Lessons learned: Outsourcing managed network services

Driven by financial needs, a competitive managed services market, enhanced remote network management tools and
demanding business requirements, organizations are increasingly delegating control of their network -- including carrier
services and service management -- to third-party providers.
The potential benefits of implementing fully outsourced managed services include reduced cost of ownership (COO), access to
external expertise/intellectual property, improved operational performance and abstracted management. A holistic outsourced
model can also allow organizations to better allocate internal resources on strategic projects and core business activities.
However, relinquishing end-to-end responsibility for the network infrastructure without systematically addressing the service
delivery model exposes the organization to significant financial, operational and strategic risks. To mitigate these risks and
maximize results, organizations should consider the following best practices:
1. Simplify the process for provider and service tower termination. First, structure the contract with minimal bundling so
specific services can be terminated without impacting others. For example, in a recent project involving an offshore provider, the
contract was designed with separate service towers, e.g., Managed Router Services, Network Support Services (LAN,
telephony, wireless infrastructure), Dedicated on-site support, Data Center Management Services and Contact Center
Management Services.
Second, retain broad rights for termination for cause, and allow for termination due to provider performance issues.
Third, establish specific termination processes during contract negotiations and build them into the agreement. Explicitly
address all aspects of termination, including termination-related charges, provider wind-down support, provider obligations after
termination, and the transfer of assets (equipment, software), contracts and even provider personnel. It is always best to
negotiate termination details while you still have leverage (i.e., before the contract is signed), as it will make termination easier
with fewer costs and operational/legal difficulties. Waiting to negotiate these terms until you're seriously contemplating or
initiating termination is too late as the provider will likely be less disposed to cooperate.
Knowing that well-defined termination processes are in place with service towers that can be peeled off (reducing provider
revenue) makes termination a more effective and credible stick to use if the provider is not performing.
2. Establish clear SLAs with credits defined in the contract. SLAs should ramp up based on the service issue duration,
severity and number of defaults. Additionally, they should have both financial and non-financial remedies requiring:
Rapid escalation processes to the provider's senior/executive management levels.
Formal quarterly and annual reviews with the provider's executive management level.
Root cause analysis for every "Severity 1" incident.
Detailed remediation plans.
Performance improvement plans.
New customer reference every six months.
To enforce SLAs, the enterprise must dedicate internal resources to monitor provider performance (i.e., IT provider
management), address defaults, and consistently escalate chronic issues using predefined processes to hold the provider
accountable. [Also read: "Cloud computing and the truth about SLAs"]
3. Avoid pushing too hard on price to the exclusion of all else. As pricing decreases below an appropriate level, the overall
service and provider relationship becomes less tenable, risking inflexibility and "work to rule," substandard resource
assignment, and a poor overall experience. Squeezing the provider too hard on price creates the risk of having the provider look
for opportunities to gain back margins after the contract is signed. For example, they may eliminate promised resources, swap
dedicated/on-site roles for cheaper shared/off-site resources (e.g., project management), or persistently demand change orders
for services not explicitly covered by the contract.

Still, if cost reduction is the main driver and a company plans to push hard during price negotiations, it will need to establish
provider management once the deal is done to strictly enforce SLAs and monitor performance; otherwise it can expect "nickeland-diming" and performance erosion from providers.

4. Engage vendor management early and throughout the engagement. In general, vendor management involves delivering:
Support in developing sourcing/termination strategies.
Contract management (T&C/SLA/KPI compliance, performance reviews).
Customer-vendor relationship management (from onboarding to divesting).
Financial management.
Risk management.
With fully outsourced agreements, organizations are highly dependent on the provider and the quality of service delivery. Still,
companies often underestimate the value of vendor management. As a result, investment in and commitment to this critical
function is frequently lacking with the consequence being poor service delivery, chronic service issues, misallocation of financial
resources and unhappy users.
Keeping vendor management involved during each step of the sourcing/contracting process is essential given their vital role in
managing provider performance and value creation during the contract term. This includes involving them in sourcing and
termination strategies before starting down the road to a fully outsourced network.
5. Think operationally when developing your sourcing strategy and negotiating the agreement. For example, document
the lifecycle of a circuit/service from ordering to expiration/termination, including every permutation (escalations, early
cancelation, non-acceptance, poor performance); then, ask the provider to identify and confirm time frames for each process
step.
Keep in mind that not all process steps are necessarily key performance indicators (KPIs), nor must they carry financial credits.
However, all steps should be clearly documented in the contract. Formally documenting and monitoring KPIs will encourage
provider performance and keep each process step moving. Of course, this chain of events is only as good as its weakest link,
and the provider will likely exploit any action without an explicit and well-documented KPI to "pad" the other process time
frames.
6. Maintain internal ownership of IT network architecture/design services. Ownership of these operational functions better
positions IT to align the network with business requirements. Further, ownership builds critical internal expertise that can aid
with network and process optimization, infrastructure refresh decisions and, if needed, support the transition of the network and
managed services to another provider.
Finding the right balance between leveraging the provider's resources/expertise while developing institutional knowledge may
be difficult, but it can be accomplished, for example, by assigning IT responsibility for managing documentation requirements
(e.g., as builts, configuration, network diagrams), negotiating the ability to hire provider staff assigned to the account, or
requiring asset transfer at contract termination.
7. Carefully consider asset ownership. Fully outsourced deals historically use an "asset-heavy" model wherein asset
ownership is either transferred by the customer to the provider or provided directly by the provider. This model is leveraged by
both customer and provider for many reasons, including:
One-time cash payment from provider to customer for existing assets.
Reduced capital funding in favor of operating expenditures.
Predictable cost stream and improved return on asset (ROA).
Eliminates need for separate maintenance agreements; fewer providers may simplify provider management.
Provider organizational scale/expertise/remote tools to drive ongoing operational efficiencies and cost reductions.
CPE capacity planning responsibility assumed by provider (e.g., if circuit upgrade requires router upgrade).
Providers encourage it -- asset ownership is a perfect way to create "stickiness"; once the provider services are in place, the
effort/cost to take back asset ownership is perceived by the customer (correctly or not) to be prohibitive.
Despite these benefits, there is a growing preference for an asset-light model because of alternative lease-back financing,
which allows an organization to own the asset without significant capital outlay or giving up asset control. Further, improvement
in remote infrastructure management (RIM) tools and virtualization technologies mean customers can more easily deploy and
use these technologies. These enhanced RIM tools also allow offshore providers to compete more effectively against onshore
providers. [Also read: "Pros, cons of remote infrastructure management"]
If asset ownership is the provider's responsibility, asset refresh commitments by the provider must be established during
contract negotiations. Keeping critical IT assets current during contract term is an important to include in the final agreement.
Additionally, companies should restrict the provider from purchasing or leasing assets from its affiliates or subsidiaries; such

relationships can obscure the underlying cost of assets, limit visibility into asset inventories and services billing, and make
service termination more difficult.
Ultimately, the pros and cons of asset ownership must be carefully weighed by both IT and finance to determine which asset
model makes the most sense.
8. Bundle transport services or negotiate a separate transport agreement? Bundling transport with the managed services
has the upside of giving responsibility for these time-consuming tasks to external parties (e.g., orders, disconnects, billing
management, troubleshooting). Transport contract negotiations are also avoided with "only" the managed services contract to
worry about.
The downside? Bundling transport with managed services means carrier costs are no longer transparent. Cost visibility and
financial control are diminished as transport billing becomes a lump-charge on the managed service invoice.
In addition, bundling often means the IT organization becomes further removed from network services. As a result, internal
expertise about transport erodes further, thereby increasing IT's dependence on the provider. As with ownership of IT network
architecture/design, maintaining an intimate knowledge of the network is critical to delivering real value to the business units.
9. Plan extensively before migrating to a fully outsourced environment. Numerous activities must take place before
executing the plan. In-depth discussions with the business units are needed to understand their requirements and future plans.
Developing detailed site migration schedules, financial management processes, data center/site readiness plans, resource
plans, communication plans and process management (incident, problem, change, asset management, etc.) must be ready
before rolling out managed services.
Ongoing real estate activity, including pending M&A, must be understood and factored into the migration plan. Transition to a
fully outsourced model requires significant planning to properly execute by both the enterprise and provider partner(s) for the
ramp-up (and as needed wind-down) to a 100% outsourced environment.
Migrating critical IT network infrastructure and services to a fully outsourced environment is complex and risky but also has the
potential for significant cost and efficiency benefits. Mitigating the risks requires preparing for and looking beyond the sourcing
event by developing a sound sourcing strategy, negotiating strong, flexible contract terms, having appropriate provider
management, and continuous involvement by IT. By taking these steps, organizations can help ensure the managed services
provider delivers real value to their business and customers.

Source : Networkworld
Recommended By Rick Moreno, GLOBAL INFORMATION TECHNOLOGY DIRECTOR, AT&T
Network Management / Managed Services / Outsourcing / IT Infrastructure
rick.moreno2015@gmail.com
rick (dot) moreno2015 (at) gmail (dot) com
https://www.linkedin.com/pub/rick-moreno/6/79a/850