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Executive Summary
Numerous financial models indicate the positive value of network outsourcing. However, many models fail to consider critical business requirements, changing business models, and the impact of unexpected outsourcing delays. Network outsourcing is a bit problematic because it is dynamic in nature and must continuously deliver high levels of elasticity, reliability, and resiliency. This case study, based on one company's experience, referred to as Company X, discusses the following points.
- First, a brief description of Company X's network infrastructure.
- Next, five major problem areas that impacted the outsourcing arrangement.
- Finally, a look at the problem resolution actions taken by Company X.
Although network outsourcing can exhibit paper benefits, this case study reviews a mid-sized company's actual experience one year later.
Company X determined that network outsourcing presented a good business opportunity based on their pro-forma financial projections. In addition, they could utilize the forecasted savings to build their core business.
Company X Corporate and Network Profile
Company X, located in Southeast U.S., is a mid-sized manufacturing company, with approximately $550M in revenue. They decided to outsource their network in two phases starting in November of 2005. Phase I included the network infrastructure and the connectivity to their remote locations.
Voice services were to be replaced with VoIP technology in Phase II—starting approximately three months after Phase I completion. This research note focuses on Company X's Phase I experience.
Phase I Outsourcing Network Details
- Two data centers were involved—one on the East coast and one on the West coast with OC-3 (155.5 Mbps) SONET connections.
- 76 remote locations in the US using various combinations of DSL, ISDN, and T1 connections.
- Remote office LANs using Fast Ethernet (100 BASE-T).
- 85 Cisco routers and an assortment of ISDN switches, which the outsourcer agreed to purchase.
- HP Network Node Manager in the East coast data center and a remote console in the West coast data center.
- A network support staff of 6 personnel.
Planning Point
IT and C-level executives should review the problems encountered by Company X as well as the resolution actions they took. It is likely that some of these same problems could occur in other network outsourcing arrangements unless they are satisfactorily addressed in the contract. This research note discusses five of Company X's key problems, as well as the actions taken to resolve them.
Five Year Savings Looked Good: First of all, Company X did its planning homework. The financial economics indicated that after the second year of the five year contract, the Phase I outsourcing costs and associated savings would achieve a break-even point. After that, they would realize a reduction in their network expenditures for the remaining contract term.
At the end of five years, Company X projected a 20% to 24% overall savings from outsourced network services and staff elimination. In most enterprises, these savings would certainly be worth investigating. In addition, the outsourcing plan was reviewed and approved by senior management—based on the projected savings.
Next: Problems Appear Early On
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