Q&A: Ray Wang, Constellation Research
- Outsource Q&As
- On February 8, 2013
Ray Wang is Principal Analyst & CEO at Constellation Research, one of the world’s foremost technology authors, bloggers and speakers, and a former IIAR Analyst of the Year. We caught up with Ray to find out a little about his current perspective on the outsourcing space – in particular, the impact of cloud and other disruptive innovations – and to ask him to take a little look into his crystal ball…
Outsource: Ray, for those few of our readers who aren’t already aware of your work, can you give us a brief intro into who you are and what you do?
Ray Wang: I’m the Principal Analyst and CEO at Constellation Research. We are focussed on figuring out how to apply disruptive technologies to new business models; so sometimes that would be design, build, operate, manage, transfer (that’s one way to look at business models); another way to look at it is what you can do to drastically change where your business is going in the future. We are a research analyst firm. We put together the best practices. We document them and we share them with our clients. We also bring them together on research panels where they have an opportunity to create peer-to-peer networks. We put together events here and there that actually formalise those kinds of relationships that have been happening online.
O: Obviously “disruptive technologies” go to the very heart of the outsourcing and sourcing space: what do you think, at the moment, are the key trends with regards to that most disruptive of technologies, cloud computing?
RW: There are a couple of flavours of cloud that are happening, and when you look at the traditional areas where you take cloud computing as a way to improve business processes or to add innovation, those will continue. New features, new products, new services will happen – but more importantly there are actually two or three other different trends happening.
The second trend is really taking advantage of the convergence of other disruptive forces, so if you look at the convergence between cloud technology and big data, what’s happening now is – instead of every organisation working to bring together all their information sources or just parts of information – anything from customer analytics to social analytics or to forecasting or demand trends – we are seeing more and more that cloud and big data come together as people access the data sets, access the complete power that is happening in the cloud and use that to bring them into mobile interfaces. That’s the intersection between cloud social and cloud big data and mobile – and then there are other intersections that are happening between cloud social and mobile as well.
O: And how effectively do you think organisations are actually doing this at the moment? It seems that’s there’s a multi-speed transition going on where some are really blazing a trail, whereas others aren’t getting it at the moment.
RW: There is a big gap, a big disruptive technologies divide that’s happening today. The organisations that understand more importantly what technologies not to adopt, are doing a better job of focussing on the way it will impact their business models. What I mean by impacting their business model, is either improving and reducing the cost of regulation, improving operational efficiency, driving revenue or creating strategic differentiation.
O: Are you finding that is divided by vertical, or perhaps by geography? Are you seeing any trends in terms of the type of organisations that are doing that?
RW: A lot of people would like to classify it by vertical or by geography, and I would say that is no longer true. What’s important is the culture for accepting innovation, understanding how to fail fast and being able to understand the impact of not having that technology in place. This is really the difference between companies that have leadership and companies that are mass followers and companies that are Luddites. The three categories merge. It doesn’t fit within an industry, doesn’t fit within a geography.
I’ll give an example; if you take banking. Traditionally banking is seen as heavily regulated; people worry about the data, worry about privacy and security issues. But inside banking there are organisations that have pushed the limits as to how they use cloud and what they do with data privacy because they want to and because they know the need to lead as opposed to follow.
O: Where’s the innovation coming from in cloud? Obviously there’s a big driver from the buy-side for lower costs, and to form other functions as well. Do you feel the innovation is coming from the needs of the buyers, or is it mostly in the hands of the providers?
RW: I think there is a split in the cloud when you think what is going on. The different flavours in the cloud, let’s start with that: if you look on the software-as-a-service level or you are consuming software products, that’s happening very quickly. Lots of innovation, lots of adoption, lots of customers that are taking advantage of that. If you’re doing it at platform-as-a-service where people are augmenting the cloud, that depends. It’s happening, it’s not necessarily being sanctioned by the organisations but a lot of people are leveraging the compute powers of an Amazon or a Google or Microsoft because it’s 1/100th of the cost of you running it yourself.
If you’re going it at the infrastructure service level that’s different; that’s where we’ve seen a lot of outsourcing where people are taking data centres and doing consolidation, putting them into private clouds. We’re seeing first structure storage consolidation. Then we see a very interesting category that is emerging: hybrid. We’re seeing some business processes automated in the cloud; we see the value-added portions being out-sourced and then we see that total package being delivered into the market place.
O: Do you think that the buy-side is understanding how to procure cloud services properly, at the moment? Do you think the pricing of cloud services has stabilised in a fair place?
RW: I think the buy-side has not figured out how to procure properly because there are too many different types of metrics and they don’t understand the lock-in that cloud creates. Although lock-in is not in the data (you own your data) the lock-in exists in the fact that if you use a service for more than three or four years, it’s going to be very hard to migrate off that service because you don’t own the code.
We actually put together a list of Bill of Rights. We looked at 55 areas: to give you some background, I’ve done 1,400 or 1,500 software contract negotiations, so we put together best practices into this document for cloud.
O: In terms of that intersection you were talking about between cloud and mobility: there’s a huge drive for mobility services from the buy-side, with a great amount of R&D going into mobility and the way it can help take organisations to the next level. How mature do you see that space being now? It seems like the rate of change is so incredibly quick it’s hard to see from the buyers’ perspective what technologies and what strategies to deploy.
RW: The challenge is there isn’t a standard in mobile like we had a standard in operating systems for Windows or a standard in terms of how we build enterprise-class applications, and because there isn’t a standard we’re in the Wild West of mobility. Multiple types of platforms, many different types of connection points and the lack of standards is really one of them that’s holding mobile back.
The second thing that’s happening, if you think about how mobile works: mobile is really just another channel or interface, and so apps designed for mobile need to be optimised for their channel and we don’t see that all the time. What’s happening is that people are just making it able to work on a mobile device but they haven’t taken account of the true mobile experience of what happens, which is smaller sets of processes, very focussed tasks, looking at how to take advantage of data ability, such as how you use touch or swipe or different types of user experience that can only happen in mobile. Integrating things such as location to provide context or integrating things such as video in the phone, to be able to take advantage of things: “Maybe I should snap a picture or snap a document or snap something so that I can apply it back to something else.”
O: How confident are you – and you work with a huge variety of organisations and have a pretty broad perspective – that the understanding is there in terms of what mobility can convey and how best to develop it?
RW: I’m not very confident that people understand how to use the technology properly because I think a lot of times organisations don’t apply what we call “design thinking”. Design thinking is a way of putting yourself in the situation of a user and understanding what their needs are, and then going from an outcome that a user wants to achieve, and working your way back through the business process. This is something that outsourcers have an opportunity to provide, or consultants have an opportunity to transform those experiences. Product companies do it, but they don’t necessarily do it to the last mile.
O: Do you think the market is too saturated in terms of the numbers of providers that are offering services – and can you pick some winners in terms of what’s going to happen over the next few years?
RW: I would say that the market is saturated. The market for what I call buying time, or buying materials, buying hours, that market is going to go very quickly. Where people have aspired in the past to become the “trusted advisor” that’s no longer enough. What organisations are looking for from providers is to guarantee an outcome. What I need now as a customer from my provider, is a creator, someone who can create new solutions for me. I need someone who’s an innovator, someone that can advance IP or build things that can be consumed. So what I’m really looking for is more than the “trusted advisor”; I need people who have development or product experience. I need people that can build vertical solutions that cover the last mile. More importantly I need people to innovate for me.
I think that’s where the new breed is going to come from. It’s partly a creative agency, it’s partly a consulting firm, it’s partly the outsourcing component – and there are some organisations that are going to do that better than others.
O: Can we ask you to look into your crystal ball and give some tips on what’s going to big over the next couple of years in the outsourcing space? What new stuff is going to blow our minds?
RW: Big data is going to be outsourced. Big data analytics and insight is going to create a brand new market because organisations do not have enough computing power on their own to do this kind of analysis and they are not data scientists. So people will be paying outsourcers the way that we pay Reuters or Bloomberg for streams of information. That’s the first one.
The second thing that we’re going to see is that there is going to be a transformation from just outsourcing to also providing new products and new IP in the marketplace. Only providing basic process outsourcing isn’t going to be enough. Creation of IP, cloud applications, outsourcers providing new types of products and solutions that don’t exist in the market today and bringing them to market in a commercialised fashion – that will be the second big thing.
I think the third big trend is the labour arbitrage that we’ve had in the past will be completely erased in the next two years. If you look at the cost to deliver it’s equalising everywhere round the world.