Outsourcing & margins

It seems about 50% of my clients these days have outsourced, are thinking about outsourcing or are insourcing.¬† Some of my customers are themselves outsourcers.¬† An interesting facet of the model these days is the introduction of new services to meet customer needs while providing opportunity for the outsourcer.¬† I’ve had the opportunity to meet with several outsourcers over the past few years and advise them on their service catalog, usually for storage.¬† A common complaint has been that “we’re losing money on this deal” which always manages to surprise me.¬† If you’re losing money on so many deals you may want to get out of the business, but I digress.¬† Usually it’s not just the outsourcer that is unhappy, the customers generally are too: they think the prices are too high, the service is lousy, and that they aren’t really getting what they need.¬† You can rarely go back to the table and renegotiate your price for Tier 1 service and raise the price, so how do you create a win-win situation?

I’d like to present one solution that has been used to good effect in the past: the introduction of a new, and necessary, tier of storage to the service catalog.¬† I think this applies not just to outsourcers but anyone who runs their environment in a service provider mode.¬† A lot of customer I interact with complain that the performance of their Tier 1 storage is suboptimal and that their backups never finish on time, or aren’t validated, etc.¬† While hardly a novel or new solution appropriate archiving is the answer to these sorts of problems, and if you view it from a TCO perspective you can gather a lot of financial evidence for the executives on why it should be implemented.

I encourage my customers to think of their production data in terms of two classes, this is the highest level of data classification in my opinion, Operational Data and Reference Data.¬† Operational Data is that which the enterprise uses on a regular basis to run the business, the key is understanding where the cut-off is for “regular basis”.¬† Reference Data is that which is helpful to have around,¬† you might use once in awhile, for a quarter close or year end analysis, but which is ignored on a daily basis.¬† Reference Data takes up valuable Tier 1 storage, backup bandwidth and storage, and as a result can lead to blown SLAs.¬† The appropriate archiving of this data provides an opportunity to right-size the environment, delay the purchase of additional Tier 1 arrays, streamline the backup flow and improve Service Levels by administering data according to its value to the business.¬† The creation of an Archive Tier(s) provides an opportunity to deliver a necessary service to the customer while also enabling the provider to structure it at an improved margin.¬† Customers will want to archive Reference Data when they can link it to improved Tier 1 and backup performance, driving archive utilization and with it the improved margin while at the same time improving the margin on the other services due to fewer SLA misses and a lower administration cost.

Edward

About Edward

Edward is an unabashed geek currently employed at EMC Corporation as the Global Director of Cloud and Virtual Data Center Services. He spends his free time with his wife and two daughters listening to music, reading, building Lego projects, being dragged around the neighborhood by his 95# bulldog and just generally enjoying life.
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