Over the years, I've talked to a number of enterprises that have outsourced their data center operations to data center management firms such as IBM, EDS (Hewlett-Packard), and CSC. I've heard and equal mix of success and horror stories of these endeavors. From these discussions we can learn what works, what doesn't work and, most importantly, what you can do to ensure a successful outsourcing experience.
Keys to successful data center outsourcing
Those enterprise data centers that have experienced success had a few things in common. While each data center has its unique needs and challenges, successfully outsourced data centers share the following elements.
- Partnership. The relationship between the enterprise and the data center services provider is formulated as a partnership. Both companies are driving to a common goal of a successful relationship. The data center service provider must become an extension of the IT organization, meaning that the IT organization must completely accept and adopt the service provider into its environment. Whether the service provider performs managed services at the company's premises or the IT systems are physically moved into a data center owned by the service provider, the service provider is a part of the enterprise IT organization.
- Enterprise retains architecture. The enterprise retains architectural direction and control of the IT systems. The architecture
- team interfaces with the business units (often reporting into the business units) and translates business needs into IT architecture for the enterprise, including the outsourced service provider. The service provider is intimately involved in the architecture definition and management processes.
- Clear service-level agreements (SLAs) are defined. A data center service provider must have guidelines, checks and balances within which to operate. Clear SLAs become the largest component of the contract, defining items such as change control processes, system audits, reporting, and issue escalation and resolution definitions and timeframes.
- Matched governance models. The service provider achieves efficiency by incorporating process, procedure and governance in what it does. Successful relationships are between enterprises and service providers that incorporate similar governance processes. A quick check can be seen in a service provider boiler plate SLA. It can be used to identify the provider's process and capabilities.
- Leverage economies of scale. The enterprise identifies those IT functions that are not done in scale within the organization, or that the enterprise has had difficulty in finding skilled employees to manage. Very large enterprises often find that their internal economies of scale result in lower IT operating costs than could be supplied by outsourcing. Those functions are often best kept in-house; however, organizing internal IT as a service provider to the business units will enable clear SLAs to be defined so that the internal IT can improve, or at least maintain, its efficiencies.
- Outsourcing one IT function at a time. Successful relationships include learning and training periods for both parties. They do not outsource the whole data center in one large effort, attempting to meet an insane project schedule (such as within six months). An agreed-upon IT function is selected and a period of cross training is defined. The enterprise IT organization must prepare itself and learn how it will interface with the data center service provider. Likewise, the service provider must learn the enterprise's IT systems and business process that it supports in addition to learning how to interface with the enterprise organization. Typically, the enterprise has incorporated various tools -- off-the-shelf and homegrown -- to monitor and report to the business the service quality of its operations. Those same or similar tools are required to enable continued reporting of proper operational data to the business units. The service provider must be trained on these tools and processes in order to properly integrate.
Outsourcing pitfalls to avoid
I've also talked to a number of enterprises that have been less than satisfied with an outsourcing project. These organizations also have mistakes in common.
- Attempting to drive for the rock-bottom price. Projects when the enterprise has focused on driving for the absolute lowest price tend to end in failure, with both the enterprise and the data center service provider angry. In these cases, the service provider is forced into allocating too few resources to manage the systems and ends up having to allocate many out-of-contract special projects to handle change requests. The provider is frustrated because it cannot allocate its resources efficiently and must charge expensive special project fees that are out of contract. The enterprise finds that it is paying much more for outsourcing services than it was paying when everything was in-house. The worst being the surprise, oftentimes in the form of multimillion dollar out-of-contract charges, that they must find a way to pay at year's end.
- Dumping data center problems onto an outsourcer. All too often, the enterprise lacks governance and process around its IT services and determines that outsourcing will fix the problem. Dumping data center operational problems onto an outsourcing provider will result in problems. First off, without clear internal service-level requirements, building an SLA contract with a provider is nearly impossible, and what is built will not be what the enterprise expects. Secondly, the service provider will find it difficult to work with the enterprise, as no expectations are defined. Established enterprise-level service providers will recognize a lack of governance in an organization and insist on a consulting project to first improve the maturity level of the organization before taking on managing its IT infrastructure.
- Outsourcing IT services that offer competitive advantage. Nearly all IT backsourcing stories (moving IT operations back in-house from a service provider) occur due to outsourcing too much in the first place. IT provides many levels of service to the business, including critical services. It may be difficult to distinguish between a critical service that can be outsourced and one that provides competitive advantage in the market for the enterprise. For example, email has become a critical service, but for most organizations, email is not a competitive advantage in their market. However, a critical service that provides competitive advantage to the business requires tight control and agility within the business in order to respond rapidly to market changes. A classic example of such an IT system is the market forecasting systems used by large financial brokerage firms. Due to intellectual property and custom development, these types of IT systems should be kept in-house.
The bottom line on IT outsourcing
Data center outsourcing should be treated as a partnership with the goal of improving IT and business efficiency. Focusing on the wrong goals, such as attempting for a rock-bottom price just to save money, will result in failure of the outsourcing attempt.
ABOUT THE AUTHOR: Richard Jones is vice president and service director for Data Center Strategies at Midvale, Utah-based Burton Group. He can be reached at firstname.lastname@example.org.
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This was first published in November 2009