With ebusiness continuing to grow and the amount of data produced by companies rising at an alarming rate, it is hardly surprising that firms are considering third-party suppliers to handle their ICT. But outsourcing deals, such as the £2bn contract that Procter & Gamble awarded to Hewlett Packard to manage its IT infrastructure earlier this year, are simply out of the reach of most SMEs.
Apart from the cost involved in outsourcing deals, SMEs are simply not as attractive a business proposition to outsourcing suppliers. Robert Morgan, Chief Executive Officer of outsourcing consultancy Morgan Chambers, says, “There has always been a problem in getting outsourcers to look at SMEs.”
Managed services, however, could provide you with the answer. Unlike outsourcers, who take control of entire services within a business, managed services firms handle parts of a company’s IT infrastructure. A good example of this is storage on demand, which provides users with extra storage capacity when they need it.
There has been a great deal of hype surrounding what is known as utility computing over the past few years, although experts admit that the likes of storage on demand could help SMEs reduce costs and avoid capital expenditure. Morgan says, “If an SME has to put in a new storage system and do lots of testing, they would once have had to buy extra storage for testing, but now they can hire the storage.”
Mike Tobin, Chief Executive Officer of independent co-location provider Redbus Interhouse, agrees. He says, “If you are trying lots of new products or new ideas you need the ability to expand and contract your resources.
“If an SME needs a terabyte of disk, it may only need it for two weeks. The concept of renting utility storage is good for SMEs, it’s like having an application service provider (ASP) for hardware.”
However, Morgan advised SMEs to be wary of putting pen to paper on lengthy contracts for storage on demand. He says, “SMEs should not sign long-term contracts with managed service providers for storage on demand, because if the concept takes off we expect the price to go through the floor.”
This touches on one of the key reasons why SMEs look to managed services – cost. If you can’t afford to buy new systems outright, then why not make use of someone else’s?
But there are also other reasons why SMEs should consider managed services. These include company growth, rising demand for bandwidth, security and the growing need to link networks. With IT becoming more complex and more business-critical, managed services could enable a company to stick what it knows best – running its business.
A varied role
But Martin Sexton, Director of IT at systems integration specialist London Market Systems, urged users to see managed services as much more than just specific applications. “It’s a misnomer to look at managed IT services purely as web site host or a managed storage service.”
According to Sexton, managed service providers can fulfil a varied role for SMEs. “The role of a managed IT service provider is far more complex; he must be able to offer advice on the latest technologies, supply fast, support efficiently and be a single point of contact for IT issues.
“This, coupled with a knowledge of the client’s business, can ensure the successful continuity of the business without the disadvantage of employing expensive IT resources,” he says.
Service level agreements (SLAs) will be an important part of your agreement with the managed service provider, because they determine the performance levels provided. David Foster, Chief Executive Officer of Burns E-commerce Solutions, says SLAs were a key part of his company’s decision to choose IBM as its managed services provider.
“SLAs are critical,” he says. “One of the reasons why we chose IBM was the extent to which they stood up to the plate on SLAs with the amount of uptime they were prepared to guarantee us.”
However, Tobin advised SMEs to adopt a rigorous approach in their negotiations with any prospective managed service providers. He says, “The SME has to go and kick the tyres a bit, they could get three quotes to manage a firewall, for example, but rather than just talking to the salesman, they should make a visit to the managed services site.”
It is also worth quizzing the managed service company’s engineers about how they would deal with certain situations, says Tobin. “It’s all about ‘what if’ scenarios,” he says. “Also, ask the managed service provider for customer references of your size – and talk to them.”
With businesses constantly coming under threat from virus attacks, SMEs are also thinking about the security benefits of managed services. Recent attacks such as the Blaster worm highlight the need for secure IT at a time when systems between businesses are becoming more and more interlinked.
The problems caused by viruses at blue chip companies may hit the headlines, but this doesn’t mean your business is not going to be affected. Tobin says, “An SME typically doesn’t have the public gaze on it that a large corporate would – but now they are talking about security because their systems may have to link up with those of a larger corporate and they don’t know when a denial of service attack will happen.”
Getting the message
The initial signs suggest that companies may be getting the managed service message. Research produced earlier this year by international market consultancy Frost & Sullivan predicted that sales in the European managed web hosting space will reach $1bn by the end of 2005. However, this will leap to $4bn by 2008.
The reasons for this include increasing penetration of broadband, the growing shift of business processes to the Internet and the rising adoption of IP virtual private networks, coupled with the falling cost of bandwidth.
Admittedly, Frost & Sullivan’s report touches just one part of the managed services market, but it is worth nothing that SMEs are still subject to the same business and technology pressures as larger companies.
But, at the end of the day, could it be that your business is simply too small to exploit managed services? Foster disagrees. On the contrary, he believes many SMEs are unrealistic about the hidden costs involved in handling complex IT projects in-house. He says, “A lot of SMEs have a ‘can-do’ attitude but many don’t look at what is the total cost in terms of lost management time and production.”
It is also worth noting that a managed service avoids the disputes that often ensue when in-house staff are transferred to the supplier as part of outsourcing deals.
As Morgan says, “Managed services have all of the advantages of outsourcing, but none of the traumas for staff.” N
Benefits of managed services for SMEs
- Cuts out the need for significant capital investment. This limits risk associated with high fixed and capital costs of a DIY network solution.
- Reduces the resources required to manage a DIY network solution.
- Benefit from a supplier’s expertise and IT resources, which can be both difficult and expensive to provide in-house.
- Having the flexibility to grow and change your network end-to-end as your business demands.
- Assist you with the ongoing network planning as requirements and applications change.
- Provide proactive management to monitor, maintain, fix and measure network performance.
- Provide guaranteed times for new installation and guaranteed times to repair.
Source: BT Business
Earlier this year Manchester-based company Burns E-commerce Solutions, which employs 50 people, signed a deal to obtain a managed service from IBM to host its Bex e-purchasing service.
Bex is the key weapon in Burns’ armoury of epurchasing services, linking the company’s own corporate customers with their respective trading partners. Balfour Beatty, BAA and Office Depot are just three of the firms using Burns’ e-business platform, which connects over 30,000 suppliers, handling over 100,000 transactions a week.
Burns’ ebusiness service was originally hosted internally, although growing customer demand prompted the company to opt for a managed service provider. Burns Chief Executive David Foster, pictured below, said, “This is partly about cost, but it is also about capability – running the infrastructure is not our core competency.”
In addition to Internet connectivity and hardware, IBM also provides Burns with a high level of security and availability. Foster said, “They are providing a secure environment, and systems admin and monitoring, delivering us a round-the-clock service.”
Now the company can look to future business opportunities, according to Foster. He said, “It gives us the ability to take on clients and suppliers around the world because we can now say confidently that we have a service that runs 24x7.”
Click here for Part One of the SME supplement >>