Managed services: TCO model captures the cost benefit of B2B outsourcing

The slow economy and rapid growth in technical areas means companies will have to invest capital at a time when it’s in short supply. That’s where managed services can be viewed as an attractive alternative. But some companies are still skeptical of the perceived risks and costs associated with a managed services provider. A new total cost of ownership (TCO) model offered by B2B e-commerce provider GXS helps companies answer the question: In-house, or outsourced?

By Frank O Smith, senior contributing editor ( February 13, 2009

While B2B e-commerce is indispensible to legions of companies, many still don’t know the full life-cycle costs of their initiatives. In this economy, it’s about time you knew exactly where costs can be trimmed and value can be maintained. The question becomes: Is it cheaper to maintain B2B programs in-house, or is there greater value in outsourcing?

For GXS, a leading provider of EDI and B2B managed services, answering that question means giving its current and prospective users hard analytics to completely evaluate the total cost of ownership (TCO) of in-house and outsourced alternatives.

GXS launched its TCO Model and methodology in January as a consultative tool to help companies thoroughly evaluate the cost benefits of B2B outsourcing.

“Our primary goal is to help customers and prospects understand the true costs of their B2B programs, and see all the components involved. Then they can make a solid business case for either an in-house or outsourced program,” says Marco de Vries, GXS director of marketing intelligence.

“That’s the classic outsourcing dilemma,” says Dana Stiffler, a director of consulting and IT services at Boston-based AMR Research . “It’s not a situation where you flip the switch and everything works wonderfully. You need to take a comprehensive look to identify all the processes and personnel issues involved over the full life cycle of the project.”

GXS hired an independent third party, Hobson and Company , to analyze the operations of numerous GXS customers, and develop the model. During that analysis, GXL found total personnel costs in terms of hours required to accomplish B2B e-commerce in-house were commonly neglected; and that cost savings there alone exceeded overall costs of outsourcing.

In-house cost considerations include more than just the hardware, software, and infrastructure costs. In addition to technology, implementation, and planning and training costs, the TCO model looks at 25 steps in B2B program management—breaking it all down into multiple activities and tasks.

The TCO model also considers ongoing program maintenance and technology refresh issues, as well as costs associated with mapping, trading partner implementations, change and program management, disaster recovery, and help desk support.

“They’ve covered all the bases where you can see the whole thing laid out,” concludes Stiffler.