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Issue of October 2004 
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Network outsourcing

Outsourcing network management: Only for the big boys?

Throughout it has been believed that outsourcing was a necessity for the corporate giants. Now however, the tables are turning. Even for the mid-sized segment it now makes sense to outsource functions outside the company's core competency. What remains to be seen is whether the market will be able to offer suitable solutions to this booming SMB segment. by Tony Nash

In March 2004, when Bharti Tele-Ventures announced that it would outsource the management of its entire IT infrastructure and applications to IBM, it was time for all of corporate India to pause and take notice. If managing

technology was no longer a core competence for India's leading private telecommunications company, where does that leave companies in other industries?

While announcing the agreement with IBM - which will cost Bharti $750 million over a 10-year period - Bharti Group Chairman Sunil Bharti Mittal said the deal will enhance Bharti's shareholder value by ensuring a "predictable IT spend, improved cash flow and optimized use of technology resources". Essentially, Mittal has concluded that his company would be better off focusing its time, talent and management attention on processes that contribute the most to shareholder value - in Bharti's case, marketing-related processes.

The Dilemma

With the increasing demands of globalization and with local competition hotting up, what is considered a company's core differentiator this year might become a mere "hygiene factor" - that is a standard feature across the industry - next year. While most CEOs know that outsourcing of non-core processes is the only real solution, an important question they face is "is my company big enough to outsource? "

In the area of enterprise network management, CEOs and CIOs - especially those of mid-sized companies - also face serious issues while identifying their vendors. Will the big global telecom companies (telcos) even look at our requirements? Do we have any other choices?

The Solution

Contrary to popular belief, fast growing mid-sized companies can actually derive better benefits by outsourcing their enterprise network management than Fortune 1000 companies. Further, the rates of growth of mid-sized companies demand that corporate resources be dedicated to the core business, not a non-core IT infrastructure.

As they build global enterprise network capabilities, mid-sized companies typically have lower investments in legacy applications and processes compared to larger multinational companies (MNCs). Hence, they face fewer hurdles when adopting new generation solutions like Internet Protocol-based Virtual Private Networks (IP-VPN) that are offered by outsourced service providers. IP-VPN solutions are especially relevant to mid-sized companies since they can deliver flexible bandwidth based on their business demands along with the ability to serve remote locations and users at dramatically lower costs than traditional telecom solutions.

Also, due to the demands of their core businesses, mid-sized companies usually don't have enough internal IT staff strength to continually optimize their network and applications. Add to this the need to keep pace with rapid advances in networking technology - which their increasingly global competition might adopt - it is natural that their internal IT resources are often overwhelmed. Unlike large MNCs, mid-sized firms don't have the option of throwing unlimited cash to make these problems go away.

Sub-optimal Options

Unfortunately, telcos and System Integrators (SI) have traditionally underserved mid-sized companies when it comes to enterprise network services. For the telcos, the gravitational pull of their voice connectivity business takes away from the value-add that managed network services provide to their core business. As a result, their main proposition to customers is based on price and volume - something that would appeal mainly to large MNCs - rather than a solutions orientation. Also, the telco offering usually comes as a static bundle that does not provide enough flexibility for the changes that are inevitable in the dynamic operating environment of mid-sized companies.

The offering from the System/ Network Integration companies is at the other end of the spectrum. Since SIs traditionally look down upon the external connectivity piece of network management (the capacity business), their pitch to the CIOs is focused on "value" and "Total Cost of Ownership". Bottom line: their solution is often too pricey for mid-sized firms or they serve the IT symptom rather than solve the business problem.

Ideal Alternative

Mid-sized companies are now finding a new class of specialist managed network service providers emerging to custom-fit their needs. Unlike the telcos, their offerings are customizable, both functionally and geographically, and emphasize on value-addition. And unlike the SIs, they are far more comfortable with both domestic and international connectivity services.

The drawback for mid-sized firms when they have found rare opportunities to outsource the management of networked applications and connectivity has been the loss of control and visibility over their IT infrastructure. Realizing that transparency and control are key requirements for mid-sized companies, this class of service providers provide for knowledge management and accountability as a core part of their solutions. Much of this is achieved through real-time reporting and network management tools, Awareness and influence are critical for fast-growth mid-sized firms - as important as uptime and cost.

Globalization is impacting mid-sized companies as much as it does the large players, and it is doing so across every industry. No longer can mid-sized companies afford to let any part of their operations - especially a critical, albeit non-core, function like network management - be "just good enough."

Tony Nash is the Head of Strategic Marketing at Orient Networks. He can be reached at tony.nash@orientnetworks.com

 
     
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