How to get the most out of outsourcing

Outside management of corporate telecommunications is today a well-established industry accounting for more than half of all networking operations. But problems remain.

Two significant trends are taking place. The first is in the type of activity outsourced. Data network management is the top activity contracted out, with voice network management and systems integration tied at a close second. Most companies tend to keep functions such as needs analysis and software development in-house.

According to Tim Walsh, vice president of Walsh-Lowe and Associates, an outsourcing company located in Hoboken, N.J., there is a growing trend for users to deal with multicompany outsourcing organizations. These associations offer services to their constituents at significant cost savings.

Companies placing an outsourcing contract should concentrate on functions not traditionally the core of their business, advises Walsh-Lowe. They should take a long-term view of the outsourced functional area and not expect a fast return on investment. Benefits to be realized by the contract must support the company's strategic plans.

Lastly, they should develop a solid base line of services and costs. Provided they follow these basic rules they can expect a number of advantages, including: capital provided by lower infrastructure investment, leverage with telecomm and MIS vendors, more focus on core business, ability to recruit and utilize skilled technicians, creation of structured documentation and methodologies, more flexibility to accommodate business changes, and fewer problems with vendor liaison and crisis management.

The most effective areas of outsourcing continue to be in the areas of technology applications development, network management and computer operations. These are critical areas to most corporations, but also are the most complicated to operate efficiently. As a result, major users have utilized outsourcing contracts to their advantage by reducing the overhead required to run their core business.

"Companies such as Merrill Lynch and Eastman Kodak have realized economic gains without forfeiting service levels," observes Mason.

A number of problems occur if the existing telecomm and MIS departments do not control the process effectively. First might be inability to convert corporate philosophy to the outsourcing concept, leading to a lack of attention on the part of top management.

There can be a shift of control over information networking from the user to a third party. Then the corporate culture of the vendor begins to dominate the user. Often there is a lack of appreciation that alliance management is a non-trivial process. Technology transfer leads to restrictions that favor existing vendors and lock out competitors.

At times, the anticipated return on outsourcing investment is computed the same way despite changes in the original assumptions.

It is widely believed that outsourcing involves the transfer of telecomm assets, personnel, networks and operational responsibilities.

"The reality is quite different," says Gerald K. Lowe, Walsh-Lowe chairman. "Outsourcing works most effectively when it involves the management and integration of facilities and systems. Its role is to permit the client to reduce operating expenses, improve technology, focus on core business and bring a utility concept to information networking. The goal should be to seek at least 15% savings per year."

Problems still exist in merging the entrepreneurial spirit of the outsourcer with the corporate culture of the client," says Mason. This problem can be solved by forming a team approach between the contractor and client rather than the typical vendor versus client relationship. The client's perception and the reality of outsourcing can be miles apart."

A common fear among managers is that outsourcing may make their jobs redundant. "They should devote their energies to effectively managing the outsourcer," advises Mason. "Most often there are many responsibilities not spelled out in the contract. Confidence in their ability to present solution-based approaches to business problems should advance their careers rather than restrict them."

On the other hand, outsourcing will lead, in time, to a reduction of the overall workforce and economies of scale. The MIS and telecomm departments are in the best position to make decisions about this process and insure that human resources are managed, and well. "They should concentrate on functions where staff has no logical longterm progression within the company," Lowe says.

The dilemma in today's economy is that most users do not have staffing to support the analysis process. This leads to a situation where one needs to "outsource the analysis to do the outsourcing."

"There are no magic formulas," Lowe admits. The principal objectives of outsourcing are to raise cash, reduce operating expenses, improve technology, ring more focus to core business activity, and apply a utility concept to information networking and management. This requires a full and open dialog between the communications manager, with the support of upper management, and the service provider.

COPYRIGHT 1993 Nelson Publishing
COPYRIGHT 2004 Gale Group