Let's Talk Managed Services

My colleague Alaa Saayed and I have embarked on a new research project studying the market potential for managed telephony/UC services in North America. I also authored a managed services white paper which you can find here. We are defining managed services as managed customer premises equipment and applications and are clearly differentiating those from hosted or cloud services.

Here is a chart that shows what is typically included in managed services offerings:

Most vendors and channel partners reported an uptake in managed services throughout the recession. Workforce reduction led businesses to seek to out-task routine network management activities as a more flexible alternative. In fact, throughout the years, reducing labor costs and/or augmenting internal staff capabilities have represented the primary drivers for managed services. In cases of slow or uncertain growth, more cost-conscious businesses have chosen to maintain a minimal number of IT staff and frequently find themselves unable to handle peaks in activity or properly support the infrastructure when IT staff becomes temporarily unavailable (e.g. during annual vacations).

Furthermore, as the complexity of communications infrastructures increases and businesses look to consolidate not just networks and applications, but also the management of all their hardware, software and vendor relationships, managed services are becoming increasingly popular. Currently, businesses have separate arrangements with multiple vendors – for voice, data and applications. In multi-vendor voice environments, there could be separate contracts for each platform with multiple vendors, VARs and service providers. Managing all these relationships is costly and frequently ineffective in ensuring synchronized infrastructure upgrades and a migration to a more consolidated, tightly integrated communications environment.

Though the benefits of out-tasking infrastructure management to a single party seem obvious, businesses frequently perceive the move to managed services as presenting challenges on several levels. Internal IT and telecom staff fear they may potentially become obsolete as the managed services arrangement evolves and matures. Additionally, a managed services contract commits the business to recurring costs throughout the course of several years, which appears to increase the total cost of ownership (TCO) of the communications infrastructure. Also, for some verticals with dual budgets such as government and education, managed services can also help shift costs from CAPEX to OPEX, thus enabling these organizations to take advantage of certain subsidies and thus lower the TCO.

Nobody is particularly fond of insurance and likes to pay high insurance premiums. Yet, there are multiple occasions when we’ve benefited greatly from the mitigated cost of an unforeseen adverse event. In my mind, managed services provide similar protection with the added benefit of actual cost savings along the way. The frequently overlooked variable in a TCO analysis is the cost of downtime – in terms of lost revenues, customer dissatisfaction, etc. Third-party remote monitoring and proactive performance and QoS management can provide a safety blanket to businesses with round-the-clock customer-facing services such as healthcare, financial services, hospitality, etc.

The chart below identifies some triggers for managed services implementation in the large enterprise and SMB sectors:

Managed services will evolve over the next few years along several dimensions: some vendors will focus on greater SW support, blending maintenance and managed services with software assurance programs; other vendors will sweeten managed services deals with equipment financing and leasing arrangements; yet, others will package managed CPE with hosted/cloud offerings. Pricing will become increasingly more competitive. Customers can take advantage of vendor efforts to secure managed service deals and ask for better SLAs and various incremental benefits (e.g. SW upgrade support, more detailed reporting, etc.)

Any other thoughts on managed services?