The next BriefingsDirect IT business model innovation interview explores how pay-as-you-go models have emerged as a new way to align information technology (IT) needs with business imperatives.
We’ll now learn how global aerospace and defense integrator Northrop Grumman has sought a revolution in business model transformation in how it acquires and manages IT.
Here to help explore how cloud computing-like consumption models can be applied more broadly is Ron Foudray, Vice President, Business Development for Technology Services at Northrop Grumman. The interview is conducted by Dana Gardner, Principal Analyst at Interarbor Solutions.
Here are some excerpts:
Gardner: What trends are driving the need to change how IT is acquired? People have been buying IT for 40 or more years. Why a change now?
Foudray: Our customers, who are primarily in the government sector across the globe, understand the dynamic nature of how IT and technology innovation occurs. It can be a very expensive investment to maintain and manage your own infrastructure as part of that.
In parallel, they see the benefits of where technology is going from a cloud perspective, and how that can drive innovation — and even affordability. So there is a cultural transformation around how to do more relative to IT and where it’s going.
That gets to the things you were just using in your opening comments as to how do we transform the business model and provide that to our customers, who traditionally haven’t thought about those business models.
Gardner: I suppose this is parallel to some creative financing trends we saw 10 or 15 years ago in other sectors – manufacturing and transportation, for example – where they found more creative ways of sharing and spreading the risk of capital.
Pay-as-you-go or buy?
Foudray: I think it’s a great analogy. You can look at it as if you are going to lease a car instead of buying one. In the future, maybe we don’t buy cars; maybe we just access them via Uber or Lyft, or some other pieces. But it’s that kind of transformation and that kind of model that we need to be willing to embrace — both culturally and financially — and learn how we can leverage that.
Gardner: Ron, tell us about Northrop Grumman and why your business is a good fit for these new models.
Foudray: I have been in the aerospace and defense market for 36 years. Northrop Grumman clearly is a market-leading, global security company, and we focus primarily on building manned and unmanned platforms.
We have as part of our portfolio the sensors that go along with those platforms. You may have heard of something called C4ISR, for Command, Control, Computers, Communications, Intelligence, Surveillance and Reconnaissance. It’s those types of sensors and systems that we bring to the table.
In my portfolio, on the technology services side, we are also providing differentiated capabilities for how we support, maintain, upgrade and modernize that infrastructure. That includes the capabilities of how we can provide the services more broadly to our customers. So we focus primarily on five core pillar areas: autonomous systems, strike platforms, logistics, cyber-security, and C4ISR.
Gardner: You are not only in the delivery of these solutions, but you are an integrator for the ecosystem that has to come together to provide them. And, of course, that includes IT.
Foudray: Exactly. In fact, sometimes when I go talk to a customer, it’s like we’re Northrop Grumman Information Technology. They are trying to connect the dots. So, yes, I think of Northrop Grumman not only as the platforms, sensors and systems, but the enterprise IT infrastructure as well..
The edge for our war fighters is anywhere that their systems and sensors are being deployed.
That comes with the digital transformation that’s been ongoing inside of our war-fighting apparatus around the world for some time. And so when you hear about the [transformation] of things in the data center or at the edge — well, the edge for our war fighters is anywhere that their systems and sensors are being deployed.
We need to be able to do more of that processing, and that storage, in real time, at that closer point-of-need. We therefore need to be driving innovation with enterprise IT on how to connect into and leverage that all back across those systems, sensors, and platforms.
When you put it in that context, the digital interconnectedness that we have — not just a society — but in a war fighting sense as well, it becomes more and more clear as to why an integrator, a company like Northrop Grumman, wants to drive enterprise IT innovation and solutions. By doing so, we can drive essentially the three things I think all customers are looking for, which are mission effectiveness, mission efficiency, and affordability.
Gardner: The changes we have seen in IT and software over the past decade — of Software-as-a-Service (SaaS) and other cloud-driven models — make a lot of sense. You pay as you consume. You may not own the systems; they are in somebody else’s data center, typically referred to as the cloud.
But I’m going to guess that in your business, public cloud isn’t where you are going to put your data centers – this is probably more of an on-premises, close to the point of value, if you will, deployment model. So how do you translate SaaS consumption models and economics to an on-premises data center?
Control and compliance in the cloud?
Foudray: You are astute in pointing that out, because government customers traditionally have had a greater need for a level of control and compliance. With those types of data and applications — whether it’s the clearance level of the information or just the type of information that’s being collected — there is sensitivity.
That said, there are still some types of information — back office type of things – that may be appropriate for a public cloud that you could commingle with today. But very clearly there is more and more of a push for that on-premises solution set.
When our customers begin thinking about cloud — and they are modeling their enterprise on a cloud capability — they tend to use the model of, “Well, how can I get the same affordability outcomes that a public cloud provider is going to be able to offer?” They are amortizing their cost and those elements across all those other customers versus an on-premises solution that is only theirs.
The business model innovation is that consumption-based, on-premises solution that gets more creative on how you look at the residual values.
And so the business model innovation that we are talking about and driving is that consumption-based, on-premises solution that gets more creative on how you look at the residual values. And in our space, there’s a lot of digital data that won’t come back into the equation that is not able to realize residual value. It’s like when you bring back the leased car, that we talked about earlier, if you go over 30,000 miles, it still has value after your lease period.
In a lot of cases in the government environment, depending on where it lives, those digital fingerprints are going to have to stay on the customers’ side or get destroyed, so you can’t assume that into the model.
There are a lot of different variables driving it. That’s where the innovation comes in, and defines how you work as an integrator. With partners — like we see with Hewlett Packard Enterprise (HPE) and others in the marketplace — we can drive that innovation.
Gardner: In a case where there’s a major government or military organization, they may want to acquire on a pay-per-use basis, but the supply chain that supports that, they might want to be paid upfront on a CapEx basis. How are you able to drive this innovation in end-pricing and in economics for entire solutions that extend back into such supply chains? Or are you stuck in the middle?
Trusted partners essential
Foudray: That hits on a very core part of the challenge, and why having a partner that is going to help you provide the IT infrastructure is so important — not just in terms of managing that supply chain holistically but in having a trusted partner, and making sure that the integrity and the security of that supply chain is maintained. We haven’t talked about the security element yet, but there is a whole cybersecurity piece of that supply chain from an integrity perspective that has to be maintained as well.
The more trust you build up in that partnership, and across those relationships with your downstream suppliers, the better. That trust extends to how they are getting paid and the terms associated with that, with working those terms and conditions and parameters upfront, and of getting those laid in so that the desired expectations are met. Then you must work with your customer to set the right expectations on their terms and conditions to provide them a new consumption-based model. It’s all from an agreement perspective, all very closely aligned.
Gardner: Is there something about newer data center technology that is better tuned to this sort of payment model change? I’m thinking of software-defined data center (SDDC) and the fact that virtualization allows you to rapidly spin-up cloud infrastructure applications. There’s more platform agility than we had several years ago. Does that help in being able to spread the risk because the IT vendors know that they can be fleet and agile with their systems, more than in the past?
Hardware clearly is an enabling feature and function, but software is what’s really driving digital transformation … not just on the technology side, but also on the business side and how it’s consumed.
Foudray: We do a lot from a software perspective as a systems integrator in the defense market space. Software is really the key. Hardware clearly is an enabling feature and function that’s driving that, but software is what’s really driving digital transformation. And that element in and of itself is really what’s helping to transform the way that we think about innovation — not just on the technology side, but also on the business side, and in how it’s consumed.
We are putting a lot of energy into software transformation, as part of the digitization aspect — not just in terms of how quickly we can provide those drops from an agile development, DevOps, development-security-operations (SecOps) perspective, but in terms of the type of services that are delivered with it, and how you look at it.
Changing the business model in parallel needs to avoid offending engineering principle 101: Never introduce more than one key change at a time. You have to be careful that culturally, depending on the organization that you are interacting with, that you are not trying to drive too much change and adoption patterns at the same time.
But you are right to hit on the software. If I had to pick one element, software is going to be the driver. Next is the culture — the human behavior, of where someone lives, and what he or she is used to. That’s also going to be transformative.
Gardner: For mainstream enterprises and businesses, what do you get when you do this? What are some of the payoffs in terms of your ability to execute in your business, keep your customers satisfied, and maybe even speed up innovation? What do you get when you do this acquisitions model transformation thing right?
Scale in, scale out, securely
Foudray: First, it’s important to recognize that you don’t lose control, you don’t lose compliance, and you don’t lose those things that traditionally may have caused you not to embrace [these models].
What you get is the ability to leverage innovation from a technology perspective as it happens because your provider is going to be able to scale in and scale out technology as needed. You are going to be able to provision more dynamically in such an environment.
You get the ability to leverage innovation from a technology perspective as it happens.
If you have the right partner in your integrator and their provider, you should be able to anticipate and get in front of the changes that drive today’s scalability challenges, so you can get the provisioning and get the resourcing that you need. You are also going to be in a much better predictability state of where you need to be for the financial elements of your system.
There are some other benefits. If you implement it correctly, not only are you going to get the performance that you need, your utilization rates should go way up. That’s because you are not going to be paying for underutilized systems as part of your infrastructure. You will see that added affordability piece.
If you do it right, and if you pick integrators who are also tying in the added dimension of security, which we very much are focused on providing, you are going to get a high level of compliance with the National Institute of Standards and Technology (NIST) Risk Management Framework (RMF). On the US side, there is also the National Defense Authorization Act, which requires organization and agency heads to certify that their enterprise is at a certain level of hygiene. If you have implemented this correctly, you should be able to instrument your environment in such a way that at any given time you know what level of security you are at, from a risk perspective.
There are a lot of benefits you get for cost, schedule, and performance — all of that tied together in a way that you never would have been able to see from an ecosystem perspective, all at the same time. You may get one or two of those, but not all three. So I think there are some benefits that go along those lines that you are going to be able to see as a customer, whether you are in the defense space or not.
Gardner: Yes, I think we’re going to see these models across more industry ecosystems and supply chains. Clearly vendors like HPE have heard you. They recently announced some very innovative new flex-capacity-types of pricing, and GreenLake-branded ways to acquire technology differently in most markets.
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