Reach a core conclusion 
on communications networks

Networks are becoming a strategic cornerstone for organizations in every industry. As companies explore new global marketplaces and virtual organizations, they rely increasingly on electronic communication. Access to networks becomes a crucial component of business maneuvers in today’s business environment. Consider the following examples which illustrate the vital role networks play today.

• Comdata provides credit cards for long-haul truck drivers’ use in paying for fuel. With trucks continually on the road, the network that handles these transactions must be absolutely reliable, accurate, secure, and always available. To ensure reliability and cost-effective access to improved technology, Comdata outsourced its network to IBM, which has responsibility for hardware, network design, operation, management, and maintenance.
• Brunswick Outdoor Group was challenged with creating an infrastructure that would pull together its newly acquired units (American Camper, Roadmaster, and Igloo). The company outsourced the project to Affiliated Computer Service to implement and manage a network connecting all of its facilities. It would have been cost prohibitive without the leverage of the outsourcer. 
• Small to midsized companies can increase their buying power in the marketplace, appearing as a large player by operating through a network. VIPAR Heavy Duty, Inc., a national consortium of independent truck-parts distributors, outsourced the design and operation of its network to Litton Enterprise Solutions. The network supports more than 75 members in 300 locations. With the network’s ability to purchase in volume, members receive larger rebates and more accurate transactions, and the suppliers cut prices because of handling fewer purchase orders.
• When Allergan, Inc., a global healthcare company, made the strategic decision to implement SAP on a global basis, the company realized its network was not adequate. The network would need to connect 50 sites in 25 countries, many of which were located in remote areas. It outsourced the implementation and management of a new network infrastructure to Infonet. 

Organizational demands are reliable, flexible, and scalable have put an enormous amount of pressure on internal IT infrastructure, which drives forward-thinking organizations to outsource their network design and management. Hands-on management is not possible for companies with multiple locations, nor can most companies retain qualified IT personnel to develop and maintain a winning network. Thus, the increase in outsourcing of networks. 

Outsourcing is built upon specific principles and revolves around important strategies that definitely affect the value and the success of the results. With little or no understanding of these vital components, outsourcing will end in failure. Executives deciding whether or not to outsource must focus first on the following four fundamental principles:

NONCORE, IMPORTANT PROCESSES

The processes that are ideal for outsourcing are those that are not “core” to the company’s business or the way it distinguishes itself among its competitors; yet, these processes are very important, strategic, and often essential to its operation. The Comdata example mentioned earlier is an illustration of this principle. The reliability, accuracy, and availability of its system are important—even crucial—to its operation, but it is not the reason the company is in business. The company’s core processes are in providing credit cards, not operating computer systems.

A network, therefore, is an ideal candidate for outsourcing. Although a network is important strategically—indeed, it is the company’s lifeblood—the network is not what the company competes on in the marketplace.

WHY OUTSOURCE?

Outsourcing is a business solution. There is no reason to outsource unless a company will be better off by doing so. In other words, the supplier must be able to perform the process better, faster, or cheaper than it can be performed in house. A company might pay a supplier more to perform a process than it costs to do it in house if the results are better and/or faster.

For a supplier to be able to provide better service at a lower price, it must have leverage. Economies of scale abound in outsourcing alliances, and network development and management are excellent examples of this principle. In the Brunswick example, the supplier’s economies of scale are the reason the network could be built at an attractive cost. Companies like ACS, AT&T, and MCIWorldCom leverage their enormous infrastructure to benefit their network customers.

Suppliers also leverage process expertise. They invest in resources to develop knowledge and critical skills that far surpass that of the customers. Suppliers are usually positioned to attract and retain a higher level of employees with technical expertise. 

Suppliers focus on a business process, look at it from a new perspective, and leverage new elements to improve the process. In adding their economies of scale and expertise, they create new value in a process that will generate wealth for both the buyer and supplier. 

BE PREPARED TO SURRENDER

In outsourcing, the buyer must turn over the ownership (control) of the process to the supplier. A buyer that insists on retaining control—by dictating how the supplier should accomplish results—will restrict the supplier’s ability, to use its leverage assets, thereby interfering with both buyers and supplier’s benefits. In successful outsourcing relationships, the buyer tells the supplier what results it wants and then leaves it up to the supplier to determine how to achieve those results.

ESTABLISHING SCOPE AND METRICS

The buyer should clearly define the exact results it will get for the money it pays to the supplier. This is what allows the buyer to give up control of the process; but, more importantly, this is the source of a win-win contract for both the buyer and the supplier.

To determine the results it wants to buy, the buyer must first clearly define the components, scope, and boundaries of the process, as well as what contributions/services it wants from the supplier. That information is then used in determining the metrics. 

Metrics must be broken down for each specific component of the entire process and specify “acceptable/unsatisfactory” levels and even “stretch targets.” Metrics must include clearly defined response times and accuracy. The purpose of metrics is to not only prescribe accountable levels but also to define the quality of the service. That quality (how effective the supplier is) is how the buyer determines the value created by outsourcing.

Metrics should also provide for continual improvement. Proper metrics include definite penalties for the supplier not meeting acceptable levels and also built-in warnings ahead of time to prevent damage to the buyer’s business. Proper metrics include a way to make adjustments when necessary; they are proactive, not reactive.

Finally, buyers need to provide for flexibility. Failure to do this is one of the top reasons why outsourcing relationships sometimes fail. Because of advances in technology, a contract must provide for flexibility for technological improvements, as well as changes in business objectives, which are inevitable in today’s quickly changing environment. 

Outsourcing clearly provides value to organizations and has become a phenomenal strategic business tool; however, there are pitfalls, and a successful outsourcing relationship must be established on the principles outlined above.

Bendor-Samuel is an outsourcing consultant whose book, Turn Lead Into Gold, will be available in September.