Lippis Report 115: The Managed Empowered Branch Service Model Emerges

A confluence of powerful macro-economic and industry trends are building upon each other, creating a perfect storm for managed services in branch offices. This storm is so powerful that it’s creating a window of opportunity that never existed before to change the demographic of the role managed services plays in the provisioning and management of branch office networks. There are multiple inputs that make up the perfect storm. First, the current macro-economic climate has prompted edicts from business leaders to reduce operational spending, requiring IT leaders to review all IT project financing options and question what aspects of IT are core to the business versus contextual. Then there is the networking technology of branch offices, which have increasingly integrated services such as security, mobility, communications and applications into one hardware platform allowing service providers to offer a range of branch office managed services well beyond conductivity. Factor in that there are thousands of service providers now offering managed branch office services and you have the formation of the perfect storm and a serious deployment option IT leaders now have to review.

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With a focus on operational cost reduction and a means to finance branch office deployments without capital cost and its effect on increasing operational cost through depreciation and IT staff, many IT leaders will find the new managed branch office services welcome news. Some facts will help focus the mind, according to Nemertes’ Branch Unified Communications 2008 Benchmark:

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  • The number of new branch openings has been growing at 6.8% per year; this includes data from the fall of 2008
  • 90% of new employees work in branches
  • 93% of organizations are centralizing their infrastructure
  • 91% spend some or all of their time working away from headquarters
  • Organizations spend 31% of their IT budget in the branch
  • Only 15 percent of branches have IT staff on-site
  • 63% of organizations utilize or plan to utilize managed services in some of their branches today
  • For those that use managed services they extend the service to 89% of their locations realizing the strategic value it offers

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Branch Office Network Constraints

All these facts point to the growing demand for branch office deployments and the realization that business application delivery for many IT leaders has become data center and branch office focused. While application placement ebbs and flows between data center and branch or centralized versus distributed, one thing is clear: branch office deployment cost will continue to grow because that’s where the people are now. Delivering business innovation to branch office locations has always been challenging with few, if any, IT personnel on site plus limited and inconsistent application and service delivery and widely varying technology deployment including inconsistent WLAN, security, local storage and servers, backup, etc. services among and between branches. But even with these constraints branch office employees demand the same level of service available at headquarter facilities and more. With video conferencing, web 2.0 plus collaborative applications in demand, should IT leaders focus on connectivity or value added applications?

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To mitigate these constraints IT leaders now have an option to accelerate the absorption of business innovation and focus on business applications with managed branch office services delivered by service providers, harnessing the power of Cisco’s Empowered Branch solution. IT projects always increase operational cost with depreciation and staff salaries. In the current difficult macro-economic scenario managed services trades off capital and its associated depreciation cost while capping salary and facilities cost into predictable manageable quantities. IT leaders understand this value as more and more have been buying managed services, which is currently a $34B industry projected to grow to $65.5B by 2012, an 18% CAGR between 2007 and 2012 according to Ovum. That’s more than twice the CAGR of the IT industry’s 8%.

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As business and IT leaders have grown savvier by allowing business to drive their technology strategy versus the other way around, for some the maintenance and management of branch office networks can be outsourced to service providers allowing IT to focus on projects which are core to business operations. This shift allows IT leaders to focus on increasing innovation absorption in the branch such as video and unified communications, which offer competitive advantages through increased customer service. Further, with the large footprint or geographic coverage of service providers IT leaders can roll out services to hundreds or thousands or even tens of thousands of branch offices much more quickly than with in-house staff allowing a corporation to obtain operational efficiency results faster, which is a paramount concern today among business executives: get results in scale and at speed, fast!

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Time To Review Branch Office Operations

For those who have not reviewed their branch office deployments in some time, they will find that network complexity is increasing their operational cost and making them less competitive. In short, network complexity is inflationary to operational cost. Network complexity increases when deploying different supplier solutions or appliances for every new IT service needed in the branch such as mobility, unified communications, security, LANs, fax machines, video surveillance, etc. An empowered branch that consists of a single integrated device such as the Cisco ISR (Integrated Services Router) has been proven to reduce operational spend between 50 and 70% thanks to its efficient deployment model of provisioning a wide range of IT services in a consistent manner to many branch offices.

In fact the ISR is the most widely used branch office network platform with over 5 million in production. The platform approach not only reduces corporate spend but offers energy efficiency through state-of-the-art power supplies plus environmental sustainability thanks to the elimination of multiple pieces of hardware into one with a reduced eco-footprint. With a branch office network platform that has a 5-to-7 year lifespan, IT leaders are assured that new services will be offered thanks to continual platform investment enabling their business to adopt innovation quickly without rolling out new hardware per branch.

The Managed Empowered Branch Service Model Emerges

Most business and IT leaders select to envision, design and deploy their own branch office network, as control, innovation absorption pace and security are high on their list of decision factors. But three out of every ten business leaders select to use managed branch office services and this number will only increase as the number of managed service offerings increase based upon Cisco’s Empowered Branch Solution. Service providers used to lag Cisco in the products and features offered, but this gap is closing. Managed service providers are bringing together routing, switching, integrated security, mobility, application performance and unified communications into their managed branch offerings at a pace comparable to in-house staff capabilities.

Service providers such as Verizon, TELUS, Cybera, AT&T, NTT, Orange, T-Systems, Alestra, Telefonica, Cable & Wireless, Telstra and many others are now offering Managed Empowered Branch Services around the world that start with a managed wide area connectivity service but are capable of offering the above services. This is a first in the industry as service providers were forced to deploy new hardware for every new service added to a managed service offering. For example, Verizon’s Managed ISR service offers a suite of five services that are delivered in any combination, one-by-one or all together. Verizon deploys a single fully provisioned ISR in the branch capable of delivering all five offerings which are provisioned remotely upon IT’s order.

Accelerating Innovation Absorption

With Empowered Branch Managed Services IT leaders will be well positioned to take advantage of new connectivity services such as 3G wireless and SIP trunking too. While 3G offers an alterative and diverse route for network traffic, SIP trunking offers lower facilities cost as analog voice lines are consolidated, there is improved inter-company connectivity, better dial plans and much more. And that’s good news as the number of SIP trunks being consumed is skyrocketing to nearly 3m lines in 2008 with a projected 54% CAGR between now and 2012 according to Frost & Sullivan. With 300 or so service providers offering an Empowered Branch Managed service based upon Cisco’s branch office platform 3G, SIP trunking, extended analog to IP connectivity, application recognition and control plus end-to-end application performance visibility are being enhanced on the platform and are available from Cisco’s managed service providers. Therefore, the pace of innovation absorption gap between in-house and service providers is closing.

Cisco’s new ISR 880 supports both 3G wireless networking plus its SRST for Survivable Remote Site telephony, which gives the ISR portfolio some breadth and in a fixed form factor 3G enabled router, is something for which Cisco customers, especially smaller branches and businesses, have been asking. Many corporations have been seeking the ISR 880 as it now collapses 3G and SRST into a single box solution. With SRST on this platform, branch offices are offered analog voice ports for redundancy and business continuity, plus SRST supports 911 service too.

For SIP trunking, the ISR includes CUBE or Cisco Unified Border Element version 1.3. CUBE is what Cisco uses to enable SIP trunking on all its platforms. CUBE version 1.3 adds extensive SIP trunking support features, including a strong focus on deep interoperability. The ISR 880 platform and all of the Cisco ISRs have a rich set of SIP capabilities that enable SIP trunking, which is well timed with the SIP market well underway. SIP trunking is another service managed service providers can layer into their multi-service offerings, and it’s one that almost every corporation will consume as SIP trunking is the new dial tone option in the IP world.

The Empowered Branch option allows IT leaders to capture and deploy innovation without additional hardware or expansion of the branch office IT footprint. What is different now in the market is that corporations that deploy innovative branch solutions via a Managed Empowered Branch offering can be on the leading edge with a service provider, meaning that corporations are not going to be trailing the market by 9 to 12 months in terms of branch office solution innovation. In the past service providers were 24-plus months behind those that built their own branch office solutions. This is no longer the case and it’s important especially in today’s economy where the time to deliver value back to an organization has collapsed down. Initiatives identified by executive management are required to be implemented in scale and without haste to gain value quickly. Speed is paramount and Managed Empowered Branch offerings have both narrowed the innovation gap and are best positioned to deploy branch solutions in scale and at speed.

Do Your Own Analysis

This is a key attribute as the facts presented earlier paint a picture that corporations are expanding their sprawl in an effort to be closer to customers. The managed empowered branch will reduce operational spend for most or re-structure operational expenses for others. As these managed services are new, IT leaders are advised to perform their own three-year economic analysis to understand its impact on total cost of ownership and which deployment option best fits its business initiatives.

A Word on IT Jobs

During the current economic climate reduction in force (RIF) is occurring and will potentially accelerate over the next two quarters. In IT departments, operational staff is vulnerable during these cycles. For IT professionals it’s important to be of high value by focusing on projects that are core to business operations and strategic initiatives. Therefore, focus on projects that are contributing to core business initiatives, and if that means outsourcing to a service provider for items such as transport or unified communications, so be it. In short, your projects need to be of high-visibility and importance in your CIO’s mind. If your projects are not viewed as core to the business then you should consider making the case for a managed service so that your job can be re-focused on projects that contribute higher value to your corporation.

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