As the industry saying goes, UK-based telecom giant BT and systems provider HP are “eating their own (outsourcing) dog food” — and it tastes good.
The two companies recently hired each other for outsourcing services valued at about $1.5 billion over seven years. At the same time, they are pitching a similar menu to their enterprise customers — managed hosting, data centers, help desks, desktops, voice and voice over IP, for example.
The deal means BT will be managing HP’s voice systems, and HP will be managing BT’s desktops, data centers, and servers in their UK, Middle East and Africa regions. But is partneringt he way to go?
Ann Livermore, who heads HP’s $28 billion Technology Solutions Group (TSG), recently sat down with internetnews.com to explain what’s driving the strategic move with BT.
Q: How does the consolidation within HP’s services and server groups position HP for the BT alliance?
We think one of the biggest challenges that most corporations have today is how do they make sure they can change their business process fast enough to keep up with the pace of change in their business. And as a result of that, how they can work in a more horizontal way — how do they deal with taking those business processes and making them mobile, making them virtual and also making them secure and digital. So when you take combination of things, our adaptive enterprise and our portfolio play right to that set of challenges.
Q: Is the pricing model for this service changing to reflect real-time revenues rather then up-front payments?
One of the things we’re starting to see in a number of our contracts is the customer’s desire to move away from the old payment schemes to a pay based on usage or a pay based on consumption. [With] many of the outsourcing contracts we have today, over time we work with the customer to move to that kind of environment.
You may have seen the announcement we did with Nokia. It had signed a 3-year outsourcing contract with HP and they just extended that for five years. Part of what we’re doing in the extension of the contract is moving to a pay-per-usage basis. We’re providing the support for their servers that are running all their messaging environments. And they’re going to start paying based on usage as opposed to the traditional model. I think this is something that not every customer is ready to move to but a number are interested in.
Q: Is this where the industry is going? With telecoms teaming up with systems vendors to these menus of services?
It’s where the customer needs are going. But it’s not where everybody in the IT industry has gone yet, because some of our competitors are still trying to do it all by themselves.
We think there’s no question that the right and best answer, from a customer perspective, is for the communications companies and IT companies to be able to team together and be able to offer an end-to-end integrated service.
I think if you look in the marketplace, a lot of HP’s competitors, and a lot of IT companies are trying to go it alone. And if you look at BT’s competitors, they’re also not taking the same depth of partnering approach.
Q: Doesn’t this work involve a lot of re-architecting of customers’ systems?
When we sign up for a managed services contract, [HP and BT] have priced to the customer over time cost savings in the contract that we’ve put in place for them. And we’ve priced for them service levels that are guaranteed and we’re also building in to their environment more agility. So that’s part of the value they get. We go through those transformation activities to actually deliver those savings over time. We’re doing that for each other. If we look at the contract that BT is providing to HP, they’re going to drive a huge transformation in our voice and data network, throughout EMEA [Europe,
Middle East and Africa]. And that’s part of what’s driving the cost reduction and benefit for us. That also allows them to make a profit on the engagement, and similarly [for] what we’re doing for them.
Q: Are there any changes with service level agreements with this kind of offering?
There tend to be SLAs that tie across multiple dimensions. In any of the contracts like the NHS contract [with BT], you tend to have hundreds and hundreds of SLAs that you’re responsible for delivering against. They’re very demanding. So it varies by customer. But typically there are SLAs that tie back to either the business process or in some cases to the application availability. Or in some cases to the individual nodes or aspects of the overall IT or network environment. So the SLAs come in different flavors depending on the customer.
Q: How is pricing set?
Desktop deals are usually priced by seat or by user so those components are based on those areas. A lot of the computing contracts are based on a server count for the environment. But I think what we see is the trend going more and more to customers wanting to pay based on some sort of usage measure. So I think as you look forward you’re going to see more and more of a usage based billing.
Q: So these really are utility-style computing services?
Typically the way these contracts are written to provide some assurance to the service provider is there are minimum volume levels that a customer will commit to because you have to have something like that to make the economics work and take a little risk out of the deal. But typically we provide volume levels within certain ranges.
We also learn a lot by doing it for each other. That way we see what we need to do from an integration perspective. So we also have each other as early customers as we want to test new things with our architectures and the other sets of the activity. So it gives us a great experience base.
