Growth of Remote Infrastructure Management Outsourcing
March 29, 2009
Remote Infrastructure Management Outsourcing, (RIMO) is a growing trend among the outsource providers to deliver IT infrastructure management services remotely either from onshore, nearshore or from offshore locations. In the past customers were reluctant to outsource infrastructure management services to offshore locations but now that trend are changing. Recently India based HCL won a major infrastructure outsource deal from Reader’s Digest Association, Inc. and from Xerox.
Several trends like globalization, innovation in remote management technology, customer behavior, offshore vendor RIMO maturity, etc has created huge opportunities for offshore RIMO vendors. In this article we will explore changing dynamics of RIMO and discuss offshore vendors capabilities in RIMO market.
What is Remote Infrastructure Management, RIM?
Remote infrastructure management deals with managing IT infrastructure and applications remotely (outside the physical location of hardware assets) taking proactive steps and remedial actions so that all the computer assets will be available 24x7x365 to the customers. Following are the RIM services companies currently outsourcing to offshore locations:
- Helpdesk Services
- Network Management
- Server Management
- Storage Services
- Desktop Services
- Application Services
In the past Helpdesk and network management services are most prominently outsourced to low cost destinations. But now all aspects of IT infrastructure services except services (like disaster recovery, hardware repair, etc.) that requires physical presence, are outsourced to offshore locations.
Market Dynamics for Remote Infrastructure Management Services
In early 90’s Companies like IBM, Unisys, EDS, etc started infrastructure outsourcing trend by taking full ownership of both IT assets and the employees of client companies. Most of these engagements are long-term that spans ten to fifteen years. The long-term contract created risks for both customers and infrastructure management vendors. For customers it is loss of control of all the assets and also difficult to commit on long-term contracts due to changes in their business conditions like mergers and acquisitions. For the infrastructure vendors long-term contract and full ownership needed up-front capital expenses and it took several years before they see profit in their engagements.
Asset Light RIMO
Innovation in new remote management tools and technologies helped companies to use their engineers to manage their IT infrastructure remotely and they became comfortable in infrastructure planning, monitoring, and trouble shooting all their IT assets remotely, a new model Remote Infrastructure Management emerged. During this time infrastructure outsource vendors were improving their service offering and started marketing their remote management capabilities to customers. In this new model both the companies and outsource vendors started entering into short-term contract popularly known as asset light RIMO. In this selective outsourcing model, outsource vendor assumes responsibility of managing specific IT assets for a shorter duration say two years. Unlike Asset heavy model, Asset light model does not entail to transfer asset ownership and IT personnel to the vendor.
The asset light model benefited both the customers and vendors. For customers they can choose different vendors based on their specific skills like storage services, network and server management etc. Since the IT assets are managed by different vendors, companies risk exposure is reduced compared with one vendor in asset heavy model. For providers they can specialize in specific verticals and offer cost arbitrage due to economy of scale. It also reduced their large capital investment, creating opportunities for low-cost offshore providers entering into the RIMO market.
Based on research analysts like Everest, Gartner, Mckinsey, etc., predicts significant growth in RIM services to offshore locations. Though cost saving is the primary reason for the growth of offshore RIM services, following are some of the other reasons:
- Growing maturity of offshore RIM service providers
- Service Process standards maturity like Microsoft Operations Framework, MOF, ISO 20000
- Growth of telecommunication industry in low cost destinations like India, China, etc.
- Processes and guidelines like ITIL and COBIT helping both the suppliers and customers to speak common language in IT asset management and governance.
- Growth in remote management tools and technologies like Cisco Remote Management Services, Java Management Extension, Intel VPro, etc.
However, still server issues slows the adoption of offshore outsourcing for IT infrastructure services. Following are some those issues:
- Security risks in offshore locations
- Legal and privacy rules like HIPAA creates more risk exposure for businesses allowing offshore personnel managing sensitive data.
- Managing other offshore outsourcing risks and anti offshore outsourcing sentiments that comes with it
- Lake of confident on technical skills of offshore infrastructure vendors
- Offshore vendor corporate scandals like Satyam
Offshore RIM vendor landscape
Big Indian outsource vendors like TCS, Infosys, Wipro, are started competing with US infrastructure vendors like IBM, EDS, etc., directly. Recently Wipro acquired US based Infocrossing to strengthen its remote infrastructure service offerings. Tire two Indian outsource vendor HCL has been aggressively improving their capabilities in RIM services and recently it was ranked as No.1 in infrastructure outsourcing by Independent Global User Survey. Traditional infrastructure outsource vendors like IBM, HP-EDS has their data centers in US but aggressively hiring professionals in India to mange their datacenters and competing with low-cost Indian outsource vendors. Other Indian IT vendors like Cognizant, Patni, Tech Mahindra, etc., are also started offering RIM services. Indian based boutique IT vendor Microland started IT infrastructure outsourcing services as early as 1999 and has been making steady progress in the infrastructure outsource market.
After seeing Indian IT companies success in RIM outsourcing, providers from China, Philippines, Brazil, Eastern Europe, etc., are trying to enter into RIM outsourcing market. But so for they could not match the Indian based outsource vendors in their service offerings.
Challenges facing Offshore Remote Infrastructure Outsourcing Growth
Although Remote infrastructure management outsourcing is poised for a stronger growth, it faces several key challenges:
- Unlike BPO or ITO, disruptions caused by RIMO are huge for companies, issues caused in BPO and IPO will affect few business processes and applications. But any failure in server, storage, network, etc. will cause the entire company to a grinding halt. So the RIMO vendors must respond to any infrastructure failure in real-time basis. From the customer’s point of view this is still a huge risk for their business continuity and still they are not comfortable to send these type of mission critical services to offshore locations.
- For companies planning, designing, and implementing infrastructure outsourcing is a huge task and it may take months and some times years. Companies need to change their entire IT infrastructure architecture, trouble shooting, security, support policies, etc., that takes significant capital investment. Unlike BPO and ITO projects companies are hesitant to take the initiative to outsource their infrastructure services.
- Managing IT infrastructure remotely is a daunting task for the offfshore vendors. They need skilled professionals with deep technical expertise and business acumen to solve the problems 24×7. Finding qualified people even in low-cost countries is getting difficult for the offshore vendors and this slows the growth of RIMO significantly.
- Customers expect stringent SLA for infrastructure outsourcing and require 24×7 real-time technical support from the vendors. This requires significant upfront capital investment from the vendors due to this, cost of entry is very high and posses challenges for new vendors entering into this market
Though there are significant obstacles in remote infrastructure outsourcing, offshore vendors have been making steady progress in winning customers and competing aggressively with big companies like IBM, HP, Accenture, etc. Offshore vendors also improving their service offering by investing in training, skills, and hiring qualified personnel to increase their market share. Indian based vendors are also looking for inorganic growth through mergers and acquisitions to compete for high-value remote infrastructure management contracts.
Similarly to compete with low cost providers US based infrastructure vendors continuing their investments in low-cost countries. They are using their existing relationships with C-level executives in big corporations to dominate in higher-value infrastructure outsourcing deals. By judiciously blending their onshore and offshore teams passing down the cost savings to their customers.