Among several of the most common questions asked over my past 12 years of ITSM Consulting is “What is the industry benchmark for …”? How many people? Traditionally, one has gone to sources such as Gartner Group, Forrester Research, and the like, who have historically provided benchmark information from a cost, ratio’s and volumes perspective. With the onslaught of the Cloud (and I use the word onslaught intentionally), a new and easily identified measure is emerging that IT organizations will have to consider as a new benchmark to measure against and potentially justify.

Can we internally deliver the same or better service, in the same form, quantity, functionality, security, flexibility, and scalability; with the same levels of service; with equal to or lower risk; at an equal to or lower cost to cloud based services? In addition, can we do this make cost understandable in business terms (i.e. consumption based) that business/financial people will find easy to understand and calculate; such as cost per seat per month.

The better definition for this benchmark here is called “Competition” from the cloud, straight and simple.

There are lots of conversations taking place in the Cloud reverberation chamber about IT Service Management solutions moving to or existing in the cloud. This column focuses more on actual services delivered via the cloud vs. the Service Management tools themselves. One of the most common first attempts at identifying services by ITIL practitioners is “Messaging and Collaboration” or something similar. It is used as an example in many different training offerings and presentations throughout the industry. Messaging and Collaboration (e.g. email) is one of those technologies that IT has comfortably provided on-premise for years from solutions by Microsoft (Exchange, Mail), Lotus (Notes), and Novell (GroupWise) to name a few. I would be dating myself if I asked if anyone remembers CC:Mail.

Before joining Microsoft in November 2010, I was already a Business Productivity Online Services (BPOS) customer for a number of charities and organizations I work with. It’s from this experience that I draw upon for this article. Microsoft BPOS was based on Exchange 2007, SharePoint 2007, Communicator 2007 and LiveMeeting 2007 technology. Since then, Microsoft has released “Office 365”, based on the Exchange 2010 platform, Lync 2010 and SharePoint 2010. The non-profit organizations I work with are now on Office 365.

The Office 365 service provides an excellent model for IT organizations of how services, especially technically based services like messaging and collaboration, should be delivered. How it is bundled, how it is priced, and how it is supported. It meets all the requirements of a service as defined by ITIL (and other frameworks such as MOF);

  • It facilitates customer outcomes; specifically around messaging and collaboration.
  • It delivers the value to customers without ownership of risk and cost by customers by not requiring customers to purchase licenses, infrastructure, and resources to manage it.

In addition, the service is tiered by customer segment and level of service. There are specific SLA’s that include penalties and clear definitions of how an “Outage” is calculated. There are different service offerings by industry segment addressing specific requirements for those industries. And finally, it offers an easy to use customer portal for both administrators and end users to facilitate support and service requests, administration, integrations, etc.

Ironically, when I was a manager in the 90’s, I outsourced a Novell GroupWise email system “to the cloud” but it obviously wasn’t called the cloud back in the 90’s, nor did it share characteristics of today’s “Cloud Computing”… It involved moving our company’s Novell GroupWise system from an on-premise model to a local provider that took over support, ownership of infrastructure, etc. It certainly wasn’t as competitive or feature rich as today’s offerings, but did deliver on the promise of decreasing risk, reducing noise and reducing cost.

Vendors such as Microsoft and Google now offer collaboration and messaging services via the cloud. Because I am more familiar with Office 365, and Exchange, SharePoint, and Lync (replaces Communicator) are so common as on-premise solutions, the analysis between cloud and on-premise is easier as the functionality is virtually identical. It’s like comparing Hybrid and non-Hybrid versions of the same make and model vehicle (e.g. Ford Escape) to see what fuel prices have to go to and stay to make the hybrid more advantageous to purchase. This of course excludes the good feeling you get knowing you are reducing emissions and being more “green”. But unlike the car analysis, the LESS expensive Cloud option is also the greener option. But that’s another analysis.

Now, you can easily review a service catalog of messaging and collaboration options available, service delivery packages, and tiered pricing models. It’s everywhere on Microsoft sites as well as partners and general information sites. The following are just some examples of how Office 365 is offered and segmented;

  • Office 365 “Plan P” for individuals and small business
  • Office 365 “Plan E” for midsize and enterprise organizations

Each of these plans have variations of offerings within them including just basic email all the way to full voice and data integration. You could consider these Core Services, Ancillary Services and Service Level packages as defined in ITIL v3. Costs range on a per user basis from $10 to $27/user month and for my non-profits, there are very competitive non-profit rates available. I have now been a BPOS/Office 365 customer for almost two years, have not experienced any outages that I recall, and when I look at the cost I have paid in total vs. what I would have paid to completely implement the same functionality, storage limits, access, support, training and included intrusion detection and security, I find myself wondering how this is even possible. For non-profits who operate on razor thin IT budgets, it would have been impossible.

To illustrate my point, I discovered a 3rd Party ROI Analysis tool (not affiliated with or approved by Microsoft) that was used to calculate the following estimates. This analysis is for illustrative purposes only and includes the following assumptions;

  1. Costs based on Office 365 E2 (includes Exchange Plan 1, SharePoint Plan 1, Lync Plan 2, Office Web Apps)
  2. Costs based on Open License plan. On-Premise Costs might reduce by 10% with the EA plan.
  3. Costs based on 100 users. Model may be less applicable to less than 50 users or greater than 300 users.
  4. Costs amounts in this model are based on Microsoft Office 365 TCO Tool (available directly from Microsoft)
  5. Estimates Deployment and Migration costs of $125,000 for BOTH Office 365 and On-Premise, as these will be roughly the same for either deployment. In fact, they would probably be greater for on-premise, and less for Cloud, adding more to on-premise end user cost.
  6. These numbers are not exact. They are extracts based on averages.

While the ROI looks impressive, this analysis is entirely illustrative. Obviously, mileage may vary and any organization performing this MUST conduct their own ROI analysis. In this case, for an internal service called “Messaging and Collaboration” to then compare based on service structure, function and service cost of Office 365 or others like it… If the internal organization has not conducted any kind of Service Mapping, Service Catalog, and Financial costing across the IT organization, determining costs specific to Messaging and Collaboration is going to be a difficult archaeological dig. Costs should include for both scenarios; Implementation Costs, Consulting, Hardware, Software, Support. Other costs not included or difficult to determine might be;

  • Facilities Cost – To house infrastructure and support personnel for Messaging and Collaboration service.
  • Backup Costs – Allocated from Backup and Recovery Service, if it is even defined as a service.
  • Ancillary Services Costs – Virus Protection, Intrusion Detection, Spam Filter, which are included in the Office 365 offering.
  • Transfer costs from other services.

I am a Business-IT professional first, but have always been a technician at heart. Obviously, non-IT, business oriented people are going to look at something like this in the same light. I would strongly argue that this scenario, and ones like it, are becoming the new benchmark or target by which IT is measured.

Some very important questions come to mind when doing this benchmark/industry comparison;

  1. Can or does an internal IT organization structure their services, in this case, messaging and collaboration, along the same lines of public offerings like Office 365, including the same amount of storage, security, mobility, scalability and support?
  2. Can or does an internal IT organization reconcile costs at a service level across services to deliver a specific service to their customers and host organization?
  3. Can or does an internal IT organization define agreements that allow for service expectations to be measured by customers and on top of price differences per user, can or does an internal IT organization commit to “returns”, penalties, or credits for SLA breaches?

Businesses make investment decisions based on value and return; which is inclusive of fixed and variable costs, risks incorporating the possible outcomes that can result, and the improvement, agility, or compliance achieved from that decision. And obviously every positive ROI project cannot be selected as there wouldn’t be enough cash in the bank to pay for initial costs of every project.

If an internal IT organization is able to define a service structure for internal messaging and collaboration, or any other service, and associate a consumption based cost to that service, that’s pretty remarkable. That means they understand fixed, variable, direct and indirect costs involved with delivering that service. And unfortunately, if that cost is anywhere significantly north of these service costs, it’s inevitable as budgets continue to get squeezed that cloud based services such as messaging and collaboration will at least have to be an option on the table to be considered.

Like the rest of the business who make decisions based on business merit, IT should be considering benchmark questions against the competitive marketplace (how much does it cost to deliver a service) and work backwards from there. As more and more software and services are offered from the cloud for pennies on the dollar, it is inevitable that “word” will get out among business leaders that significant IT costs can be eliminated by leveraging cloud services. I have already heard discussions at Executive luncheons where IT Directors discuss and share how they are saving money and further leveraging IT as a strategic asset, and the cloud has been a part of those discussions. As an ITSM professional, I highly recommend IT organizations analyze cloud services, capabilities, costs, risks and expectations if for no other reason than to see how benchmarks are eventually going to be defined, commercially and painfully, and what organizations should expect to pay for them.

You hear that Mr. Anderson?... That is the sound of inevitability...

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