November 2012
Organizations across both the private and public sectors spend millions of dollars each year to maintain and upgrade their networks. Network expenses make up a large portion of organizations’ IT budgets, and the traditional presumption has been that insourced network management is just a cost of doing business. But is it? In fact, a growing number of executives are wondering if the management of increasingly complex networks is really a core competence for their organizations—something distinctive that can drive competitive advantage.
Accenture believes that a major shift in thinking is occurring when it comes to the management of enterprise networks. The proper goal may not be to expand an asset that an organization intends to own and operate itself in perpetuity. Network transformation can mean, instead, tapping external sourcing capabilities in a way that enables companies to get more for less over time.
Cost savings from external network sourcing are potentially substantial—20 percent or more, in some cases. But the real value of such a sourcing approach can be measured just as much in terms of the business and technology capabilities available to organizations when they have ready, reliable and scalable network bandwidth for their rapidly changing business needs.
A spectrum of options for network sourcing
Organizations have available to them several options for structuring and managing network services through the use of external providers and integrators.
On premise
With an on-premise approach, a company contracts with leading, best-of-breed vendors to execute activities across the network lifecycle inside its environment while retaining overall oversight.
In effect, this is a kind of co-sourcing agreement. Responsibilities are divided among vendors but the client still retains full, end-to-end responsibility for the integrated solution and for overall performance.
Service aggregator
A second type of model for network sourcing involves contracting with a third-party service aggregator to transform and manage the network, leveraging multiple vendors. The aggregator manages the platforms, as well as the provisioning and management of IP telephony, and the IP application platforms reside in the aggregator’s data center. With this option, an organization can gain greater flexibility in the overall solution while also retaining more strategic control.
By working with a network services aggregator, organizations can access leading practices and market-leading vendors, a standardized platform and continuous technology upgrades through the integrator, all at a lower price point.
End to end
A third option for network sourcing involves a comprehensive outsourcing approach—contracting with a third-party provider to host the communications platforms and services and also to manage the end-to-end network environment. The client lets an external provider manage everything associated with networking (LAN, WLAN, WAN) and IP telephony/unified communications platforms, as well as the contact center infrastructure. There are two variations to the end-to-end model—one in which the client still owns assets and the other in which the outsourcing provider owns the assets. The end-to-end approach to network sourcing is particularly attractive to organizations that want to develop leading-edge network capabilities very quickly.
Weighing the merits
How can an organization make the network sourcing decision appropriate for its needs? Choosing the right path forward depends on a careful analysis of each sourcing option based on the following criteria.
Sourcing flexibility
Making a decision based on flexibility often comes down to the organization’s appetite for ongoing change. For example, the on-premise model can offer a high degree of flexibility, provided that the network architecture is modular enough to be able to move vendors in and out as need dictates.
Not every organization wants to retain responsibility for evaluating vendors on this ongoing basis, however. In addition, flexibility often comes at a price—literally. Transition costs can be high when swapping out vendors, and performance can sometimes suffer during the switchover. For this reason, some organizations will opt to contract with a service aggregator that, in turn, takes responsibility for managing the vendors.
Retention of control
Companies that want to retain maximum control generally opt to completely insource their networks. That strategy, however, does not necessarily yield maximum benefits. For example, it could be very costly to manage a global network spanning many countries with thousands of branches. Insourced network management requires sufficient workforce numbers and tools, a commitment to ongoing training and technology upgrades, and a robust governance capability.
By contrast, network functions such as break-fix, operations and helpdesk can be performed by an outsourcing or managed services provider for a fraction of the cost. One key is balancing the ratio between your network FTEs and the number of network nodes.
Migration elasticity
The flexibility and speed with which users are migrated to an externally sourced network platform is a critical point to weigh when making a decision about a sourcing model. The architecture should be able to support both slow and “bursty” on-boarding rates. That is, some migration will occur as part of an overall transition plan and take place in a measured way. At other times, such as following a major acquisition, a large number of users will need to be migrated very quickly onto the platform.
Flexibility for growth
Of considerable concern to many organizations is the extent to which the new network architecture is flexible enough to support future business requirements. The service aggregator model and the end-to-end approach can be attractive to companies expecting either organic or inorganic growth, as the network architecture of a world-class integrator or outsourcer is, by design, more modular and therefore can support growth more flexibly. In many cases, the on-premise option will be more appropriate for an organization that does not expect a sudden surge in users.
Network economics
The final assessment criterion to consider has to do with network economics—considering which network sourcing option offers an appropriate balance for your organization between cost savings and required features. Part of that determination involves a network economic analysis, which often starts with a telecom expense management (TEM) evaluation, which then can advance toward more sophisticated analysis of the sourcing options discussed here.
For organizations across multiple kinds of environments, strategic TEM provides real-time visibility into the financial health of the organization's telecommunications spend while minimizing costs and maximizing savings. Effective deployment of experienced people and optimal processes, in tandem with robust automation, are vital to achieving those benefits.
Using this TEM foundation, organizations can then proceed to look more closely at network sourcing options. One major European financial services institution performed this kind of analysis as part of a network transformation initiative. The impetus was exactly the kinds of issues discussed in this article: whether or not it continued to make sense to invest in the network asset to extend it and manage it themselves, or whether the firm could actually get better and more readily upgraded capabilities at a lower price point by using an external sourcing approach.
Working with Accenture, the firm performed an economic analysis, then compared existing costs with the costs associated with each of the three network sourcing models discussed above. The costs analyzed included operating expenses and capital expenses for the transformation itself, as well as the payroll and non-payroll costs. Potential cost savings were then analyzed for each of the three options.
The model eventually chosen by the financial institution was an end-to-end outsourcing approach. To date, results have been impressive. At the end of one-and-a-half years, the firm had saved the equivalent of about $150 million and was looking to cut costs by approximately 35 percent per year.
Choosing the network sourcing path right for you
Performing an economic analysis is a critical step in choosing the network sourcing option right for your organization. For many companies, hundreds of millions of dollars are being spent in the network area. An important question to ask, therefore, is what kind of return is being realized from that investment. Organizations can derive substantial performance benefits through an external sourcing approach, and they can also redirect the substantial savings that will result into other parts of the business.
At the same time, it is important to remember that the business case for external sourcing of network management goes beyond cost savings alone; it is also about creating an agile network asset that can drive growth and improve business value.
About the authors
Shahid Ahmed is the Network Services lead in North America for Accenture’s Communications, Media and Technology group.
Philippe C. Chauffard leads the Accenture Network group in Europe, the Middle East and Africa.
Charles Nebolsky is a senior executive with the Accenture & Cisco Business Group.
Jack Sepple is the managing director of Accenture Cloud Services.
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