Managing Risks Inside and Out

A new report finds that offshore IT and business services subsidiaries have once again become the preferred method for multinational companies to meet in-house services requirements. In other news, Amazon.com Inc.'s cloud infrastructure suffered a four-day outage that affected multiple "availability zones" across the service. Finally, LDM Global, an international information management and litigation support solutions provider, announced the results of its "2011 eDiscovery Errors" survey.

Focal Points:

• According to analysts, setting up offshore IT and business services subsidiaries, or captive centers, has once again become preferred by multinational companies wanting to tap talent in low-cost locations while meeting in-house services requirements. Everest Group reports that 62 new captive centers were set up and 70 existing facilities were expanded in 2010. This is an increase from 47 new centers and 67 expansions in 2009. Everest also said that these centers were primarily built in Asia. Analysts added that the focus of captive centers has shifted, from mere cost-cutting to innovative development and building deep business expertise. Companies are also adopting a hybrid model that combines captive centers with outsourcing to local service providers. With this type of model, companies focus on core business processes and software development in their captive center, while outsourcing non-critical work such as call centers and software maintenance to third parties. The report also said the companies are positioning more senior technology leadership within captive centers. This ensures better alignment with corporate headquarters and better control of initiatives within the captive center and at the third-party vendor's site.
• Amazon suffered a major outage to its cloud infrastructure for four days that affected multiple "availability zones" in the Eastern region. According to Amazon, availability zones "are distinct locations that are engineered to be insulated from failures in other availability zones." The outage affected the use of Amazon's Relational Database Service (RDS) and Elastic Block Store (EBS) service, and brought down multiple public Web sites, including Foursquare Labs, Inc., HootSuite Media Inc., Quora Inc., and Reddit.com. According to Amazon, the outage was caused by a "network event" that caused the service to "re-mirror" a large number of EBS volumes.  Since the EBS and RDS services failed rather than the Elastic Compute Cloud (EC2) service, and because the failures were restricted to availability zones within a single region, Amazon stated it did not breach its service level agreement (SLA).
• LDM Global published the results of its "2011 eDiscovery Errors" survey. The company asked industry professionals across Australia, Europe, and the U.S. for their views on which errors they experienced most often during the e-discovery process. LDM Global did not identify the total number of respondents to the survey. According to the results, the most common error was failure to communicate effectively across teams, with 50 percent of the respondents identifying this as frequently occurring. The survey also found that 47 percent of respondents find that their companies have an inadequate data retention policy, and 41 percent report that they do not collect all the pertinent data. Other frequently occurring errors included failure to perform critical quality control, with 40 percent of respondents identifying this, and badly thought out or implemented policy, with another 40 percent selecting this category.

Experton Group believes the current U.S. economic, education and regulatory environments are driving companies to offshore IT efforts, including innovation and development, as companies cannot acquire or keep the needed advanced IT skills within the United States. This trend will continue until and unless the federal government changes direction. It is highly likely the shift to offshore will be permanent and some of the U.S. technology advantages will be permanently lost. Experton Group expects most major enterprises will have to follow suit to remain competitive. The Amazon outage was a shocker to the community, especially since the vendor did not end up violating its Region SLAs. Amazon's uptime SLA "guarantees 99.95% availability of the service within a Region over a trailing 365 period." A 365 day SLA gives any vendor far more leeway with its outages than one of a shorter period (e.g., a week or a month). IT executives and legal counsel must fully understand and appreciate the SLA terms and conditions and negotiate for strong binding commitments with penalties. E-discovery litigation and risk management have been major corporate issues for more than five years now and the failure-to-conform outlays have been costly. Corporate and/or IT executives will be greatly challenged to provide the courts with a reasonable explanation of corporate negligence. IT executives should work with audit, business unit, compliance, corporate, and legal staff to ensure e-discovery policies and procedures are established, implement and carried out.