Using Managed Services to Lessen Complexity

By Allen Bernard

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While nothing new, managed services seem to be moving into a new era with the advent of one-size-fits-all, scalable solutions; the Internet; and economies of scale.

Yet, while more and more businesses look to third-party providers for everything from network monitoring to full-on IT outsourcing engagements, the definition of just what is a managed service is getting increasingly murky.

Is it software-as-a-service where you subscribe to a solution not owned or hosted by your company? IT outsourcing where you offload personnel to a big player like IBM or HP? On demand compute cycles from Sun Microsystems?

"It can mean, in practice, anything from traditional ITO kinds of things like managed mainframes or servers, managed network services, remote monitoring, SaaS; it doesn't necessary entail any percentage of automation verses labor," said Forrester Analyst Bill Martorelli. "A lot of managed services are just managed in the context of people doing a lot grunt work."

While the answer may not clear, what is clear is there is a new and increasing interest in having someone else provide you with functionality—either IT or business-process centered—so you don't have to deal with it. And this is especially true for the small-to-mid-sized business (SMB) space, said Jeff Jernigan, an analyst with the market research firm In-Stat.

"It's easier to scale services now so you don't need the 'feet-on-the-street' to serve however many small-and-mediums businesses there are in the U.S. and the world, for that matter," he said.

In research into the managed services space In-Stat recently completed, what they found was complexity was a driving factor in deciding to off-load IT functions traditionally performed in-house.

In-Stat looked at network security, storage and data back up, LAN and WAN management, routing management, hosting, PBX and phone system management, and telecom expense management; to name just a few of the areas managed service providers are now offering services.

"The results were pretty overwhelming because even those who didn't currently employ a managed service, or plan to, even they were pretty likely to admit complexity would have a factor on them in the future," said Jernigan.

The $64,000 (or million) Question

So the question becomes: If the market for managed IT services is taking off because of complexity, is this really a good way to lessen that complexity or does it simply introduce a new set of problems in the place of old ones?

The answer, as you can imagine, is not straight forward, said Lou Washington, the "Master of MIPS" and a senior business analyst at software and services provider Cincom Systems.

"To me it's a natural opportunity to concentrate on your core-competency, and hiring somebody who is certainly more adept at whatever technical requirements you might have in terms of your infrastructure," he said.

But … "It's not a particularly easy thing to do, to manage multiple service providers …," said Forrester's Martorelli. "I believe that calculus is going to be different. Some people may find it pretty much a God send, others will find it not to be."If, on the one hand, your organization is good at managing it's service providers, then there may well be an opportunity to lighten the load. But, if you struggle with SLA management, then you may do more harm than good trying to, say, have someone manage your security and network.

Also, who is providing the service? What are the Sarbanes-Oxley implications if the service they provide has a material impact on your bottom line? Can you hold them accountable?

You have to very careful who sign with, obviously, said Julie Craig, a senior analyst with Enterprise Management Associates. But, the big difference today, and where the market seems to heading, is the breadth of the offering (MS providers are getting more and more point-solution focused everyday) and the length of contract.

"It's actually somewhat different than (traditional) outsourcing in that a lot of these companies have month-to-month contracts," she said. "So, what they're telling you is, 'If you don't like my service after a month you can discontinue it'."

From that perspective, managed services offer a better deal than a typical three-to-five year IT outsourcing arrangement. If you find you don't like their services you can disengage from the provider pretty rapidly since they are working remotely to manage your in-house systems—no data-ownership issues, for example.

But, if you've let all your database admins people go—since they were no longer needed and you wanted to say money—then you might have a problem. You are now, at least temporarily, locked in to your service provider.

Since IT complexity is a given and getting worse these days—even though it may not appear to the be the case to end-users (most of the time anyway)—the decision to take on a third-party provider is not an easy one, or a decision that should be taken lightly. But, obviously, since the market is flinging it way further and further down the corporate size chart, there is real benefit to be had as well.

"You might find, that through use of a MSP (managed service provider), you can be better at things you were poor at," said Martorelli. "But, in general terms … , if you can manage services effectively internally, it may prove you have little reason to outsource, number one.

"But, on the other hand, it may demonstrate that, at least, you are in a position to understand outsourcing, control it effectively and so you may have a good opportunity to benefit from intelligent and thoughtful outsourcing. We would argue … this is where the market is going."