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Issue of January 2004 

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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

What Analysts Say
Projection by market research firm, IDC, puts the global market for outsourced IT services at $27 billion. IDC estimates that managed services, which is growing at a CAGR of 16 percent, constitutes only 30 percent of the total IT spend of companies. Hence there is a huge latent demand still untapped. These figures are corroborated by a study conducted by META Group. The META Group study states that by 2006, nearly 95 percent of global 2000 companies will outsource at least one strategic IT function. The report goes on to add that 20 percent of these have already outsourced some function while another 15 percent are seriously considering doing so.

According to analysts, hosting providers will be major players in this arena. META Group expects 50 percent of their revenue to accrue from MNS (Managed Network Services). Most of the larger independent software vendors (ISV) have also entered the MSP space, and today include MNS in their portfolio of services. Even conservative estimates project a 45-60 percent growth rate in the managed network services sector.

Solution provider perspectives
Here's what a few vendors and service providers have to say about storage and disaster recovery trends in Indian enterprises in 2004.

Sharad Sanghi, Managing Director, Netmagic Solutions
"Indian Enterprises have caught onto a little secret that their Western counterparts have known for years— the benefits of Outsourcing your Managed Services. For an Enterprise to provision their Managed Services internally is a resource-draining exercise, when those resources can be more effectively realigned toward Business Development and focus on core competencies.

Almost all our clients outsource some or all of their Managed Service Requirements, such as Managed Mail and Messaging Services, Managed Hosting Services (both for mission-critical and non-mission-critical online applications), Network Management, Managed Security Services (such as Firewalls), and Managed Storage and Backup Services."

Arup Chakraborty, GM-network services, HCL Comnet
"By outsourcing to MSPs organizations can save up to 50 percent of their total IT infrastructure cost by opting for remote IT infrastructure management. Improvement of connectivity at reducing prices is also making remote management more attractive."

B Ashok, Vice President, Cisco Systems (India & SAARC)
"India's increasing relevance and contribution to the global economy is best highlighted by the phenomenal growth in the Business Process Outsourcing (BPO) market in India. This growth is expected to continue over the next few years—on the back of high end applications and services being outsourced.

For the industry to continue to grow, Indian BPO enterprises need to deliver optimal quality of service to the clients. Applications that are outsourced are extremely mission critical and therefore, it is imperative that organizations deploy a reliable, redundant and secure technology infrastructure. Further, the infrastructure needs to be scalable to accommodate growth and needs to be integrated / converged to be able to deliver not just voice but also data & video based support services."

Anil Valluri, Director (Systems Engineering), Sun Microsystems India Pvt Ltd.
"One of the most interesting trends being witnessed in this space is increasing acceptance amongst certain organizations towards aligning with vendors who offer customized datacenter management and optimization portfolio designed to optimize the customer's data center management & operations without IT Asset transfer. This is a different approach and gaining acceptance in the market. By retaining ownership and control of their IT resources the customer retains the flexibility to adapt more quickly to changes in their business and service level agreements. This control & flexibility is especially important for companies whose IT resources are considered strategic differentiators.

This is an extremely important trend to note especially because the approach is totally different to what exists today and is being propagated by certain large vendors who are recommending total outsourcing as their lead offering to the customer. This new approach being propagated by the likes of Sun aims at providing the customer more choice and control over his IT infrastructure while at the same time providing him all the benefits of outsourcing. It allows companies to avoid the loss of control associated with traditional outsourcing, and to eliminate the management burden that comes with traditional multi-sourcing arrangements."

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Copyright 2001: Indian Express Newspapers (Bombay) Limited (Mumbai, India). All rights reserved throughout the world.
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