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Table of Contents

In the Headlines: HIPAA
How to Get Ready for HIPAA: Outsourcing for Privacy and eSecurity

As Safe as Fort Knox

Insights: Shifting and Sharing Risk
High-Quality Impermanent Solutions: Outsourcing Technology Risks Enables Companies to be Competitive

Business Risk: Outsourcing Takes Away the Scary Part of “New”

Defusing Capital Risk: Outsourcing Suppliers Act Like Insurance Companies

Capital Risk: The High Cost of Doing it Yourself

BPO Voice
The Current Challenges of eProcurement: PwC’s Bernadette Margel Discusses the Process

Government Perspective
Road Warriors: Governments are Outsourcing Asset Management to Private Sector

Achieving High Performance: New Mexico’s Highway 44 gets wider-and better

Global View: Russia and Ukraine
Nobody Does it Better: Russian and Ukranian Skills Valued in Outsourcing

Best Practice
Negotiating the Best Deal for your Outsourcing Buck

Preparing for an RFP: Analyzing Risk

Hot Topic: eMarketplaces
Twilight Time: The Evolution of eMarketplaces and Collaborative Commerce

The Big Picture: Solutions for Public and Private eMarketplaces

SRM Alliances: World-Class Supplier Relationship Management

ASP FOCUS
ASP Global View
ASP in Brazil: Widesoft Creates Mother and Child

ASP Case Study
Aligning Interests: The Lawsontone ASP Program

ASP Focus On: HIPAA
Healthcare’s Biggest Challenge

Digital Rights Management: Enabling HIPAA Compliance

Outsourcing means never having to buy the stuff yourself. Or even know what to buy.

One of the major benefits of outsourcing is the vendor makes sizable capital investment in assets that buyers need but do not want to purchase. Making the wrong decision can be very costly. So is the job of keeping up in a changing world.

Nowhere is that clearer than in the management application and hosting arena. Bob Rentsch, director of product marketing for NaviSite Inc., an Andover, Massachusetts provider, outlines the asset costs for an average NaviSite customer:

• Four front-end servers for the Web site and two back-end servers to house the database: $75,000.
• Networking gear, including routers and load balancing devices: $125,000.
• Firewall: $30,000.
• Data storage and back up in the terabyte range: $500,000.
• A database in a clustered environment: $150,000.

In addition, Rentsch says a company handling these infrastructure needs in-house would also have to:

• Hire a senior level person ("assuming you can find one") to manage the configuration ($150,000).
• Maintenance contract: up to $20,000 a year.

Rentsch estimates a company would have to spend $1.2 million to $1.4 million in manpower and equipment on its own infrastructure.

Outsourcing also removes much of the risk of equipment obsolescence. Every time a buyer adds capacity, NaviSite makes sure it purchases the newest and fastest. "The next server we buy is always the latest," says Rentsch. Buying the most up-to-date equipment allows NaviSite customers to upgrade their equipment as they go.

Moreover, companies who choose to go it alone have to start writing checks immediately, incurring all their costs before they can book a penny of revenue. "You build it and hope they will come," he says.

Instead of writing a $1.2 million check to get started, NaviSite buyers find their start-up costs "in the $50,000 range." The costs are significantly lower because NaviSite customers are leveraging the shared infrastructure. This lowers the buyers' business risk.

Buyers who select NaviSite's managed hosting model don't have to do any procurement; the vendor purchases all the equipment from preferred providers. NaviSite uses its expertise to insure its customers have the most current equipment available.

On the human capital side, the vendor "owns all the headaches of the process."

Lessons from the Outsourcing Primer:

• Outsourcing transfers asset risk and human capital risk from the buyer to the supplier.
• Vendors use their expertise to make sure the buyers are using the latest, fastest equipment.
• Outsourcing mitigates the risk of asset obsolescence because the vendor is upgrading over time.

Publish Date: April 2001

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Related Articles
Business Risk: Outsourcing Takes Away the Scary Part of 'New'
Defusing Capital Risk: Outsourcing Suppliers Act Like Insurance Companies
High-Quality Impermanent Solutions: Outsourcing Technology Risks Enables Companies to be Competitive

Copyright © 2001 - Everest Partners, L.P.

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