The advent of internet protocol (IP) technology has fundamentally changed the nature and capabilities of corporate networks, with significant consequences for the kinds of contracts and service level agreements (SLAs) companies should look for when outsourcing network management.
"There is a lot more effort for clients in setting up and managing IP outsourcing contracts," says Alastair McAulay, senior consultant at PA Consulting, who advises companies on network outsourcing contracts.
"For example, quality of service and the management of that is a big issue, because with IP you are not buying a physical manifestation of a network, you are buying a logical one."
As there is nothing to fix physically if things go wrong, companies are very reliant on SLAs. But the additional sophistication and the inherent flexibility of IP networks means it is not only harder to set appropriate SLAs, it is also harder to make sure that these SLAs are met.
Most organisations are looking for an end-to-end service, encompassing everything from the wide area network (WAN) to the desktop, and the main difficulty is framing SLAs to ensure users get a seamless service.
"What the contract needs to reflect is the end user experience," says Irene Dawson, VP EMEA for Compuware, a company that provides IP network management tools for network providers and large enterprises. "In other words, not just to measure that the network is up, but that the application is performing as it is meant to do."
At present one of the key barriers to achieving this is a lack of integrated network management tools that can look at all aspects of network performance from a single point, according to Mr McAulay. "Tool integration is lagging, particularly when trying to get end-to-end service management."
"You need one set [of tools] to manage the WAN, another for database servers, another for storage and so on. Historically these were compartmentalised, and it still remains difficult to get a single view."
It is complicated enough to agree on service levels that reflect the end-to-end performance of a network at the start of a contract, but outsourcing agreements also need to match these levels to business requirements, and allow for these requirements to change. The initial contract may say an application should be available in four seconds, but if more Lotus Notes users are linked up in Hong Kong, or the New York office is closed, network performance must accommodate this.
As a result client companies need to take a far closer interest in matching the level of network service to the requirements of the business, based on a clear view of what the critical applications are. "Business people must prioritise applications, so that if the stock control system is the number one requirement, the contract has to say keep that up as priority number one," says Ms Dawson.
Service providers should be able to provide data on what activities use what capacity, opening the way for discussions on how peaks and troughs of demand are managed.
One approach to framing contracts that reflect business requirements is to have a hierarchy of SLAs where the top-level SLAs are about supporting the business objectives. Once these are set they are broken down to reflect what they mean in terms of service and network performance.
One of the key SLAs will be response times to fix problems. "Things will go wrong and it is what happens when they do that is important," says Mr McAulay. "You have to ensure you have the interface in place to get things fixed."
From this it follows that clients need to put more effort into the governance of the contract. "You need to go above the operational level and manage how the contract impinges on business performance," says Mr McAulay. There should be regular, scheduled meetings between the client and the supplier to flag up any problems, and to ensure the network continues to meet requirements.
Part of the lure of IP is the potential to integrate data and voice. Although few such networks exist at present, Jean-Claude Delcroix, research director at the market analyst Gartner says, "Companies are moving to an IP network for data but are probably also going to introduce voice, or possibly video over the next two to three years. They need to have the flexibility in place to introduce these two, and for new applications."
He adds, "The way you manage such change is key to the success of an IP outsourcing contract."
But contract management skills remain sparse. "Although there are companies that have discovered the need for managing those relationships, you have to remember that there are only a few companies with five years’ experience of outsourcing, whether in IT or telecoms," says Mr Delcroix.
"Very few in telecoms have enough experience and management of the contract is an issue. You still see people who are not prepared to face that – they are outsourcing because they want to make life easier," says Mr Delcroix.
Contract management issues can be even more taxing for small companies. "Most don’t have any dedicated staff and they are not there 24 x 7," says Falk Bleyl, ATM/IP product manager at the network services provider, THUS. "We have to manage a customer’s expectations and make them aware of what they are getting."
Carlo Mantegazza, VP and general manager for managed services, EMEA, Hewlett Packard, says that rather than being a straitjacket, suppliers are starting to recognise contracts must allow for change management, to tune the delivery of services to the business environment.
"You can’t predict the future so you need to frame the SLAs as a driver for change. This is the new frontier of outsourcing, where the supplier is capable of coping with variability."
Such capability is embodied in utility-style contracts that build in mechanisms to allow network capacity to go down as well as up. These contracts may involve open book agreements. "This enables clients to see we are keeping our margins reasonable," says Mr Mantegazza.
