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.
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
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
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,
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 perimeterskeeping
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 countrynetwork 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
In total outsourcing all the IT functionsfrom 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 email@example.com
|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
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.
|Here's what a few vendors and service providers have
to say about storage and disaster recovery trends in Indian enterprises
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
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
"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 yearson 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."