Why is your Competitor Using Managed Services Outsourcing Model?

If you run or finance IT operations in your organization and would like to explore the intricacies of acquiring managed services from a provider, you are in the right place. This article is the first in a 3-part series primer on IT Managed Services from a buyer’s perspective.

This first article is an introduction meant to provide an overview of this buying model. The next one will describe the crucial evaluation criteria to take into account when choosing a managed service provider. And the last one will put a successful and running managed service contract apart to understand what can constitute such success (in hindsight).

 

Managed services model: an introduction

However there is often much confusion around this term, and different vendors understand it differently. In this article, we’d like to clarify how we understand and deliver our managed services.

First, let us define ‘managed services’:

in the managed services model, a strategic partner takes on, transforms and runs specific business operation(s) and process(es) to improve the quality of their outputs and efficiency on a long-term basis.

 

Let’s talk about benefits

Now let’s explore the reasons why companies across all sectors go into this model. These could fall into 3 broad categories of business reasons:

 

1. Availability

IT talent is scarce, and it is extremely difficult to hire, retain and constantly train IT staff. Hence the talent pool for your organization might be limited – either because of your location, or because information technology is not the business essence of your company. In such cases, it may be beneficial to work with a partner whose core business includes IT services and is able to provide the necessary technical muscle to power your organization.

 

2. Cost

This is a very wide-ranging reason. Cost may be looked at from various angles. At its simplest, for most organizations building all the capability for wide-ranging IT skills, knowledge and IP is going to cost more than contracting a provider that specializes in the particular field. Gathering and maintaining the development, project management, security, testing/QA, support capabilities in the various technologies your organization needs, often in a 24/7 fashion, is no easy feat. Even more important is the fact that managed services expenses are categorized as operational, while in-house IT costs (when it comes to staff as well as tools) are capital expenditure. This, in the era of low-interest rates and unpredictable socio-economic environment, is welcomed by most industry leaders, as it allows to quickly change direction if required.

 

3. Focus

I believe this to be the most important, and sadly least acknowledged reason. It is your role as organization leader to redirect resources to where they make the biggest impact (on your top/bottom line but also your mission). And there are no other ‘resources’ in today’s economy more precious than people. This is why Google is dropping really large projects without hesitation when they don’t pick up quickly (remember Google+, Buzz, Notebook, Search appliance?). It’s not that they don’t have cash – they are literally sitting on it (so it’s not a case of cost), but their best and brightest people should work on initiatives that have the biggest impact.

 

What are the Managed Services pricing models?

Even though in many scenarios the managed service model makes a lot of sense, procurement and IT management simply do not know how to approach the buying process of such services, unlike the more popular fixed fee projects, T&M, staff augmentation or product licenses (be it perpetual or SaaS).

I will elaborate more on this topic later, but suffice to say now that at Predica we like to keep things simple and hence we offer just 2 types of managed service operations contracts:

 

Hourly Pool with SLA for response time

Think of it as your ‘insurance policy’, guaranteed access to Predica best experts and their knowledge, but without result guarantee. This works best when you have permanent IT operations staff at a decent cost with scale, allowing you to cover the required availability, but additionally need occasional access to subject matter experts on a fairly quick turnaround (days, not weeks). This option is often used by our customers after system go-live as a hypercare during a 3-9-month period.

 

Full Managed Service

This is where you can focus on your core business and transfer responsibility for specific IT system or process to us. We will provide it in a transparent, efficient model driven by a set of KPIs/SLAs (e.g. fixed time, root cause analysis time, recovery time, fix/patch deployment time, CRs completed and much more).

Below is a table comparing these two models with the well-known ‘staff augmentation’ approach:

Parameter\Type Managed Service Hourly Pool with SLA (Hypercare) Dedicated Engineer/Team
Billing Fixed Hourly rate (with retainer) Hourly/daily/monthly rate
Service Level Agreement Multiple SLAs Response Time only None
Named consultants No No Yes
Project/service owner Yes Yes No
Contractual penalties Yes No No
Min. Predica engagement ~0.5FTE (80hrs/month) 10hrs/month 1 FTE
Dedicated or shared staff Hybrid (core dedicated) Shared Dedicated
Min. contract duration 1 year 3 months N/A

 

Cloud Services

Summary

I hope you have now a more detailed vision on what Managed Services are and in which ways this option can be beneficial to a variety of companies whose core business is not IT. Stay tuned for more information about Managed Services coming soon to our blog!

Key takeaways
  1. Managed Services model is the right choice when IT talent is scarce, for example because information technology is not the business essence of your company.
  2. When it comes to costs, contracting Manages Services provider in many cases is much more reasonable than creating an in-house IT team.
  3. In Predica, we propose two main pricing models: hourly pool with SLA for response time and full Managed Service.

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See also

Churn & Score Analysis in Action: Building Loyalty Measurement System

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5 Steps to Master Access Governance in Your Organization

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Our DevOps Culture in Action: A Case Study of DevOps Standardization at Predica

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