Introduction

When TNC first surveyed the market for network operating and management strategies in 2010, 88% of companies bought outsourced managed services from telecoms service providers, and half of those who didn’t intended to move in that direction. In other words almost 95% of organisations sourced or intended to source networks this way.

However, during 2017, over 20% of organisations surveyed are at least considering a new approach to operating and managing networks.

In this white paper, we will investigate a number of questions:

  • What types of organisations are considering an alternative approach?
  • What alternative approaches are they considering?
  • Why are they considering this change?
  • What are the risks, opportunities and benefits of these alternative approaches?

Who is considering
an alternative approach?

TNC’s research shows that the single biggest determinant of whether an organisation is looking at an alternative approach to operating and managing networks is whether its network sites are purely domestic in the UK, or multinational. More than three quarters of the organisations exploring alternative approaches have multinational estates, meaning organisations with purely UK estates remain focused on the current approaches to network operating models.

Beyond estate geography, TNC’s research also shows that factors such as significant adoption (or planned adoption) of cloud services, a dynamic network environment with high levels of remote site churn, and adoption of a DevOps IT culture or similar agile system-oriented approach are also significant determinants of an organisation’s propensity to consider alternative approaches to network operation.

Why are they considering
an alternative approach?

There are a common set of drivers TNC has encountered for why organisations are considering an alternative approach.

1. Demand and cost

Demand for network services is increasing, and meeting this demand within cost neutrality is challenging. The feedback from TNC’s research shows two important drivers here:

  • Perception that the traditional, global service providers struggle most to deliver value for money due to their complex systems, size, and inefficiency
  • Multiple new entrants to the market offering considerable cost savings to traditional MPLS solutions using new technologies

The combination of these two drivers, e.g. a “push” from the current model and a “pull” to new approaches often acts as a first step to organisations looking at alternative operating models.

2. Technologies and services

A number of new technologies are coming to market, such as SDWAN, which, in theory at least, change the way network services are constructed and allow end-user organisations to build more of the solution themselves

3. Access to innovation

The pace of technology change and innovation is increasingly rapid, but traditional telecoms providers struggle to evaluate and productise new services, meaning customers are left frustrated that they see and want solutions being marketed that their traditional providers can’t offer, but which they can source through alternative approaches

4. Flexibility and agility

Many organisations complain that their telecoms service providers are slow and unresponsive, and they don’t believe that same organisation can deliver the flexibility and agility that are often the cornerstone offerings of these new technologies, but they feel they could achieve this with an alternative approach and different providers in the mix

What alternative
approaches are being considered?

TNC is using the term “right sourcing” to define the alternative approaches being considered. Today, the vast majority of large corporates have an “outsourced” network operating model, whereby the end-user organisation is responsible for defining the service it requires, selecting a provider to deliver that service, and ensuring that the provider is fulfilling the terms of the contract. The service provider is then responsible for all aspects of service delivery. For the remainder of this paper, we will call this the “current model”.

In some cases the current model is based on a single service provider. However, where multiple providers are used it is typically split vertically e.g. by geography, meaning each service provider provides the full stack of services.

In these “alternative” models, there is certainly a trend to split services vertically e.g. by geography, but also to split services horizontally e.g. by activity.

An example of this could be splitting out sourcing of connectivity (e.g. wires in the ground) from monitoring, or hardware deployment, which could be done by alternative service providers.

The diagram below illustrates these two models:

As can be seen, these alternative approaches are focused on breaking up this model into its component parts and re-allocating these actions to different parties. Typically this isn’t an “in-source” model e.g. where the end-user organisation replaces most of the services being delivered by the telecoms provider.

In fact, the only additional service the end-user organisation is taking on is management of what is likely to be a more complex operating environment. The actual services would continue to be delivered by external suppliers.

The bigger change though is that the end-user organisation would become more clearly responsible for the overall service. In the current model, there is at least a perception (if not always the reality) that the service provider is end-to-end responsible and accountable for the solution. In these alternative approaches, there is no ambiguity – the end-user organisation owns that responsibility, with the service providers only responsible for their element of the solution.

What are the anticipated risks, opportunities
and benefits?

The main challenge with these alternative approaches can be summed up in one word – complexity. For all the faults, real or perceived, with the current model, it is well-known and delivers, at least in theory, a simple management environment. Typically this means “one throat to choke”, or at least a small number of throats.

By contrast, these alternative approaches potentially involve more service providers and it is likely that the end-user organisations will be responsible for managing this more complex environment.

In other words, end-user organisations are considering a trade-off: moving from a simple management environment that they consider slow, unresponsive, expensive and constrains access to technologies, to a complex management environment they consider to be more agile, more cost effective, and that allows access to innovation.

In reality, there are risks to both models. The current model has a number of devils we know, and the risk is that it constrains an organisation’s ability to execute its wider IT strategy because it either can’t afford the solution it requires, or it can’t be made flexible enough. The alternative approaches have a number of devils we don’t yet know:

  • Will the use of new third parties really deliver agility and flexibility?
  • Will fragmenting expenditure mean no service provider cares enough to deliver excellent service?
  • Will the additional complexity be manageable, or will it simply create additional admin, bureaucracy and opportunities for mistakes?

Whilst these are unknown, there certainly are some known challenges organisations considering an alternative operating model will need to address:

People and skills

“Right sourcing” is likely to mean managing more service providers and coordinating an end-to-end service built from multiple components, but where no individual service provider has end-to-end responsibility. This means ensuring you have the right people with the right skills, and is likely to require additional headcount, and the ability to recruit, train and retain skilled people. This will be particularly challenging if your organisation trains them in new technology areas

Tools

The alternative approaches are likely to mean new service boundaries, and it will be incumbent on the end-user organisation to monitor overall performance, which is likely to require the deployment of new tools to achieve this. Again, there is a people and skills element to this as well as sourcing, deploying and managing toolsets

Process

There are a whole set of service management principles that will need to be established and managed to effectively control a multi-vendor network environment

Risk

There is a perception that an outsourced model carries risk from the end-user organisation to the service provider. The ambiguity is that many organisations with an outsourced solution don’t feel that this risk allocation has ever occurred. However, “right sourcing” removes this ambiguity and makes it clear that the risk resides with the end-user organisation

Technology lock-out

One argument put forwards by the traditional telecoms service providers is that “right sourcing” aims to create a better version of today’s solution. By contrast, these providers argue that they will resolve that problem themselves with a whole suite of next generation services which are fundamentally better than any individual end-user organisation can deliver themselves

However, there are potential benefits:

  • The telco nirvana solution remains theoretical and off in the future, whereas an end-user organisation can “right source” today
  • Outsourcing networks was “on trend” when it took place, and most IT services were outsourced, often to “one big supplier”. IT increasingly involves managing multiple suppliers – why should networks be any different?
  • Whilst challenging to create, the business case is quantifiable and trackable, whereas the costs for the telcos’ preferred solution is often too expensive, or not available today
  • End-user organisations can access the services and technologies they require today, without waiting for a telco to productise them

Conclusions

There is no doubt that these are challenging times in the network and telecoms market. The demands organisations are placing on their solutions are changing rapidly, and the traditional service providers are struggling to meet these demands. It is also clear that there exists a strong level of dissatisfaction with the quality of service delivery from the traditional telcos. All this adds up to a strong set of drivers for organisations to seek an alternative model.

However, it is equally clear that there is little or no appetite at CIO level to in-source services.

The idea of “right sourcing” therefore is a halfway house – trying to fix the telco-based outsource model by breaking up the solution to squeeze out costs, access innovation, and try to secure greater flexibility.

However, these benefits would come at a cost, and that cost is complexity and risk.

At the moment, the majority of organisations are sticking with the current model, either because they don’t believe the complexity and risk is worth the benefit, or because they believe they can manage the issues the current model creates.

However, a reasonable number of organisations are starting to look at alternative approaches, and it will be very interesting to see if this trend grows, and whether new service providers enter the market to support this alternative model.

Disclaimer

Other than matters relating to The Network Collective, this research is based on current public information that we consider reliable. Opinions expressed may change without notice and may differ from views set out in other documents created by The Network Collective. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.

This research does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Network Collective Limited © 2018

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