Pros, cons of remote infrastructure management

1 2 Page 2
Page 2 of 2

With an asset-light remote infrastructure management deal, the customer retains control. "IBM has built up very rigid operational procedures and processes over the years," says Maguire. "If I need to make a change in two hours, and I'm dealing with the big boys, it would be difficult given that overhead." Not that dynamic IT operations don't create challenges for CIOs who send infrastructure support offshore. It can be hard to keep the distant team up to speed. "As you're making changes, you have to train the remote people. Training someone 12 hours away takes much more effort," says Maguire, who ends up doing a lot of teleconferences and webinars with the offshore team. Sometimes a key CSS employee has to hop a plane from Chennai to California to learn new systems and go back to train the rest of the team.

After enduring some hiccups with Satyam early on, IFC had to bring key members of the offshore team to Washington for six months to be trained on its systems. IFC's offshore manager Azhar also learned that offshore support personnel tend to be less experienced. Some skills--like Citrix expertise--are hard to find abroad, "but all in all," Azhar says, "we've still been able to pull this off at a lower cost." IFC has even started to give the Satyam team special products like designing network infrastructure.

The Limits of Offshoring

For some IT leaders, however, sending infrastructure support offshore is a leap they're not willing to take. Even Maguire gets it. "You have to know your environment very well and you have to have extreme confidence in the vendor," he says. "If they miss something on the infrastructure side, it could cost a company millions. Execution has to be flawless."

Given uncertainty in the U.S. economy, many vendors and analysts tout the cost benefits of offshoring infrastructure work. McKinsey claims that early adopters of infrastructure management offshoring are saving from 20 percent to 60 percent on labor costs. But labor costs are just a slice of the pie--around 20 percent of a company's IT infrastructure spend. "If you save 30 percent on labor, which is just 20 percent of the overall spend, you end up saving 6 percent on infrastructure costs," says Howard Rubin, president of consultancy Rubin Systems and an MIT researcher. "You'd do yourself more good ripping apart the whole thing and rebuilding it--especially if you're talking about moving to an offshore market, where you suddenly find turnover at 18 percent and there are geographic issues and times zone issues. That's a lot of grief to go through for 6 percent." Rubin is not anti-offshoring, but he warns that sending infrastructure support offshore is not a "one-dimension value proposition." At IFC, for example, offshore support makes sense not only because it shaves some costs, but also because the organization itself is global. "Most of our employees are plus or minus four hours from India," says Piatt, "not plus or minus four hours from the East Coast of the U.S."

Sometimes its the type of technology support that makes offshoring less attractive. IT leaders with mainframe shops are more likely to want to sign over those boxes to an outsourcer, which rules out a lot of offshore providers. "It's a stable technology, there's little innovation and its viewed as getting rid of a headache," says Everest's Tisnovsky. And it can be hard to find mainframe skills offshore.

JM Family Enterprises handles 70 percent of its business transactions on its mainframes. The $11 billion, privately held automotive services company recently renewed its infrastructure outsourcing deal with mainframe mainstay IBM. But JM Family specified in the contract that the infrastructure support stay onshore. IBM was surprised by the request, says Shawn Berg, JM Family's vice president of technology operations, but ultimately acquiesced. "IBM clearly wanted the option," adds JM Family CIO Ken Yerves. "It's a five-year contract and I'm sure over that period they'd like to make sure they could leverage that cost option."

Berg says his company wanted to have influence over who works on its account. So JM Family negotiated final say on which IBM employees support its system. Berg admits that perhaps it shouldn't matter whether support personnel are in Houston or Hyderabad, India, but it does. "We have a lot of custom code, so our support model is challenging even when the resources are in the state," says Berg. "Adding another layer of complexity with the time zone and everything else doesn't make sense." The deal makes it easier to ensure IBM employees are adequately trained and turnover is a less pronounced issue.

JM Family has contracted with both Cybage and Keane to perform application development work offshore for over a year now. But "on the application side, its easier to throw things over the wall," says Berg. In running the business day to day, "if something happens on my box, I need support on the fly." He doesn't want to wait for someone new "to ramp up." In the past, he adds, "the knowledge of JM Family was lost when someone who was working on the account left."

Meanwhile, some CIOs may be constrained by the compliance requirements of government regulations or industry standards. Venky Rangachari, vice president of information technology for StarCite, which provides on-demand meeting management tools, has his infrastructure managed from Shanghai. But it's handled by the company's own employees in China, as well as in the U.S. Rangachari not only wants to make sure that infrastructure administrators understand StarCite's business, he also needs to ensure they handle customer data in a way that complies with Payment Card Industry (PCI) security standards. StarCite has many Fortune 500 customers in the financial services industry. "Access to customer data, financial information and security is critical," Rangachari says. "A lot of companies that do infrastructure support may not be PCI compliant."

For others, the location of contractors is a political concern. Lynn Willenbring, CIO of the City of Minneapolis, would be willing to explore offshoring some infrastructure services. After all, most of the work that Unisys--the city's infrastructure manager--provides as part of its five-year, $48 million deal with the city is done remotely. But she says that she believes government data shouldn't leave the United States, and virtually all the work should be done by U.S. residents.

The Future of Infrastructure Outsourcing

In the end, the globalization of IT services may be a net win for infrastructure outsourcing buyers, whether or not they choose to take advantage of offshoring. "Offshoring is not panacea for all ills," admits Roehrig. "But companies feeling economic pressures have more options than they did five years ago. There's more capability in the market, and that's good for everyone."

India's providers are expanding in an effort to mimic their multinational forebears in infrastructure outsourcing. Some are also starting to offer infrastructure optimization consulting services, says Gartner's Potter. But the India-based vendors may exert as much influence as they receive. Eager for business, they have been known to provide customers greater insight into their business and pricing models than their Western competitors and have been more willing to tailor pricing elements in innovative ways for certain customers, says Forrester's Roehrig. Potter adds that their larger margins give them more room to be accommodating, and that this flexibility and transparency could be a positive influence on the market at large.

It remains to be seen whether in the end, Indian vendors look more like legacy infrastructure providers or vice versa. Some of the India-centric vendors will move more aggressively into the asset-heavy space, predicts Everest's Tisnovsky, while others will stay the asset-light course. "Now that the India-based providers have the ability to credibly deliver these services, it creates a very interesting market dynamic," says Roehrig. "There's a tipping point in the infrastructure outsourcing business that has not yet been reached."

As for Piatt, he has his own thoughts about where the market is heading. He's following the investment of the global services providers, and that money is flowing offshore. With IFC's business growing 25 percent to 30 percent for the past three years, Piatt is looking at how he will support that growth in the future, and all signs point to India. His decisions will be driven by more than just cost savings. "Right now, we're in India because we can get highly qualified support from people who cost one-quarter to one-third of what we would pay people in the U.S.," Piatt says. "But when you fast forward and think about where this work is going to be done five to ten years from now, everyone will be going to Bangalore because those skills may no longer be present in the U.S."

Learn more about this topic


This story, "Pros, cons of remote infrastructure management" was originally published by CIO.

Join the Network World communities on Facebook and LinkedIn to comment on topics that are top of mind.

Copyright © 2008 IDG Communications, Inc.

1 2 Page 2
Page 2 of 2