SMBs and Network Outsourcing

Thursday Oct 30th 2003 by Paul Rubens

It's not just large companies with international operations that can benefit from outsourcing anymore. Smaller companies need to take a long hard look at outsourcing as a way to bypass building networking expertise internally.

It takes courage to come out and say your company would be better off outsourcing to someone else the business process you’re responsible for. Nonetheless, outsourcing has become well established in the IT marketplace as a whole, and network outsourcing — either WAN or integrated WAN and LAN outsourcing — is becoming increasingly common for both large and medium-sized enterprises.

Estimates of the size of the global outsourcing market are hard to come by, but it is certainly worth tens of billions of dollars annually. Anecdotal evidence suggests it is growing at between 13 and 15 percent per year.

What’s the attraction of outsourcing your network? There are five key ways it can improve the efficiency of an organization, according to research house Frost & Sullivan:

  • Better use of capital: Without network infrastructure investments to be made, enterprises have more capital to invest in strategic areas such as customer acquisition and retention. Additionally, debt may be reduced, and the effective overall cost of ownership of network assets may be reduced.
  • Reduced costs and greater operational efficiency: Outsourcers can, in theory, benefit from large economies of scale, especially when operating large international networks. Taking advantage of an outsourcer's greater expertise and specialism may also lead to improved efficiency, productivity, and quality of service (QoS) for the organization.
  • Simplified, more flexible network operation: By outsourcing the network, companies face more predictable costs. When more capacity is required, costs increase smoothly when a usage-based cost structure is in place. Service quality can be specified by an Service Level Agreement (SLA).
  • Revenue enhancement: By using faster moving outsourcers, especially internationally, required changes and upgrades can be completed faster, so profit generating activities that rely on the network have less time to market, resulting in revenue streams starting sooner.
  • Staff shortage problems can be eliminated: Many enterprises have difficulty providing sufficient human resources to maintain their networks. Outsourcers often provide environments with greater job progression possibilities than enterprises, so they are often better at attracting skilled networking professionals. Plus, outsourcer staff numbers can easily be increased temporarily when individual project requirements dictate.

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.

Some aspects of running a network like IP routing are so time consuming and complex that they can take up an inordinate amount of a technicians’s time — a reason in itself to hand over a complex network to an outsourcer, according to Steve Carter, manager of IP VPNs at giant outsourcer BT Global Services.

“Many years ago, companies bought private circuits with frame relay, and did all the IP routing themselves. Now that the IT space is getting more complex, many of our customers’ heads of IT are asking why they are involving themselves in networking when they should perhaps be spending more time on application management. For 70 to 80 percent of all the contacts we handle, we do all their IP routing.”

Drawbacks of Network Outsourcing
What about the drawbacks of network outsourcing? The main problems are likely to be cultural, and there are a number of questions to address. Do senior managers want to see parts of the company handed over to a third party? And how will staff react?

And what about appliances attached to the network, such as packet shapers or other application management devices? Will an outsourcer take over the licenses and management of these, and if not, what alternatives can they offer? Timing is also key: most networks involve many different licenses and contracts, and these are rarely synchronized to expire at once.

The bottom line for any organization looking at network outsourcing is whether it will result in an overall benefit to the business. The most important question to ask then is this: “What makes the difference between a successful and unsuccessful network outsourcing deal?”

Carter’s advice is simple. “It’s not uncommon to approach an outsourcer with an idea that you want to cut costs, when actually you’re planning to roll out a new app and need help making changes to your network. So make sure you spend plenty of time with your potential outsourcing supplier, and make sure you know exactly what you want from them.”

Adapted from

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