The Fletcher School

September, 2004
Reprinted from Network Computing

In March 2004, when Bharti Tele-Ventures announced that it would outsource the management of its entire IT infrastructure and applications to IBM, it was time for all of corporate India to pause and take notice. If managing technology was no longer a core competence for India?s leading private telecommunications company, where does that leave companies in other industries?

While announcing the agreement with IBM ? which will cost Bharti $750 million over a 10-year period ? Bharti Group Chairman Sunil Bharti Mittal said the deal will enhance Bharti?s shareholder value by ensuring a ?predictable IT spend, improved cash flow and optimized use of technology resources?. Essentially, Mittal has concluded that his company would be better off focusing its time, talent and management attention on processes that contribute the most to shareholder value ? in Bharti?s case, marketing-related processes.

With the increasing demands of globalization, what is considered a company?s core differentiator this year might become a mere ?hygiene factor? ? a standard feature across the industry ? next year. While most CEOs know that outsourcing of non-core processes is the only real solution, an important question they face is ?Is my company big enough to outsource??

In the area of enterprise network management, CEOs and CIOs ? especially those of mid-sized companies ? also face serious issues while identifying their vendors. Contrary to popular belief, fast growing mid-sized companies can actually derive better benefits by outsourcing their enterprise network management than Fortune 1000 companies can. Further, the rates of growth of mid-sized companies demand that corporate resources be dedicated to the core business, not a non-core IT infrastructure. As they build global enterprise network capabilities, mid-sized companies typically have lower investments in legacy applications and processes compared to larger multinational companies (MNCs). Hence, they face fewer hurdles when adopting new generation solutions like Internet Protocol-based Virtual Private Networks (IP-VPN) that are offered by outsourced service providers. IP-VPN solutions are especially relevant to mid-sized companies since they can deliver flexible bandwidth based on their business demands along with the ability to serve remote locations and users at dramatically lower costs than traditional telecom solutions.

Also, due to the demands of their core businesses, mid-sized companies usually don?t have enough internal IT staff strength to continually optimize their network and applications. Add to this the need to keep pace with rapid advances in networking technology ? which their increasingly global competition might adopt ? it is natural that their internal IT resources are often overwhelmed. Unlike large MNCs, mid-sized firms don?t have the option of throwing unlimited cash to make these problems go away.

Sub-optimal Options
Unfortunately, telcos and System Integrators (SI) have traditionally underserved mid-sized companies when it comes to enterprise network services. For the telcos, the gravitational pull of their voice connectivity business takes away from the value-add that managed network services provide to their core business. As a result, their main proposition to customers is based on price and volume ? something that would appeal mainly to large MNCs ? rather than a solutions orientation. Also, the telco offering usually comes as a static bundle that does not provide enough flexibility for the changes that are inevitable in the dynamic operating environment of mid-sized companies. The offering from the System/ Network Integration companies is at the other end of the spectrum. Since SIs traditionally look down upon the external connectivity piece of network management (the capacity business), their pitch to the CIOs is focused on ?value? and ?Total Cost of Ownership?.

Ideal Alternative
Mid-sized companies are now finding a new class of specialist managed network service providers emerging to custom-fit their needs. Unlike the telcos, their offerings are customizable, both functionally and geographically, and emphasize value-addition. And unlike the SIs, they are far more comfortable with both domestic and international connectivity services.

Globalization is impacting mid-sized companies as much as it does the large players, and it is doing so across every industry. No longer can mid-sized companies afford to let any part of their operations ? especially a critical, albeit non-core, function like network management ? be ?just good enough.?

Tony Nash, GMAP '04, is the Head of Strategic Marketing at Orient Networks. He can be reached at tony.nash@orientnetworks.com.