A Boom in Managed Services - How to Prepare

New studies demonstrate the pros and cons of Business Technology deployments, especially as they relate to IT investments strategies.

First, the downside: in a recent study of IT management excellence, the results showed the continuing disconnect between finance and IT roles, and the value each one brings to the organization.

As the report states: "The lack of alignment within organizations is exacerbated by a lack of awareness on the part of both IT and finance about their own contributions to the problem. Nearly one quarter of the respondents report that discord between IT, business and finance is a frequent occurrence when making IT investments."

Why Clear IT Processes Matter
Lack of alignment is triggering a bigger cascade of problems relating to IT investment. For instance, sometimes companies excuse their lack of IT investment due to limited budget and resources.

In reality, "companies are unsure how to define or implement management processes, therefore they are unwilling to make significant changes and they allow other investment priorities to step to the front."

The temptation in this scenario might be to outsource the contentious area to a third-party to save money. This is exactly the wrong time to act.

Clearly, you have to get your own house in order before you take advantage of out-tasking, and then you have to apply strong governance to the service provider relationship. If you can't manage the process internally, you surely can't manage it externally.

Foundation for Competitive Advantage
Why do you need to get your house in order? Assume your competitors are going to act, and thereby gain an advantage from deploying managed services.

Forrester Research analyst Henry Dewing predicts in The Broad Opportunities in Managed Services that "macroeconomic factors, including rapid technology evolutions, a coming investment wave in IT, and market constraints on capital, increasing the attractiveness of managed services over the next 24 to 30 months."

In fact, Dewing proscribes the managed services model, represented by the confluence of faster technology change, a new technology investment cycle, and capital constraints. It's a proven way to take advantage of new technologies without capital investment -- while still having a hedge against increasing change.

Even more important, Dewing continues, "Given limited prospects for growth and the high cost of capital, Forrester believes that many businesses will turn to managed services to limit capital investments while increasing the flexibility of IT infrastructure."

Now, the upside: if you want to be in a position to take advantage of technological advancement to spur new growth -- while still hanging onto precious capital -- then managed services is likely the way to go.

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Global Enterprises Opting for Managed Network Services

I'm going to pull a Paul Harvey on my colleague Joe Panettieri. He wrote a couple of weeks ago about the managed service offerings of companies such as Verizon and Cablevision. For those readers outside the U.S. who don't know radio commentator Harvey, one of his catchphrases is to talk about "the rest of the story."

In this case, it's the number of global enterprises who are signing deals with carriers to manage their networks. Since the time of Joe's story, there have been at least five announcements by major U.S. or global entities opting for large managed services contracts -- and those represent only the customers who were willing to announce the deals.

The first deal to catch my eye was Indianapolis Power & Light's three-year contract with AT&T for integrated network solutions between multiple offices and generation plants, announced November 24th.

Now, managing a network in central Indiana may not seem earth-shaking, but IPL is a subsidiary of AES, a $13.6 billion company based in Arlington, Va., that has a global workforce of 28,000 in 29 countries on five continents.

Then I saw that, four days earlier, AT&T had announced a $346 million contract to manage the WAN, LAN, and VOIP capabilities for the state of Georgia. And the week before that, online investment firm Scottrade had expanded a deal with AT&T for both network services and business continuity.

New Market Momentum
And the announcements keep on coming. This week alone, two more billion-dollar global entities announced managed services deals.

Daimler AG, the €99.4 billion manufacturer of Mercedes automobiles and Freightliner trucks, among other vehicles, hired Verizon Business to deploy and manage an IP network for its operations in Africa, Europe, the Middle East, and North America.

The Elster Group, based in Luxembourg, hired British Telecom to manage the network for its operations in 38 countries across North and South America, Europe, and Asia.

Moving Further into the Mainstream
The moral of the rest of the story is clear: when billion-dollar companies start signing up for managed services contracts, the days of early adoption are over. These entities don't sign contracts like these unless they're more than confident about the ability of the aforementioned providers to keep them up and running in a 24-hour world.

As the analysts like to say when a market takes off in a sharp upward angle, it looks like we're heading into the hockey stick portion of the show.

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Managed Service in Search of a Market

There's a new term in the managed services space -- Desktop-as-a-Service (DaaS), and it's an obvious extension of the SaaS model. Desktone is a company that provides DaaS capabilities to service providers. Its customers, according to CEO Harry Ruda, currently include Verizon and Softbank Telecom.

Ruda characterizes DaaS as a service whereby users obtain their computing services through a remote connection over a network. The physical compute power, if you will, is delivered through a service provider and paid for on some usage basis.

In other words, users can access operating system and applications through a completely hosted system, and the service provider would be responsible at the back-end for storing data, upgrading applications, updating virus protection, among other activities.

Computing Power of a Utility
It relies on the whole concept of utility computing, in which compute power is delivered the same way electricity is -- when you want it in a metered fashion. DaaS proponents even promise that their service, like electricity, is instant-on, because there's no booting of an operating system.

I'm skeptical about a technology that even its proponents admit doesn't work well over wireless connections, when you consider that laptops now outsell desktops because of their ability to work even when users are disconnected.

However, proponents insist that by handing management of PC resources over to a service provider, companies of almost any size can cut maintenance and technical support costs, as well as increase security because the service provider can focus more on patches and virus protection.

Another pioneer in this new category, MokaFive offers a DaaS subscription service for $100 per user per year that uses a virtual machine, which they describe as "centrally managed but locally executed."

That means end-users can choose from among any number of devices -- laptops, Macintoshes, smartphones, tablets -- and have corporate data protected, but can still use their chosen device for other applications or personal information.

Evolution is Easier than a Revolution
The arguments and variations of DaaS go on and on. One of the biggest stumbling blocks to the DaaS model may be the fact that it requires extensive re-thinking of one's infrastructure -- either by replacing desktop computers with disk-less computers or significantly upgrading the network bandwidth, or both.

In contrast to DaaS, most of the current "fill-in-the-blank" as a Service models have been tried and proven, because they're a logical evolution from existing operational models. My skepticism remains intact.

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Making Sure The Numbers Favor Managed Services

As industry analyst forecasts mount predicting the rapid growth of managed services, an increasing proportion of IT and business decision-makers are taking a closer look at how these alternatives can impact their operations.

The challenge is effectively measuring the costs and benefits of these options.

Gartner kicked off 2008 predicting, "By 2011, early technology adopters will forgo capital expenditures and instead purchase 40 per cent of their IT infrastructure as a service." And with today's unprecedented economy crisis, THINKstrategies believes the shift to managed services will be faster and more pronounced than predicted.

As a consequence, every responsible IT and business decision-maker is obligated to carefully reassess their current operations and thoroughly evaluate all of the available alternatives to better manage their IT environments so they can better support their business objectives.

Substantive Cost Comparisons
However, many of the current methods for evaluating the financial impact of today's managed services fall short because they don't effectively measure the full cost implications and additional business benefits of these services.

For instance, many managed service providers (MSPs) utilize web-based total cost of ownership (TCO) or return on investment (ROI) calculators to help potential customers understand the cost-savings they can generate using managed services.

Yet, these calculators often include generic cost comparisons which are irrelevant or of little value to specific companies. Or, they suggest that managed services can eliminate valuable staff positions which raises fears among potential customers that they will lose their jobs by hiring a MSP.

Comprehensive Assessments
What thoughtful IT and business decision-makers need instead are interactive tools which enable them to work with MSPs to more thoroughly measure the real cost-savings and additional business benefits -- both tangible and intangible -- that managed services can produce for their organization.

This requires more sophisticated calculators and skilled salespeople who can work with customers in utilizing these tools effectively.

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Managed Services for Every Type of Organization

Do you believe that the growth of managed services adoption will have little impact in the government sector, or other non-profit organizations? Think again.

Let's consider the facts. Clearly, all organizations benefit from improving their processes.

Government Insights, a global independent research and advisory firm, released a report focusing on Service Level Agreements (SLAs) and their use in managing the delivery of IT and network services.

As IT and network technology are embedded further into business processes, the apparent need for productive cross-organizational partnerships becomes evident. The state of these Business Technology partnerships can be either an enabler or an inhibitor -- when negotiating an SLA.

Demand for Service Level Agreements
Organizations may develop SLAs with internal IT staff and/or with external IT service providers. In both cases they set guidelines and minimum standards for the delivery of IT services to the end-user community.

Jan Duffy, research director, Government Insights, said "SLAs should be beneficial to the IT/business partnership, contributing to transparency and to developing objectives that are achievable. Given the large number of relationships and alliances involved in modern IT, governments can benefit substantially from developing expertise in preparing and maintaining SLAs."

As we've stated previously on this forum, relevant metrics and SLAs are a key ingredient of most managed service provider offerings, and the associated inherent benefit of an out-tasked solution.

According to the Government Insights market assessment, demands are increasing for internal IT departments to provide a combination of "invisibility and level of responsiveness" that is considered a hallmark of the seasoned managed service provider.

Imperative for Improved Accountability
To meet this strategic imperative, many IT leaders have moved their organizations toward a service delivery model. Translation: this means that the performance of IT is being judged based upon the way it is valued by the end-user community -- and not by internal IT indicators.

Government Insights describes the main characteristics of developing successful service level agreements for use in managing relationships between public sector organizations and their internal IT departments and/or with external IT providers.

As a result of their analysis, they recommend that public sector organizations -- including central, regional and local -- acquire competencies that will enable them to:

• Define, measure, and continuously improve the services that IT delivers.
• Continuously monitor user expectations and satisfaction, and provide timely education.
• Deliver IT services aligned with the needs and priorities of current and future mandates.
  

A managed service provider can enable a government, or other not-for-profit, entity to select and implement business technology to improve the effectiveness, efficiency, and quality of service performance that's delivered to their constituents. The need for on-demand service transcends all sectors of the marketplace.

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