A Plea to the Cloud Industry – Demand Competitiveness

October 10, 2014 Chris Barbin


Why Organizations Should Demand Speed, Early Results and Bold Thinking from their Cloud Providers

We started Appirio eight years ago with a simple goal – to accelerate the adoption of on-demand (now the cloud) in the enterprise and disrupt the IT services industry. We wrote a manifesto back then called Services 2.0 because we were so passionate (some might say rabid) about the promise of the cloud and its potential to transform IT, services and business models.

We were passionate because we had lived the pain first hand. As CIOs, IT leads, senior consultants and heads of development at companies like Borland, Accenture and SAP, we had been involved in more than our fair share of failed initiatives and were tired of solutions that cost millions, lasted years, and yet failed to deliver.

It appears many others were in the same boat because that pain and promise fueled the unprecedented growth of the cloud industry over the last few years. When we started, cloud computing wasn’t even a term. Today, Gartner says it’s a $33B industry. Back then, Salesforce.com was a $350M a year company. Today they have $5B in revenue. Workday hadn’t launched a product yet. Today they’re on their 23rd update to the platform. MySpace was bigger than Facebook, and the most sophisticated smartphone on the market was the Motorola Q.

Times have changed in 8 years, and Appirio and other next generation service players like us have been fortunate to ride that wave of disruption. We’ve grown fast and we’ve achieved a lot. We have 1000+ employees on 3 continents who hold 2,000+ certifications on the leading cloud platforms and are experts in their field. We have a 690,000 person crowdsourcing community of developers, designers and data scientists that we can tap into at a moment’s notice. But most importantly, we’ve had the privilege of working with nearly 1,000 enterprise customers (some of the biggest brands in the world), have managed 2,400+ cloud projects and logged over 3 million hours of work.

Enterprise customers – some of the most risk averse companies in the world – made a bet on next generation players like us, Salesforce, Workday and others because we did things differently. We were bold, we moved faster and we helped them move faster. We helped them be more competitive.

Here are a few relevant facts from our business to illustrate this:

  • Our average project duration is 3.9 months. According to a 2012 Gartner report, the average Siebel project lasts an average of 23 months. In today’s economy companies are built and die in less than 23 months. In most cases, we do multiple projects with our customers but we deliver something compelling at the end of every project. This phased approach ensures we show customers and their business users results in a short period of time so they can adapt and evolve as their needs evolve.
  • A recent InformationWeek study showed that only 6.4% of IT projects with labor costs of at least $10M were deemed successful. While we’ve done hundreds of multi-million dollar deals in the past 8 years, our average project is closer to $300,000. Which means many of our customers are approaching complex business transformation in a more transactional and iterative manner, recognizing the need to see results quickly to justify ongoing investment. In addition, these projects can typically be staffed by far fewer full time and client FTEs as they take advantage of reusable IP and crowdsourcing to supplement design and development efforts. This results in faster time-to-value and higher levels of project success, as potential overruns can be identified and corrected in before the bloat sets in.
  • More than 75% of our projects have been delivered on-time and on-budget. While that’s not close to the perfect score we’d like, it’s vastly better than industry norm. Compare this to a 2013 McKinsey survey of 5,400 large scale IT projects (>$15M) that showed, on average, large IT projects run 45% over cost, 7% over time and deliver 56% less value than predicted. That is a lot of wasted money!

We’re very proud of these statistics. When we set out on this journey we said things would be different when cloud systems prevailed. We predicted the IT services market might contract as waste was driven out of the process. To this day we still believe bigger isn’t always better and transformation doesn’t always take a multi-year initiative. It might in some cases, but it shouldn’t have to.

Yet we’ve noticed a disconcerting trend happening in the cloud industry, among enterprise buyers and even our own business. We’re seeing more and more RFPs for huge, multi-year, multi-million dollar initiatives. We’re watching as vendors, analysts, customers and the markets continue to value the “big deal” over customer success. In our own organization, we’re seeing our average project cost tick up substantially – increasing 62% over the last 24 months. Large vendors and Wall Street may call it a maturing of the market but I worry we’re reverting back to our old ways.

I worry the bloat is back. It’s not surprising. These expensive, long running initiatives with dozens or hundreds of consultants onsite to support the internal teams get a lot of visibility. They’re exciting. They feel transformational. They’re safe and expected – because it’s how the IT industry has always bought and sold their wares. Yet its clear things need to change. According to the British Computer Society, only 12.5% of IT projects can be considered truly successful with failure being described as those projects that don’t meet the original time, cost or quality requirements criteria.

According to Forrester in a study this year of 1,254 companies, 77% of respondents identified professional and business services as a sector in disruption. Perhaps we are. But with the big GSIs investing big in “the cloud” and selling their overhead, excessive processes and bloated models to customers in an attempt to retool their existing Oracle and SAP practices, I fear the disruption will be a blip and not a seismic shift. I fear that we’ll be stuck with more of the status quo wrapped in cloud imagery and fancy terms like “digital transformation.”

We need a seismic shift in IT services, not just a better way. The taxi, publishing and music industries all incrementally improved over the last century. It wasn’t until Uber, Amazon and Apple iTunes came on the scene that customers saw they could expect more and the giants of those industries were forced to change the way they do business and provide a different experience. Let’s expect more. No, let’s demand more.

As we enter this year’s cloud conference season with big events like Dreamforce, Workday Rising, Gartner Symposium and Cornerstone Convergence, I will end this with a plea to the IT and business leaders attending those conferences:

Demand results fast. Ask how long it will be until you have something usable to adapt and evolve. Demand transparency. Ask to see their customer sat scores and how often they deliver on-time and on-budget. Most importantly, demand competitiveness. Ask them to prove how they are going to help YOU think differently, beat your competition and serve customers better by asking to see their way of doing things.

Three year, $100M “transformation” initiatives are great for vendors and service providers (us included). But rarely are they good for customers.

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