When an organization is growing but its IT budget is stagnant, one way to stabilize or even lower costs without putting a damper on business initiatives is to outsource. And a top candidate for outsourcing, especially among the Fortune 500, is network management--Prudential, The Dow Chemical Co. and BlueCross BlueShield have all taken that path.
But those are the big guys. What about the Fortune 1,000 and Fortune 2,500, or the prolific SMB (small and midsize business) segment? In most cases, the smaller an organization is, the less likely it is that network management is a core business driver. But though your network may not be used to generate income, it still requires a significant amount of management: You need personnel to monitor the performance of network applications and services; recognize, track and diagnose interruptions to those services; and plan, provision, install and audit network links and infrastructure. You need a team of network operations and helpdesk staffers, engineers and IT managers. This workload combined with the lack or absence of a direct business impact makes outsourcing look tasty--sure, you'll be trading control, but you'll get predictable costs and will be able to eliminate or repurpose personnel. It's a no-brainer.
Or is it? Clear-cut advantages seem to lessen proportionally as businesses' IT org charts flatten and narrow. Smaller companies that lack the clout of their Fortune 1,000 brethren may find themselves on the short end of the relationship stick. When deciding whether to outsource, it's wise to look beyond dollars saved. We created an RFI for an SMB and received some surprising results (see "Teaming Up With the Right Management Service").
Motivating Factors
Working in outsourcing's favor are the economic realities IT departments--especially those at relatively small companies--face today.
CIOs must do more with less as IT spending currently hovers around 3 percent of gross revenue. Inasmuch as revenue is down, IT spending is decreasing. The No. 1 priority for U.S. IT shops is cost reduction, with higher productivity a close second, according to Meta Group's Worldwide 2003 Benchmark Report, a survey of IT trends. This is driven in part by the flat IT budgets predicted for the rest of the year.
A major stressor for most businesses is containing the cost of managing and maintaining their networks (see "Top Network Problems by Company Size," left). This reality applies to all IT shops, but for SMBs, getting network management outsourced is a tough sell because the cost offset is harder to make (there's less money to reduce the budget by) and because successful outsourcing is a two-way street. Outsourcers balance efficiency against individualized service. From the management service provider's (MSP's) point of view, special services reduce efficiency, slashing margins.
It's a fact of life: No outsourcer will meet all the needs of your business perfectly. Of course, we could say the same thing about in-house IT shops, but when you have direct control, you have room for improvement through prioritization. The fulcrum that balances outsourcing is being willing and able to give up flexibility and control to get savings.
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