Managing Diverse IT Infrastructures through Outsourcing & Virtual Integration

1. Week 7Monday, March 6 Managing Diverse IT Infrastructures Outsourcing the IT Function

2. Building an IT Infrastructure • Every organization developed its own communication infrastructure • Technologies did not interoperate well • Reliance on proprietary organizations meant that companies were locked in to a specific vendor technologies Performance and reliability problems

3. Internet Technologies and Open Standards • Organizations can share a communication infrastructure common to all business partners and customers • Communication technologies incorporate well due to TCP/IP standards • Organizations are less locked in to specific vendor technologies Combine technologies from numerous vendors and expect them to interconnect seamlessly

4. Incremental Service Providers and Common Infrastructures • As communication technologies improve and become more compatible and modular, businesses can obtain smaller increments of service from outside vendors with shorter lead times and contract durations • Pay for what you need • Service partners and new business models • Outsource services that are needed • Leads to diverse IT infrastructures • Managing service provider relationships becomes important • Virtual integration

5. New Service Models and BenefitsOpportunities • Overcome the shortage of specialized skills by reducing the need for internal staff • Network-based service delivery models help businesses quickly develop new capabilities • Service providers can quickly achieve economies of scale in IT investments to maintain highly available and reliable systems • Improves cash-flow by reducing the initial (costly) IT investments • Upgrades performed centrally and timely • Services available anywhere, anytime over the Net

6. Vision Service PlanManaging Accounts Online Internet availability

7. 24 x 7 Commercial Banking

8. Electronic Data Systems (EDS)Service Provider

9. EDS

10. EDS (Highlight added)

11. EDS, Available Services

12. My SAP Enterprise computing services

13. For example…

14. Incremental services

15. On Demand, Utility and Grid Computing Models Common attributes • Financial models that make IT services easier and less risky to procure and manage • Restructuring and reengineering of existing application s to make them easier to manage and use • Enhancements to infrastructure to improve interoperability and efficiency in use of computing assets

16. On Demand Computing

17. Grid Computing • “A computational grid is a hardware and software infrastructure that provides dependable, consistent, pervasive, and inexpensive access to high-end computational capabilities.” Foster and Kesselman, 1998

18. Grid Checklist: Characteristics of a GridFoster, 2002 • Coordinates resources that are not subject to centralized control • Integrates and coordinates resources and users that live within different control domains • Standard, open, general-purpose protocols and interfaces used • Built from multi-purpose protocols and interfaces that address fundamental issues (i.e., authentication, authorization, resource discovery, resource access) • Deliver non-trivial qualities of service • Allow constituent resources to be used in a coordinated fashion to deliver various qualities of service to meet complex user demands

19. Grid.org, Grid Computing (Highlight added)

20. Grid Computing Benefits

23. Grid Computing • Application layer includes all different user applications (science, engineering, business, financial), portals and development toolkits supporting the applications. This is the layer that users of the grid will "see". Source: gridcafe.web.cern.ch/gridcafe/

24. Grid Computing • Middleware layer provides the tools that enable the various elements (servers, storage, networks, etc.) to participate in a unified Grid environment. The middleware layer can be thought of as the intelligence that brings the various elements together - the "brain" of the Grid! Source: gridcafe.web.cern.ch/gridcafe/

25. Grid Computing • Resource layer, made up of the actual resources that are part of the Grid, such as computers, storage systems, and electronic data catalogues which can be connected directly to the network • Network assures the connectivity for the resources in the Grid Source: gridcafe.web.cern.ch/gridcafe/

26. Grid Computing, Another View • User Applications • Obtain the necessary authentication credentials to open the files (resource and connectivity protocols) • Query an information system and replica catalogue to determine where copies of the files in question can currently be found on the Grid, as well as where computational resources to do the data analysis are most conveniently located (collective services) • Submit requests to the fabric - the appropriate computers, storage systems, and networks - to extract the data, initiate computations, and provide the results (resource and connectivity protocols) • Monitor the progress of the various computations and data transfers, notifying the user when the analysis is complete, and detecting and responding to failure conditions (collective services). Source: gridcafe.web.cern.ch/gridcafe/

27. Grid Computing, Another View • Collective Services • Keep directories of available resources updated at all times • Broker resources (which like stock broking, is about negotiating between those who want to "buy" resources and those who want to "sell") • Monitor and diagnose problems on the Grid • Replicate key data so that multiple copies are available at different locations for ease of use • Provide membership/policy services for keeping track on the Grid of who is allowed to do what, when. Source: gridcafe.web.cern.ch/gridcafe/

28. Grid Computing, Another View • Resource and connectivity protocols handle all "Grid specific" network transactions between different computers and other resources on the Grid • Fabric - all the physical infrastructure of the Grid, including computers and the communication network Source: gridcafe.web.cern.ch/gridcafe/

29. Types of GridsSource: Grid Cafe • National Grids - couple high-end resources across a nation • Private Grids - characterized by a relatively small scale, central management and common purpose • Project Grids - created to meet the needs of a variety of multi-institutional research groups and multi-company "virtual teams", to pursue short- or medium-term projects (scientific collaborations, engineering projects) • Goodwill Grids - for anyone owning a computer at home who wants to donate some computer capacity to a good cause

30. Types of GridsSource: Grid Cafe • Peer-to-peer - depends on people sharing data (like the now defunct Napster and its many subsequent imitators) between their computers • No central control • Consumer Grid - resources are shared on a commercial basis, rather than on the basis of goodwill or mutual self-interest • Companies or other organizations rent distributed resources, and the owners of these resources are paid for the computing power or data storage capacity they contribute, by a "middleman" in charge of the middleware

31. Managing Risk Through OutsourcingInternal vs. External Service Delivery • If unique and provide a significant advantage, don’t outsource • IT services essential for running a business but common across competitors can be outsourced Keep internal Is external deliveryreliable and lower cost? Does service offer a competitive advantage? Outsource Keep internal

32. Incremental Outsourcing andManaging Risks • Outsourcing a particular function rather than the entire operation • Consequences of mismanagement are not as far-reaching • Offers new and attractive choices to managers seeking to improve the IT infrastructure

33. Drivers of OutsourcingSprague and McNurlin • Breakdown in IT performance • Need to retool lacking technology • Intense supplier pressures • Sales of surplus supplier capacity • Simplified general management agenda • Outsource non-core competence operations • Financial factors • Reduce sporadic capital investments in IT • Downsizing IT operating costs • Greater organizational awareness of IT’s costs • More appealing for takeovers

34. Drivers of Outsourcing • Corporate culture • Resistance to change within the organization • Labor unions • Eliminating an internal irritant • Conflicts between users and IT staff • Other factors • Quick access to current technology and skills • Need to quickly response to changes in the market

35. Framework for Outsourcing • Position on the strategic grid Product differentiation High Strategic Strategic IT plan, initiatives Depends Yes Factory Operational IT IT Impact on Business Operations Yes Depends Support Basic elements Turnaround Gradual adoption Low IT Impact on Strategy Low High

36. Strategic Grid: Outsourcing Strategic Strategic IT plan, initiatives Factory Operational IT High • Economies of scale • Higher-quality service and backup • Management focus facilitated • Correct internal problem • Tap cash source • Cost flexibility • Divestiture IT Impact on Business Operations Support Basic elements Turnaround Gradual adoption • Access to IT professionals • Focus on core competencies • Access to current IT • Reduce risk in IT investments • Internal IT shortfalls • Internal IT development skill shortfalls Low Low IT Impact on Strategy High

37. Framework for OutsourcingSprague and McNurlin • Position on strategic grid (cont.) • Outsource operational activities • More operationally dependent organizations • Need for greater analysis when large IT budgets involved • Development portfolio • Maintenance vs. development projects • High structured vs. low structured development work

38. Framework for Outsourcing • Operational learning • Organizational assimilation of technology • Organization’s IT architecture and infrastructure • Currency of architecture • Current technology in the organization • Segregated operations more easily outsourced

39. Structuring the Alliance between Outsourcer and “Outsourcee” (Customer) • Factors • Contract flexibility • Standards and control • Areas to outsource • Cost savings • Supplier stability and quality • Management fit • Conversion problems Alliance

40. Structuring the Alliance between Outsourcer and “Outsourcee” (Customer) • Contract flexibility • Accommodating changes in the environment • Information needs • Competitive needs • Advances in IT • Standards and control • Risk (i.e., lost of control, disruptions) in operations • Risk in introducing innovations to the organization • Risk in revealing internal secrets

41. Structuring the Alliance between Outsourcer and “Outsourcee” (Customer) • Areas to outsource • Determine • Are operations segregated or tightly embedded? • Can specialized competencies be acquired in the long run? • Are operations core to the organization? • Cost savings • Objective evaluation of costs and savings

42. Structuring the Alliance between Outsourcer and “Outsourcee” (Customer) • Supplier Stability and Quality • Financial stability • Difficult to insource • Difficult to change outsourcers • Incompatibility between the organization and outsourcer • Technology • Organization culture • Between technology and organization’s strategy

43. Structuring the Alliance between Outsourcer and “Outsourcee” (Customer) • Management fit • Compatibility between management styles and cultures • Conversion problems • Mergers and acquisitions • Incompatibilities

44. Managing IT Infrastructure Assets • Total cost of ownership • Cost and benefits associated with service delivery to each client device • Operating costs includes software licensing, labor and other costs to remain connected

45. Strategic Implications • What are the strategic implications with on demand (utility and grid) computing? • Benefits and Costs • What are the strategic implications with out sourcing? • Benefits and Costs