Networked vs. Hosted Managed Services – What’s Your Religion?

Having just returned from a 2-week vacation, I’ve had plenty of time to think about things that my work schedule normally pushes to the background – music, hobbies, investments (don’t ask), and our surreal national political scene. After listening to some of the bizarre preconceptions and arguments about health care reform and US economic policy (throws shoe at TV), it’s hard to avoid the conclusion that many of our beliefs are so ingrained that they approach the status of “religious” tenets.

As business and IT professionals, we like to think that we operate in a reality-based world, where facts and good sense dominate. But the same factors that muddy public policy decisions – incomplete and inaccurate information, the lack of a contextual model that can assist in predicting outcomes, and inherent biases toward or away from certain solution approaches – are just as influential in the decisions we make, every day.

One example that’s top-of-mind, for me, is the debate over managed services delivery models.  EXTOL and other companies in the B2B integration space have offered managed services for years, but cost-cutting measures and our shrinking economy have pushed managed services to the fore, of late.  We are still seeing greater demand in the market for self-managed B2B integration than for 3rd party managed services, but battered budgets, scarce IT resources, and shifting business priorities make managed services more attractive than ever.

Deciding between self-managed B2B integration and managed services integration usually comes down to financial and budgetary factors (capex vs. operating budgeting, front-loaded vs. ongoing expenses, etc.). While “religion” can come into play here, decisions at this level are usually based on clear-cut business priorities.

What’s more interesting is what happens once a business decides to go the managed services route. In the context of B2B integration, “managed services solution” is almost universally equated with a hosted services delivery model, in which partner provisioning, external communications, transaction batching, acknowledgment generation and reconciliation, data transformation, monitoring, auditing, and other partner-facing functions are implemented outside the firewall, on a managed services partner node. Integration between the managed services node and resources inside the firewall is usually (but not always) implemented using simple batch data transfers, mediated internally by middleware – or internally developed programs – that implement inbound and outbound connections to internal applications and data.

But there’s an alternative to the hosted services model that is gaining traction in the market, namely, the networked managed services model. With this model, B2B integration services and resources are maintained inside the firewall (or DMZ), usually on a dedicated server, with partner and connection provisioning, life cycle management, monitoring, exception-handling, and other services provided by an external (remote) service provider. So all resources are co-located on one network. Unlike the hosted services approach, networked managed services can integrate partner-facing processes with internal applications, data, and services, in the same context. Aided by plummeting platform and TCO costs, the networked managed services model has become a practical alternative to hosting, in most circumstances.

Which implementation model is better – hosted or networked – is largely situational. When batched EDI is the dominant B2B requirement, and the main business need is to outsource partner-facing functions to a knowledgeable third party, a hosted approach based on file exchange usually suffices. But if requirements include validations, substitutions, or rapid transaction responses that require direct access to internal applications and data, complementary web services applications, coordinated back-up and recovery, support for non-EDI payloads, or the need to migrate to self-management in the future, the networked model can be a better choice.

Usually, when we first engage with a potential managed services customer, the conversation opens with hosted managed services. As stated earlier, there’s a clear tendency to equate managed services with the hosted model. And while we do offer hosted services, we often find, after digging into the requirements, that what they really need and end up implementing is networked managed services. But because the networked managed services model is relatively new, there’s a blind spot that requires some education and discussion to remove.

What really drove this point home to me was our recent participation in a managed services research study, conducted by a prominent industry analyst firm.  When I first explained our networked managed services option to the research VP, his first reaction was to exclude the networked option from consideration. But when I pointed out that the only real difference between the hosted and networked model was the location of the partner-facing processing, and that locating partner-facing processes inside the firewall confers real advantages in many cases, he agreed to include the networked approach in his research.

Still, entrenched ideas and beliefs are difficult to dislodge. For many companies looking to outsource EDI integration, the borders of their comfort zone stop at the hosted model, which, as an outgrowth of the familiar VAN model, may be easier for them to understand and accept.  On the other side of the argument, many fans of the networked model hold the belief that placing business-critical data and processes outside their firewall introduces unacceptable risks.  Both perspectives are “religious”, in that they can be very resistant to counter-arguments.

We’ll write more about the differences, pros, and cons of the two managed services models in future posts.  In the meantime, leave a comment and tell us what you think.  Are you a fan of hosted services, or do you see the networked model as superior?  Is your preference based on specific requirements in your business, or are you just more comfortable with what you know and understand?  There’s no one right answer, so give us your take!

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