Outsourcing of the network management function is not yet as widespread as Information Technology (IT) outsourcing. However, that situation is changing as networks assume more and more importance in enterprise operations, according to George Logemann, director of outsourcing consulting, The Yankee Group.
“Every time I breathe, something’s different, something’s changed that makes the network a more significant and vital element of my enterprise — not my computing infrastructure, my enterprise,” says Logemann.
As the importance of the network has changed, so has reception to the idea of outsourcing network management. In the past, according to Logemann, network outsourcing was hindered by three factors. Companies thought of their networks as extremely strategic; there was a lack of credible players demonstrating any significant interest in pursuing network management services as a business, and the software tools necessary to leverage the services did not exist.
Within the past few years, says Logemann, that scenario has changed. New software now makes it possible for suppliers to provide virtually all of the network services a company needs from a remote location, giving the vendors the leverage capacity needed for network outsourcing to be a reasonable business. That development has brought major players into the field.
“Now we have a situation where quality vendors are in the marketplace,” says Logemann. “These are household names, companies like AT&T, IBM,
Compaq, Unisys and BellSouth.”
What Drives the Vendors…
The interests by the vendors come in ‘flavors,’ according to Logemann. The carriers, he says, are more aggressively in the network outsourcing business to protect their commercial long distance and data communications revenues. Companies from the services vendors community, which was born out of hardware manufacturing, also are staking their claims. “They are in the business because it is a good business,” says Logemann,” and because it necessarily rounds out the complementary services offerings.”
The arrival of more major players on the network outsourcing scene has created a more competitive marketplace. In the past few years, says Logemann, those companies also have invested capital and now have a mature delivery infrastructure with state-of-the-art network operating centers.
What Drives the Customers…
That’s good news for the customers. Looking at the situation from their perspective, Logemann notes that the drivers for outsourcing are often different, depending on what is being outsourced. “In the network case,” he says, “what we see as a significant driver is the challenge to maintain qualified staff within an organization to provide quality service. Good network people, good data communications technicians, good data communications architects do not grow on trees. Particularly in large metropolitan areas, the market for these kinds of individuals is very, very competitive.”
With that scarcity of qualified personnel, says Logemann, the idea of using a vendor that already has the staff to provide the service is appealing.
“It’s a very attractive value proposition,” says Logemann, “one that doesn’t necessarily have to even be cheaper. It just has to give guarantees of service levels.”
The skills issue, he believes, is a much larger issue than price in this particular market segment. “No one wants to spend more money,” says Logemann, “but I think most buyers understand that it’s in their best interest to obtain quality in this area. The price may be at or even slightly above what the company’s already spending, and that’s okay.”
The key, he says, is providing quality service, and the challenges are getting and maintaining staff and dealing with the strategic nature of the data communications networks in an environment that can change on a ‘second-by-second’ basis within an enterprise.
“The opportunity to have a vendor relationship that is driven off of service level agreements is highly attractive,” says Logemann.
A New Business Environment
As an example of rapid changes in the business environment, he points to e-commerce. “E-commerce is a whole new game,” he says, “one that is transforming businesses, as opposed to business processes. Within an enterprise, the demands associated with work-at-home are increasing every day. The kinds of communications requirements, vis-a-vis bandwidth requirements, for an enterprise are increasing massively every day. The network is how we do business.”
In today’s business world, he says, products are developed cooperatively, if not between companies, then between individuals within an enterprise. “The network is just plain vital,” says Logemann.
With the ever-increasing importance of providing quality network services and the strides made by the supplier community, Logemann says it is ‘totally irrational’ for CIOs and CFOs not to at least consider outsourcing the delivery of network services. He notes that with the network organization significantly tied to the IT organization in the enterprise, the outsourcing decision often can be part of a larger consideration. In some instances, he says, the network outsourcing opportunity stands alone, and in other cases, it’s wrapped up in a larger IT outsourcing opportunity.
“What is clear,” he says, “is when a broader outsourcing opportunity is in play, the network no longer is left out of play.”
What Lies Ahead…
He sees dramatic growth in network centric outsourcing as long as the major players have good reason to be in that business. “The Yankee Group predicts somewhere between an 18- and 20-percent growth rate in the various forms of network outsourcing at least through the year 2001,” he says.
He compares that spiraling growth with outsourcing in general. “The word didn’t exist until nine years ago,” he says, “and yet in the nine years it has existed, it has become a way of doing business in many enterprises and a predominant way of doing business in most vertical industries.
“The question used to be ‘how can I avoid outsourcing?,'” he adds. “Today, the question is ‘where doesn’t it make sense?’ The old textbook concept of a virtual corporation is real in 1998.”
Lessons from the Outsourcing Primer:
- Development of the software necessary to leverage the delivery of network services has drawn major vendors to the marketplace.
- Those major players have invested capital and developed a mature delivery infrastructure.
- Maintaining qualified staff to deliver quality network services is one challenge that drives customers to outsourcing.
- The rapid pace of change is another factor in the growth of network-centric outsourcing.
- The network has become vital to the way business is done today.