E X E C U T I V E W H I T E PA P E R

An overview of outsourcing benefits, key

The IT Outsourcing Dilemma
qualities to demand in an outsourcing
Considerations in the evaluation of IT as a business strategy

vendor, and how Verizon IT measures up.

 CONTENTS

1 The IT Outsourcing Dilemma

2 Ten Benefits to Outsourcing Information Technology

4 Critical Qualifications for IT Outsourcing Providers

4 Verizon IT Raises the Standards to Deliver Real Business Value

The IT Outsourcing Dilemma

In evaluating the merits of IT outsourcing, companies not only need to consider a complex mix
of technical and business issues – they must also set aside the fear of losing control, which
is the most common obstacle to an objective evaluation. For decades, executives have been
conditioned to directly manage IT staff, procedures, and infrastructure. Yet, the benefits and
strategic implications of transcending this anxiety are enormous.

In a majority of business environments, an objective comparison between existing internal

IT operations and equivalent outsourced services will reveal significant advantages in cost,
reliability, quality, speed, and flexibility. It should enable an organization to immediately
identify opportunities to improve operations and support; to increase productivity; to reduce
expenditures; to gain access to emerging technologies; and to strengthen competitive
market position. Further examination will reveal advantages beyond the obvious.

Thus, after a well-structured and objective assessment of outsourcing, the usual dilemma
is not whether to outsource, but with whom. IT outsourcing requires a partner that
understands the complexity of the outsourcing decision and has a proven approach to helping
companies achieve the full range of business benefits made possible by outsourcing.

This white paper provides executives critical considerations when examining the outsourcing
of information technology. It explores the primary business benefits of outsourcing value
and provides key criteria for vendor selection. Finally, it demonstrates that Verizon IT
possesses not only the experience and expertise, but also the best service model, to
serve as an ideal partner for any IT outsourcing engagement.

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 Ten Benefits to Outsourcing Information Technology

1. More profitable use of valuable in-house IT talent

Typically, scarce IT support resources are divided between two competing goals: meeting the ever-growing business-related
demands of corporate end users and, simultaneously keeping pace with fast-changing technology. There is a compelling benefit to
concentrating management and support staff on IT strategies that actually drive business growth and operational efficiencies.
Meanwhile, the continuous updating of server load balancing, system monitoring and tuning, capacity planning, help desk operations,
and other routine IT functions can be outsourced to a qualified provider. In short, the company is free to concentrate on its core
business, and the outsource provider can concentrate on its core business – staying current with evolving technology.

2. Reduced IT overhead
Reducing or eliminating the costs of system and network administration, dedicated response capabilities and additional systemic
and process support can allow greater investment in such business-driving activities as customer acquisition, relationship
management, and manufacturing or distribution efforts. A recent IDC outsourcing study reveals that 12 surveyed companies
realized quantifiable business returns by reducing such IT facilities costs as floor-space, heating and air conditioning, power
consumption, reserve power capability (UPS), fire suppression, off-site archiving, and facility management.

3. Reduced capital expense

Outsourcing IT operations can defray or level traditional capital investment in infrastructure and technology by migrating these
costs to operating expenses. As an additional benefit, you can often pay for these operating expenses on a per-transaction
basis (otherwise known as "by the drink"). This allows you to vary your expenses with demand, floating directly with the
fluctuations in your market.

4. Improved IT performance and reliability

The reduction—even elimination—of operational errors and inefficiencies is one of the most important advantages of outsourcing.
Outsourcing providers employ seasoned staffs that adhere to rigorous and well-documented "run book" methodologies. The result
is deep experience and consistent discipline that translates directly into improved reliability in system access and repeatability of
expected outcomes. The outsource provider’s extensive investments in people, technology, and processes enable a level of
service and quality that is virtually unattainable for enterprises attempting to handle their own IT functions. And because of its
aggregated buying power, the provider can deliver performance and reliability improvements while reducing costs for customers.

5. A technology edge over competitors

Outsourcing provides immediate access not only to proven best practices, but also to next practices just as quickly as they
are developed. This is beyond the typical notion of leveraging economies-of-scale relationships of the provider. It extends
into the realm of economies of skill and the ability it provides a client to engage an entirely new skill set demand. Because
business strategy so often turns with technology, this early access to new IT capabilities can be a distinct advantage in a
competitive market.

6. Access to different skills and technology as needed

Outsourcing providers can rapidly and easily scale up and down to provide an agile infrastructure in response to changing business
needs. This enables a client organization to rapidly assimilate or eliminate specific skill or resource needs as they change
within a given architectural environment. For instance, database developers can be deployed to help the company migrate
to a new data management system. The talent and best-of-breed capabilities of these specialists would be put to heavy
use during development and implementation phases, and then reduced to a maintenance level for ongoing operation.

2 THE IT OUTSOURCING DILEMMA

7. Accelerated development and time-to-market cycles
In-house development can get bogged down by all kinds of factors, including staff shortages, lack of experience in key
technologies, competing in-house projects, and a variety of technology or financial emergencies. Nowadays, protracted IT
projects can be risky, given the competitive pressures and heightened customer expectations in the global marketplace. A
qualified IT service provider can offer the specialized staff and expertise to get a project completed and launched quickly.

8. Reduced risk of unscheduled downtime

Another key benefit is the elimination of unplanned downtime. The strict procedures observed by qualified providers reduce
the potential for unscheduled downtime. In the advent of a disaster, a provider can leverage its expertise and established
procedures to rapidly return a client company’s IT infrastructure to full operational capability.

9. Smoother, less costly technology migration

Outsourcing can radically reduce the cost and risk of upgrading technology by allowing a company to rework selected features
and functions rather than entire applications. Because outsourcing vendors provide access to many different platforms, a
client organization can move gradually to more current and more powerful systems as business requirements change over time
– without committing to a long evaluation, pricing, acquisition, installation, and implementation process. Additionally, providers
offer access to a wide variety of key applications that are already licensed, stabilized, operational, and fully supported; allowing
a company to evaluate, test, and implement new applications more efficiently.

10. Business contingency and continuity capabilities

Providers operate in secure facilities with redundant power supplies, alternate telecommunications connections, and excess
processing capabilities. They can provide a company with the ability to continue operations even after a major fault or system
failure. Many providers also maintain a disaster recovery site that they can relocate to in short order should the primary facilities
be affected by a disruption. Individual clients find that maintaining these capabilities themselves is extraordinarily expensive
and cost-ineffective.

– Other management considerations

While we have discussed ten high-level reasons for considering outsourcing IT operations, there are many additional
reasons, including:

• A lack of available IT resources qualified to keep pace with business growth

• A difficulty in recruiting knowledgeable IT staff
• A need to improve overall organization efficiency
• A lack of strategic relationships with world-class technology vendors
• A need to improve customer satisfaction
• A need to reduce costs and improve cash flow
• A desire to reduce the management burden while retaining decision-making control

Doing business in today’s "connected" marketplace involves convergent technologies that span many disciplines. It is an
unforgiving environment for those companies unable or unwilling to leverage technology with great efficiency and flexibility.
For a growing number of organizations, success will hinge on selecting the right outsourcing provider to manage a complex
and continually-evolving IT infrastructure.

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 Critical Qualifications for IT Outsourcing Providers

When companies initiate an IT outsourcing strategy, good business practices mandate that enterprises consider service
providers that can demonstrate the following:

1. A strong executive management staff

2. An understanding of the scope of services required
3. A proven track record of performance in meeting the scope of responsibilities
4. Financial depth and stability
5. The service depth to meet the greatest number of needs as a single source. The fewer the points of accountability, the
easier the contract management. If a single provider can address multiple needs, the provider can become more familiar
with a client’s business and become a valued strategic partner for ongoing needs.
6. Technical and human resources that can be brought to bear when a customer changes or grows its business

These six critical success factors provide insight into the types of questions companies should be asking of current and future
service providers for IT outsourcing. Each is equally important to the overall business impact and quality of services provided. Many
companies typically examine only a handful of quantifiable measures like return-on-investment (ROI), payback, internal rate-of-return
(IRR), return-on-assets (ROA), or economic value added (EVA) – and rightfully so, as these are important measurements for evaluation.
However, the most savvy and successful procurers of outsourcing services integrate the factors listed above into the vendor evaluation
analysis to ensure a successful outcome of the outsourcing relationship.

Verizon IT Raises the Standards to Deliver Real

Business Value

Elsewhere in this document we have reviewed the advantages of IT outsourcing and provided the key requirements to demand of an IT
services provider. These considerations form a strong and rational baseline for evaluating outsourcing as a business strategy.
However, to maximize the business impact of outsourcing, companies must look for vendor qualities that exceed the expected norm.
Such attributes as corporate culture, industry leadership and innovation, and commitment to customer objectives form the extra
dimension that defines the most successful outsourcing relationships. Verizon IT exemplifies how one organization can raise
the standards for an entire industry.

1. Verizon IT is a force in the market

Verizon has been providing data center management and outsourcing services since 1967 and is now one of the largest IT
services organizations in the United States, with state-of-the-art infrastructure and access to more than 7,000 IT professionals.

2. Our leadership is well recognized by respected industry watchers

Verizon IT’s capabilities, service, and performance leadership have been noted by such organizations as Gartner Analysts and
the Uptime Institute.

4 THE IT OUTSOURCING DILEMMA

3. We have the depth of services to provide single-source support
For mainframe, distributed system, and end-user environments, our range of services means that customers receive end-to-
end IT infrastructure management:

A. ISO-certified operations support – This includes the ongoing maintenance and monitoring activities required to ensure
that our customer’s system runs smoothly and efficiently. Our staff is on site around the clock to proactively monitor
system performance, and to diagnose and resolve issues. By using our ISO 9001:2000-certified procedures and highly
skilled technicians, Verizon IT provides customers everything from system monitoring to backup and recovery services.

B. Comprehensive technical support – This encompasses the functions necessary to support the operating environment in
a systems administration (break/fix) capacity. It includes engineering, hardware maintenance, operating system software
support, capacity and performance management, and system database software support.

C. End-to-end network support – Verizon IT is unique in that we can leverage Verizon’s world-class capabilities in network
communications to provide customers with end-to-end network solutions that are highly scalable and reliable. Our
staff is on site 24X7, and has extensive knowledge to deliver robust network solution options (e.g., Internet, VPN,
Frame Relay, ATM, DSL). Functions include everything from network infrastructure planning and engineering, to
monitoring, performance management, and reporting.

D. Hardened data center environment – Verizon IT has access to world-class data centers (strategically located across the
country) which are protected from power outages and hardened against natural disasters. Business continuity features
include redundancy for power, and telecommunication connections.

E. Tri-Level security service – Our approach ensures that all customer applications operate in a safe and reliable environment by
covering three areas of security: Physical, data, and network.

F. Applications infrastructure service – For key enterprise applications such as CRM (Customer Relationship Management),
SCM (Supply Chain Management), ERP (Enterprise Resource Planning), and KM (Knowledge Management), Verizon IT
provides hosting, management, and maintenance, as well as full deployment capabilities through key strategic partnerships.

G. Enterprise help desk services – For enterprise environments, we provide a comprehensive range of help desk services,
including network access, software installations, and systems availability and operations.

4. We’ve defined a new industry standard – accountability

The ultimate success of outsourcing is determined by how well a provider aligns and commits its capabilities with a customer’s
business objectives. Verizon IT’s unique accountability service platform does just that – in four specific areas: Team, Terms,
Transition, and Tracking. The Team commitment ensures the quality and continuity of account service by dedicating account
service representatives at three levels. The commitment of Terms is defined by customer-accountable pricing that coincides with
specific customer objectives. The Transition commitment assures that the migration of IT responsibility is managed without
affecting customer business operations. And the Tracking commitment provides concrete service level agreements and other
specific measures by which a customer can objectively and precisely judge our performance.

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Verizon Information Technologies LLC
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