Data Centers: Consolidate or Outsource?

Outsourcing applications also makes sense in cases where you need to quickly fill gaps in your existing applications, in which case you need to make sure the provider can easily integrate with your back-office systems. It can also be an effective way to release I.T. staff from noncore resource intensive functions.

Datacenter consolidation is the mega-solution for bringing I.T. costs, management, and disaster recovery under control, but depending on a company's goals and size, outsourcing can also play a useful complementary role.

"Outsourcing should definitely be part of the decision process," says Michael Bell, research vice president at Gartner. "Once you make the decision to consolidate or relocate, it then becomes a question of whether you should build a new datacenter, buy one, lease one, or outsource it."

There are several outsourcing alternatives: You can collocate your own equipment and applications at a third-party hosting facility and manage it all with your own staff; contract with a complete managed service that provides the equipment, applications, and management staff; or outsource the entire business process, including servers, applications, and bodies to a BPO (business process outsourcing) provider.

Keep in mind, however, that if cost is the main priority, outsourcing is frequently not the answer. "When you're talking about 2,000 or 3,000 square feet or less, collocation makes sense as you get the benefits of scale economics, including the large datacenter and the shared UPS systems and generators," Bell says. "Once you get into the 5,000-to-10,000-square-foot range, it becomes a push as to whether hosting can really compete with doing it yourself. Third-party hosting can often be 30, 40, or 50 percent higher."

Joe Drouin, CIO and vice president of TRW Automotive, agrees. "When we started the consolidation process we assumed we would outsource, so we put out an RFP and had a few vendors come back to us with quotes. It turned out that even if we took the best offer it would be roughly 20 to 30 percent more than doing it all in house."

But if time and agility are the main drivers, outsourcing can make a lot of sense. For example, a department that needs to get up and running fast on a new application may find that I.T. has other priorities and can't devote the necessary resources to move quickly. In that case, contracting with a software service provider can reduce the time to get up and running from months to weeks.

Outsourcing applications also makes sense in cases where you need to quickly fill gaps in your existing applications, in which case you need to make sure the provider can easily integrate with your back-office systems. It can also be an effective way to release I.T. staff from noncore resource intensive functions, such as messaging , so that they can concentrate on more strategic initiatives.

Take outsourcing a step higher and BPO can be the quickest way to completely automate and transform a nonessential or even core business process to bring it up to speed and retain your competitive edge. It's also a fast solution for a spin-off or new organization that lacks a human resources department, for example, and needs one fast. It's all a question of priorities.