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Outsource magazine: thought-leadership and outsourcing strategy | September 20, 2017

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Q&A: Neil Pratley, IBM

Q&A: Neil Pratley, IBM
Outsource Q&As

Neil Pratley is Business Unit Executive – Financial Services, Consumer Goods & Retail at IBM; after his participation in our video roundtable on ‘The Potential of Partnership’ earlier this year, we got back together with Neil to follow up on some of the themes arising therefrom, including how different services require a new approach to collaboration – and why new technology really is a revolution for the sourcing space…

Outsource: Neil, we had a really great roundtable earlier in the summer on the topic of ‘the potential of partnership’ and what that means to outsourcing relationships. Looking back, what themes emerged which were particularly interesting to you and what you’ve been working on since?

Neil Pratley: To begin with, it’s been both interesting and reassuring that from the contact we’ve had with our clients who have seen the video, and with a number of other service providers, it’s clear that they’re seeing the same trends in the market. Both clients and service providers are trying to shift to more automated governance models – which is exciting because it’s one thing that the market as a whole could strengthen. One question which naturally comes up in those conversations is how do you change a governance model when a relationship is well underway, and evolving all the time? And the importance of developing those new forms of governance in the appropriate way is certainly something which emerged from the roundtable.

A second thing – and probably the most important one for us – is the clients’ awareness of one of the key issues we outlined: sourcing partnerships are changing, and client organisations are looking increasingly keenly at the value equation and at how they can build more innovation into their relationships. In some cases this has led to conversations around what effectively represents a mid-term transformation – not only of the actual delivery but of the contractual framework itself. Why wait until the usual renegotiation point when we can be talking now about how to evolve the contract, and the relationship, to one based more upon business outcomes and therefore leveraging greater value from it?

O: On that note, can you tell us about your current role and more about the interactions you have with clients?

NP: I have banking, insurance and financial markets outsourcing clients for IBM UK and Ireland and I’ve just taken over another sector which includes all of the major retail outsourcing clients. Mine’s very much a sponsorship role, but I do sit on a number of quarterly steering boards with the executives of our clients to set future strategy and look regularly at what we’re trying to achieve together. We are very client-centric, constantly looking at our client’s business objectives and at the IT strategy that then supports those objectives and how can we help them get to where they need and want to be.

I’ll give you one example: I’m talking to a banking client at the moment about mobile; they’ve got a digital agenda, and they’ve got mobile apps out there already. My conversation with them now is around buying this as a managed service instead of trying to create all of that capability internally and try and run to keep up with the market (one challenge is that geographically they’re probably in the wrong territory of the country to get all the skills on board). I’m asking them, what’s the business outcome that they want? They want a standing platform for mobile that’s got five variations of application that’s run across it, and that they can change it in five minutes to support the business? Well, how do we structure a sourcing arrangement around that? Let’s look at a managed service – because that way we’ll take on the volume challenges of highly variable demand thus minimising their cost of ownership and operation.

So instead of the old-fashioned agreement – buy a bunch of servers; buy a bunch of software; build, buy or both some services and support; put it all together and hope it all knits end to end – we’ve a different approach. Under the old agreements, you’ve got to second-guess what your adoption rates are going to be across all of your customers, how many you’re going to move on to the mobile application, how many are going to start transacting over mobile, and you’ll need an infrastructure, applications and a network that’s all geared up to that. Now, we’re able to take those problems away, and the client simply pays based on transaction rates or whatever it might be that allows the volume to ramp up. We just manage all that in the background so the client doesn’t end up paying for a huge quantity of infrastructure that it doesn’t actually use. It’s a more mature way to approach it.

O: Do you think that change has mostly been coming from the clients saying “we want to work in a different way”, or is it more emerging from this ongoing conversation that you are having within IBM?

NP: The answer is: all of the above. If you look at the lifecycle of your average outsource contract of any size and scope, you know they’re designed long before they’re ever contracted. You then go through a couple of years’ transition – and the business has carried on moving. So the contract may no longer the best fit for the business: it was great when it was designed, with the best intentions from all parties, but now it doesn’t fit. We’re still delivering the service to the contract that we have, all of the service level agreements that we’ve got are all being met, the stability’s there – but the client and their business now want a different outcome now from the one we all started with. That’s when you get the situation of “it’s all green, but it doesn’t feel very green!” So the client may want to drive some change there.

On the other hand, we also need to be proactive, going out and saying to clients: “I can see where your business is, I can see what your challenge is; there’s a better way to do this, a way to generate more out of it.”

O: Do you think that even the largest organisations on the buy-side have the capability any more to do this sort of thing on their own, or are we at a point where it’s unavoidable to have an outsourcing partner?

NP: I think it’s unavoidable. I’ll give you a great example: a bank had some instability in its IT environment over a couple of months; the Board looked at it and said “if IT is so critical for us should we consider insourcing it back in-house?” My advice was “you just wouldn’t have the capability to do that, nor could you attract the capability to do that” – their geographic location may not fit very well for them, in terms of those skills and bringing them into the company – “and also you couldn’t keep pace with the level of change, or with the level of risk.” We have billions of security events hit our radar every single day in IBM, every single day, and four or five of those will be events that we haven’t seen before as a corporation. We have a follow-the-sun approach to removing that threat from our client base. Now we can do that because we have 24/7 operations and 430,000 employees around the globe: how do you keep pace with that if you bring everything back in-house?

Security is one dimension; infrastructure is another. When you think about it, electricity is critical to a bank, but do you start building your own power stations if you have a power outage? I have a vision that in the future, computing will pretty much be like power generation or water or any other utility: you plug in, you get what you want and at the end of the day if you turn more lights on, you’ll get a bigger bill. If you want a smaller bill, you turn more lights off, you become more energy-efficient. It’s exactly the same in a business: through process rationalisation, standardisation, automation, you become more efficient.

We need to get people thinking about business efficiency, both inside IBM and in our customer base – and bear in mind every client is an individual to us, they’re all at different stages of their sourcing evolution, they all have different capabilities, they have different relationships with us. Some would look at us just as a straight supplier, of hardware or software or a service; others look at us very much more as a strategic partner. So there is a vast array of relationships out there across many, many clients, all at different stages in the cycle, faced off by a very large organisation that is constantly evolving in and of itself.

O: Looking ahead: what’s coming up that you’re particularly excited about?

NP: It’s easy to summarise: analytics, security, mobile, and cloud. Take those as the top four of the most disruptive technologies to the market: how do you approach them? How do you wrap each one up as a managed service that is cost-competitive to market, and one that de-risks our clients and what they’re trying to achieve? How do you create a sourcing arrangement, and wrap a commercial vehicle around that, that makes sense to us given that we have to build the infrastructure – and of course I’m going to recover the costs for it – versus how our clients would want to buy it in smaller unit measures? How do we create that capacity, and manage the utilisation? There are all of those things that we are contending with now and will be far into the future. Not everybody can buy a Watson – we’re actually selling Watson now – and fantastic if you can afford it, it’s a cracking tool, but not everybody’s going to be able to go out and buy one. They don’t have the critical mass to utilise it, so how do they buy analytics as a service on a platform like Watson? How does a client get access to that kind of technology, that kind of team intellect, without having to spend millions in capital and recruitment?

Analytics is one thing, security is another. I mentioned the level of threats we encounter; those threats are escalating exponentially. Why? Because now mobile’s just as much a threat as any other technology that hackers want to get into. If the banks are using mobile apps, criminals are going to want to use mobile apps too. How do you protect against that? So security is another exciting challenge for the future.

What does that future look like? You know, I sit with clients that think security is the absolute crown jewels, and I agree, it is of paramount importance particularly in financial services. But you can’t keep pace with the level of change unless you build an organisation that almost replicates an IBM and others in the market – and, let’s face it, that’s just not economically viable for most companies. So you’re going to have to look at how to supplement the security service you’ve got, set the governance framework, set the direction, set the strategy, the risk management, and then procure the services underneath it in a trusted fashion. So that’s quite exciting.

And then you’ve got cloud: is it hybrid cloud, is it public cloud, is it private cloud? The answer for most clients in the future will be a mixture of all of the above, that gives the cost competitiveness, agility, flexibility, speed to market, and all those advantages that they don’t have today. At IBM, the market challenges us continually in terms of how to keep making it faster, better and out-of-the-box standardised. We have IBM Pure technologies, we have the software stacks already built in, we have the intellectual property already built in, and clients are already adopting that – so for us it’s the adoption rate that we have to monitor, because we have to manage the utilisation: how big do you make your cloud when you start out?

Cloud in itself is a massive disruptive technology in the market, and one that’ll just get more and more adoption. Is it moving at the pace that we expect? The answer is, in some areas yes, and in others no, but more and more and more of my clients are putting their toes in the water, and trying it, and finding that actually it works better than what they have at the moment. From there you go to test and development and then into the production system. We plan cloud roadmaps with our clients; we have production-grade mainframe cloud services which many of our clients utilise today. This goes back to the principle of partnering for innovation – creating easy access to technology with a service provider instead of having to build it yourself all the time.

O: Again going back to the nature of the partnership, do you think this is going to involve a structural shift in the way that these agreements are put together? Do you think for example, we’ll see more joint ventures? Do you think we’re looking at a different way not just of providing services but actually of organising the business relationships?

NP: We are, very much so. I can imagine a time, depending on the business requirement, where you don’t have long-term contracts, where instead, contracts are based on minutes. Let’s take a simple example: we set up a test service on our cloud for a client, they pay for what they use, they deploy a project on it, the project comes to an end, they shut it down, that’s it: they have no more charges. Whether they’ve got one project, or two hundred projects, the principles are exactly the same, but they don’t have a long-term commitment. They can quite easily go on to another cloud, from another provider; they’ll have all of that flexibility in the future, and the commercial arrangements need to evolve to recognise that.

It will become more about who you leverage strategic partnerships with in the future, not only with us, but other players in the market. What value does an organisation derive out of the relationship over and above the base service? My point to our clients is: utilise the relationship so that you don’t have to spend all of the same dollars researching the things that we do. It’s all there, and the beauty of the relationship with IBM is that’s what you’re buying: it’s not a cloud service, it’s not an infrastructure service, or an app service: that’s a given, that’s just the contract we have today. But how do you leverage that value out of us into the future? Capitalise on it.

This article originally appeared in Outsource magazine Issue #33 Autumn 2013.

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