Network managers have traditionally viewed outtasking--the assignment of selected activities or operations to third-party firms--as a threat, but today's networks are more complex and are no longer limited to a single location. Faced with the challenge of making more enterprise information available to more people, they're beginning to understand that outtasking doesn't represent a threat to their job security, it enhances it. With outtasking, they can shift from providing Band-Aids to congestion problems to accessing additional capacity.
CFOs are also taking an interest in how they can best meet their information delivery requirements. They're carefully analyzing their support requirements, the skill sets required and the cost/return-on-investment. What they're finding is, outtasking not only provides savings in labor and equipment costs, it offers the benefit of a level of expertise that would be too expensive to hire full-time and allows them to move personnel to activities that are more profitable to the corporation.
While every industry has its own, unique data communications requirements, they have at least one thing in common--the requirements are growing. The U.S. Department of Labor estimates that by this year, at least 44 percent of all workers will be in data services--gathering, processing, retrieving and analyzing information. Peter Drucker, author of Post-Capitalism Society, estimates that two-thirds of U.S. employees work in the service sector and "knowledge" is becoming our most important product. He also notes that by 2002, no developed country will have more than 1/6 to 1/8 of its work force in the traditional roles of making and moving goods. Instead, they will be making and moving information.
The Internet has forever changed the computing model. The traditional fixed infrastructure WAN is giving way to dramatically improved, robust and flexible any-to-any communications options. Increasingly, all data is running across a common set of workstations, protocols and software. All packets look the same, but the information they contain varies dramatically in business value.
To move to the next level of strategic IT technology management, IS personnel need to initiate a series of internal management initiatives with users, including:
* Service-level agreements - scope, reliability, service response, priority traffic and response times * Charge back or service pricing - pricing tied to service level agreements, accounting for direct/indirect costs, incremental costs and pricing tied to the corporate goals and culture * Capacity planning -- All of this information can be used to forecast bandwidth requirements and planned/projected service requirements The increased reliance on the Web and Internet is causing network and IS management to assume a more strategic roll in managing the organization’s key asset--information. Enterprise networks are being rebuilt from the ground up, as organizations become more virtual and more global in their relationships and views. With more than 120 million people around the world connected to the Internet (and this number is growing to an estimated 300 million by 2002) as well as Web or e-commerce expected to grow to $250 billion in the same time period, the question is not should the enterprise outsource some of these efforts and activities but rather:
* Which initiatives should be outsourced * How do you evaluate/manage your outsourcing partner * How do you determine the value of these services to stakeholders and charge back for them * How do you plan for the future According to many industry analysts, the most logical approach to outtasking is:
1. Web site 2. Intranet 3. Extranet The progression is based on a combination of the complexity of the technology, its rate of change and ease of separating the function from day-to-day mission critical activities.
Web Site Management Initiative Since the Web emerged nearly ten years ago, business Web sites have gone from technical curiosities to mission-critical business solutions. Companies of all sizes have found that the Web is the place to carry out business-to-business transactions and one-on-one marketing activities. It has become the first source that people turn to for company, product/service, price and availability information. As a result, industry analysts like Forrester Research predict that the Web will soon become a primary destination for buyers and that on-line sales will rise to nearly $220 billion by this year.
Large and small firms alike have experienced outstanding results with their outsourced Web sites. For example:
* Cisco Systems is selling over $11 million a day over the net * Dell Computer is selling over $5 million a day over the net * Boeing is booking over $100 million a year in spare parts sales over the net * There were $800 million in plane ticket sales off the Web last year * On-line book sales surpassed $300 million last year * Hot-Hot-Hot, a small specialty sauce firm, sold over $1 million last year from their Web site While few businesses currently list sales as the key reason for launching their Web presence, the evolution is underway. Companies of all sizes are using existing Internet capabilities to expand their marketing and sales efforts while laying the groundwork for moving sales on-line. Because Web electronic data interchange (EDI) requires a secure Web site to translate documents between HTML and EDI formats, the sites are usually located outside the individual company's own network at a highly reliable Web site management facility. The servers used by these facilities incorporate Net e-mail, encryption and digital signatures to make it easy for a firm to work interactively with a large number of constantly changing vendors, distributors, channel partners and customers. Direct and indirect savings from firms outsourced Web sites include:
* Lucas Entertainment cut 7 support positions, reduced phone calls to less than 1/5th of total support inquires while support volume increased 100 percent.
* META Group -- A typical customer service transaction with a live agent is $5.50 cents for voice response but only a few cents on the Web.
* HP provides 80 percent of their customer service from its Web sites.
* Forrester Research estimates that by the year 2002, businesses will be saving $20 billion a year with Web support.
Web Site Outtasking While cost is a part of the decision-making process, factors such as security, reliability, staffing and timeliness are even more important when it comes to deciding to outsource a Web site. Forrester finds it is much less expensive to outsource the Web site management when all of the provides a much different view of the outtasking picture because of round-the-clock staffing requirements and other "hidden" costs are considered (Figure 1). In a follow-up report, the research firm took a broader look at the real costs of internal site management (Figure 2).
Companies that carry out their own cost analysis find that it is much less expensive to outsource their Web site than to maintain it in-house. Their analyses were recently reinforced by a Creative Strategies study which showed that a typical company spends an average of $109,070 annually to acquire, deploy, manage and administer a Web site (Figure 3).
Increasingly, firms have business objectives for their Web site that demand 24-hour-per-day, seven-day-per-week uptime and high performance. It appears that today's more sophisticated corporate decision-makers have learned that they are better off paying experts to manage the Web site so they can focus on their core business activities. However, if the site isn't readily available, whatever they pay for hosting services is too much.
As the importance of a corporate Web sites grows, technical support, quality of service and network reliability become increasingly important in the ISP selection process. Industry analysts at International Data Corporation (IDC), in Framingham, MA, have found that while most firms do little to cost-justify their Web site efforts, they spend considerable time choosing their service provider to ensure dependable access and good service.
While economy and security are often the reasons many firms outsource the management and delivery of their Web pages, one consideration that is often overlooked is how popular or how active the Web site will be. Network bandwidth is an important factor, because if the pipe isn't big enough, even the most powerful server won't be able to receive requests.
By having multiple Web farms one hop from the Web host's backbone, businesses can be assured that customers and potential customers won't be turned away. In addition, with home pages increasingly incorporating voice, video and multimedia information, visitors have faster access.
Corporate Intranets, Extranets Once IS and network management have resolved the business issues of their Web initiative, they can address the issue of managing enterprise resources at widely disbursed locations. International Data Corp. has predicted that 85 percent of U.S. organizations will have a functioning Intranet in 2002, a jump from 60 percent in 1999. IDC analysts attribute this growth to the fact that businesses are realizing the benefits that Intranets provide: cost savings, enhanced productivity and increased revenues. In addition, they can cut paper costs and reduce the volume of email traffic.
META Group analysts point out that 80 percent of the Intranet projects have a positive return on investment over three years. According to their recent survey, companies with sales ranging from as little as $2 million to as high as $35 billion had an annual net ROI of 38 percent. Interactive applications such as database access and inventory management showed the greatest return. META analysts feel that Intranet ROI is moot compared to how it assists the firms in their day-to-day activities.
According to Zona Research, the third side of the IT triangle--Extranets--will "have the potential to take over most business-to-business communications." Analysts at Forrester Research have identified the factors that are driving the demand for Extranets as the need to:
* create business opportunities - 50%
* meet customers' needs - 33%
Extranets save companies money in the areas of process engineering and systems integration. They speed order processing. They eliminate errors. They allow customers to track orders. They provide a competitive differentiator. The benefits are so powerful that:
* Auto Network Exchange (ANX) is an effort being undertaken by the big three automakers and their suppliers to improve information flow. More than 20,000 organizations will be involved and interactively they will be able to track orders, quality, invoices and payments.
* National Semiconductor saves $20 million a year by handling distributor orders on-line.
* Federal Express saves an estimated $100 million annually by extending Internet-based tracking and order-entry systems globally.
* Mercury Marine has set up Internet-based connections with over 3,000 U.S. dealers.
* VHA, an association of 1,620 hospitals and healthcare organizations moved to an Extranet at a cost of 90 percent of that required to support their own network infrastructure.
* Gartner Group projects that 80 percent of business-to-business e-commerce applications will be moved to Extranets by the year 2002.
To meet business' requirements, first-tier ISPs are providing service guarantees--including reliability, bandwidth and latency. The move to the IP-based system has been dramatically simplified because the Internet provides the standardization of the mainframe and the flexibility of the client-server environment. Outtasking the Intranet and Extranet services enables companies to redirect internal resources, implement systems more rapidly and cost effectively and avoid capital expenditures on equipment, which becomes obsolete overnight.
As a result, companies are moving from expensive, dedicated leased lines to virtual private networks (VPNs)--Intranet VPNs, remote access VPNs, and Extranet VPNs. A VPN is a network infrastructure that incorporates both public (the Internet) and private components (security). It bridges the gap between legacy network architectures, enabling seamless communications and information exchange.
Studies carried out by Infonetics Research, of San Jose, CA, show that the savings potential for companies that implement a VPN is tremendous. Site-to-site network costs can be reduced as much as 20 to 40 percent in the U.S., and even more internationally (Figure 4). With an Internet-based VPN, the savings in supporting telecommuters and road warriors can be as much as 60 to 80 percent because they can access the corporate WAN for the price of a local phone call.
Less Expensive, Easier to Deploy, Manage With the Internet as the backbone, sharing information and documents across the country or around the world is not only less expensive, it's easier to deploy and manage. Private networks, by their very nature and structure, limit the number of firms a single company can reach and interact with; however, VPNs permit organizations to add and subtract business partners, remote offices and members of workgroups in real-time. End users no longer need special hardware or software to access data or applications; a Web browser is enough. Using encrypted IP tunnels through the public Internet to connect remote sites preserves privacy (Figure 5).
Because the Internet is truly a global network, it extends the company's universe of business trading partners to literally all businesses on the Internet. A growing number of organizations are attracted to Internet-based Intranet/Extranet VPN solutions. These solutions can be deployed to improve the quality and timeliness of information exchange, improve productivity, enhance document/data accuracy, promote trading partner loyalty and improve inventory management. They also reduce the use of paper as well as paper storage requirements.
What, Why, How?
Today's large, multinational ISPs offer a full range of Internet, Extranet, Intranet, VPN and Web management services that can be tailored to meet an organization's individual requirements. Because of all of the direct and indirect benefits, network managers are increasingly turning to outtasking many of their IP-based activities. The reasons for outtasking these activities generally include:
* Reducing and/or controlling operational costs * Improving operational management and performance * Giving the company as-needed access to sophisticated technical expertise * Helping the firm keep pace with rapid technological changes while controlling technical risks * Refocusing the business on its core competencies * Freeing up internal resources to focus on strategic IT planning and business process reengineering Depending upon the organization and its requirements, network managers can have providers simply deliver Internet access or they can have them handle all aspects of the service except the monitoring of the provider’s activities and the management of the firm's core intellectual property.
When outtasking makes sense, the challenge comes in establishing your evaluation criteria. First and foremost, examine the firm's management team because the provider can only be as effective and responsive as management allows. Other criteria includes:
* Financial strength -- If the outsourcer is publicly traded, get their most recent annual report and SEC financial filings. Determine if they have the wherewithal to cover capital investment that may be necessary to meet the company's needs. Determine if they can assimilate some of your staff and/or acquire selected portions of your infrastructure.
* Customer references, related industry experience -- Ask for at least three customer references on contracts of similar duration, complexity, technical scope and geographic extent. It is also valuable to have references from firms in industries similar to yours.
* Skill base, subcontractors, strategic partners -- Ask for a skill matrix to make certain personnel with the capabilities and experience required are in place. If the project is critical enough to the organization, request letters of commitments from all subcontractors and strategic partners affirming their good-faith to work under the contract.
* Geographic scope -- Determine if the organization has the offices, capabilities or relationships in place to handle all of the areas in which you have requirements.
* Prices -- Require proposals in a standard format which you can use to make apples-to-apples comparisons on a function-by-function, item-by-item basis; however, don't base your decision on price alone.
To have a successful relationship, ensure that your project manager:
* Knows what the outtasking vendor is doing, or what they should be doing * Has the power to get the supplier to listen and respond to the firm's needs * Have effective communications channels to work through inevitable problems, differences and changes over time At the outset, insist on regular meetings and service management reports. In the network management area, this can include:
* Daily reports - Link and port utilization - Data point -- 15-minute average sample - Rolling 3-day availability * Monthly reports - Link and port utilization - Based on 15-minute average sample - Data points -- peak value for 4-hour period - Rolling 30-day availability By outtasking Internet services, forward-thinking enterprise network mangers will be able to leave their dark equipment rooms and pass by the dusty modem racks into the daylight. There, they will be able to obtain complete solutions, rather than pieces of a global infrastructure and strategy. It's not just a technology shift but a major change in the way enterprise network managers live and operate. It offers them a totally new career path that focuses on corporate strategy and objectives, rather than classic wire and rack implementation.
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Outtask Your Infrastructure, Not Your Information - To learn more about this author, visit Andy Marken's Website.
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