Senior IT executives can appreciate the potential benefits of the convergence of physical architecture, data transport, and management systems. Major IT outsourcing service providers, similarly, are seizing the opportunity to articulate service offerings that exploit the potential of having voice and data delivered through one infrastructure. One would therefore expect to see a new generation of telecom outsource service agreements embracing this transformation. Then why do IT outsourcing relationships that include telecom fail to move buyers beyond the status quo?
The IT outsourcing market is the most mature of all outsourcing practices. With maturity comes the benefit of reduced risks as buyers and suppliers draw from the deep body of pricing and process understanding. The disadvantage is the well-established IT services conventions that are now inhibiting healthy evolution.
For example, telecom service outsourcing has been structured to conform to the established delivery model of discrete voice and data services. This was a logical approach as buyers managed an environment where discrete network appliances performed specific tasks requiring specific skills. The industry evolved for years with buyers turning to specific suppliers to alleviate specialist skills constraints, reduce costs, and address growing complexities. The service delivery paradigm extends beyond the telecom managers as end-users have become accustomed to differing reliability standards, costs, and chargeback models for voice and data services.
To structure a telecom’s outsource services solution that disrupts these well-established conventions is proving to be a challenge to both supplier and buyer. But that is exactly what the next generation of telecom service outsourcing contracts must do.
Converged Voice and Data Services: For the First Time Voice Behaves Like an Application
The evolution of certain technologies is the catalyst for the next generation of IT and telecom outsourcing contracts. For the first time voice services can behave like an application on a network; applications can be consolidated on fewer platforms; and everything can travel along a common pipe that has the intelligence to ensure quality delivery.
For over 100 years, telephony has been based on establishing a circuit connection for the duration of a call. This is fundamentally different then transporting application data as a series of individual packets that can be disassembled, transported over diverse routes, and reassembled at a destination. Today’s technology now can treat voice, and for that matter video, like data. The telecom service delivery model now must adapt to this new technology, called packet switched voice, or voice over Internet Protocol (VoIP).
Telecom managers with responsibilities for large and distributed organizations are already familiar with integrating islands of converged voice and data services. But they can only realize real benefits when convergence becomes ubiquitous throughout the organization. Wholesale transformation to a converged voice and data services however, requires a commitment that goes beyond faith in the integrity of the technology; it requires an organization to rethink ownership and accountability for the entire network infrastructure. Here is where major telecom service providers become a key component in the decision process.
IT outsourcing service providers fully appreciate where the underlying telecom technology evolution has opened up market opportunities for them. Suppliers are in a strong position to leverage the required skills and capital investment required to deliver a converged voice and data services offering. As Clarence Hayes, Head of Voice, Video Solutions for Equant, explains, “Equant’s value proposition is based on an ability to manage global integration of voice and data. The customer realizes the benefit when the complexities of managing global interconnecting voice and data traffic are the responsibility of the service provider. The end user can expect a straightforward monthly charge for services delivered to their desk.”
Suppliers are demonstrating a willingness to commit the capital and resources to offer buyers a pay-per-use or utility service. It remains for the buyers and suppliers together to define how to manage transformation.
These “next generation” telecom outsourcing relationships imply that suppliers can offer a new commercial approach that will resolve the perennial challenge buyers faced in managing a relatively fixed infrastructure against variable business needs. These considerations become more acute when buyers are faced with the challenge of dealing with major capital expenditures for internally-shared infrastructure but their organization has local accountability for key components of the telecom infrastructure. The business case for working with an outsource supplier may prove compelling but there will be major hurdles to overcome.
Buyer Challenges to Integrating Voice with Data
The next generation of outsourcing will require an understanding of impacted assets, circuits, systems, and support resources, etc. This may impose a significant administrative overhead on constrained internal resources. Further, buyers and suppliers should not underestimate the internal resistance to change where it affects established processes and systems. All these factors can interplay on a potential telecom outsourcing deal and lead to diminished execution of the next-generation deal.
Trust is hard to quantify but is a significant component in the acceptance of an outsourcing relationship. The benefit of older, established service models is they become familiar and buyers can refer to a large body of referenceable transactions and benchmarks. Entrusting a telecom service provider to assume end-to-end ownership of a converged environment necessarily requires an unprecedented degree of confidence in the supplier’s capabilities. There will be a redistribution of responsibilities between local and central resources and between buyer and supplier. The issue of trust will be a management consideration across various dimensions.
Another inhibiter to new-generation telecom infrastructure deals may lie in the lack of understanding of the changed risk profile associated with these deals. From a supplier’s perspective, they now have different pricing risk due to large fixed costs recovered through a more variable revenue stream. Similarly, the deal terms may differ and the recovery of costs amortized over greater multiples of buyer contracts.
Buyers too have to be comfortable with a different risk profile. Theirs include relinquishing architectural, planning, and integration controls as well as asset ownership. Perception and tolerance of risk is case specific but a common thread will be the time and effort needed to understand the risks.
The Need to Eliminate Bias
Finally, there may be a systemic inhibiter to successful new-generation telecom infrastructure services deals. And that may simply come down to bias. When considering the individuals that must come together and agree on the adoption of a new-generation outsourcing deal, you may find an overwhelming propensity to replicate what has been done before.
Buyers may feel more confident working from a familiar framework such as a pricing structure based on familiar and commoditized components. End users, who may exercise influence on deal outcomes, might be less interested in deviating from a cost model that has become familiar even if less than ideal. Suppliers may be at differing levels of maturity in their utility-pricing strategy and lack either the conviction or ability to persuade buyers to deviate from accepted conventions.
Often outside council is involved in the deal structuring. This outside advice may come in the form of external legal council or consultancy firms. Many of these parties will, in the interest of efficiency, work from templates which skew resolution design toward established conventions. Often parties simply fail to ask the right questions. The result: missed opportunities.
The stakes are high for buyers and suppliers wishing to transform global telecom infrastructure. It would be wrong for both parties to allow trepidation to lead to a limited deal that fails to move the buyer toward a more consolidated and efficient operating model. Conversely, neither party should underestimate the effort required to fully understand the real business case, the degree of transformation required, or the potential benefits they can achieve. Most importantly, both parties should appreciate transformation is a shared responsibility since they must craft the solution together.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].