Companies turn to outsourcing in tough times

When the Y2K bug turned out not to be a computer glitch but a dramatic plunge in the stock market, companies suddenly found their assets decreasing in value. According to one analyst, one of the departments in companies being hardest hit by the lack of capital is network management.

Whether a company’s capital is lower or whether the company is still doing fairly well in the market, all of them are being more wary of how they spend their money, and computer networks are not high on their priority lists, said Sandra Palumbo, a communications analyst at The Yankee Group in Boston.

“[Networks suffer] because [they are] such a large investment. It can be a risky investment, especially if you’re investing in new technology and doing a transfer from older technology to some of the newer [technologies],” Palumbo said. Networks are expensive because of the cost of the technology, the costs associated with hiring and maintaining full-time staff dedicated to the network, and the cost of bringing in third-party consultants if necessary, Palumbo added. And it is important to implement a network properly because of the dependency on network uptime.

According to Palumbo, what the lack of capital is going to do over the coming year is create a stronger managed network services (MNS) market. If it’s too expensive for a company to handle its network in-house, then companies are likely to outsource their network management to save money and put the responsibility of the network in the hands of people whose core business is network management.

“(By outsourcing), a lot of the risks that you run by doing it yourself are reduced and you’re saving money in the long run. It gives a company that’s not in the technology business the chance to really focus on what their core business is and not have to spend as much time and money and effort on something that they require to do their business but isn’t their business,” Palumbo said.

The downside is that companies become dependent on another organization for a key component of keeping their business operational, and they don’t have as much control over management of the network as they would if it was done in-house.

According to Raymond Kindiak, CFO and executive vice-president of corporate development for Nuvo Network Management Inc. in Ottawa, the MNS market was very fragmented a year ago, but is now starting to emerge.

“My comment at the time was (that) the market is very competitive, rapidly evolving and very fragmented,” Kindiak said. Now, the market is starting to come together and is growing, he said.

An industry association for management service providers (MSPs) formed in June 2000, called the MSP Association, compares MSPs to ASPs and classifies MSPs as “companies that deliver IT infrastructure management services to multiple customers over a network on a subscription basis.” The Wakefield, Mass.-based group has more than 80 members throughout Canada, the U.S., Brazil, India, Japan, Korea, Singapore and the U.K.

“What that shows is there is now the opportunity for stand-alone business models just doing network management,” Kindiak said.

More information on the MSP Association can be found at