Q&A with Hal Stern, CTO, Sun Services.

Circuits Assembly: Give us an overview of Sun Services and its products.

Hal Stern: Sun Services teams with partners to provide customers with control of their information technology (IT) environments through codeveloped solutions. Our offerings include managed services, utility computing, preventive services, infrastructure solutions and knowledge services. Our division accounts for 33% of Sun's overall revenue and has grown 4.7% year over year reaching $3.641 billion in FY03.

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CA: What are some key lessons learned by Sun Services over the past few years?

HS: The main lesson is that IT services is a knowledge business, not a "bodies-for-hire" business. The potential productivity of computing--especially network computing--continues to increase at a geometric growth while the productivity of people continues upward at a linear rate. Much of the frustration expressed by customers that IT is too complicated or a commodity has its root cause in the gap between human and machine productivity growth.

The cost of human-delivered IT services is increasing as its relative value declines, which is a main reason for outsourcing overseas. But even this is a temporary expedient. You get a one-time labor cost reduction, but no answer to the fundamental productivity problem, plus the challenge of managing people halfway around the world.

There are two ways to get out of this cycle and align human productivity growth with machine productivity. First, automate and perform as many services remotely as you can, which centralizes services and avoids duplication of effort. Secondly, by recognizing that IT services is a knowledge business, you can automate the process of knowledge collection, connection making and distribution. Instead of each IT service person representing an island of expertise, he or she can become a problem solver backed by a huge knowledge bank.

CA: Explain your new outsourcing alternative, Smart Sourcing.

HS: Smart Sourcing is defined as an ongoing process of matching IT-supported business functions to the most appropriate source of IT services--in-house, mixed source or outsourced--as an alternative to all-or-nothing outsourcing.

The concept is all about letting business requirements drive sourcing decisions. The three levels at which IT delivers business value are bottom line, competitive advantage and market disruption. Bottom line is for those IT services that may not put you ahead of your competition but are most efficiently provided by IT--accounting, human resources, even e-mail and messaging. Here, you should outsource to the service provider who best meets your needs but retain sufficient visibility and control over the program.

The competitive advantage level consists of IT services that will make positive differences in your business. For example, a non-stop grid-computing infrastructure will help bring R&D-intensive products to market faster. At this level, you may look for outside help, but you will be shrewd about what to make or buy in your IT program and manage the things you do buy very aggressively.

The market disruption level is where IT changes the world. Think of home improvement superstores, on-line brokers and consumer product auctioning. These are some of the biggest business stories of the last half-century and examples where IT revolutionized a previously steady state market equilibrium.

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CA: Explain utility computing and why it would be important for cost-cutting OEMs and EMS providers to consider.

HS: Utility computing is about creating an environment where incremental capacity can be added on a short-term basis with predictable costs. Utility computing offers three main benefits: 1) outsources the cost of change control and operations to the utility provider for applications offered as a utility; 2) hides patching and bugs from the end user of the application and 3) allows for short-term pilots or deployments without long-term infrastructure acquisition. A cost-sensitive manufacturer can try out a self-service application or a supply chain optimization, using a few slices of compute power over a short time. This allows for a different return on investment (ROI) model where the "I" is smaller in time and dollars.

CA: Give us a bird's eye view of Sun Services in five years.

HS: First and foremost, everything will be networked. Our customers, their systems and applications on those systems will look like a grid of sensors to us, and we can drive capacity models, predictive risk management models or performance assistance models.

Customers will primarily subscribe to levels of service--some of which might be delivered via an appliance at the customer site, much like a cable TV box. The box isn't as interesting as much as the content that flows through it. This represents a significantly tighter integration of services and software, where services can offer tools that may not be products but can be packaged as appliances and services.

Predictability and risk management will be top of mind. We will still strive for fastest time to correct fix, but avoiding the fix in the first place is a better answer. Finally, more of Sun's intellectual property will be licensed to partners to complement their services offerings.

People sometimes ask me: Why does a services delivery organization need a CTO? But when I start talking about the ways that technology is radically changing IT services, the answer quickly becomes self-evident. The next five years are going to be unbelievably cool.

--Lisa Hamburg Bastin, Editor-in-Chief

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