Economies of skill always constituted one of the stronger arguments for outsourcing, and nowhere does that argument look more persuasive than in the network area. As networks get more complex and at the same time more critical to business, many organisations will conclude that it is just not viable to hire directly the range of skills needed to manage and support them.
Steve Fell, IS supplier manager with TNT Post Group Information Systems, says that was a major argument for outsourcing support of the company's corporate NT infrastructure to Logical. Explaining that the global infrastructure for all international business systems is provided from the UK, he says, "We were implementing more and more business-critical systems on NT. These are systems that help with customs clearance and customer service for example, and are vital to making sure that we deliver on time. So it became necessary to have the infrastructure for these applications supported on a 24-hour-a-day, 365-days-a-year basis."
As well as having an engineer permanently on site at TNT, with holiday cover provided, plus a manager assigned to the contract, Logical supports TNT from two "centres of excellence", one in Europe and one in Australia. When one centre closes, the other takes over, so Logical should be able to meet TNT's service level requirements at any time of day: for example, a priority one call must have a fix or workaround in two hours.
Fell reflects, "To achieve the same thing in-house, we would have to hire 1.5 people, and hiring half a person is always difficult! Seriously, to get an equivalent service with the same escalation capabilities, we would have had to set up our own centre of excellence, which would have been hard to justify."
Even if user organisations can cost-justify recruiting network specialists, they may anticipate problems with retention because they cannot provide enough technical challenges to keep these eggheads interested. The University of Paisley is involved in a funded project on "Developing secure, manageable, scaleable network services through the use of commercial products and services", findings of which are documented. The university has entered into various outsourcing deals, notably with Milgo Solutions (formerly Racal-Milgo).
Tony Shaw, the university's director of network and information systems management, says staffing problems were a major argument for outsourcing. "Recruitment and retention are always going to be difficult in a smallish organisation. If the network is working you don't need much of a network engineer's time, so it's like keeping a full-time mechanic to look after your car.
"We used to have two network engineers, but when one left to pursue technical interests, we decided to use the money differently. I believed the situation wasn't sustainable from a recruitment viewpoint."
Rapid deployment can be another valid argument for outsourcing, according to Martyn Hart, chairman of the Network Outsourcing Association. "In the case of Camelot, for example, outsourcing to Racal, ICL [both shareholders in Camelot] and others made it possible to deploy a 10,000-outlet network in six months. Using someone else's ready-made network can also enable you to steal a march on the competition - people don't see you building anything, and when they realise what you've done it can take them six months to catch up." For every sound reason for outsourcing network-related services, there are several dodgy ones.
Hart points out that the familiar "sticking to your knitting argument" can go either way in the case of networks. "Some organisations decide that running a large network is not the business they're in, but others say that because the network is so vital to their business, running it must be a core activity."
Cost is another less than clear-cut argument. For example, certain outsourcing deals in the public sector, presented as successful cost-saving measures, are really politically-driven, critics say. "Often, these organisations had no realistic measurement of their baseline costs against which to measure their savings," says Hart.
Creating an accurate cost-benefit analysis of an outsourcing proposition is never straightforward. Paisley's Shaw says, "We found that the picture changed dramatically when we took into account the cost of things that weren't built into the basic requirement, but which we might need in the future, like increased resilience.
"We've also found that outsourcing requires senior staff to devote more time to supplier management than they would have to if it were an internal network management activity. You need to use people with experience of supplier management; apart from anything else, it's important that suppliers see that the customer's senior management is keenly involved. However, the time that it takes is a cost that has to be taken into account. And if an organisation is under such cost pressures that it's not able or willing to put in the necessary resources to manage the contract properly, it's taking a big risk."
Apart from anything else, failure to maintain a management grip on what the outsourcing company is doing will cost you money later if you decide to change supplier or bring the job back in-house. Robert Carolina is a partner with law firm Tarlo Lyons and chairs the firm's outsourcing practice group. "We often get called in to address difficulties when someone wants to take a service back in-house. They may not like their supplier but usually they don't have enough people in-house even to understand the implications of repatriating the service. Those companies are facing an unplanned cost."
If the costs associated with maintaining control and keeping options open were part of the original cost model, Carolina believes that many cost-based outsourcing decisions would look less appealing. He adds that some organisations, at least, have a legal obligation to retain control. "Financial organisations, in particular, run into regulatory problems if they try to absolve themselves of responsibility by offloading it to an outsourcer. If a bank can't make payments, it's no use pointing the finger at company X. Other organisations have similar responsibilities to shareholders."
Some organisations that have tried outsourcing found that the cost arguments do not add up. Steve Collins, senior manager with Sony Broadcast Professional Europe, says, "Most of our network services had been outsourced to a reasonably large company, but we felt we weren't getting value for money." Two years ago, Sony reviewed each function on its merits, to decide whether it should be brought back in-house, outsourced or co-sourced.
Since then, Collins believes that Sony has cut network-related hardware and software maintenance costs for the UK from about £200,000 to £40,000 by bringing them back in-house. "One of the ways we did it was by buying our own spares. We used them to set up a training and test lab where we have a full simulation of our network for our people to work on." Because it keeps spares, Sony can tackle a repair economically by swapping in a replacement from the test lab and then invoking the warranty. Collins adds that the test lab network provides added resilience. "If our main network fails, we can get this one into production straight away - faster than a typical management company."
Sony also brought network-related skills back in-house. "We spent money on recruitment and training but it's left us self-sufficient in core technologies. Even if you use external consultants, often you're getting people who are learning anyway. I'd rather spend the time on our people."
Collins is unimpressed with the argument that any premium attached to an outsourcing contract buys you a kind of insurance. "When something goes wrong, if the company can't deliver - and some can't - it's the IT manager who takes the hit. Maintenance contracts often protect the supplier rather than the customer."
Sony decided to look after networks, servers and back-end applications in-house, but to outsource the front office aspect. The company it chose was Allied Worldwide, which shares a similar philosophy. Chief executive Richard Skellett is blunt: "We think most outsourcing is far too expensive for what it delivers." Allied, he says, practises transparency in pricing contracts and returns a proportion of the profits to its clients. It also advocates a co-sourcing approach to staffing so that a network engineer function at a client may be jointly covered by one person from Allied and one of the client's own staff. "As long as the job is covered, it doesn't matter whether the person is an employee or a contractor," he argues, adding that because there is some scope for splitting a person's time between two jobs, they can be given a more interesting time so that attrition is reduced.
To make the right decisions about outsourcing, in-sourcing, co-sourcing and so on, it is vital to be able to measure the situation you're starting from. The NOA publishes benchmarks to help, and Hart knows of at least one company that decided after measuring itself that it was doing better than an outsourcing company. "If you take a close look at your processes, you may appreciate aspects that you'd overlooked, such as IT spending an appreciable amount of time on at-the-desk training." Once those functions are understood, internal IT may look like better value.
When an outsourcing contract is running it is important to keep on measuring. More and more tools are available to help with this job. Grant McClymont, director with Advanced Datacom Systems, says that a large proportion of the company's business arises from companies wanting to monitor carriers independently. "Although some companies will outsource a network and ask the provider for stats, an increasing number are seeing that this is like getting the police to police themselves. As well as wanting to monitor the carrier's adherence to service levels, they also want to model change." Besides selling tools, ADS will run them as an outsourced service, providing statistics that clients can access remotely via a web browser.
Davandra Panchal, network management consultant with Morse, says that companies often use more than one provider for a service like frame relay, with one backing up another. "If they have the right tools they can compare one vendor with another and to some extent play them off against each other."
Measurement is a good idea even if you're not thinking of outsourcing, Panchal points out: "Knowing there's a problem enables you to be proactive - and also to demonstrate to your internal customers that you know what's going on."
Outsourcing companies are also becoming increasingly sophisticated users of measurement tools, according to Bob Pearson, regional manager, UK and Ireland, with Concord Communications. "As the market matures, we see educated customers who are no longer satisfied by suppliers saying 'well, the router was up'; they're interested in whether or not their business-critical service was available when they needed it.
"At the same time, rather than keep providing a commoditised service for low margins, suppliers want to continue moving up the value chain. Already in the US, suppliers are being asked to commit to metrics like a specified cost-per-SAP transaction."
Tool vendors are increasingly aiming to support these aspirations by providing software to monitor and improve performance at the level of business transactions.
Apart from failure to measure performance accurately, another major stumbling block for organisations that want to outsource is failure to provide for changing requirements during the life of the contract.
Henry Brysh, managing director of consultancy Corporate Network Services, a division of ActiveIntranet, says, "Organisations need to have a view not only of their current requirements but also of the extent to which they can change over 24 months or whatever the timescale is. You need to formulate an infrastructure strategy that's aligned with your business strategy, and then come up with an outsourcing arrangement that can deal with that. Trying to hand the whole problem over to a third party is tantamount to signing up with Mephistopheles."
Brysh observes that, while organisations may build in contract review points, they sometimes neglect to clarify whether it is the supplier or the client who is responsible for investing in the network to accommodate changes to requirements. "One local authority outsourced its entire network to save on capital budgets, and found itself with an obsolete network, no budget for upgrading it, and no obligation on the supplier to upgrade either."
That contract had glaring omissions, but how detailed and formal should an outsourcing agreement really be? For smallish contracts, a reasonably informal relationship can work well, given the right provider. Max Goodyear is management accountant for United Rentals, which operates a national network of more than 230 independent vehicle rental companies. United has outsourced support of a 15-user NT-based network to Lynx Technology. Goodyear explains that the decision was based on experience of trying to support an earlier Novell network in-house. "We didn't get any support from the software house concerned and it all ended up rather seat-of-the-pants, so with our new network we decided to look for network support from the outset." Hiring someone to do the job in-house was considered but Goodyear believes it would have cost more.
Goodyear says the agreement with Lynx stipulates the required hours of cover plus a one-hour response, but doesn't include detailed performance criteria for the network. "Basically, if something goes wrong, we shout and they fix it. They've been very good - they've always met the one-hour response target and the few problems we've had have all been solved." He feels that the secret is to check the company's record, taking up references - though he acknowledges that suppliers are always going to put forward their most satisfied customers. "We were lucky that our sister company was already dealing with Lynx and so we were able to find out about them through that route."
As far as change management goes, Lynx's remote diagnostics and support manager Colin Saunders says, "In these sorts of deals, we're effectively acting as the customer's IT department. If Max wants to add a new application, he would speak to us first and so we would be able to discuss the implications for network traffic up front."
On large deals, though, too much informality and trust between the "partners" can be a dangerous cop-out. Tarlo Lyons' Carolina says, "Talk of partnership is often codespeak for collective non-responsibility. So long as the relationship is going well, everything's fantastic, but wait until something goes wrong." With something as critical as network service, having a proper definition of service levels and associated responsibilities is as important as it ever gets, he argues.
Carolina suggests keeping contract lawyers abreast of an outsourcing negotiation as it proceeds, rather than calling them in at the last minute - that way you may get a contract that reflects operational needs. Some contracts, he adds, put too much in rather than leaving too much out. "Large consultancies can put together hugely convoluted service agreements that are more appropriate for a trip to Mars, when what they have is a WAN in Scunthorpe. That doesn't work either."
Standardising IT service management
The BSI has produced a code of practice for IT service management and is working on converting it to a British Standard by the end of the year, according to Lynda Cooper, a managing consultant with FI Group who is involved in both aspects of the project.
"Although it doesn't address network management specifically, it's a way to formalise things and ensure that there aren't any gaps in a network outsourcing agreement. It's all very well to say that the outsourcer must provide this kit and these people, but this will help you check whether you've adequately covered things like problem prevention and change control." Once the code of practice becomes a standard, customers will be able to require prospective suppliers to comply; already, according to Cooper, a few Invitations To Tender refer to the code of practice.
For more details of the code of practice and an associated workbook.
Some novel service offerings
New choices keep emerging in the network outsourcing arena. For example SilverBack, a US startup, is providing network and security monitoring functions via an ASP model. SilverBack licenses network tools from RiverSoft and others and uses them to monitor clients' networks remotely over the Internet. Clients receive a preconfigured Intel black box with the necessary software and can then access reports about their networks on Silverback's Web site. Information is presented in a dashboard-style form designed to be understood by non-specialists. Silverback believes that it is putting these tools and services within the reach of companies that couldn't otherwise afford them. In the US, using SilverBack costs about $2-$4k/month; a European launch is planned in Q4 of this year.
Another innovative service is aimed at helping companies implement extranets. Aventail calls itself an ESP (extranet service provider). Its service, available in the US and being launched in the UK, aims to allow organisations to implement controlled external access to an intranet within 10 weeks. The resultant portal could be used to provide a generalised browser-based access method for staff working out of the office (they can use the same method whether they're in a hotel room, a cyber caf‚ or a client's site). Or it could be used to let partner organisations such as suppliers sign on, for example to access an inventory system and see when stocks need topping up.
This was first published in June 2000