Outsourcing changes are afoot

It's not just about cost, anymore

Outsourcing network and communications services is nothing new but fresh trends are driving the market. Josie Sephton looks at what's changing - and why.

Outsourcing comes in many guises, from full management of a voice and data network, to management of a broad range of IT or business functions such as call centres.

At its heart, the model allows a business to hand over some or all of the running of its communications to a more experienced third party, and concentrate on what its business is really about.

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While outsourcing of both telecoms and IT functions has been around for a number of years, the industry is highly dynamic. The way businesses look at outsourcing is undergoing a gradual but definitive transition.

An initial driver behind outsourcing was a desire to reduce costs. This perceived cost saving came via a reduction in capital and operating expenditure, as a result of the providers' ability to offer lower cost services through economies of scale.

It is true that enterprises still want cost savings, and still want to hand over the headache of communications management to someone else. But these are no longer the primary drivers behind decisions to outsource. There are a number of additional, increasingly important factors that are helping to shape the outsourcing landscape.

A key driver behind outsourcing decisions is globalisation, as many enterprises do business in multiple countries. This requires a more integrated approach to communications - voice, data, fixed and mobile - to enable consolidation across cost-saving technologies, and to allow an enterprise to work in a more seamless way.

Enterprises are also moving towards converged networks, and the host of benefits that this convergence brings, including the opportunity to harness VoIP and unified communications and to build on enterprise mobility strategies. Migrating to a converged network brings a number of complexities - complexities that often can be better handled by a managed service provider.

The pace of change, too, means enterprises increasingly want to minimise their risk to the changing technological landscape. Enterprises want access to the increasing array of services but don't want to over-invest or to take the initial risk. Outsourcing and third party management can help, effectively placing the burden of change on the supplier.

Another more subtle change is the shift towards centralised sourcing. As businesses move towards a more centralised approach to sourcing (and many are), it becomes much easier to rationalise suppliers, and reduce management effort while optimising costs. Outsourcing is an ideal platform to achieve these goals.

Other factors that were of less importance three or four years ago are also now making themselves felt, and will figure highly in the decision to outsource. The 'green' debate - focus on environmental issues - and a shift towards a mobile workforce are two notable trends.

In terms of green, enterprises increasingly have environmentally friendly policies in place, and achievement of these policies will, in part, rest on the ability to demonstrate a green approach to communications. This in turn leads to the need to manage communications more efficiently. Outsourcing to a provider, particularly one with green credentials will help to realise this.

With the growth of the mobile workplace has come the complexity of managing a mobile workforce from a variety of often changing locations. This is no easy task for the enterprise - making outsourcing of this function a highly viable proposition for many.

These factors point towards an increased push towards outsourcing. The more emergent model, however, will not be one of large scale outsourcing deals (although these will still continue for some enterprises) but rather a more selective approach to outsourcing. This will include areas such as WAN, PBX, router, remote access, security, storage, email and firewall - which will be embraced not just by the large enterprise market but also by smaller businesses.

The service provider market is adjusting accordingly, to address this changing model. Global Crossing, for example, recently announced an extension of its services at its London data centre to encompass a range of hosting managed services, as well as extending the London facility to cope with increasing demand.

This ties in with what we are seeing from our research at Freeform Dynamics. In a recent study we conducted on the outsourcing of software development, we found the propensity to outsource is increasing, and in particular, more progressive organisations are more likely to be comfortable outsourcing.

However the outsourcing market shapes up, it is clearly becoming more sophisticated, and dominated by both SMEs and large enterprises which want more tailored solutions from managed service and outsourcing providers that will give them the cutting edge in increasingly competitive markets.

Josie Sephton is principal analyst at Freeform Dynamics.