Understanding the valueof managed net services

It’s increasingly apparent that there’s a disconnect between less-than-large businesses and the IT service provider community when it comes to managed network services.

While there’s a vital need for IS expertise and resources around the daily management of IT enterprises provided by outside experts, many — particularly among small and medium-sized companies — simply aren’t willing to pay the price.

For years, IS has lamented the fact that it is overwhelmed by the day-to-day fire fighting needed to keep networks running smoothly and ensure desktops remain active. Few organizations are able to hire, let alone retain, the skills and bodies required to keep things running or to diagnose and correct any number of problems that continually creep into communications systems. In addition, this low-maintenance activity was, by necessity, drawing highly trained people away from higher-level strategic planning activities.

Opportunity knocked and IT service companies, in the last three to four years, have heeded the call by plunging headlong into the business of managed network services. It has been an extremely successful venture for many IT service companies. Today there is a veritable smorgasbord of singular and packaged operational services packages, typically around systems and network management, help desk, remote monitoring, moves, adds and changes, system configuration and a laundry list of time-consuming, often tedious but absolutely essential, service activities. Customers simply pick and choose the services and extent of reliability required.

Initially, these were marketed and successfully sold to the largest of business enterprises; companies whose massive investments in IS resources educated them to the high cost and inherent value of selectively outsourcing management activities. In fact, the outsourced management business was so good that large services companies such as SHL Systemhouse, IBM, Digital (now Compaq) and others of their ilk could pick and choose their customers — and these were typically the biggest and most long-term opportunities. Smaller companies felt jilted, however, claiming their needs were as important, if not more so, since it was even tougher for them to hire and retain highly skilled IS professionals.

During the past year or so, services companies have again attempted to answer the call, but smaller and medium-sized companies haven’t flocked to outsourced managed network services in the same way as their larger counterparts. The barrier to embracing network management outsourcing for companies with typically less than 500 employee appears to be that such services are seen as too costly.

Many network service companies currently offer a packaged end-to-end offering geared to smaller companies that provides management of routers, switches and hubs across a LAN and/or WAN environment based on a per-device and per-seat cost. A service company charges a flat fee per desktop to administer, say, a Windows NT environment running some type of groupware application, such as Lotus Notes or Microsoft BackOffice, based on both the number of network devices and desktops to be managed. And, depending on the number of devices being managed, the total cost can increase or decrease.

Therein lies the rub for less-than-large businesses. For example, an environment of 1,000 desktops achieves a certain economy of scale that typically lets a service provider offer per-node discounts to a customer. Conversely, a smaller environment of, say, less than 100 desktops often requires many of the same tools and resources to effectively manage it, but becomes a more expensive management undertaking on a per-node basis.

But if it’s important enough to be managed, then the price must be paid — whether you do it yourself or hire an outside service provider. A company who requires less than high availability or doesn’t perceive its IT environment to be mission critical doesn’t require management.

For sure, outsourced managed network services aren’t for everyone. Generally speaking, there’s a minimum requirement for numbers of devices and desktops (probably around 250 total) that are to be administered in order for outsourced managed network services to be practical or affordable for most.

In addition, the cost of network management is also tied to what applications are to be driven and what level of reliability or network uptime is required. The latter part of the equation is key, because the greater the network reliability required the greater the cost, and there’s also a point where reliability becomes a prohibitive cost — say the difference between 99 per cent and 100 per cent uptime.

The key inhibitor to the adoption of this type of IT outsourcing stems from lack of understanding. Many small and medium-sized companies typically don’t even know what they spend on IT management and are absolutely shocked by the quotes they receive from outsourcing companies who would do the work for them — often at less than the cost they currently spend. They simply don’t believe the numbers.

The price for both desktop and network management is often radically underestimated because it’s something of a soft science. For example, what’s the price paid for a help desk call (there’s a hefty cost difference between 15 minutes and 60 minutes of dispatch time)? What’s the cost difference for 95 per cent vs. 99 per cent server and network availability?

Managed network services in general would appear to be much more than many small and medium-sized companies bargained for, but its clear that many have no perception of the value or an accurate view of the cost.