Cover Story: Outsourcing and Managed Services

Do more for less

MIS managers in India and around the world look to outsourcing and managed services to do more for less. Network Magazine interacts with MIS managers and service providers to get an understanding of what are the expected trends in outsourcing and managed services and its impact on the business of an enterprise in 2004.

Minu Sirsalewala

With IT infrastructures becoming more complex and the corresponding updated expertise needed to manage them not available organizations are increasingly finding it difficult to recruit, train and retain sufficient number of qualified personnel.

Increased complexity in LANs and WANs, growth of the Internet both in terms of reach and usage, reduced life cycle of products and a dearth of technical expertise are other factors that are driving the Indian enterprises to outsource.

Rahul Swarup, president-enterprise solutions for Sify says, "Today the role of the CTO/CIO has been re-defined. Instead of running the operations shop, he is expected to sit along with the management to chalk out strategies for using technology as an effective tool to meet challenges in the market place."

Managed service providers (MSPs) given their IT infrastructure are in a position to pass on their expertise to the organization hiring their services in a cost effective way.

Sanjay Govil, Director & Chief Information Officer, Eicher Group opines, "For the users of technology services it is not financially viable to hire and retain in-house, it is best to go to companies who focus on these services and have established their expertise in the field."

"Organizations need not go through a long procurement cycle and then spend time configuring the unique possibilities of their server infrastructure when they can outsource the service to an MSP," says S.R.Balasubramanian, VP-IT, HDFC Bank.

With companies today focusing on core competencies it has become imperative to outsource the managed services to a service provider who has the requisite domain expertise. This policy enables the organization to improve efficiency and cut costs tremendously. Companies now want to focus on their core competence, something they can do more cost effectively than anyone else.

Outsourcing and managed services in 2004

More retail and SME segments will outsource SMEs today are demanding sophisticated IT solutions and networks, but do not have the expertise to support them. This segment also lacks the resources of larger companies, but may have a greater need for MSP service. Gartner Group estimates that SME market for IT solutions is nearly the size of the market for large enterprises.

Smaller companies are also just as dependent on their network infrastructure as are larger corporations, but they have far fewer resources to manage that infrastructure. MSPs offer a wide variety of managed network services and are in a position to take the burden off large and small companies for building, maintaining, and troubleshooting networks.

Sanjay from Eicher also adds that the retail segment is one area which is looking at outsourcing in a big way as they do not have legacy systems in place which gives them an advantage to start with a clean slate and outsource their managed services to the service providers.

E-commerce another outsourcing driver

In a Web environment, as people are accessing enterprise systems from outside, the cost of being down is very large. Having 100 percent availability and rapid recoverability is a difficult thing to achieve, so firms are outsourcing to address that issue.

What will be outsourced?

"Outsourcing is evolving from the nuts and bolts area to mission-critical areas," says Sanjay.

As a way of dealing with the complexity inherent in providing solid security, and of running networks in general, companies will continue to outsource. A lack of qualified personnel is one driver behind the outsourcing trend, especially in specialized areas such as security.

According to a report from Gartner, by 2005, 60 percent of enterprises will outsource monitoring of at least one perimeter security technology. Gartner analyst report that managed security services are relatively new to the marketplace. But during the past two years, a significant expansion has occurred in the number of vendors and the range of managed-service offerings, primarily due to enterprises that do not have core competency in information security.

The report also notes that many companies are focusing on securing their perimeters—keeping the bad guys out. But with the increasing role of e-commerce and business-to-business ventures in the corporate portfolio, IT managers also need to ensure the availability to the good guys.

In addition, a recent Forrester Research report projects that customers will flock to managed security service providers (MSSP) in India for services like 24/7 monitoring, drawn by savings averaging $540,000 annually. Forrester estimates that the staffing alone for 24/7 security device monitoring would cost firms an average of $720,000 per year, while MSPs offer the service for an average of $180,000 per year.

Total outsourcing on the charts

India has started adapting global trends now. Swarup pinpoints three clearly visible trends in the country—network out-tasking, IP VPNs, and total outsourcing. In network out-tasking the enterprise builds a private network, but out tasks the build and operate function to an external agency. So the enterprise has ownership of all the resources and consequently, also a high cost

of ownership. Total outsourcing of ones network needs to a service provider is now gaining rapid acceptance amongst corporates, and is considered the fastest growing segment in the network industry today. More and more companies are accepting VPNs as the right way to build connectivity for their enterprise. That is directly outsourcing the network assets, where the service provider builds and operates the network.

In total outsourcing all the IT functions—from desktop to backend servers to the network are outsourced to one player. It also involves transfer of assets and manpower from the customer to the service provider. The network piece can be managed either through out tasking or VPN could be provided, depending on the customers' choice.

"Organizations are comfortable with the on-site management model but there is a distinct shift to the remote-site management model. An important reason for this shift is that bandwidth is readily available at a much lower cost," explained Sanjay of Eicher.

V.K. Ramani, President (Information Technology), UTI Bank opines, "Outsoucing of management of IT infrastructure will be resorted to as banks will tend to engage professional services for infrastructure as in-house resources will be scarce and expensive."

Impact on business

The benefits of outsourcing are numerous to go into, but the chief ones include minimal capital expenditure, reduced operational expenditures, established SLAs, freedom from platform and technology obsolescence, and the freedom of maintaining a round-the-clock expensive in-house support staff.

The year 2004 will, if anything, see an increase in Managed service outsourcing, claim established research firms like IDC and Gartner.

Minu Sirsalewala can be reached at minus@networkmagazineindia.com