Networking

Outsourcing vs. keeping it in-house

To outsource or not to outsource, that was the question. While it still is an unpopular action for corporations to take, most large companies - and increasingly small-to-midsize firms - outsource work at some point or another. And for good reason: financially -- IT shops that outsource infrastructure management and application services can expect to save 12% to 17% annually on average, which means U.S. companies are sitting on about US$10 billion in potential savings, according to a recent Forrester Research report.

Savings are certainly the main draw of outsourcing, but PricewaterhouseCoopers research recently noted that other reasons for outsourcing are on the rise. For instance, more than 40% of respondents to its recent outsourcing study said they would outsource to improve customer relationships. Another 37% said outsourcing could help them develop new products or services, and about one-third said outsourcing would be important in helping companies expand into geographies they couldn't otherwise enter.

The survey also revealed that executives increasingly are willing to outsource functions considered core to the business. "Many respondents (53%) indicated they outsource activities that they consider to be core," the report stated. Although IT remained the most outsourced activity, with about 60% sending those duties outside their companies, 70% of respondents outsource one or more of what could be considered strategic functions. More than half outsource production or delivery of core products and services, about one-third outsource sales and marketing, and another 32% outsource R&D activities.

There are functions companies are reluctant to outsource, financial and security applications among them. But at least on the security side, that is changing too. Outsourced security services have become more popular in the last few years, as companies look to outsource everything from monitoring of intrusion detection and firewall devices to watching access control lists and handling e-mail security; says Andreas Antonopoulos, senior vice president and founding partner of Nemertes Research and a Network World columnist.

What has changed over time is that companies don't outsource all functions but rather pick and choose. For example, while some billion dollar mega-deals are still getting signed by companies such as General Motors and Johnson & Johnson, most deals are not that large. The average size of the billion-plus contract in the first quarter of last year was US$9.6 billion, but in the third quarter of 2007, it was down to US$2.4 billion, researchers at TPI said recently. The total contract value of outsourcing contracts signed in the third quarter was down 16%, TPI said. -Michael Cooney

Industry standards vs. proprietary technologies

It's hard to imagine now, but there used to be a rigorous debate about which strategy was best for corporate IT buyers: industry standards or proprietary technology. Standards have won this debate, but that doesn't mean there weren't advantages to buying proprietary technology.

Proprietary technology is first-to-market with innovative features. But going the proprietary route locks buyers into a single vendor, which is too risky for most CIOs given the topsy-turvy nature of the network industry.

Proprietary technology still rules the desktop, where Microsoft's Windows and Office software dominates. But standards-based software has made huge inroads.

The Internet is essentially a collection of standards that makes everything from the Web to e-mail work. The open source movement takes standards one step further by creating communities of developers willing to work together to add features and fix bugs in software such as Linux.

One drawback is that creating standards is a slow, messy process with many technical tradeoffs, especially in open communities such as the Internet Engineering Task Force. Sometimes, the standards bodies can't develop an industry standard fast enough. That's what happened in instant messaging, where attempts to corral industry leaders AOL, Yahoo and Microsoft failed to result in a single, unified standard.

Other times, it's hard to tell whether a technology is proprietary or standard. The PC industry's decision to "standardize" on Intel chips and Microsoft. Windows software fueled the market for years and made Apple a niche player. But that decision made virtual monopolies out of Intel and Microsoft, which isn't what standards are all about.

For the foreseeable future, the network industry is likely to remain a mix of standards and proprietary technology. -Carolyn Duffy Marsan