The True Cost of Hosted E-Mail Solutions

September 19, 2010

Most businesses take e-mail as a given. However, the true costs of managing e-mail accounts are seldom assessed. As an illustration of the costs, assume a Small to Mid-Sized Business (SMB) with 1000 e-mail boxes for non-IT users, four servers to service the accounts and Microsoft Exchange Platform. Further assume that the IT group gets about 3000 requests on the average annually.  Requests include account set up, password reset, backup, & restore, synchronizing the e-mails with PDAs such as iPhone and Blackberry, and other support.   To properly support the users, two skill sets are required:  helpdesk support and exchange administration.  If the SMB maintains the expertise in-house, hosting costs, staff, virus and spam filtering and Exchange license costs are in the neighborhood of $300,000 to $400,000. It effectively amounts to $350 per user per year.  There are essentially two options:

Option 1:  Outsourcing to a hosted e-mail solution and maintain the helpdesk in-house.

Option 2:  Outsource to a hosted solution and outsource the helpdesk.

Option 1 Analysis:  Typical costs of hosted e-mail solutions range from $10 to $20 per mail-box per month.  If you add a minimum of two support personnel, the costs are not significantly different from in-house costs.  However, the service levels are significantly better.

Option 2 Analysis:  The challenge here is that outsourcing helpdesk for low volume of requests actually results in higher costs.  The primary reason is that most firms providing outsourced helpdesk charge between $25 to $60 per ticket or $30 per user per month.

For this reason, most SMBs have just managed e-mail in-house.  There is an alternative solution.  It takes advantage of the Global blended model more typical of applications outsourcing.  The solution is not to use hosted e-mail, but use hosted servers and use RIM (Remote Infrastructure Management) to manage the servers and off-shore helpdesk.   Although one individual typically is required on-site, the overall costs are significantly lower.  Many off-shore companies now offer a per ticket charge.   These costs are usually in the neighborhood of $4 to $10 per ticket.  Remote infrastructure management is typically $100 per server per month.   This implies that SMBs can reduce their costs by over 40% annually.   The best part is that the service levels are significantly higher than traditional e-mail hosting solutions.  Most Fortune-1000 companies have taken advantage of these benefits.  The growth of focused niche Service Providers will pave the way for SMBs to take advantage of the blended global sourcing models.   The challenge is to find the right Service Provider.  Brokers who connect SMBs to Pre-credentialed Service Providers accelerate the search and contracting process.

Notes:

Industry analysts have identified Self-Service as an area of high return on investment derived from reduced cost per incident, enhanced agent utilization rates and customer satisfaction improvements.

Case in point the average fully-burdened cost per incident:

  • Walk Up            $29.30
  • Phone               $27.60
  • Email                $21.67
  • Fax                   $18.90
  • Chat/IM             $17.90
  • Self-Service       $13.50

* Help Desk Institute, Practices and Salary Survey

Research indicates that agent efficiency in a typical call center is 75% – not an acceptable level in tight economic times.

Advertisements

Reducing the Fixed Costs in Project Management

January 3, 2010

Sudoku puzzles teach an important lesson in project management, that we almost forget- there are fixed costs associated with every project.  In Sudoku, there are different levels of complexity – from the very easy to the excruciatingly difficult ones.  While the time taken is correlated with difficulty, it is not linear.  No matter how easy the puzzle, it takes a finite amount of time to simply fill the puzzle.  This is also true for any project.  Initial project reviews, user-buy in, planning, resource allocation, project briefing, and de-briefing after the project is completed all have a “fixed cost” component to it. While it is impossible or even desirable to eliminate the fixed costs, it will be helpful to streamline the project management process to develop efficiencies. 

These guidelines help in reducing the fixed costs associated with projects:

1. Develop a simplified project management methodology (PM-Lite).

2.  Use simple workflows (automated workflows add more benefits) using a portal approach to oversee these “small projects”.

3.  If you outsource these projects, use a set of pre-screened and pre-credentialed vendors who are specifically suited for delivering small projects.  This is discussed in more detail in this blog.

4. Set limits on the number of deliverables (such as 5 to 7).

5.  Keep the distance between each deliverable small (time and technical relationship).

6.  Set simple success criteria such as 10% within each deliverable’s costs and schedule as green, between 10% and 25% as yellow, and more than 25% variance as red.

This simple guideline should not be construed as one shoe fits all.  For example, risk management, compatibility with enterprise architecture, adherence to standards, and other project management principles also apply, but they should not become onerous and increase the fixed costs of a project. 

A note on the Fixed Costs associated with Outsourcing

Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.   The trend towards more small projects is gaining momentum, and it further reinforces the need for organizations to develop an IT governance methodology for small projects. SMB CIOs have an alternative solution in extending their resource capability using project-based sourcing.  Project-based sourcing is a convenient way to balance the need for reducing costs and maintaining core competence in-house.

While outsourcing makes good sense, organizations, particularly SMBs (Small to Mid-Sized Businesses), simply maintain status quo. Either they cite lack of expertise in managing off-shore engagements or perceived quality issues to not engage in off-shoring. To a large extent, their fears are justified. Tier-1 outsourcers seek outsourcing of entire functions – not the ideal method for SMBs which seek help for specific projects.

When outsourcing the projects, the overhead gets accented as procurement and sourcing decisions have their own components of fixed costs.   The lack of a well established Service Provider network who deliver project-based off-shore solutions adds to procurement costs, often negating the benefits of outsourcing. Fortunately, web-based brokerage solutions are emerging. These solutions are built on a solid pre-credentialed Service Provider network to ensure that lower cost is not negated by poor quality.  These web-based solutions benefit both the SMB as well as the Service Provider.  SMBs benefit from low administrative costs and accelerated contracting.  They also benefit from selecting a vendor from a pre-credentialed network.  Many Tier-2 and Tier-3 off-shore Service Providers have the ability to provide niche IT solutions that match SMB project needs.


A Third Party Consolidator Approach for Small Project Sourcing

November 22, 2009

The concept of outsourcing small projects is relatively new.  Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.  In the world where outsourcing services are measured in head-count and SLAs, small-project sourcing provides a viable alternative for businesses to take advantage of global sourcing models to reduce their operational and back-office costs. It also changes the dynamics of the supply chain. It provides an opportunity for smaller service providers an opportunity to play in the outsourcing market.

The challenges with small-project sourcing from a SMB perspective are three-fold: 1. Management issues leading to gaps between expectations and delivery.  Businesses are not adept at managing global sourcing for smaller projects. 2. The sheer number of projects with a large pool of smaller outsourcers makes the job of connecting the “right” provider with the projects extremely challenging. 3. Even though the IT projects are small, the procurement logistics are still time-consuming and complex. Having a single consolidator that manages the smaller outsourcers provides an efficient mechanism to implement small project-sourcing.

Good consolidators perform due-diligence on the service provider network, match project needs to providers, and provide a dashboard to review the service levels. The benefits of having a single consolidator include improving the procurement efficiency by providing a set of reliable and pre-credentialed service providers, a one-stop procurement channel, competition between service providers and complete transparency in sourcing. Businesses will benefit by getting Tier-2/Tier-3 pricing together with a single point of control and total visibility on the engagements. While there are challenges, the cost savings can be enormous, in fact substantially higher than traditional IT outsourcing. Just in the U.S., there are over a quarter million companies who have between 100 and 500 employees. A back of the envelope estimate suggests that the savings can be in billions of dollars even if a small percentage of these firms take advantage of project based-outsourcing in their business.


Forgetting small projects?

October 22, 2009

IT tends to focus on infrastructure and applications that are strategic and mission critical to the enterprise.  Small projects that may be of potential value to business can get lost in the prioritization shuffle. 

There are challenges faced in procuring and managing small projects.  Most Fortune 2000 firms have good governance around procurement, but these processes are ideal for large projects.   The term “small project”s is relative, but for most Fortune 2000 firms, projects under $250,000 can be deemed to be small.  To a large extent, existing procurement practices are quite onerous for a sourcing a small project.  IT management is also challenged and seldom do these projects make it to the CIO’s radar. 

To alleviate these difficulties, it is critical to develop special governance around small project sourcing.  Measures should include developing a short list of providers who are specifically suited for small project sourcing.  Fortunately, the web has led to a whole new generation of providers who have the expertise, the proper methodology in developing and delivering small projects.  Many of them aggregate as a network of providers to give the benefit of one-stop procurement and total visibility into the complete life cycle of the project from sourcing to delivery.


Off-Shoring on the rise for Small to Mid-Sized Enterprises (SMBs)

October 5, 2009

A survey of more than 200 IT organizations found that among small and midsize organizations that outsource at least part of one IT function, the percentage using offshore service providers rose from 14% in 2008 to 24% this year.  Ref: http://www.computereconomics.com/article.cfm?id=1499

There are many reasons for this:
1. SMBs are seeking to reduce costs.
2. There is a better supply chain of off-shore service providers who cater to SMBs.
3. Traditional offshore providers are doing a better job selling to SMBs.
4. Web-based provider networks are gaining momentum.
5. The recession led to a pent-up demand for IT services.

Web-based brokerage solutions will readily facilitate off-shoring for SMBs. These solutions are built on a solid pre-credentialed Service Provider network to ensure that lower cost is not negated by poor quality.  These web-based solutions benefit both the SMB as well as the Service Provider.  SMBs benefit from low administrative costs and accelerated contracting.  They also benefit from selecting a vendor from a pre-credentialed network.  Service Providers get inexpensive access to the SMB market.


Outsourcing 3.0

September 6, 2009

Outsourcing 3.0 will lead the way for organizations to build and manage technology efficiently.  Traditional outsourcing (Outsourcing 1.0) was initially very successful as outsourcers learned to deliver IT solutions with the appropriate Service Level Agreements (SLAs) using attractive pricing models.  Outsourcing 1.0 was all about negotiating intricate, multi-party agreements which were very time consuming. Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.

As organizations desired more niche and project oriented outsourcing, Outsourcing 2.0 came about as a natural step (analogous to Web 2.0).  Outsourcing 2.0 is not about SLAs or multi-party agreements, but collaborative rich mutually benefiting business arrangements, one that often requires taking the initiative (at higher degree), delivering very successful but non-repeatable results.  Smaller engagements were often outsourced through marketplaces such as eLance and Guru.  More sophisticated engagements required skillful brokers who engineered these engagements. The key drawback of Outsourcing 2.0 was the lack of repeatability and metrics.  An evidence of this drawback is the reluctance of Small to Mid-Sized Businesses (SMBs) to outsource their IT functions. 

Outsourcing 3.0 (analogous to Web 3.0) relies on semantic searches to identify niche outsourcers who best fit the objectives of organizations desiring to outsource projects.  It retains the metrics and structured processes of Outsourcing 1.0 combined with the identification of specific outsourcers who can collaborate and provide true value to the outsourcing organization.  The three ingredients required for Outsourcing 3.0 to succeed are: 1) a semantic search engine to link project needs to the appropriate outsourcer; 2) a highly collaborative workflow to ensure that the engagement process provides best value to the parties involved; and; 3) a knowledgeable network of brokers who understand information technology and outsourcing.


Outsourcing Small Projects

August 6, 2009

One challenge confronting CIOs is tracking and managing small projects.  Most CIOs have a very sound governance process for managing mission critical applications, IT infrastructure projects, and other large strategic IT initiatives.  All of their attention inevitably gets focused on these strategic and mission critical projects.  Small projects that are “quick-wins” for the business can get lost in the prioritization shuffle, and some of these projects may suddenly turn into unanticipated crises. 

The challenge with small projects, from a CIO perspective, is threefold:

  • Bandwidth issues – IT is busy putting out fires, focused on big, mission critical and/or strategic applications.
  • Even though the projects are small, procurement logistics are still time-consuming and complex.
  • Lack of visibility of the status of small projects – they can easily “slip off the radar”.

Procurement also faces challenges since their preferred Tier-1 vendors cannot deliver small projects efficiently, and their needs to be complete transparency in the vendor selection process. 

Having a single consolidator that manages the numerous vendors provides an efficient mechanism to implement small projects. Good consolidators perform due-diligence on the service provider network, match project needs to providers, and provide a dashboard to review the status of the small project portfolio.  The benefits of having a single consolidator include improving the procurement efficiency by providing a set of reliable, credentialed service providers, a one-stop procurement channel, competition between service providers and complete transparency in sourcing.  CIOs benefit by getting Tier-2 pricing together with a single point of control and total visibility on the projects.