According to case-study examples, savings range from 10-25%. Working from India, outcome-based models yield at least 30% savings in costs to the client. And the most important part is that risk shifts from client to the vendor.

Since you feel the new model is the result of pressure of downturn years, what are the transitional trends

At UST Global, we are challenged to be different, since we have 25 Fortune-500 clientele. Through a risk-and-rewards model, we focus on three scores, client satisfaction, service value and efficiency. Now, youd ask whats in it for the service provider. In general, risk-and-rewards models follow long-term annuity contracts. Some are as long as over three years. The service provider is assured predictable revenue. Another watch worthy trend in 2011 is the enormous cash inflow to capital investment, to replace legacy systems that bleed the company with recurring expenditure.

After the internet boom of late 1990s, we hear cloud computing is the revolution readying to happen. Your thoughts

Cloud computing is the next big change-driver for a developing country like India. It could electrify daily lives the way cellphones did in the last decade. Lets recall that since landphone use was limited, cellphone penetration rate was phenomenal in India. In a cloud, the resource pool is dynamically shared in storage, service and application. The interface is through a Web browser. In technology adaptation and convergence, this is going to have big impact in the coming years. Leveraged strategically with outcome-based model and unit-cost pricing, cloud will give elasticities to the IT industry. Total cost of operations will come down.

At UST Global, we are very much into cloud business. But then, for service providers who have a bunch of very big firms as clients, public cloud development may not have much scope. There are concerns over privacy, data loss and credentials of vendor. I feel that, in application-side, cloud market is little young for reckoning. By the current trends, this could mature in two or three years.