Outsourcing: Reducing or Increasing Risk?
Network outsourcing can also reduce risk, says IDC analyst Jamie Snowdon. “In terms of management time, you can simply dispose of a problem, and once you have an SLA in place, you can pass the risk over to the outsourcer.”
Risk is a contentious issue, though; many companies are concerned – quite justifiably – about giving up control and management of an important company resource like the network and handing it over to a third party. Is there a lower risk in outsourcing the network than in handling it in-house? This is an important question that every network manager has to examine and answer honestly for themselves. “You can argue that outsourcers are likely to have better best practices, more experience, and more human resources — but there is always the potential for more risk when you concede control,” says Snowden.
The SLA itself is also hugely important, and it needs to be negotiated carefully rather than having it imposed by the outsourcer itself. As the basis of any outsourcing agreement, it’s becoming more common for customers to specify SLA requirements in productivity terms — what business functions they want to be able to handle — rather than in simple performance terms like network availability.
In other words, the “five nines” is no longer enough; it’s transactions that count. “There’s no question that the network is just expected to work,” says Niamh Spillane, telecoms analyst at Frost & Sullivan. “It’s much more than the ‘five nines’ these days, because expectations have gotten higher and higher,” she says.
Cost Reduction a Key Driver for Outsourcing
No matter how exactly the SLA is finally hammered out, cost reduction is always likely to be one of the key drivers for outsourcing, and the larger the company and the more complex the WAN it uses, the greater the potential savings from outsourcing are likely to be.
“There are compelling reasons to consider outsourcing for enterprises that have at least some self-owned lines themselves, or that have different service providers supplying cables in different areas of the world and that are managing the traffic themselves,” IDC’s Snowden says. “The last thing that you should want to be doing is talking to twenty different service providers around the world.”
“By handing the whole system to an outsourcer, you should be able to get significant economies of scale, making it very much cheaper,” Snowden continues. “This will be especially significant when we see moves towards utility types of outsourcing models, where enterprises will be able to turn on more bandwidth like a tap.”
But it's not just large companies with international operations that can benefit from outsourcing. Smaller companies need to take a long hard look at the question: “Why don’t we outsource our network and pass on the problem to a company with more expertise and resources?” Finding, funding, and retaining the right staff can be particularly difficult for smaller companies.
These companies may not have extensive WANs, but LANs are becoming increasingly important to the profitability functions of businesses. In the past it was no big deal if the LAN went down occasionally — despite the screaming protests of users — but today this is simply no longer acceptable from a business point of view.
And as smaller companies grow, their network requirements become more important, even as their needs change. “Many of these companies may be coming from ground zero, or from an ad-hoc combination of modems and leased-line connections. For them, it makes sense to outsource from the start,” says Snowden.