The future for the managed services market looks bright: by 2008, the market will be worth €23bn (£15.5bn), according to a prediction last year by research company Forrester.
The potential benefits of managed IT services –typically a slimmed-down version of outsourcing –are many, and essentially allow you to cut costs and make improvements to the efficiency of your IT systems and services.
However, despite the growth in the market, you may not obtain the benefits you expect because you may not have anticipated the risks managed services can bring and how they can work against what you set out to do. In short, your expectations may be unrealistic; you may be too ambitious or optimistic. Such situations are not uncommon but with some savvy they can be overcome.
Managed services fall under the broad heading of IT management (the daily management and operation of IT assets and processes). Within this are three main sub-categories: applications management (whether bespoke, packaged software or network-based); helpdesk management (a central information and support service for hardware and software); and operations services (managing your IT infrastructure – for example, hosting a data centre and supporting desktops. Other services include security and monitoring the performance of IT systems.)
Guianluca Tramacere, research analyst at analyst firm Gartner, outlines the potential benefits.
“Managed services offer users the opportunity to focus on their core competency and core business and can also mean improved efficiency in service delivery,” he says. “Cost savings [from managed services] can be used to support more business oriented initiatives.”
Suppliers are also keen to cash in on demand for managed services and are offering services ranging from web hosting to managing an IT department’s operations.
“[Managed services] let you get back to the business of running your business,” says Chris Wynne, e-business hosting services, region north technical engagement and offerings manager at IBM.
“Your IT staff, saved from countless hours of solution planning, implementation, maintenance and training, can then turn their attention to projects that will further develop and support your core business. [Managed services] are designed to eliminate the need for a major investment in infrastructure, so you can redirect IT investment to your core processes. Managed hosting solutions also help you reduce set-up and maintenance costs, potentially increasing return on investment (ROI) and business value.”
According to Gartner’s Tramacere, you should expect managed services to be secure and flexible, and allow access to new technology when necessary. Cost reduction should not always be the prime motivator for a managed services contract, improving service levels and increasing your company’s IT resources and skills are certainly just as important.
The deliverable of cost reduction from using managed services can bring a good return on your investment, but you could end up disappointed with the return you get.
Robert Morgan, director, business and brand development at outsourcing advisory firm Morgan Chambers says, “There are three main reasons why companies are not getting decent ROI from IT managed services. It starts with not defining what business benefits you want or that are realistically achievable – technical service level agreements (SLAs) are not what modern outsourcing is about.”
One of the most common mistakes that [companies] make is forgetting to motivate the service provider. Delivering to the SLA or letter of the contract is not enough for the business. Driving and motivating vendors is a key skill that must be learnt and constantly practised.”
Neil Meddick, Computacenter’s Director of Remote Services, agrees, “Setting expectations early on in contract negotiations is essential –service providers need to be honest with their customers about what they can and can’t achieve in certain timescales.”
Furthermore, you should not use a managed service as a convenient way to get rid of a troubled IT system or service because this will only cause more long-term problems. You shouldn’t effectively outsource a problem without first doing all you can to resolve it internally.
“It’s also important that customers don’t view a managed services contract as a way to outsource existing problems to an external service provider, as this will eventually damage the relationship and the desired results. “SLAs can help manage ongoing expectations, and as such should focus on end users and measure end-to-end delivery rather than be developed as a way to save money,” Meddick adds.
Before embarking on a managed service solution you also must understand your cost base fully and be very candid. “Be honest in assessing your IT costs – even if your financial systems hide those costs elsewhere,” says Morgan.
Tramacere advises that you pay close attention to agreeing exit clauses in your contract and ensuring your strategy for outsourcing is in line with your general business strategy. Once the managed services contract has been signed the hard work should continue.
“Communication should involve both service provider and service recipients at all levels, including CIO, middle management, business unit leaders, those responsible for delivering services and end users,” says Tramacere.
There are a number of approaches that you can adopt to ensure that you gain tangible and proven business benefits from managed services contracts for the lifetime of the agreement. For example, you could negotiate with your supplier a commitment to a fixed, specified year-on-year cost reduction.
Alternatively, you could undertake with the supplier a benchmarking exercise to agree enhanced metrics for core competencies, such as first-time fix rate and average call answer time. Otherwise you may wish to explore a utility/pay per-use model for the service that you buy. These are just examples. There may be something specific that is a crucial business metric for your business, and by working with your managed services supplier you can develop a way of working that delivers the business benefit in accordance to your expectations.
Ultimately, managed services can offer you a convenient form of outsourcing and a decent ROI. The key to realising the benefits is to do your homework and assess your specific needs. Outline a ROI path, and have realistic expectations based on what you are prepared to invest. Once these are in place, then assess just as critically the companies you wish to work with.
After some failures in the past, some companies may well have attributed their inability to realise the potential benefits as being down to their service partner’s inability to deliver. This may have been the case, but it is as likely that the failing was because of the user’s inability to workout exactly what was required from the service and communicate this expectation clearly to the managed services supplier. In short, what is called for is the ability to match exactly the managed services to your business need. Bear this in mind and managed services really can work for you.
The pros and cons of managed services
- No need to hire skills
- Better performance
- Agreed service levels
- Predictable costs
- Cost reduction/containment/visibility
- Control of IT system/service lost or diminished
- Need to hire/train staff to manage the contract
- Loss of management control
- Benchmarking services is difficult
- Increased dependency on a supplier
Source: Morgan Chambers
This article was part of Computer Weekly's managed services business channel, sponsored by Computacenter.
This was first published in August 2004