no longer an option. If sites are not as or more available than the competition, organizations are no longer in business. So companies realize that management and availability have gone from being a competitive advantage to a mission-critical necessity.
The MSP premise used for the Web has helped the infrastructure management business. In the past, most organizations saw systems and applications management as a blackbox. Companies knew they needed it, but did not understand the bottom-line focus. Now they understand the business significance of management.
MSPs represent a growth market. Analysts predict that every Global 2000 company will have an MSP by the end of 2001. They also anticipate that MSPs will represent a multibillion dollar market in the next few years, reaching the $4 to $5 billion range.
The Self-integration Imperative
However, because systems, applications, and Web management represent a niche market, companies will likely use a combination of MSPs, rather than working with a single company. For example, while they might use BMC for performance monitoring, they would still subscribe to Keynote for Web management. In choosing MSP vendors, companies should prepare to do self-integration in three to four years, identifying and covering all their systems management needs. For example, they should determine what access to tools they need for internal process integration, so they can deal with alarms internally.
Problem Resolution
Most MSPs today find potential problems and notify the customer company, which then fixes the problems. Very few of today’
s MSPs actually fix the problems they
uncover. Some analysts believe MSPs are therefore missing a key component. If the company has neither the time nor money to invest in monitoring business-critical networks or applications to ensure they are all up and running, it might not have the means to fix mission-critical problems.
Partnering with an E-support provider could shore up this gap, whereby MSPs form solid partnerships with such E-support companies as Motive Communications and Support.com. MSPs would thereby gain competitive advantage and a stronger customer relationship. E-support providers would gain entrée into a new business market — and customers could fix problems in a timely manner, thereby keeping their business running. In addition to E-support providers, newer MSPs are emerging, which offer both problem identification and problem resolution; one such is SiteLite.
Market Shakeout
Given the market need for MSPs, the future will undoubtedly see a lot more vendors, venture capital, and functionality. In fact, some analysts predict an explosion of new MSP entrants, followed by a shakeout and a lowering of prices as vendors commoditize — thus providing capabilities for dollars.
Because the MSP is an unproven model, some vendors will go under. They will find the cost of tool ownership and the number of failures high. In addition, customers
can easily change MSP allegiance, because there is a low switching cost — especially when compared with traditional software and services.
Furthermore, when customers pay a service fee, they simply get a service level agreement (SLA) as a commitment. For example, while an MSP might specify 100
percent availability, speed is not mentioned, so the vendor is only policing SLAs.
Some MSPs offer free service during the time of an outage. However, an ISP can lose $100,000 an hour every eight hours it is down, while a power company could lose $1.5 million. In such cases, the free $1000 service provides no equity.
This will have to change so that MSPs add more management capabilities and monitoring tools and shore up their service levels, backing it up by a rock-solid environment. Because this will cost more to do, it will kill some vendors. However, a number of large ones will remain.
Differentiating Offerings
Not only will MSPs have to deploy a pretty comprehensive network, but every ISP
will have to offer management services. In addition, as ASPs move into the Web site management space, both ASPs and MSPs will potentially offer services ranging from Web speed monitoring to commercial transaction tracking and usage analysis. When software vendors and service providers compete for the same customers, services and products will converge, and MSPs will bundle their services with the appropriate software products.
MSPs are already acquiring such products. For example, Keynote Systems recently acquired Velogic, a provider of load testing simulation services. Keynote already offers E-commerce customers quality-of-service reporting on performance criteria such as downloading speeds, and the demand for this service is high. Velogic expands Keynote’
s services so the two are strategically complementary. Companies can now test their Web sites before going live, measure real-time performance after the site is up and running, and subsequently perform diagnostic maintenance.
Of Control and Value
Organizations moving to MSPs give up some control, so companies are just starting to trust them. It helps that MSPs sometimes provide a free tool for organizations to try out. Still, IT cannot give up control completely because people know they will be fired if the E-business site goes down.
While management platforms provide an all-encompassing solution for all operations, MSPs tend to be based on point products; offering help desk, performance management functions, and the like for people to use on a day-to-day basis. Thus, MSPs are generally niche players, largely providing a departmental rather than an enterprisewide solution.
MSPs’
unique value is in providing functions that are difficult for an organization to do on its own, such as building enough storage space or performing security intrusion testing. And, although innovations are coming, companies using MSPs are already seeing value today.
Chapter 27: Managing the Risk of Outsourcing Agreements
Ralph L. Kliem
OVERVIEW
Outsourcing offers several advantages, which include enabling existing staff to concentrate on core competencies, focusing on achieving key strategic objectives, lowering or stabilizing overhead costs, obtaining cost competitiveness over the competition, providing flexibility in responding to market conditions, and reducing investments in high technology. There are also several disadvantages to outsourcing agreements, which include becoming dependent on an outside supplier for services, failing to realize the purported cost savings from outsourcing, locking into a negative relationship, losing control over critical functions, and lowering the morale of permanent employees.
Executive management is increasingly recognizing that sometimes the disadvantages of outsourcing outweigh the advantages, even after an agreement has been signed.
Many companies are canceling their outsourcing agreements, renegotiating agreements, or deciding to hire their own staff to provide in-house services once again.
There are all sorts of reasons for having second thoughts, including arrogance or uncooperative behavior of the vendor, competitive advantage in the market no longer exists, costs of the services are too high, quality of the services are inadequate, and types of services are unnecessary.
Unfortunately, many companies could have avoided having second thoughts about their outsourcing agreements if they took one effective action: perform a meaningful risk assessment.
RISK MANAGEMENT 101
Risk is the occurrence of an event that has some consequences. A vulnerability or exposure is a weakness that enables a risk to have an impact. Controls are measures that mitigate the impact of an event or stop it from having an effect. The probability of a risk is its likelihood of occurrence (e.g., a 60 percent chance of happening). The impact of a risk is its degree of influence (e.g., minor, major) on the execution of a process, project, or system.
The basic idea is to have controls in place that minimize the negative consequences of a “bad” outsourcing agreement, known as risk management.
Risk management consists of three closely related actions:
§ Risk identification
§ Risk analysis
§ Risk control
Risk identification is identifying risks that confront a system or project. Risk analysis is analyzing data collected about risks, including their impact and probability of occurrence. Risk control is identifying and verifying the existence of measures to lessen or prevent the impact of a risk.
Risk management for outsourcing agreements offers several advantages. It enables identifying potential problems with agreements. It enables developing appropriate responses to those problems. Finally, it helps to better identify mission-critical functions to retain and others to outsource.
Despite the advantages of risk management, there several reasons why it is not done. One, it is viewed as an administrative burden. Two, the understanding and skills for conducting risk management are not readily available. Finally, the information required to do risk management is not available.
There are several keys to effective risk management. Risk management is best performed as early as possible, preferably before signing an agreement. It requires identifying and clarifying assumptions and addressing key issues early. It requires having the right people involved with the outsourcing agreement, such as subject matter experts knowledgeable about key issues.
One final caveat. Risk management is not a one-time occurrence. It must be done continuously. The reason is that risk management involves taking a snapshot in time and using it to anticipate what might happen in the future. The conditions of an environment, however, may be extremely dynamic and may challenge the validity of assumptions incorporated when managing risk. Hence, it is wise to continuously revalidate risk management before, during, and after negotiating an outsourcing agreement.