In-house or Outsource for Information Hosting?

It is common for corporations to be faced with daunting amounts of data residing in unstructured formats, and the volume of data is growing at a frightening rate. We have seen our clients’ data storage needs grow by approximately 800 percent over the past three years.

The need to host documents may arise while handling a specific legal matter, where the need is for rapid search and review of electronic records, or it may arise in the context of ongoing business, where the need is to rapidly index, find and use electronic records.

Either building or outsourcing a system, including the software to manage records in an electronic format, inevitably will be challenging, stressful and time-consuming. First steps in the process should include a solid planning session, budget approval, and buy-in from legal, HR, accounting and IT. To avoid duplicate efforts, those carrying out the project should take advantage of any planning that has taken place previously.

Today “network share drives,” or “public drives,” are common. We know them as the alphabet drives (usually designated P or S drives). Although file shares are simple to setup, they are a nightmare to manage. In lieu of relying on them, hosting solutions managed by robust software offer several advantages.

This article will focus on (1) understanding hosting options, (2) pros and cons of internal and external hosting, (3) criteria for selecting an outsourced solution and (4) tips on negotiating the best deal.

HOSTING OPTIONS

The “hosting environment” is the physical environment from which hosting services are offered.

Typically, hosting environments are in a data center housing the needed equipment – software and hardware – including servers, routers, and their cabinets. In most cases the equipment would be rack mounted and connected through one or more local area networks (LANs.) Security is administered via layers of hardware and software configurations that can allow users and groups to interact with documents stored on the servers.

The first step is to decide exactly what should and should not be hosted, since there are high costs to store and manage electronic documents. Records retention policies dictate what types of documents should be kept, but generally documents in three major categories should be stored and managed.

(1) For a litigation need. This means documents that are under a litigation hold due to pending legal action.

(2) For a regulatory need. This consists of regulatory business compliance documents, state, federal, or local.

(3) For a business need. This refers to documents that are needed for an ongoing business purpose. This is a category that is essentially self -determined.

RUN YOUR OWN OR SOURCE IT OUT?

With this issue covered, you need to decide whether to host within or outside of the corporate firewall. All options should be investigated, and don’t rule out a a hybrid solution.

Here are some major reasons to consider outsourcing:

• No large-scale capital expenditures are required.

• Scaling, support and expertise are the vendor’s responsibility.

• You gain project management and consultation, database administration and workflow analysis from professionals who are familiar with all facets of document retention.

• There will be concurrent global access for multiple users, firms and organizations, as needed.

• You will have a party-neutral environment with solid security and permission setups.

• It is easier to bill your clients for services provided by a third-party solution.

• Hosting allows law firms to focus purely on practicing law, while allowing companies to focus on their areas of expertise.

• You are not locked into just one solution. You can use best-of-breed technology.

Of course there are arguments against outsourcing, as well. They include the following:

• There will be permanent monthly fees, or fees lasting through the life of a matter.

• There could be costs associated with migrating data if you need to switch vendors or change platforms.

• Workloads and priorities are usually set as first-in/first-out, from the vendor’s perspective.

• What is important to you may not be important to the vendor. Change management will be out of your control (although you may have some influence on development).

IN-HOUSE, PRO AND CONS

The major impediment to implementing an in-house solution is likely to be Human Resources, but the advantages make it worth considering. The pros include:

• The environment will be under your control.

• Your document retention policy is enforced.

• Security is under your parameters and control.

• After the initial investment, there will be no on-going monthly costs.

• Workload and priorities can be set internally.

• There will be the potential to reduce some litigation-related costs. The corporation, for example, can require outside counsel to use its hosting platform.

• Internal solutions can be significantly customized to fit the company’s business needs, in contrast to the outsourced solution that has to meet the needs of many clients.

The in-house hosting option of course has some cons, as well. They include:

• Bringing your hosting in-house requires a significant capital investment and red tape to get budget approvals and support from IT.

• New hardware (servers and storage), software and bandwidth will require significant IT support, as well as dedicated software support.

• Significant human resources will be needed to ensure connectivity, help desk support, project management, database administration, data load, data analysis, training and backup.

• You need to be prepared for maintenance activities, such as validating backups, performing technical service patches and planning for system upgrades.

• Liability will also be brought in-house. You need to maintain chain of custody. You are solely responsible for maintaining data integrity.

• “Scaling the environment” will also be your responsibility. Additional capital investment should be planned for growth needs which may require such additional items as servers and software licenses.

• Department costs may be difficult to allocate back to individual department budgets.

AGGREGATE CONSULTANTS’ EXPERTISE

Deciding between an in-house or an outsourced solution will depend on your individual company needs. The easiest way to get up to speed is through your potential vendor partners. Meet providers on both sides of the issue, and bounce ideas off them. Let them know you are considering several different options and be specific about any issues you have with their products and services.

You may find they come back to the table with alternative solutions. In my experience, there always will be one or two potential partners that, in terms of resources and experience, stand out from the crowd as true consultants. Use them as to help develop your plans.

In the investigation process, you will need to determine what your end goal is. For instance, are you going to implement an enterprise solution, or will this be a project-based solution? Will the solution be more of a document management tool, or should it meet the needs of the legal department for litigation support?

Again, determine who will be the ultimate decision maker, because that person will need to support you along the way and should be on the same page regarding the technology under discussion, the end goal and the purpose. Determine who will write the check, and where you are in the budget cycle so that you can set proper expectations.

Do not forget the end clients. You will need to decide which role a final user will have in the product solution. Will they take part in the decision? This is critical in any implementation and will help smooth the rollout process. Develop selection criteria with users, stakeholders, and decision makers, so all are clear on the requirements.

THE RFP

Take advantage of online resources for creating an RFI or RFP. A solid RFP process should include crucial selection criteria. These include company background, financial stability, merger/acquisition status, material pending lawsuits, insurance, expertise of staff, turn-over rate, hours of availability, cost, infrastructure, scalability/capacity, and adequacy of financial resources that would be needed to increase capacity.

Find out about the facilities locations, physical access and security, disaster recovery plans, litigation chain-of-custody procedures, use of subcontractors and outsourcing, use of overflow vendors, and enforcement of document retention policies.

Most importantly, ask for references and call them. Talk to clients that have implemented similar solutions, and be thorough in your questions. Go beyond the provided references and see if you can identify other users of their solution and make your own phone calls. This single step can save you much grief. Remember, this step involves a significant expenditure of time and money, so it should not be taken lightly.

MIND THE EXTRA CHARGES

In the end, you will get what you pay for. Be prepared to manage risks. What if a hard deadline is missed? What if the budget overflows?

Beware of “scope creep.” Are those additional modules really needed, or are they just wanted? Who has authority to approve them? A good deal will include service level requirements, technical support response time expectations, and penalties for non-performance of service level requirements.

Success of software will most likely be measured by utilization and satisfaction of the end users, so you will want to make sure that training costs are waived whenever possible. (You will have to ask.)End users will need to know how to use the tool, and you need all the human resources you can spare, so make sure that the provider is throwing in plenty of training. It is to their benefit as well.

Lastly, seal the deal with ink, not handshakes. Understand this is not an easy process, and there is going to be a lot of work and cost involved. Pick the vendor that offers the best value and not the best price.

Whether to outsource or bring the data in-house should be recognized as a significant decision with important implications. Review all your options, rely on the advice of professionals and colleagues who have experience with the process, and then get the necessary buy-in. Careful planning, negotiation and execution will help you determine whether insourcing or outsourcing is best for your organization.

Fernando Parra is managing partner for Scarab Consulting, where he is responsible for complex e-discovery project management. He has more than 16 years experience as a software consultant with law firms and corporate legal departments, including management of complex projects across multiple states, locations and counsels; government contracts; and operations, for the company’s western region.

fparra@consultscarab.com.