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Why networks are not a commodity

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Why networks are not a commodity

Working at the coalface of a large telecommunications organisation I get to see many clients looking for new networking partners. Times are tight and all corporates are working to cut costs. An “opening ask” for reductions of 10%-20% off the existing cost base is not unusual and benchmarking and re-tendering exercises are commonly used mechanisms to drive down costs.

The problem is that an aggressive price focus can sometimes be a bit short sighted and risks missing out on the real value, the things that will enable your organisation to stay agile and continue to thrive.

Comparing apples with apples

Frequently these days when analysing Telecommunications costs there is a desire to break everything down to a commodity level, i.e. a price per Mbps or a cost per minute. This makes comparing costs from rival vendors easy but it’s not always clear that apples are indeed being compared with apples.

Particularly, where Networking solutions are concerned the old adage still applies, “skate to where the puck is going to be not where it has been”. It typically takes a year to roll out a global network and transition your supplier along the way. It’s a long haul decision to change supplier and you really need to be aligned to one with the resources, global presence, Investment dollars and strategic insight to be able to cater for your future requirements.

Treating strategic Network Infrastructure as a commodity is risky as a vendor who consistently invests in their Infrastructure may lose out to one who simply “sweats their assets” for longer. A vendor who cuts corners with service will be happy to sign up to the most stringent SLA’s even if they have little chance of delivering it. They can ride their luck and by the time it is clear to the purchaser that their service is sub-standard it will be too late. In reality, most SLA service credit models provide poor compensation for the real cost of business disruption.

More stakeholders

Nowadays, with the overall Network Infrastructure underpinning so much of your digital strategy it seems sensible that the key stakeholders are much more than just the usual ICT and procurement functions but should also involve Finance, Marketing & Strategy. These will bring the vision of where your organisation needs to go to the table early and will help quickly identify the potential of prospective suppliers to support that vision as opposed to a supplier just ticking as many boxes as possible at the lowest cost point.

A carrier can cut costs under the cover in many ways to reach a given price point, but rarely does it come without a hit to your service availability, your ability to flex the service in life, the option to upgrade feature sets as new technologies mature or the opportunity to leverage global scale.

We would always urge procurement to look under the cover, seek interviews with references and leave no stone unturned to ensure that the qualitative factors are weighed equally with cost reduction targets.

To this end, the comprehensive assessments which the independent global consultancy houses (Gartner, Current Analysis etc.) complete regularly can be helpful as they do much of this deep dive that is impractical for most organisations. These can also help short circuit lengthy procurement cycles by providing a ready-made short list from which to select. Their guidance is often available on a Geographic basis (EMEA, APAC etc.) so you can look for best in breed by region if that is your strategy.

Decision time

On the subject of procurement cycles for large Network solutions in general we see huge variations with decision times ranging from two months to close to two years and interestingly most would say that the ultimate outcome for the client didn’t’ vary that much between the two processes.

Getting to a shortlist immediately, selecting a quality preferred supplier early and then getting into the detailed design to ensure the bulk of the procurement cycle is spent optimising the solution for your organisation’s needs seems a sensible way to proceed.

Price competitiveness concerns can be addressed with contract price review mechanisms and the most time consuming piece which his contract negotiation itself should be fast-tracked by getting to the key bottom line issues early, not assuming they will be sorted out later.

All networks are not created equal and complex hybrid networking solutions are not yet a commodity. Selecting a supplier partner is a big decision for your organisation but a good decision can be made reasonably quickly by leveraging openly available information and by focusing on the overall fit with your culture, strategy and future ambitions.


Dermot Woodgate


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