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Hosted data centers have benefits, but pitfalls, too

The hosted data center is an appealing alternative to building new. But experts warn you can't just hand over the reins and walk away: It requires hands-on management.

John Rhome was a CIO without a data center.

Early last year, Rhome, the IT chief at AFL Telecommunications LLC, a $500 million telecommunications equipment manufacturer and service provider, learned that his data center was closing its doors to him.

Every time there is a thunderstorm, the lights flicker. Our business can't afford to have the lights flickering.
John Rhome
IT chiefAFL Telecommunications LLC
For 20 years, AFL had been jointly owned by two industrial giants: Pittsburgh-based Alcoa Inc. and Tokyo-based Fujikura Ltd. In January 2005, the two companies announced that Alcoa would sell its stake in AFL to Fujikura.

"Our data center was integrated with Alcoa," Rhome said. "We had to take our systems out of their data center and put it in our own data center. We had a choice: We could build our own data center, or we could outsource it into a hosted provider."

Rhome said he identified two locations within his company that could support a data center, but he believed the infrastructure surrounding those two locations was inadequate. Rhome said having a secure facility that would have little risk of downtime was his No. 1 priority.

"We're a very IT-intense company," he said. "I require my systems to be up constantly. We can't afford power outages. We can't afford system crashes all the time. I have an office in Franklin, Tenn. Every time there is a thunderstorm, the lights flicker. Our business can't afford to have the lights flickering."

Ultimately, Rhome decided to outsource his data center with Wayne, Pa.-based SunGard Availability Services because he was convinced the vendor's redundant power supplies and facilities would ensure that his data center would always be available during a disaster. He moved 85 servers into SunGard's Alpharetta, Ga., location.

"We were looking for a secure facility to put our equipment," Rhome said. "We also wanted a facility that could help us with disaster recovery with the servers we have in the field that are not located in the data center."

"I didn't have to hire additional staff to support a data center," Rhome said. "I could basically continue operations as I normally did."

Rhome said he is considering expanding the scope of his contract with the company to include maintenance of his data center servers. Currently he sends members of his own 30-person IT staff to SunGard's Georgia facility to perform regular maintenance.

Keep your hands on the reins

Rhome's decision to outsource isn't unique. What is unusual is that he has built a successful relationship with the hosted vendor. What's key here, say the experts, is that Rhome maintained control of his systems. Too many CIOs turn the key to the data center over to the hosted company and walk away. The relationship is doomed.

"If you're a logistics company where IT is at the very heart of your business, if innovation in IT creates value for your customers, you may need to maintain control so that you can create that innovation," said Brad Peterson, a partner with Mayer, Brown, Rowe & Maw LLP, a Chicago law firm that specializes in documenting IT outsourcing transactions.

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Jeff Kaplan, managing director of ThinkStrategies Inc. in Wellesley, Mass., said a CIO should determine whether his company considers technology and the management of technology to be a "competitive and strategic necessity and advantage.

"For instance, Capital One," Kaplan said. "They rely very heavily on technology because they've done a fair amount of experimentation and development on technology-based marketing techniques and data mining of their customer base. It would be very difficult for them to turn that over to a third party and achieve the same level of competitive advantage they've created themselves. Whereas a community bank doesn't have the same interest in technology techniques and would look at technology as a utility it could offload to a third party that could do it more cost effectively than they could."

CIOs who elect to outsource their data centers should make sure that they and their staff manage the sourcing process, not the vendor.

"Not managing the sourcing process, or allowing the vendor to manage the sourcing process, [is a common mistake]," Peterson said. "The process determines the results and the prices you will pay. A vendor-led process will lead to paying more money with lower service commitments."

Read the fine print

Kaplan said a company that has major data center issues to begin with cannot assume an outsourcer will solve its problems.

"Too often companies try to offload something that's broken and that their outsourcer can fix."

Kevin Beaver, principal consultant at Acworth, Ga.-based Principle Logic LLC, said a CIO should test a hosting company's abilities to respond to a disaster.

"If the vendor agrees to it, I recommend to my clients that they go in and see if they can create a controlled disaster and see how they respond."

When negotiating the service-level agreement with a data center outsourcer, a CIO should make sure that the agreement measures aspects of the business that are important to him, Peterson said.

"They should measure value drives that are important to your business," Peterson said. "Suppliers would rather have a service-level agreement measure things that are easy to control. The agreement has to have real teeth to really drive good performance."

Kaplan said the service-level agreement should also focus on day-to-day reliability, access and response time performance levels.

Kaplan also said CIOs should make sure the service-level agreement includes conditions that govern changes in the company. If a CIO finds that his company is growing or consolidating or is changing its business objectives, its technology requirements will change, too.

"Too often change is not spelled out, and that's where a lot of the frustration lies," Kaplan said. "The outsourcer is good at providing stable service. But change, that's where the headaches are. An outsourcer is aimed at limiting change."

Once a CIO has moved his data center to a hosting company, he needs to watch for warning signs that the arrangement is failing. Peterson said CIOs should watch for breaches of contract. They should also make sure that the vendor is providing an open line of communication and submits adequate reports on the status of the data center.

"The No. 1 danger sign is having the contract managers not communicating to the CIO on an important contract. In a troubled relationship, it is a lack of communication that signals upcoming problems."

Let us know what you think about the story; e-mail: Shamus McGillicuddy, News Writer

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