This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter's approach.
Whatever industry you're in, your enterprise network is essential to your organization's success. You're spending a lot to maintain and upgrade it — millions of dollars in many cases. And you're probably struggling to acquire and then retain the skills needed to operate your network asset effectively.
Are those struggles just a fact of life when it comes to the network? Maybe not. Maybe the network has become so essential that it makes more sense to let someone else manage the components that are not core to your strategy.
What's the potential value? Just from a cost standpoint alone, pretty substantial — 20% or more in some cases. But the real value of such a sourcing approach can be measured just as much in terms of business capabilities: having ready, reliable and scalable network bandwidth for your rapidly changing business needs. It's the classic case of "more for less."
Organizations have several options for structuring and managing network services through the use of an external provider and integrator. Here are the three most prevalent options:
* On premise. With an on-premise approach, a company contracts with best-of-breed vendors to execute activities across the network life cycle while retaining overall oversight. In effect, this is a kind of co-sourcing agreement. Different vendors are given different responsibilities, but the client still retains full, end-to-end responsibility for the integrated solution and for overall performance.
* Service aggregator. This involves contracting with a third-party service aggregator to transform and manage the network, using multiple vendors. The aggregator manages the platforms, as well as the provisioning and management of IP telephony, and the IP application platforms reside in the aggregator's data center. With this option, an organization gains greater flexibility in the overall solution while retaining more strategic control.
By working with a network services aggregator, organizations can access leading practices and market-leading vendors, a standardized platform and continuous technology upgrades through the integrator, all at a lower price point.
* End to end. A third option involves a comprehensive outsourcing approach — contracting with a third-party provider to host the communications platforms and services and to manage the end-to-end network environment. The client lets an external provider manage everything associated with networking (LAN, WLAN, WAN) and IP telephony/unified communications platforms, as well as the contact center infrastructure.
There are two flavors of the end-to-end model — one in which the client still owns assets and another in which the outsourcing provider owns the assets. The end-to-end approach to network sourcing is particularly attractive to organizations that want to develop leading-edge network capabilities very quickly.
Weighing the merits
Choosing the right path forward depends on a careful analysis of each sourcing option based on the following criteria.
* Sourcing flexibility. Making a decision based on flexibility often comes down to the organization's appetite for ongoing change. For example, the on-premise model can offer a high degree of flexibility, provided that the network architecture is modular enough to be able to move vendors in and out as need dictates.
But let's face it: Not every organization wants to retain responsibility for evaluating a succession of vendors. Here's another problem: flexibility often comes at a price — literally. Transition costs can be high when swapping out vendors, and performance can sometimes suffer during the switchover. For this reason, some organizations opt to contract with a service aggregator which, in turn, takes the headache of managing vendors off their hands.
* Retention of control. Companies that want to retain maximum control generally opt to completely insource their networks. That may not be the best strategy for you, however. For example, it could be costly to manage a global network spanning many countries with thousands of branches. Insourced network management requires having skilled people in sufficient numbers, a commitment to ongoing training, regular upgrades to technologies and tools, and a super-efficient governance capability.
* Migration elasticity. The flexibility and speed with which users are migrated to an externally sourced network platform is a critical point to weigh when making a decision about a sourcing model. The architecture should be able to support both slow and "bursty" on-boarding rates. That is, some migration will occur as part of an overall transition plan and take place in a measured way. At other times, such as following a major business acquisition or merger, a large number of users will need to be migrated onto the platform very quickly.
* Flexibility for growth. Many organizations are concerned about the extent to which their network architecture can be made flexible enough to support future business requirements. The service aggregator model and the end-to-end approach can be attractive to companies pursuing an aggressive growth strategy — either organic or inorganic. Why? Because the network architecture of a world-class integrator or outsourcer is, by design, more modular and therefore can support growth more flexibly. On the other hand, the on-premise option might be more appropriate for an organization that does not expect a sudden surge in users from a growth strategy.
* Network economics. The final assessment criterion to consider has to do with network economics — considering which network sourcing option offers an appropriate balance for your organization between cost savings and required features. Part of that determination involves a network economic analysis, which often starts with a telecom expense management (TEM) evaluation and then advances toward more sophisticated analysis of the sourcing options discussed here.
For organizations across multiple kinds of environments, strategic TEM provides real-time visibility into the financial health of the organization's telecommunications spend while minimizing costs and maximizing savings. Effective deployment of experienced people and optimal processes, in tandem with robust automation, are vital to achieving those benefits.
Using this TEM foundation, organizations can then look more closely at network sourcing options. One major European financial services institution performed this kind of analysis as part of a network transformation initiative. The impetus was exactly the kinds of issues discussed above: whether or not it continued to make sense for the company to invest in the network asset, to extend it and manage it themselves, or whether the firm could get better and more readily upgraded capabilities at a lower price by using an external sourcing approach.
The firm performed an economic analysis, then compared existing costs with the costs associated with each of the three network sourcing models. The factors analyzed included operating expenses and capital expenses for the transformation itself, as well as the payroll and non-payroll costs. Potential cost savings were then plotted for each of the three options.
The model eventually chosen by the financial institution was an end-to-end outsourcing approach. To date, results have been impressive. At the end of one-and-a-half years, the firm had saved the equivalent of about $150 million and was looking to cut costs by approximately 35% per year.
Performing an economic analysis is a critical step in choosing the network sourcing option right for your organization. With an investment this big in an asset this important, it's vital to know what your return on that investment really is. It's possible to derive substantial financial benefits from an external sourcing approach.
At the same time, remember that the business case for external sourcing of network management goes beyond cost savings alone; it is also about improving network performance and creating a more agile network asset that can drive growth and improve business value.
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