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The Inside Story
C O L U M N  


Go to the Source -- Outsource

  April 15, 2002
  By James Hutchinson


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Welcome to the second part of our IT Agenda series: outsourcing service and support. We could have called it "How Vendors Make Money Off Of You," but that's more blunt than need be--not that we're above being blunt.



There are really only two ways for vendors to make big money these days: licensing and service/support. Hardware became a commodity long ago--there's no real money being made on gear. Even price-leader Cisco Systems tries to charge competitively lately. Gone are the days of 60 percent, 70 percent and even 80 percent margins on hardware sales. Several years ago, I was involved in buying a Digital Equipment Corp. VAX. During one of our many conversations, the salesperson let it slip that the company would be clearing $800,000 on a million-dollar purchase.

I was floored, but there was virtually nothing I could do about it. In fact, we believed we were getting a great deal! I always felt bad for the folks who weren't getting a deal as "great" as ours.

Obviously, 80 percent profit margins on hardware did not help Digital in the long run, but other vendors have since tried to emulate that model. A certain storage vendor prohibited its customers from "sharing" information about the price they paid. This led to many meetings that began with the vendor asking, "How bad do you want it?" Not the place to be if you have the checkbook.

But we're here now to discuss the critical issue of service and support and, we hope, help you figure out why that operating budget of yours is growing out of control even though upper management is telling you to cut it. Here's my guess: Short of the things that walk and talk (aka, your staff), the biggest items in your budget are maintenance fees and software/hardware contracts. After all, you need to pay to keep stuff running.

When I spent 22 hours a day in IT, I felt that searching high and low to verify serial numbers on a contract was not the best use of my time. Sure, there's software available to help you do that, and good old organizational skills never hurt. But when you add/move/change your corporate IT assets every day, tracking everything is almost impossible. In the end, the old manual audit always came in to save the day.

Once you'd cleaned yourself up after crawling under every desk in the organization to get the numbers (damn, doesn't anyone vacuum anymore?!), you were ready to do your line-item audit of the service contracts. Then, as you flipped through pages and pages of serial numbers, you were haunted by endless questions: "When did it ever make sense to spend $50 a year in maintenance on a network hub that costs $75 to replace?" "Should we keep paying maintenance on 600 copies of Windows 95?" You could almost hear the money whooshing out of accounts payable. Ah, the good old days.

Those times are gone, and we're here to tell you that outsourcing these wonderful chores might be the best way to go (our coverage begins here). And we're not talking about the we-really-want-to-shrink-IT-and-put-you-out-of-a-job kind of outsourcing, but the you're-too-damn-valuable-to-be-crawling-under-desks kind of outsourcing. There are loads of choices out there. Meantime, you can reacquaint yourself with your business colleagues

So try not to live in the past; check out this outsourcing idea and see if it fits your organization. Living in the past may have worked for COBOL programmers during year 2000 fixes, but I wouldn't bank on overpriced service and support becoming fashionable again.

--James Hutchinson, jhutchinson@nwc.com


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