Interactive Week - February 5, 2001
Seeking Outside Help
By Rebecca Wetzel Special To Interactive Week
Remember when almost all homeowners owned mowers and tended their own lawns? Notice how these days many people don't have time to roll their own mowers and are increasingly outsourcing their lawn-care tasks? With information technology professionals busy and in short supply, and with increased network complexity, a similar trend toward partnering to get telecom chores done is emerging.
Buying managed services vs. "rolling your own lawnmower" is a critical decision for an enterprise. And enterprises have a growing number of options for outsourcing network-related functions. They can hand over responsibility for everything from soup to nuts - or just the jobs that drive them nuts.
Systems integrators are eager to "do it all" right up to the desktop, while most carriers and Internet service providers (ISPs) manage networks to the boundary of the corporate local area network (LAN), and Web and application hosters mind servers in centralized data centers. Established players tend to provide comprehensive services, while new entrants duke it out in well-defined niches. New flavors of managed network service providers with boutique-like specialties are cropping up constantly. Among them are the newly minted management service providers that monitor networks and notify enterprise clients when something needs fixing.
But just how quickly are information technology (IT) departments willing to sign on with managed network services providers, and what work are they willing to throw over the corporate firewall? Concerns about control, reliability and security are paramount.
"The biggest concern in working with partners is trusting them to get the job done," says Dan Gallivan, IT manager at Gorman Richardson Architects in Hopkinton, Mass., which has 100 employees. "In using their services, I remove myself from dealing directly with some of the other vendors, and not having the direct communication is tougher to deal with in critical times."
Big Growth Predicted
The market for managed network services is big and getting bigger.
Market analysis firm Infonetics Research reports sales of managed network services are slated to grow worldwide from $13 billion this year to $20.6 billion by the end of 2004. The largest revenue generator is predicted to be managed wide area network (WAN) services, followed by Web and application hosting, with managed remote access and security services also in contention.
Two forces are fueling that growth, says Jeff Wilson, executive analyst at Infonetics. "The first is increased reliability of services, and the second is access to advanced technology and/or expertise."
Wilson's research shows that small organizations are buying managed network services at a fast clip, and he predicts that the idea will become mainstream thinking for small businesses before their larger brethren embrace the concept. "Enterprises with huge investments in IT personnel and process have a hard time making the shift to outsourcing because it disrupts the culture of the company."
Chris VanLuling, director of business marketing at WorldCom, attributes the growth to the worldwide challenge customers have in recruiting and retaining network management talent, and the need to rapidly deploy new e-business applications reliably. VanLuling estimates that 15 percent to 20 percent of WorldCom's customers buy managed network services today, and he predicts that the remaining 80 percent to 85 percent will migrate to managed services over time.
Jeff Phillips, a senior consultant at TeleChoice, says it all comes down to focus. "In today's hypercompetitive business environment, enterprises do not have the luxury of focusing resources on a piece of the business that is not a core focus," Phillips says. "Why not let others handle the more mundane tasks, and focus resources on strategic initiatives that will have more impact on the company's bottom line?"
At Gorman Richardson, architects are focused on designing buildings, not telecom strategies. "I have found that we don't have the time to invest in learning how to build and manage solutions, so we need the assistance of a provider," Gallivan says. "In some cases, we have simply looked for guidance and advice from our vendors. Other times, it has been a full installation and purchasing of equipment, as well as ordering communication lines - essentially, managing the project."
Like most enterprises, Gorman Richardson also uses a hosting firm to manage its Web server.
In December, New York insurance giant Metropolitan Life Insurance signed a seven-year, $470 million contract to outsource its entire telecommunications network to AT&T, which will manage the insurer's voice and wide area networks, and provide connectivity among all MetLife locations. This entails managing more than 5,000 devices, including routers, private branch exchanges and LAN hubs.
Hank Hamilton, a vice president of the IT group at MetLife, handed over care of the company's network in order to compete more effectively as a diversified financial services firm. AT&T's "engineering prowess and operational excellence in networking" should improve MetLife's IT productivity and cost effectiveness, and will foster innovation that would not otherwise be possible, Hamilton says.
InfoLibria, a 200-employee network equipment vendor in Waltham, Mass., has outsourced management of its firewall, routers and channel service unit/data service unit to network integrator Networks Unlimited.
"The largest benefit from outsourcing pieces of the network is freeing up internal resources to work on important projects," says Joseph Santangelo, InfoLibria's IT manager. "Too often, IT organizations take on too much with too few resources. This places you in reactive mode, so you are never free to do things proactively.
"It's kind of like being the goalie on a hockey team while the rest of your team is in the penalty box," he says. "The other team just continues to take shots, and you feel lucky if you are able to keep a certain percentage of them out of the net."
Can I Trust You?
The interest of small to midsize companies is often best served by hiring a trusted intermediary to manage carriers. Gorman Richardson's Gallivan prefers to work with a solution provider that resells carriers' services, rather than do business with the carriers themselves.
"We are working with a vendor that manages all of our local phone and long-distance lines, as well as our primary Internet link," Gallivan says. "We get personalized account service and easy-to-reach reps, and we don't have to deal directly with Verizon [Communications]. They provide more customer service and are more helpful than the larger utility has ever been."
Infonetics' Wilson sees trust as a universal issue that will drive enterprises to new types of service providers. "This is a rapidly evolving market space. Existing regional Bells, interexchange carriers, ISPs, etc. - all have managed service offerings, but the customers have trust issues with their incumbent bandwidth providers," he says. "There are many new service providers emerging, particularly in the area of managed security and [virtual private networks] - companies like SmartPipes, eTunnels, OpenReach, mVPN, Telenisus, GNTS [GlobalNetwork Technology Services] and many more. Most of these service providers do not own their own networks - they simply partner with other service providers or purchase bandwidth wholesale, and then provide the service on top of the bandwidth. We think that these providers, with a little consolidation, will be enormously successful because they are focusing on how to build trust with the customer."
Major carriers are positioning themselves to provide one-stop shopping for the Fortune 1,000. For large companies such as MetLife, trust in carriers is not a pressing issue because so much money is riding on the deal. "With in-place internal service level objectives and agreements, coupled with our continuous assessment process - including benchmarking - MetLife has set expectations," MetLife's Hamilton says. "AT&T is poised to exceed these expectations."
The level of service available to a company as large as MetLife often is not available directly to small customers. Gallivan explains: "Our partner helps us get a level of service we may not otherwise receive."
InfoLibria's Santangelo says his company's managed services contract with Network Unlimited gives it a little more clout with service providers. "The biggest concern is that our partner will not do as good a job as we would if we had the resources. Service from a very reliable provider like AT&T is kept in check by Network Unlimited. After all, having AT&T manage their own service is a little like the fox guarding the chicken coop."
What Might the Future Hold?
Enterprises are looking for more and more sophisticated managed network services. "We will continue to look for solutions that we can combine: for instance, using secure VPN [virtual private network] solutions through the Internet for our WAN to remote offices, rather than using dedicated private lines - lowering costs and providing alternate solutions for remote access, and providing redundancy to our private network," Gallivan says.
Wilson predicts managed services will eventually be a booming business, but penetration will be slow and deliberate. "Every year a small group of customers will purchase managed services for the next five to 10 years, as opposed to all growth coming in a relatively short period of time - like two years, say."
TeleChoice's Phillips sees carriers playing a growing role in delivering managed network services. "Intelligence will continue to move into the provider's core, allowing [enterprises] to closely manage network components. We're moving to an 'outsource, but with control' mentality.
"Providers will give enterprises the ability to manage, change [by adding users, prioritizing bandwidth, changing security policy, etc.] and monitor the network through Web interfaces," Phillips says. "Business-oriented IT staffs will leverage the use of outsourcing to position themselves in a more strategic role within their companies, as compared to looking at outsourcing as a 'they're taking my job' proposition."
VanLuling is confident that WorldCom will be a major contender in providing managed network services. "Helping customers introduce and maintain new applications is what our Generation D strategy is directed at. Our expertise is in both managing customer legacy networks, and in providing essential support as networks are migrated to new technologies. We anticipate these capabilities will convince an increasing number of customers to rely on us as their networking solution partner."
Handing Over the Network Reins
Gallivan offers this advice to it managers on the verge of handing over the networking reins: "Know your objectives and clearly outline them in the proposal and interviews. Each vendor will have strengths and weaknesses, and will gear their service towards their strengths - so make sure it meets your objectives. Also, manage them with clear start and end dates and a budget. Develop milestones to measure progress. If you are outsourcing ongoing management, maintain progress checks or reports to monitor status."
Phillips recommends getting the specifics in writing. "Know who's responsible for what, and how performance will be measured. Due diligence is key," he says.
Santangelo says having a sound, long-term strategy is particularly important.
"It is the proactive things that benefit the company by providing new and
improved services, while at the same time reducing the very things that cause
downtime," he says. "The old saying, 'If it isn't broke, don't fix
it,' is the worst strategy for any IT organization. If it isn't broken now,
at a minimum, it will be obsolete in the future."