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Offshoring Infrastructure Services.....The Next Big Thing!

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Cost reduction has been a driver for decades in the IT infrastructure space. Initially, the client started to standardize its IT systems, which brought leverage in system support and applications development. Then the client looked at consolidation of platforms to reduce capital spend and associated maintenance costs.

Then IT systems manufacturers, both hardware and software, made break-throughs in automation that allowed remote management and maintenance, which has been in use for several years. In this instance, "remote" meant a supplier data center or, in the case of a client with multiple data centers, one data center controlling many. All these steps reduced the cost of IT support.

Today we have taken remote management one step further and introduced offshore into the solution. The client now has the opportunity to gain significant efficiencies and cost reductions by adding labor arbitrage within the infrastructure space.

Offshore solutions can now reduce more than the overall costs of call centers, network management, and applications development and maintenance (ADM); it can also reduce the cost of IT infrastructure services.

Why Now

Several changes in the IT environment have cleared the way for offshore infrastructure support. IT systems manufacturers have introduced new and more sophisticated system management tools that facilitate a broader remote management and reporting capability. The cost of communication transport has dropped dramatically, which has made large bandwidth connectivity economically viable. In addition, the availability and reliability of communication infrastructure in offshore locations has improved to a point where, while not yet at US levels, it has sufficient reliability and diversity to provide communication stability.

After improving the tools and connectivity capabilities, the offshore suppliers have also created increasing depth and breadth in infrastructure skills. This infrastructure knowledge has grown out of the traditional staff augmentation role from which the offshore outsourcing capabilities have evolved; it has not been a short journey. They have endeavored to grow these smaller opportunities into large support opportunities and then into a full service level-based service.

This new role is moving out of the pioneering stage and advancing up the capability maturity curve. Developed initially for local support, they extended their reach first to European clients. They have refined their delivery model and are now moving into the US market.

The final piece has been an ever-increasing acceptance of offshoring as a business strategy for US companies. Though it is sometimes controversial, offshoring is nevertheless continuing to grow and become an integral part of the company strategy. It is now possible for a company to reduce infrastructure costs without going through the trauma of moving or consolidating a data center or expending significant dollars and resources in acquiring and implementing all the required tools and processes.

This strategy also mitigates the need to repatriate the data center resources or endure the risk of moving the data center to a new outsourcing provider if needed.

How to Determine What to Send Offshore

To ascertain what infrastructure services you can move offshore, companies must conduct a careful evaluation at a task level. When reviewing the tasks, companies must be able to answer three questions in the affirmative before they can move the task offshore.

1. Does the task not require physical interaction with the other IT elements, client business units, or other support? Several tasks such as project management, architecture standards development, IMACs , physical machine restarts, and assistance in applications functional design would fall into this category. Not all tasks can be moved, but many can. For example, the actual development of security standards would remain a client activity, but much of the administrative effort could be moved offshore. Database administration is another area where this leverage is possible. The client may desire to retain the database design function, but the database activity can move.
2. Are there any non-technical reasons why the task couldn't be moved? These are softer reasons but nonetheless important. They include the need to retain institutional knowledge, legal or regulatory requirements either of the client or the clients' end customers, and the ability of the client to adapt to the generally higher-quality processes and standards of offshore providers. Adaptation to higher-quality standards is extremely important. While individual clients and onshore service providers are continuing to improve processes, the offshore providers have had a head start. Part of the reason is that they were unencumbered by legacy processes and could use six sigma or ITIL virtually from inception. They have been able to get higher quality, lower costs, and continuous improvement by adopting these standards; a buyer will need to adjust its internal processes to gain maximum benefit. Planning for change and incorporating it into the migration will lower risk and improve results.
3. Can the offshore solution mitigate the risks that are inherent with moving tasks to a distant geographic location? Those risks include geo-political stability, security, time zone conflicts, or cross-cultural issues. The buyer will need to adapt to working with colleagues who have foreign accents and a dramatically different cultural background. Their points of reference will be quite different; learning to work together will take cooperation and patience on both sides, but the rewards can be great.

Any task that can pass though these filters is an excellent candidate for offshoring. It has been Everest's experience that approximately 50-70 percent of the infrastructure support will meet the criteria for offshoring.

What does this all mean to buyers deciding on possible suppliers? Offshoring broadens the universe of possible infrastructure-support providers. Most of the leading IT infrastructure providers are rapidly expanding their ability to provide offshore infrastructure support.

A recent development is the offshore providers' expansion into new services; many have broadened their portfolios from call centers and application development areas to include infrastructure management. A buyer now has more choices in suppliers, more service provision locations, and more opportunity to improve service and reduce costs.

A new cost-reduction lever is now available to the IT community in offshore infrastructure management. Learning to pull that lever correctly and getting the most leverage with an ever-increasing universe of providers is a welcome challenge.

Publish Date: December 2005

Copyright © 2005 - Everest Partners, L.P.

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