In today’s challenging economic environment, organizations across Latin America are trying to stay competitive by increasing productivity, decreasing costs and shortening time-to-market for their products. Information technology has become an essential component in achieving these goals. However, chief information officers and IT managers are facing their own challenges, including a shortage of skilled IT staff, unreliable power supply and competing technology priorities.
To improve the bottom line and maximize the return on their IT investments, companies concentrate on enhancing their existing applications. Increasingly, CIOs and CFOs are concluding that outsourcing the operation of infrastructure and applications allows them to accomplish several goals at once, including cutting costs, improving system performance, accessing customers, suppliers and employees through the Web; enhancing reliability and maximizing the business benefits of their applications. According to Forrester Research, companies that outsource to a Web hosting company can save 25% to 80% in costs, while increasing the quality of their infrastructure. The cost savings become greater as the complexity of the application increases.
To understand the true value of outsourcing, it is helpful to evaluate a few core components that are part of most companies’ existing IT infrastructure. By understanding the business benefits, applications and challenges associated with these components, it will be clear that outsourcing solves many IT problems while helping what is really important – the bottom line.
Smooth Storage
Storage infrastructure is essential to all data-intensive businesses, particularly financial services, retail and manufacturing. Essentially, the greater the volume of data that is generated by a business, the more storage it needs to run smoothly. Today’s storage products come from leaders such as EMC, Hewlett Packard, Sun and Compaq. These solutions act as central repositories for transactional and historical information about every aspect of the business. They also feed up-to-date data to core applications, such as business intelligence or supply chain management (SCM), so that information can be analyzed and applied. Storage technology is also crucial for running web sites, as well as back-up and disaster recovery processes. Typically, storage infrastructure consumes up to half of an IT department’s capital budget. At the same time, the complexity and ever-changing pace of the technology can make large-scale investment decisions risky. Added to the capital costs is the need for a specialized storage management team.
One popular solution to the financial risks that plague storage management is storage-on-demand. This outsourcing option allows companies to pay a variable usage fee based on storage volume they use now, thereby eliminating the up-front risk of a capital investment for equipment. Companies can also increase their storage capacity as their needs grow. For example, by outsourcing and using storage-on-demand, companies can expect to pay as little as $2,300 a month for a system that would cost $1 million to build in-house.
This solution also gives companies direct access to specialized storage experts who can help plan, implement and operate complex storage environments at a fraction of the in-house cost, thanks to the economies of scale gained by having outsourced storage experts service multiple clients that have similar needs.
When Amelia, Brazil’s largest online retailer, faced a decision to build an in-house storage operation or outsource its increasingly complex e-commerce architecture, it chose to outsource key elements of its IT infrastructure. Amelia sells more than 70,000 items a day on its web site. “When performance and service problems affect your bottom line and your brand image, you can’t afford to take risks and do it all yourself,” explains Luís Furtado, general manager at Amelia.com. “Through our relationship with OptiGlobe, we can better guarantee the security, performance and availability of our systems.”
As with storage, outsourcing has become a critical solution for companies who demand state-of-the-art hardware and software to run their businesses. With industry leaders such as Hewlett Packard, EMC, Cisco, Nortel, Sun, Compaq, Oracle, Microsoft, Cisco and Juniper routinely updating and releasing new versions of their products, purchasing hardware and software can lead to a significant amount of capital spent on assets that depreciate quickly.
By outsourcing their IT infrastructure, companies have the option of renting or leasing best-of-class hardware and software products, including high-end servers, routers, database software, web servers and operating systems. Doing so can lower companies’ total cost of ownership and ensure that the most up-to-date technology is right at their fingertips. With outsourcing, IT managers get to choose from the best products to maximize system performance, and they are able to upgrade to new products more seamlessly without having to write off large capital investments.
Time savings are a benefit as well, since leasing products can shorten time-to-market for implementing mission-critical solutions. Rather than enter partnerships with multiple vendors, businesses reap the benefits of working with one central procurement source. Typically, a business can save more than 30% by leasing equipment instead of buying it outright. As an added bonus, the CFO is guaranteed a consistent and affordable monthly payment.
Network InfrastructureMost would agree that a company’s network is its lifeline for connecting employees to each other and to their company’s data around the world. In today’s global economy, a solid network infrastructure is imperative to business success. Today, technology has opened the door to a myriad of choices for constructing a high performance network, all of which demand careful scrutiny and consideration based upon each company’s needs.
Imagine employees at a company in New York needing to access performance data on their plant in Brazil. Just a few years ago, the only option would have been to establish a point-to-point link -dedicated telephone lines – between the two locations. Today, companies use the Internet to exchange data throughout their organizations. This option is less costly because it allows their Internet protocol (IP) backbone to transfer traffic instead of adding new telephone lines. And, with the advent of virtual private networks (VPNs), transferring data over the Internet is more secure than ever before. Another option made available by today’s technology is the use of wireless networks to transfer data.
However, regardless of the technology used to transfer the data, companies have to take into account the type of applications that will be running on the network as well as the reliability, scalability, redundancy and cost of the network as they embark on their infrastructure design. For example, some SCM and enterprise resource planning (ERP) software applications do not perform optimally when the network is congested or has high degree of latency.
Building a network infrastructure involves making complicated financial and technological assessments, both of which can be significantly reduced by outsourcing and sharing responsibility with large Internet data centers (IDCs) specifically built to assist companies with their network needs. At these specialized data centers, telecommunications carriers are able to serve multiple customers, which greatly reduces the cost incurred when a company has to have fiber extended to its specific location.
Furthermore, customers of IDCs benefit from having a choice of telecommunications carriers. With several carriers competing for a company’s business, bandwidth costs are driven lower, and reliability is assured by using one carrier as a primary provider, and another for back-up.
Database Performance
Databases lie at the heart of most mission-critical applications, including ERP, financial applications, customer relationship management (CRM), and production control. When designing a database, database administrators (DBAs) need to know the business application for which it will be used, how often the data need to be refreshed, what information will be accessed most frequently, and how many users will be connected at any one time. All of this information is necessary for developing and tuning a database for the best performance. For example, the model for a database designed to give retailers a quarterly analysis of its best-selling products would be very different from one designed to give a production manager a twice daily detailed summary of plant productivity.
The mission-critical nature of databases makes reliability, optimum performance and hands-on management essential. Yet, despite the pervasiveness and importance of databases, skilled DBAs are difficult to find and even more expensive to hire.
Outsourcing database management can provide an IT department with a cost-effective and efficient way to augment its staff with DBAs who are always available to manage, monitor, diagnose and tune databases. Service level agreements provide companies the peace of mind of knowing that their databases are taken care of around the clock. They also know that as the complexity and size of their databases grow over time, DBAs will be there with the right skills to support them.
Overall, it is easy to see why outsourcing is a win-win situation for both customers and carriers. Companies that take care to build a reliable, redundant and scalable network up front will see greater success not only with their IT projects, but with every aspect of the business.
Bob Rouse is president and chief operating officer for Optiglobe Communications