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Data center outsourcing: Ten best practices

A growing number of midsized organizations are opting to outsource much, if not all, of their data center services. Should you be one of them?

There are two reasons to consider outsourcing a data center, according to Kurt Potter, a research director at Gartner Inc. in Stamford, Conn.:

First, you don't have and/or can't afford the skills to deliver the services your business needs to function.

Second, your internal IT operations are not cost-competitive.

It would seem that a fair number of midrange CIOs are facing one or both of these challenges. A recent Gartner survey found that 42% of companies with a thousand employees or less had either fully or partially outsourced their data centers, while 28% are planning to do so within the next 12 months.

What follows are 10 best practices for midrange CIOs thinking of taking the plunge. For the purpose of this article, data center outsourcing is defined as an ongoing contractual relationship in which an outside party takes over some portion of a company's other day-to-day management of servers and responsibility for meeting service-level agreements (SLAs).

Deciding whether and what to outsource

Best practice 1: First, benchmark your IT infrastructure. And unless you've done it before, get outside help.

Every major outsourcing provider has a benchmark that will help you see what your cost structure is versus its database, Potter notes. Gartner, The Hackett Group Inc., RampRate Inc., Compass Ltd. and Forrester Research Inc. are among the firms that will come in and assess how your data center's level of complexity and cost efficiencies stack up against the marketplace. They may also recommend cost-cutting strategies, such as virtualization, and help you decide whether outsourcing is the best strategy.

Best practice 2: Have a game plan. Determine up front what you want to outsource and why. Determine what systems and processes are strategic, and what your company's core competencies are. "If something is a strategic competency and also a core capability, then it should probably stay in-house," Potter advises. If it is neither, it should probably be outsourced. If it is one but not the other, determine whether you can support it economically in-house, and whether you can find the right outside service provider.

Best practice 3: Determine how serious and urgent your data center problems are. If you need a quick fix in critical areas like uptime, availability and cost efficiencies, outsourcing typically will get you there within months to a year, Potter says. In contrast, an internal buildout can take two or three years, particularly if it involves new real estate.

Best practice 4: Consider the advantages of relocating. If a data center resides in a big city, you're probably paying top dollar for space. Out in the sticks, IT experts and network service providers tend to be in short supply, and therefore expensive. Outsourcing enables you to pick an optimal location. "Many of the savings we find come from moving five or 10 miles out of New York, to New Jersey," says Alex Veytsel, principal analyst at Santa Monica, Calif.-based RampRate.

Choosing a vendor

Best practice 5: Consider small versus large. For a midrange company, a big provider makes sense if what you want is basic commodity outsourcing services and guaranteed SLAs, Potter says.

However, if you want customized services and a lot of individual attention, "go with a second- or third-tier provider because your business is more important to them." Be aware, however, that smaller providers are more likely to disappear or get acquired. Do a thorough check of their financials, and make sure to provide for such contingencies in your contract. And, of course, check financial status carefully and talk to customers who hired the company for the types of services you need.

Best practice 6: Consider going with multiple providers if your systems and processes require expertise in a variety of business areas and technologies, and you want best of breed in each area.

Someone needs to act as a traffic cop and integrator.
Kurt PotterResearch Director, Gartner Inc.

"If you want to change something down the road you're less trapped than if you're with one provider, plus you can get better pricing if there's competition," Potter says. The downside is that managing multiple suppliers can be tricky. You need good governance and vendor-management skills, he warns. "Someone needs to act as a traffic cop and integrator." You may want to hire a third party to play this role, or appoint one vendor as primary contractor.

Best practice 7: Consider the offshore option. "You don't need a highly paid systems engineer to monitor your systems or provide support on the graveyard shift," Potter says. More and more companies are turning to India or Mexico, where they can get "the right staff at the right time and price," he adds.

Best practice 8: Don't forget the green factor. Green IT pays these days, both from a PR and budget perspective. A good outsourcing vendor has the know-how and technologies to maximize computer output and availability with minimum amounts of space, cooling and power. Just make sure they pass on those economies to you.

RFPs, negotiations and contracts

Best practice 9: Negotiate SLAs up front. Make them part of your evaluation criteria. And make sure you agree on the definition of uptime. Some vendors will promise five-nines uptime but count only downtime that's due to a power failure, RampRate's Veytsel warns. "If your cooling structure overheats and you have go offline, or your network crashes and you can't reach your servers, that's a failure too." If you are new to outsourcing, consider hiring a third party to help set up the contract and statement of work.

Making it work

Best practice 10: Get it in writing. "You need to define what things you want to source and why," says Gartner's Potter, not just to negotiate effectively with prospective vendors, but also to make sure everyone in your organization is on the same page.

"You also need to set up a governance framework: What you expect from sourcing, what to track and how to measure performance, who is responsible and who is involved in making decisions," Potter advises.

Above all, make sure to include representatives from all the key factions in the process: upper management, business leaders, IT decision makers. And make sure that someone takes notes at meetings. "That way if a new CIO comes on board and wants to change things, you can explain why you made the sourcing decision in the first place," Potter says.

Elisabeth Horwitt is a contributing writer based in Waban, Mass. Write to her at

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