August 2002

Sourcing Strategies: Single Source Or Best In Breed?

BY HENRY DEWING

Despite all the news about the telecom downturn, businesses continue to spend on communications. For example, the Telecommunications Industry Association�s 2002 Telecommunications Market Review & Forecast predicts that spending by enterprises on voice and data communications equipment will advance at a 15.1 percent compound annual rate, reaching $289 billion in 2005. In the coming year, the replacement cycle will kick in for voice equipment, and large increases in voice system purchases are expected. That level of spending in a flat market puts enterprises in the driver�s seat � it�s a buyer�s market for most telecom gear and services. In light of the temporary reduction in growth opportunities in the service provider space, businesses have more buying power to demand solutions that can easily be integrated into their existing infrastructure and support their business processes.

As CIOs and CTOs mull over their choices in new equipment, they are concerned about meeting return on investment (ROI) mandates from the CEO�s office and meeting users� needs. While these needs are foremost in the minds of decision team members, CIOs and CTOs can provide additional benefit to their organizations by stressing the importance of the overall sourcing strategy. They must step back from individual decisions to consider which strategies are best for the organization and how the ecosystem of suppliers, vendors, and integrators best delivers. Today, businesses expect to have their requirements understood and accounted for in solutions. Businesses must balance their needs (such as reducing total cost of ownership, easing the burden of integration and configuration, satisfying business requirements that create competitive advantage, and using integrated management capabilities) to define what vendors are expected to deliver.

Solution decisions are integral to business strategies and the right decisions will eventually translate to capturing additional market share. Messaging solutions, for instance, better enable the sales force and executives to easily access crucial business information. Customer relationship management solutions can help companies gain competitive advantage by more efficiently serving customers.

SINGLE SOURCE VS. BEST IN BREED
Many executives choose to buy vendor solutions and �in-house� or �insource� the technology, processes, and operations of a call center. Executives who follow an in-house sourcing strategy should carefully select either a single source or a best-in-breed approach for integrated applications, deployment platforms, and peripheral hardware. Enterprise communications systems including PBX, voice mail, e-mail, and fax messaging could be purchased as either three disparate systems or a unified system all from one vendor. Voice-data convergence allows companies to select software-based telephone switching (PBX) systems that run on industry-standard hardware platforms.

PBX and voice mail systems still require either the staff or the outsourcing dollars to install and maintain both and ensure their interoperability. Call center managers have a broad set of choices ranging from combinations of a dozen vendors to all-in-one call center packages.

Many IT decision makers do not develop a purchasing strategy and end up with best in breed by default. Prudent selections involve macro-level considerations of the single source versus best in breed strategy before the CIO or CTO engages in discussions with vendors and integrators on how to best get access to a sophisticated telephone system at an affordable price. (See table below for the major arguments typically accompanying each approach.)

Many of the factors in a sourcing strategy choice are dependent on the particular installation. Installation size, for example, helps determine the impact of the integrator costs. In smaller installations, the integrator costs can be a large factor in total cost while in larger installations, integration costs may meld in the background or may balloon uncontrollably. Integrator costs are a significant factor in small call centers. Channel companies place a high value on the �peace of mind� they provide to customers, who know service will be performed if necessary.

Greenfield starts (in a new entity or location) and forklift upgrades (as equipment reaches the end of its economic life or when the infrastructure is not meeting the business needs) also affect the choice between single source and best-in-breed strategies. For those cases and small installations, it is usually more efficient to select an all-in-one install. Conversely, businesses with an existing infrastructure may find that the best-in-breed strategy does not add to the cost and difficulty of installing and maintaining the system. In cases where a lot of equipment is already installed, adding a piece such as a fax server on top of the traditional infrastructure may be the best choice in terms of expense. Each end-user decision boils down to a balancing act between cost, difficulty of installation, and management on the one hand, and the ability to fully meet all business process needs on the other.

As CIOs and CTOs and their decision teams make selections, they will consider how to meet their needs with the products available from equipment manufacturers and software vendors. The decision to go with single source versus best-in-breed is complex, but careful consideration will lead to happier users and customers.

Henry Dewing is a product marketing principal at Intel Corporation, a TIA member company. The Telecommunications Industry Association (TIA) is a leading trade association serving the communications and information technology industry. Through its worldwide activities, the association facilitates business development opportunities and a competitive market environment. The association provides a market-focused forum for its more than 1,100 member companies that manufacture or supply the products and services used in global communications. Visit them online at www.tiaonline.org.

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