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To outsource or not to outsource?
Analysis: That is the question for effective network management...

By Anthony Plewes

Published: Monday 16 April 2007

As IT departments struggle to deal with new networking technologies and increasing demands from the business, many are looking at network outsourcing. Anthony Plewes weighs the pros and cons.

Network outsourcing is one of the highest growth areas in managed services, according to a new report from the Butler Group. The analyst house estimates almost 40 per cent of organisations are likely to outsource part of their infrastructure in the next two years. The market, the analyst believes, is being driven by the enterprise requirement to roll out next-generation network technology.

The simple fact is that companies are trying to do more with their networks. Typical projects IT departments would like to undertake include hardware virtualisation or IP telephony, and many companies do not have the internal skills to successfully transition their network to be able to support these new environments.

This was the position in which supermarket retailer Somerfield found itself back in 2000. David Heyes, head of supplier and IT services management at Somerfield, said: "We had a number of high-profile failures and the board recognised we were trying to do too much with our resources. We believed outsourcing would give us better capacity to meet any new demands to the business."

Smaller companies can find it difficult to attract specialised networking staff. Outsourcing gives them the flexibility to scale up or down as the business changes and introduce new technology without having to hire new people.

Outsourcing risks

However, while companies can benefit from the technology resources at their outsourcer, not having any internal network skills can be risky. Companies might find it difficult to assess whether they are getting the best value for money and that services are fit for purpose, for instance.

In Somerfield's case, when the time came to review the service at the end of its outsourcing contract it discovered it was paying 20 per cent over the odds. Heyes also felt the company would have liked to have moved to an IP-based network solution earlier than it had done but he wasn't able to drive this initiative internally.

Of course, lacking the skills to deploy new technology does not necessarily mean companies should outsource all ownership and management. The majority of networking kit is sold through the channel, which means companies can call on the implementation skills of third parties if they want to deploy new technology. They will however need to train or acquire staff that can manage the new network.

Is it cheaper?

Outsourcing has long been a popular choice for enterprises looking to save money. Outsourcers are able to offer the benefit of scale because they can centralise the key IT and network functions and service multiple accounts at the same time. This allows them to offer the same service as the internal team but at a lower cost of delivery.

The experience outsourcers have with network management also means they should also have more effective processes based on established best practices to deal with the most common networking issues.

Network outsourcers can make the total cost of ownership (TCO) equation look even more attractive as they are able to source equipment from suppliers at a substantially cheaper rate. Adrian Lau, IT services manager at ST Mary's NHS Trust, says: "We buy our network equipment through Damovo. We use open-book costing where Damovo puts five per cent on the list price. This is cheaper than buying through a traditional distributor."

Open-book costing is becoming more common throughout the network outsourcing industry. Richard Mahony, principal analyst at Ovum, says: "Contract pricing is becoming more transparent. However, companies that do sign up to open-book pricing, need to be aware of exactly what it covers, as outsourcers will always try and hide some margin somewhere."

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