Expert View

April 30, 2005
Customised service drives enterprises to outsource network services

NEW DELHI -- Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Today, networks are an essential part of business, education, government and home communications, and Cisco Internet protocol-based networking solutions are the foundation of these networks. Cisco's hardware, software, and service offerings are used to create Internet solutions that allow individuals, companies, and countries to increase productivity, improve customer satisfaction and strengthen competitive advantage.

Cisco works with its service-provider customers on all parts of a managed service by leveraging Cisco marketing programs, Internet-business solutions and partnerships. It works with them to plan which services make sense to offer, considering customer demand and existing networks in place.

Convergence Plus met Sudhir Narang, senior vice president, service provider and government, Cisco Systems, India and SAARC, to learn about the benefits and challenges of delivering managed services for service providers. Excerpts from the interview.

Convergence Plus: What are the factors driving managed services?

Sudhir Narang: Businesses of all sizes face increased network complexity; changing bandwidth needs and reduced budgets. Nevertheless, traditional solutions to these challenges often distract them from core business strategies. In the current economic environment, focusing on core competencies is key to survival and success. Companies can outsource some or all network services to a managed service provider. In turn, the provider can design, deploy, and manage VPNs, Internet Protocol (IP) telephony, security, and other network services, freeing companies to focus on core tasks. Managed services can help businesses reduce overall network costs by 15 percent to 25 percent. Capital expenditures become more-manageable operating expenses. Companies can streamline IT operations, and networks are more flexible and easily scaled. Organisations gain network expertise their own IT staff may lack. Service providers can leverage existing network infrastructure and expertise while developing new revenue streams.

CP: Are we moving toward an environment where enterprises will turn over their network management to service providers?

SN: Enterprises are considering outsourcing elements of VPN and telephony services. Whether this represents the beginning of a major shift in how enterprises deploy and use network services depends on whether the service provider or IT outsourcer offers compelling and reliable services in defined service-level agreements (SLAs). With any shift in business, enterprises recognise the benefits of outsourcing but must move prudently to hand over network operations to an outside provider.

CP: What are the benefits and challenges of delivering managed services for providers?

SN: The focus on providing access and transport has meant a slide into commoditisation for many traditional data services. This means service providers must look at new revenue sources by focusing on the service needs of enterprises and small and midsize businesses.

By bundling a managed service with access and connectivity, the service provider drives additional revenue, increases customer loyalty, and reduces churn. Cisco analysis shows that the benefit to providers and their customers is significant. The enterprise reaps benefits of working with a partner on levels and types of services, and the provider is able to extend the typical customer contract from two or three years to over nine years.

CP: How does Cisco help its service provider partners?

SN: Cisco works with its service-provider customers on all parts of a managed service by leveraging Cisco marketing programs, Internet-business solutions and partnerships. We work with them to plan which services make sense to offer, considering customer demand and existing networks in place. To do so, we mine Cisco's in-depth understanding of SMB and enterprise requirements, develop accurate financial models for services, and map the right network infrastructure to the right Cisco solutions. When deploying solutions to support new services, the service provider can turn to Cisco for support in scaling network services and operations. Cisco also provides back-end support for marketing new services and connecting the enterprise customer with the service provider.

CP: What are the considerations for an enterprise when choosing a managed service provider?

SN: Realising the need for a managed service provider is just the beginning. With the security and efficient operation of an enterprise's network at stake, and with typical SLAs lasting for two to five years, selecting the right provider for the job is crucial. Key considerations include the following:

Network service needs: Some providers offer many services in one region, others offer a limited number of services worldwide, and others fall somewhere in between, according to Mike Heller, senior manager, service provider marketing, Cisco. To pick the best provider, it's important to understand what managed services your enterprise needs and in what locations it needs them.

Reliability: Making the difference between 99 percent and 99.999 percent availability requires a significant effort by service providers. This effort results in correspondingly higher prices to customers. Decide the ramifications of losing one minute of network downtime to your business and determine which applications or organizational departments are the most critical.

Security Savvy: Managing network security today more than hardware and software requires analysis and proactive advice. Think more of skills and expertise rather than just equipment when considering what a security provider can do for your operations.

Cost: Be sure to analyse the total cost of the service over the course of the SLA. Charges for service changes or work done outside normal business hours, in addition to initial up-front expenses, can add up.

Flexibility: Costs and other aspects of an SLA are often negotiable. If you can't afford the up-front fees, ask if the provider will add some of the expense to the monthly fees.

Details: An SLA should communicate shared expectations regarding service levels, including installations and changes. Will the equipment reside on the provider's premises or yours? What reports and information will be available to you and how often? How will the provider respond to problems and how quickly? How does the provider measure network failures and what compensation is available when they occur?

Involvement: Find out how engaged the service provider will be in your business. Ideally, the service provider should understand each of its customers' business objectives as well as their network requirements.

Partners: Some service providers, such as telecommunications companies with a regional or national network, partner with other providers to extend their geographical reach. A service involving multiple providers and vendors can spread risk and provide redundancy. It can also slow reaction time or complicate matters in worst-case scenarios.

Ideally, enterprises that use Cisco equipment should consider a service provider that has built its own network with Cisco hardware and software. Among the benefits of such a partnership are end-to-end quality; simplified, cost-efficient network management; higher network availability; and more reliable, scalable, and secure services that are easier to deploy and expand, as your organization's needs change. The Cisco-powered network program qualifies service providers that use end-to-end Cisco equipment and follow best practices in design, operations and maintenance.

CP: What are the considerations that service providers need to keep in mind for providing managed services?

SN: The foremost consideration driving enterprises to outsource network services is customized service, according to an August 2002 IDC survey on the decision-making criteria. This makes sense given that higher-value managed services are, by definition, more integrated into the enterprise customer's online business processes than basic transport services. This also means that the mass-production mentality of "one-size-fits-all" no longer applies as service providers move up the IT value chain.

Following closely behind the need for customisation is cost. The service offerings should be more cost-effective than if arranged by internal IT departments. These market demands present a significant dilemma for service providers and IT outsourcing companies, since customisation of a managed service tends to increase rather than decrease operations costs, but that is addressed when some critical mass is reached.

For service providers seeking to adopt this customer-centric approach toward service delivery, the business transformation impact can be substantial. Successful implementation of a standardised, modular service architecture framework touches every functional organization of the service provider. However, the resulting financial benefits offer a compelling case for taking immediate and decisive action.