Two news items have caught my attention. IBM has taken a well-prepared step forward in defining its Cloud offers and French auto-parts manufacturer Valeo has done a deal with Google.
IBM has been applying the technological capabilities that underwrite one key aspect of the cloud to its own operations. It reports that, through creation of its own internal clouds, it has consolidated 155 datacentres to five, and 16,000 applications to 4500, delivering $1.5bn (£930m) in annual savings.
This is the power of virtualisation at work. In its briefing to analysts, IBM included the widely recognised statistic that, in the corporate world's current distributed computing environments, up to 85 per cent of computing capacity sits idle at any one time.
So let us use a fresh shorthand for these technological capabilities so applied - services manufacturing. It is intended to convey the production realities pioneered by Google and Amazon.com in the consumer services space - software-enabled business processes manufactured in a highly automated fashion to be delivered as services over the web. The manufacturing techniques developed in business-to-consumer markets are overdue a determined application in the endlessly conservative business-to-business markets.
In addition to its own transformation through services manufacture, IBM has been working with a range of customers, and also with green-field academic institutions in the Middle East and the Far East that have presented the opportunity to build from scratch. The outcome is a portfolio that ranges from B2B services delivered from the IBM cloud to business services to rework in-house corporate infrastructural capabilities into private clouds. The leitmotifs are ‘Smart Business' and ‘Service Management Systems'.
IBM is going for the transformational - the massive backlog of 15 per cent efficient corporate infrastructural stuff that needs to be brought into the 21st century. Which is what makes the Valeo announcement even more interesting.
Valeo ranks among the world's top automotive component suppliers, with 122 plants, 61 R&D centres and 10 distribution platforms. It employs around 49,000 people in 27 countries and has, I guess, an experienced in-house IT team.
Valeo is now taking a business service (Google Apps) from the cloud as the core of its administrative systems. The service it is sourcing is labelled as ‘Premium' and Capgemini is involved, which hints at a transformational revolution.
In the words of André Gold, Valeo's technical senior VP, "We were searching for an innovative way to reduce our office infrastructure costs while simultaneously improving user collaboration and productivity."
So here is a major business moving to procure the core of its infrastructural and transactional back- and front-office stuff as commodity services on-demand, over the Net and out of the cloud.
What links the IBM and Valeo stories? One thread that I have developed in my recent columns is that a quite radically different IT services industry is now in the making. This is an industry delivering technology-enabled business services, not techie IT services. I see this ‘layering' of IT services as marking a Rubicon moment for most vendors. Classically, IT services business models have been marked by high people intensity and direct supplier/client engagement. Suppliers of the new automated infrastructural and back-office business services have replaced people-intensive with technology-intensive business models. Two supply-side business models fundamentally so different in their investment, human resource and management requirements that they cannot coexist within a single vendor enterprise framework.
The IBM and the Valeo stories give us constructive insight into the practicalities of this small revolution now in progress. I have two observations to make.
The first is that there is now a major transformational agenda to tackle in the operations space, as corporate and government worlds are frequently trapped in the apparent restraints of their legacy systems. IBM replayed another well known estimate - that 70 per cent of corporate IT spend is absorbed in maintaining current IT infrastructures rather than adding new capabilities. This 70 per cent justifies the work of a lot of IT folk, and I suspect risks being a real source of operational conservatism. The Valeo story is about one company breaking the mould, and full marks to that in-house IT team.
The second is more focused on end-user expectations. One legacy of the era of bespoke systems is a complexity of user requirements. Such complexity in the heart of a business's operations frontline is fully justified - it is about competitive edge. But in the back office? In the UK, two key determinants of payroll are the tax system and the banking system. Beyond that, a payroll is a payroll, so a totally standardised and commoditised business service à la Google Apps should help organisations remove a lot of cost.