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Rick Cook Managed Service Providers: A Growing Option

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 By Rick Cook

Increased SaaS CRM Adoption Increases Consulting Options

Managed services isn't a new concept. As a form of "outsourcing" it has been around for some time. However a confluence of trends, from ever-tightening IT budgets, to cloud computing to the sky rocketing growth of software as a service (SaaS) CRM systems is making it increasingly attractive to businesses of all sizes.

One result is that managed services are growing rapidly. Research firm Ovum is predicting that the managed services market will hit $66 billion worldwide by 2011 and according to In-Stat the US market for managed services is growing at a steady 7% Compound Annual Growth Rate (CAGR).

The growth in managed services among small businesses in the US is even higher. Techaisle, a San Jose, California based market research firm says that growth among small US companies is running over 9% a year and worldwide the market reached $14.3 billion in 2009.

One of the major business advantages of Managed Service Providers (MSPs) is that they make more efficient use of scarce IT resources. Managing domain experts in areas like information security, network management and disaster recovery can be challenging, distracting, costly and even frustrating for business leaders. Even fairly small businesses need experts in these areas looking after their data, systems and business continuity, but they often don't have enough work to keep these IT professionals busy and they may strain to afford competitive compensation plans.

From the customer perspective, managed services provide several advantages beyond the obvious. One of them is the reduction of capital expenditures. Managed services are an operating expense rather than a capital outlay, which shaves on the CapEx budget. It also brings budget predictability since unlike the capital expenditures, managed service costs are agreed in advance and stay pretty much the same from month to month.

In some ways the economic logic for managed service providers is even more compelling when economic times are hard. MSPs lower up front costs by cutting capital outlays and offer a more certain cost picture by substituting monthly payments for irregular outlays. Because MSPs share in IT project risk, they have a history of reducing the number of IT project budget overruns which plague many businesses and management teams.

More and more customers are responding to that logic. An August, 2009, survey by Forrester Research of 2300 North American IT decision makers found that the state of the economy is pushing nearly 20% of them to purchase more managed services, including network services and telecommunications services.

Beyond the economics, managed services have other attractions as well. One of them is the ability to keep the in-house IT staff focused on business critical applications which strengthen the company's core competency and bottom line rather than having them spend their time doing low-value IT housekeeping.

However just because managed services make sense in theory doesn't mean they make sense for you. There are a number of things to consider before dipping your toe into the managed services water. One of the most important factors to evaluate is the actual MSP who will be managing services for you. Your choice of partners is absolutely critical in any managed service venture and you should spend sufficient time to thoroughly vet your caretaker of company data and manager of company automation and information.

This is particularly true since a lot of new players are getting into the managed services game. Many of these companies are value added resellers (VARs) looking to diversify. For VARs managed services offer an attractive alternate business model, with an annuity revenue stream and a long term relationship with customers. Unfortunately not everyone in the managed services industry is up to it and failure rates are high.

In evaluating an MSP vendor one of the first things to do is ask for references and then thoroughly check those references. Some MSPs will also provide you with case studies showing how they applied their managed services model to a case similar to your business. This should include the tools and methodologies used.

Service Level Agreements (SLAs) are the lifeblood of any outsourcing agreement. Make sure to study your SLA carefully to see what is and isn't covered. For example, what is the guaranteed uptime for the service and how quickly will the vendor respond in the event of trouble? What are the penalties and remedies offered if something goes wrong? Needless to say, these should all be explicitly spelled out and carefully negotiated.

It's important to understand specifically what the MSP vendor is offering. "Managed Services" covers a lot of ground and there are a lot of ways of doing it. For example, some MSPs handle everything, resulting in something like a Software as a Service model. Others handle major parts of the load, but leave key IT services, such as the networks, managing the business software systems and the desktop applications to the customer. Some vendors offer a smörgåsbord of services with a variety of service levels.

Niche MSPs can save you money and headaches by taking on highly skilled IT services while leaving the simpler, less costly functions to your own IT people. For some companies this is an attractive choice. Other companies want to outsource everything and they can find MSPs that are happy to become a one stop shop.

Finally, don't ignore the intangible element of "fit". Does the managed services provider seem to work well with your company? Are you and your people comfortable with the vendor and their personnel? A managed services agreement means working as closely with a vendor as you do with your own IT people. The cultural fit is just as important as the technical services capability. End

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Research firm Ovum predicts the managed services industry will hit $66 billion worldwide by 2011 and according to In-Stat the U.S. market for managed services is growing at a steady 7% Compound Annual Growth Rate (CAGR).

 

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