The Managed Difference

• By The WHIR, March 14, 2005

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The Managed Difference

By Jeffrey M. Kaplan

This story appeared in the March 2005 issue of Web Host Industry Review magazine. Click here to subscribe for free.

March 14, 2005 -- (WEB HOST INDUSTRY REVIEW) -- Four forces are driving enterprises to change their expectations of their hosting companies: commoditization, competition, compliance and control. And these changing expectations will require hosting companies to redefine how they manage their businesses and services in 2005.

The commoditization of the information technology industry has been a hot issue since Nicholas Carr authored his provocative article entitled "IT Doesn't Matter" in the Harvard Business Review, followed by his full-length book on the same subject entitled Does IT Matter? Carr suggested that enterprises are frustrated with the complexity of technology and disappointed with the poor return on investment from their technology acquisitions and initiatives. As a consequence, enterprises have lost faith in the value of technology and can no longer distinguish among the multitude of products available.

The services sector of the IT industry, including the hosting business, is plagued by the same enterprise perceptions. The sheer number of hosting companies, and the similarity of their offerings, has created a commodity market environment that makes it difficult for enterprises to identify the appropriate service providers to meet their needs.

Hosting industry consolidation through mergers and acquisitions hasn't yet changed this commodity climate. Instead, it has intensified the price competition within the hosting industry, and further cemented the view among enterprises that hosting services are becoming a commodity.

Compounding the commodity and competitive forces within the hosting industry are the escalating compliance and control requirements faced by enterprises. Sarbanes-Oxley and the Health Insurance Portability and Accountability Act, along with other recent governmental regulations, demand that corporations and healthcare providers adhere to more stringent record keeping, financial reporting and privacy standards.

An increasing proportion of these enterprises are putting pressure on their technology suppliers and service providers to demonstrate how they will satisfy these regulatory requirements. Specifically, enterprises expect their hosting companies to assume greater responsibility for managing and protecting their IT assets and data. They not only expect their hosting companies to continuously monitor and proactively manage assets to optimize availability and mitigate risks, they also expect hosting companies to provide greater visibility into their performance.

This visibility involves the use of Web-based portals and regular activity reports that document performance levels and verify proper data management. As enterprises rely more heavily on their service providers for hardware and software hosting services, they also expect the providers to demonstrate compliance with the same regulations confronting the enterprises.

This trend has led to a greater demand for fault, configuration, asset, performance and security management software among enterprises. It has also rekindled demand for service level management software that can track and report performance levels, giving the enterprise greater control over the quality of the services it receives.

In response to these trends, hosting companies will need to adopt new business, operations and relationship management strategies, solutions and skills in order to survive and succeed.

From a business management perspective, hosting companies must better target, package, price, position and promote their services to differentiate themselves and be competitive. They must also reevaluate their economic and go-to-market models to properly balance infrastructure and delivery costs with real revenue opportunities to maximize profitability.

New regulatory and compliance requirements will demand greater investments in operations management to meet escalating enterprise FCAPS management expectations. Hosting companies will also need to strengthen their relationship management capabilities by instituting policies and procedures to systematically report on their performance and permit their enterprise customers to independently review service levels online.

Balancing these management challenges will be the key to responding to the "four Cs:" commoditization, competition, compliance and control—and determining the success of hosting companies in 2005.

About the Author:

Jeffrey M. Kaplan is managing director of IT strategy consultancy THINKstrategies. He can be reached at jkaplan@thinkstrategies.com.

Tags:  government  security  mergers and acquisitions  compliance  Appro  EDS  ETT  Portal  SAP  THINKStrategies 

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