Taking partners to task
Ten years ago, the talk in IT circles was all about outsourcing and the idea that leading vendors would relieve organisations of their entire technology burden.
This would allow them to concentrate on their core business by removing the complexity of doing it for themselves. Not for the first time, second-guessing trends in this notoriously fast-moving industry proved to be a fool’s game.
With the exception of a few high-profile contracts, the monster deals never came to pass. What evolved instead was the piecemeal handing over of specific IT functions and responsibilities, sometimes known as selective outsourcing or out-tasking, but most commonly understood as managed services.
The growth of managed services has affected organisations of every size, and is sector-agnostic to the extent that there is hardly a business around that hasn’t taken the decision to hand over at least a part of its information and communications technology to a third party provider. At the lowest end, where managed services have become the standard way of doing things, it is all about infrastructure.
Further up the value chain, increasingly sophisticated services are helping firms keep the lights on, managing the desktop environment and doing away with expensive in-house helpdesks. At the top of the tree is application hosting, still in its infancy and a sign of things to come as software as a service (SaaS) and cloud computing are expected to increase the role of the managed service provider.
The basis for a managed service proposition is that it helps organisations run their core IT infrastructure with fewer overheads and a reduced head count, which explains why the downturn has had little impact on its adoption. In fact, the reverse might be true.
“We’re seeing an increase in activity, and recessionary trends are a catalyst for that,” said Declan Ivory, general manager of data centre services at Eircom.” People are looking at ways to better manage technical infrastructure, and one option is to work with a third-party provider to optimise costs.”
John Casey, sales manager at Datapac, agreed that the recession had been good for the managed services business.” We have seen more companies looking to outsource more of their support work,” he said.” They have had to make redundancies, but they still have to have IT. In fact, it becomes even more important in tougher times.”
The argument is that leveraging the infrastructure and know-how of a large provider negates capital expenditure and reduces or removes the need for in-house expertise. The skills requirement is particularly important at a time when many firms are under growing pressure to hire more IT staff, as the web becomes a place to do business.
“With the adoption of internet and broadband technologies, companies are expected to be available on a 24/7 basis,’’ said Ivory.” You need additional skills to achieve this. So using a managed service is not just about letting people go, it’s also about avoiding having to expand the IT team.”
This is supported by Datapac’s experience. Remote monitoring of infrastructure from its network operations centre has been the biggest growth area. “We have guys rectifying problems that customers don’t even know about on a 24/7 basis,” said Casey. Such out-of-house support removes the need for in-house helpdesks and technicians who may only occasionally be cal led into action.
“It’s always been very hard for companies to have all the requisite skills in house to support the infrastructure,” said Casey.” It’s a nightmare for a company to try and keep up with the latest products from Microsoft, VM ware, Citrix and the various ERP systems. So it makes sense to outsource.”
At Ergo, managing director John Purdy identified the outsourcing of skills as key to its success in managed services.
“In the current climate, the thinking is that headcounts have to fall and you can pick up the pieces by using external people,” he said.” It’s about out-tasking, where chunks of ring fenced work are handed over to a third party, probably because the person who used to do the job has been let go.”
Relationship review For many organisations, the managed service discussion has moved on, as they embark on a second or third engagement with a third-party provider. Ivory said that companies needed to constantly review their relationships, particularly around hosting and data centres, where technological advancements could make a good deal turn bad.
“A company running its infrastructure out of a data centre for four or five years may find that it isn’t running as well as it would in a modern facility where the power and cooling technology is much more efficient,” he said.
Helga Muir, sales and marketing manager at Servecentric, one of Ireland’s largest data centres, said
there had been a rise in the number of enquiries about hosting, confirming the view that companies were shopping around.
“In the boom, there was a lot of complacency,” she said.” Firms had their equipment in a facility and never looked outside of that. Now they are taking a much closer look at costs and want to hear about other hosting models that are out there.”
The mantra of the moment is ‘do more for less’ and companies are applying it to their managed service providers, expecting more competitive pricing structures.” Everybody’s bottom line is being affected by the recession and that includes IT services.
People are reluctant to spend money and are reviewing their operations, but cutting back is not necessarily the best way to cope with a recession,” said Muir.
She said that the fundamental challenge was still convincing organisations that moving from having racks of equipment on their own facility, supported by a large in-house IT team, was less effective that using a host.
“It is the best way to do it, not just from a financial perspective but also in terms of business continuity,” she said.
The argument is that disaster recovery and failover are bread and butter to a modern data centre, giving their customers a level of comfort that they would be unlikely to achieve with their own in-house resources.
Casey acknowledged there was greater competition across al l levels of managed service, with customers constantly knocking at the door looking for a better deal. In some instances, customers have had to let people go which immediately reduces the user support requirement. More often, it is part of a general drive to keep supplier costs down as they cope with falling revenues.
“It’s a very competitive market, so you have two options: you either provide the same service for less – which is not really possible because there is not that much margin – or you cut back on the type of service you are providing,” said Casey. “For example, a typical contract might have an onsite resource one day a week which you could cut back to half a day or one day every two weeks.”
Building trust The real challenge, particularly in a downturn, is to build trust and expand the engagement.” We have relationships that have grown from remote monitoring to doing back-up, and then moved on to managing the whole IT environment. At each step you build credibility,” said Ivory.
Such relationship building was at the heart of Digiweb’s recent decision to expand its managed service portfolio, a sure sign that there are still outsource opportunities. The broadband provider already offers hosting but now adds a full range of support services.
“We always knew we had to go beyond being an ISP [internet service provider] because it is such a commodity service,” said Dan King, hosting and managed services manager.” To thrive as a company, we need to provide more and more services.”
In an increasingly crowded segment, where vendors go to market from different angles to compete for many of the same managed services, King is confident that Digiweb has enough to differentiate around largely commoditised services.
“Being an ISP helps – we can control our costs and be more competitive and more user friendly to the customer,” he said.
At BT, the drive with larger customers is to move away from the commodity offerings and form longer term partnerships.” Large and even medium sized firms are now hiring chief information officers that are more visionary and strategic to head up their IT. We want to engage with them at that level,” said Johnathan Ferris, BT’s head of managed services.
The BT approach is to move its clients from operational efficiency to service transformation. It is predicated on organisations choosing to consolidate and make the leap from multiple suppliers and disparate service-level agreements to a single supplier, using BT as a one stop shop.
“Managed services are basically two things: people and tools,” said Ferris. “Skilled people provide different levels of support, while the tools drive innovation and automation. Both are quite advanced in Ireland.”
Ferris believes that the vendor/customer relationship has profoundly changed as ICT technology has matured.
“In the past, customers were interested in what routers they were getting and the technical specification,” he said.” Because all those elements have been commoditised, there is more focus on service level agreements and governance. Organisations now want to know how they are going to be partnered and helped in an upgrade or migration. The kit is less important.”
The sheer speed of technological development is what is really driving managed service uptake, according to Ferris, because it’s an easier way for companies to keep up. The server base in most companies used to be simple, for example. Now it’s a virtualised cluster and mix of Microsoft and Unix. On top of that, people are working remotely and need better security.
“All the complexity creates spider webs and companies can no longer cope with the cost and pain of dealing with it in-house.
Finance or construction companies know that they would be crazy to try and be IT experts as well as run their businesses,” he said. As for the future, all the big providers expect SaaS and cloud computing to accelerate the adoption of managed services.” Companies aren’t cash-rich at the moment,” said Ferris.
“Spending capital upfront on new systems and depreciating assets isn’t a good place to be. Paying per user on a monthly or quarterly basis is a much more attractive proposition.”
