The Handoff

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.

As word leaks out about your network-management outsourcing plans, expect your employees to think worst-case scenario. Even if you are not cutting staff but instead repurposing some or all to new projects, morale will suffer. Change is traumatic. Be straight with your people, or key employees will seek other work. Make no mistake, your IT staff's knowledge is a tangible organizational asset; losing it would negatively affect pre- and post-conversion operations and hinder a smooth knowledge transfer. And if the outsourcing effort fails, converting to a new MSP or bringing operations back in house will require staff and knowledge acquisition.

In the past, outsourcers could bolster knowledge transfer by absorbing some of their clients' existing staff. Now, though, MSPs are under more economic pressure, and given the limited number of dollars involved in an SMB contract, staff redeployment is less likely. None of the management outsourcers responding to our RFI even hinted at this option.

Of course, monetary incentives can slow turnover. In addition, some knowledge will transfer to the outsourcer naturally during the conversion process, and some will exist in the reporting that the MSP provides.

But some of your employees--and their knowledge--will walk into the parking lot, turn the key and drive away. Count on it.

Working on Your RelationshipOne of the precepts of outsourcing is leveraging a concentration of talent without having to pay for its development, care and feeding. Sweet-spot details, like reports on router availability or server uptime, are going to be delivered by all network-management outsourcers.

But what happens when you need more than these core deliverables? When special applications require support or when not-so-clear-cut problems crop up, you'll find cracks in the relationship with your outsourcer. The remedy is clear delineation of duties through a definition of relationship roles.

This delineation will be easier for large companies with bigger IT staffs. They are more likely to have in-place personnel and best-practice processes, which will translate to the outsourcing roles that are needed. In smaller companies' org charts, these roles are rolled up into fewer people, who may be too busy fighting fires to do strategic planning.

So how can a small company cover all the bases when negotiating a NSM contract? For help with best practices, check out the IT Infrastructure Library at www.ogc.gov.uk/index.asp?id=2261. For a cautionary tale, see "Outsourcing Contracts Fail To Satisfy Many Customers, Study Says".

Know your comfort level when it comes to putting trust in the outsourcer and be sure to ask lots of questions. Responses to our RFI varied from a few pages to more than 100 pages, and each response required one or more follow-ups. Longer isn't always better; we found detailed, specific information in some of the shorter responses and cut-and-paste general overviews in some of the longer ones.Take the time to clearly understand the boundaries of responsibility so you can judge what functions and costs remain on your shoulders. Only when you get this big picture can you judge whether outsourcing makes sense financially and operationally for your organization.

Bruce Boardman is executive editor of Network Computing, testing and writing about network management and systems. He has 12 years' IT experience managing networks and distributed computing for a financial service provider. Write to him at [email protected].

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Network & Systems Management Services

How big a staff, network or business do you need to find happiness in a network and systems management outsourcing relationship? That depends on your goals. Do you aim to fire IT employees and save buckets of money, or reassign them and start to fulfill those ambitious business plans that have been on hold? Do you have specialized services and applications? What's your tolerance for giving up hands-on, day-to-day control?

For the most part, big management service providers are not targeting small and midsize businesses because of the need to tailor services, which equals razor-thin profit margins. But it's only a matter of time before they lust after this potentially lucrative market segment. Be ready when their reps entice you with promises of money saved and efficiencies gained.In "The Handoff," we offer advice on the implications of management outsourcing and tips on negotiating a contract. A key consideration: your people. It's ironic that those employees best qualified to manage the service delivery relationship and make sense of those daily exception and performance reports are the same people who would provide the best outsourcing cost actualization through their disemployment.

In "Teaming Up With the Right Management service" (page 40) we introduce the fictional TacDoh, which sells deep-fried foods and is looking to reallocate a portion of its IT budget to support business-focused development projects. Four management service providers--Net ProActive Services (formerly Bangalore Labs), HCL Technologies, iNOC and PerformanceIT--submitted RFI responses. Although we liked the service options presented, the money TacDoh would save wasn't even enough to keep it in canola oil.

By the Numbers

$350 billion: Overall worldwide outsourcing market90%: U.S. companies that outsource at least one activity

$87 billion: IT exports by 2008 to India, which controls more than 85 percent of the overseas outsourcing market

30%: Outsourcing projects rated "unsatisfactory" by clients at the two-year point. Half of those companies identified bad planning as the cause of problems in their relationships

Source: Cutting Edge Information