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.