Q&A: Using Third-party Data Centers

One way to do more with less is to outsource tasks, including some components of your data center. What help and benefits can you expect from third-party providers, and what work should remain on premises?

Today, data center managers are at the center of innovation for IT. No longer the weeds of IT, infrastructure is now much more strategic, thanks to the maturing of services-based IT organizations. Midsize and large enterprises are increasingly outsourcing infrastructure to third-party data centers in an effort to reduce complexity, address staffing and budget constraints, and more effectively handle dynamically changing IT needs to support key business objectives.

Third-party data-center providers, large and small, are now segmenting and specializing to meet the needs of a diverse customer base seeking any combination of public/private cloud services, co-location, redundant backups, disaster recovery, and virtualization of mission-critical applications. To learn more, we spoke to Robert Offley, CEO of Centrilogic.

Enterprise Strategies: What's driving IT to use third-party providers to help manage their data centers?

Robert Offley: As little as five years ago, outsourcing was a “dirty word” to the typical IT department. Back then, the decision to outsource or insource was binary in nature and the main driver was cost reduction. Decisions were typically coming down from the financial side of the business, creating an unhealthy dynamic with the CIO, who felt threatened.

The market has matured significantly in recent years. Now there is a continuum of options for outsourcing, from co-location to a fully managed environment. This evolution in infrastructure outsourcing enables companies to dial-up or dial-down the level of responsibility and management they expect from their partner; companies can even request different levels of support for individual applications. As a result, third-party outsourcers are able to bring value to companies and are helping IT departments manage increasing complexity and do more with less. Here are some of the primary drivers for the growth in third-party data center services:

Cost: This is a still an important factor, but in recent years cost has taken a back seat to some of the other factors I’ll mention. This notwithstanding, in principle, outsourcing should always be more cost-effective than managing systems internally. Third-party providers split their costs across multiple customers and can pass a large portion of the resultant economies-of-scale to customers. For example, does it make sense for a company to spend millions of dollars building their own data center rather than renting space? Unless there is a national security or extreme intellectual property need to do so, owning and managing your own data center is usually not going to pay off.

Variable-based costing: Using a third party allows companies to adopt variable-based costing, which helps with budget flexibility and cash flow. As a company grows, it can easily expand IT resources from a partner, while if they fall on tougher times they can quickly reduce usage and spending. Traditionally, an infrastructure ramp-up involves recruiting staff or contractors and making capital investments in hardware and software. If you have to ramp down, there's the ugly reality of reducing staff and sitting on technology that is no longer in use.

Focus: Many aspects of IT (such as data management, monitoring, and patch management) are not core to a company’s business. In addition, there has been a push in recent years to realign IT departments with business priorities. Should internal IT focus on delivering new business applications that improve productivity or on repetitive tasks such as patching and maintenance? Tougher economic times have only exacerbated this situation: business leaders want to see profitable returns on their IT spending.

Availability: Many third-party providers have been able to immensely improve service levels in recent years thanks to investments in new technologies. An outsourcing company can offer 99.99 availability, which equates to less than five minutes of down time per year. Many companies cannot match this performance and the cost of downtime has only increased as companies become more dependent on IT.

Complexity: Using a third-party enables companies to bring in a specialized resource as needed to help companies keep pace with all of the new initiatives and requirements for cloud computing, mobility, consumer IT, and security. Companies can easily mix and match the applications they outsource or partially outsource, based on their unique requirements and importance to the business. A company may want to internally manage a core industry application while outsourcing the CRM and ERP, for instance.

Round-the-clock access to specialist resources: Few companies can afford to offer 7x24x365 support to their customers, even though IT is now a 7x24x365 business where downtime affects brand, customer relationships, and sales. Using a third–party provider can bridge or close this gap.

Time to market: An increasing driver for outsourcing is time to market. Most business are looking for agility to take advantage of new market opportunities, yet today's slim IT departments are unable to scale on-the-fly. Third-party providers can typically jump in and deliver a critical project faster than internal IT.

What realistic expectations should enterprises have? For example, what cost savings should they reasonably expect?

Cost reductions are typically in the 10 to 30 percent range, but in some circumstances it can be closer to 50 percent. Given the return, why are many companies still not using third parties today to manage data center and networking functions? In the past, the cost savings were there but the quality of service was poor, leading to lack of trust -- but in large part that is no longer the case today.

What aspects of data center management are your customers most interested in outsourcing? What are they more likely to keep in-house?

CentriLogic’s customers are diverse in nature and have a wide range of outsourcing requirements. As a result, we developed a “hybrid approach” to customer solutions that may pull on a number of different hosting technologies, such as co-location, managed, cloud, disaster recovery, security, and data management. Our approach is to understand the business requirements and then build an environment that delivers on the business goals.

For example, in a scenario where an application has been developed by a customer, it makes sense to co-locate the infrastructure. This allows the company to leverage the investments they’ve made in application development and support, but take advantage of an external data center to ensure high availability and strong security. In another scenario, where a customer wants to deliver a new application but lacks appropriate resources or time, IT can outsource the project completely to a fully managed virtual or dedicated environment. There are, of course, many scenarios in between these two common deployments.

The granularity of the decision to outsource may come down to the application level, based on such factors as the company’s internal resources, time to market, criticality of the applications, and availability requirements.

Does Centrilogic manage an enterprise's data center from a remote location or do they provide personnel to manage the data center on-premises? Do customers have a preference, and if so, what's driving their preference (e.g., security issues, network issues, etc.)?

The majority of CentriLogic’s customers outsource to our locations to take advantage of the data center investments we’ve made for supporting different levels of redundancy for power, cooling, security, and storage. In reality, it is difficult for anyone apart from the largest enterprises to replicate data.

This notwithstanding, through private lines or secure VPNs, we’re also able to extend our support onto a customer site and provide a seamless extension of their server room into our facilities.

What trends do you see in third-party management?

We are finding that as the confidence to outsource grows in the market, companies are outsourcing more applications. Increasingly, companies are looking to fully outsource infrastructure management, so IT departments are no longer involved in the mundane yet important tasks of security and support. IT no longer wants (nor can afford) to wear the pager around the clock. As well, the number and type of applications moving to the cloud and outsourcing are growing. Collaboration and e-mail applications are still popular but so are CRM, BI, and ERP.

How does the size of the enterprise affect what data center functions are outsourced?

Larger companies usually have larger IT departments and more infrastructure investments, so it is typical for them to want to leverage those internal resources. For the big guys, time to market, compliance and other factors can be good reasons to outsource entire applications. In a smaller company, IT resources are more sparse and it does make sense for them to take advantage of the benefits of 100 percent outsourcing.

Overall, across all companies regardless of size or industry, there’s a growing realization that it makes sense to focus on activities that are core to the business -- and this is driving the growth we are now seeing in the outsourcing market.

What products or services does Centrilogic offer for data center management?

CentriLogic Inc., an international company that currently operates five data centers, offers a full range of co-location and managed services at all of its locations that can be customized to meet each client’s needs and integrated with existing skills and capabilities within their organization.

CentriLogic’s hybrid and modular approach to hosting services enables customers to match the level of management and responsibility they require for each component of their infrastructure. Services range from management of client-owned infrastructure to the provisioning of CentriLogic-managed infrastructure (such as dedicated or virtual servers), cloud computing, and network, security, and storage solutions.

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