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Why Managed Services are Overlooked?

November 22nd, 2005

The term ´managed service´ is often incorrectly used to simply mean the same as outsourcing, however the two terms describe approaches to IT management which, while undoubtedly related, are in reality quite distinct.

On the one hand, outsourcing is an approach which involves the entire IT function of an organization being transferred, lock stock and barrel to a third party to manage. This type of approach is most commonly associated with large global organizations and is typically driven by a relatively straightforward desire to reduce internal operating costs.

The managed services approach on the other hand, involves selectively outsourcing the management of only specific parts of an organization´s IT infrastructure, without the need for any whole scale transfer of people or assets to a third party and without the removal of any control from the organization. Furthermore, unlike outsourcing, the managed services approach is typically driven by a wider desire not only to reduce costs, but also to improve the availability, performance, resilience and security of an organization´s IT systems without the need for additional in-house skills and resources.

In contrast to the total outsourcing approach, which is relatively prohibitive in terms of cost and scale to all but the very large corporate organization, the nature of the managed service model makes it ideally suited to meet the needs of the mid-market organization. Places where pressure to deliver on demand 24 x 7 IT systems is high, but in-house resources and specialist skills are typically spread thinly.

While most blue chip organizations are focused firmly on reducing costs, mid-market organizations have a wider agenda to address. For them the challenge of keeping costs to a minimum is coupled with a relatively small in-house IT team, which brings with it additional problems surrounding the shortage of specialist IT skills; the cost of IT training; and the impact of holidays, illness and staff changes on business continuity and competitive advantage. In addition there is the challenge of how to balance the day to day IT systems administration necessary to keep the business functioning, with the more strategic IT development that will help drive forward the business for the future.

For the mid-market organization, a managed service can help address many of these issues by enabling the relatively mundane, yet business critical, systems management to be taken care of by a third party thereby freeing up in-house staff to focus on strategic developments that will add real benefits to the business. For the medium-sized organization, therefore, cost is just one of many compelling reasons to adopt a managed service.

The fact that IT systems have become increasingly complex, regardless of company size, gives rise to another mid-market argument in favour of the managed services approach. The tools now needed to manage these complex systems and ensure the high levels of performance, resilience and security required for today´s on demand business, are expensive, difficult to use, and require specialist IT skills. For large corporate organizations, this is not generally a major issue and most will invest in-house in both software such as IBM Tivoli, HP OpenView or CA Unicenter, and the staff to deploy and run this software successfully. This is something which is not typically a viable option for the mid-market organization.

However the managed services approach means that the service provider invests in the software and skills and simply spreads the cost among all of their managed customers. As a result, the mid-market organization can take advantage of all the benefits of these tools, without the associated costs.

Coupled with increasing IT complexity is the fact that today´s organization is now more reliant than ever on its IT systems. Email and internet downtime, once seen as having little impact on the business, now has a dramatic effect on the ability to remain operational and can result in the loss of literally thousands of pounds per downtime hour. For medium-sized organizations the threat of down time can arguably be more severe for than for the large corporate organization, as they frequently do not have the spare capacity to cope with problems, or indeed the time and skills to pre-empt them. By using a managed services provider to monitor and manage systems, the mid-market organization can mitigate the risk of downtime and pre-empt potential problems, rather than trying to fire fight when they´ve already happened.

So why, in light of all of these apparent benefits for the mid-market, is it that on the whole only large corporate organizations are currently utilizing managed services and not those that could realise maximum benefits from this approach?

The answer is simple – a lack of understanding about what managed services are, how they are delivered and what the costs are. The perception is that managed services is not an approach that is suited to mid-market needs, when in fact the opposite is true, and as a result, mid-market organizations simply do not have managed services on the agenda.

There are now managed services providers emerging however, that have identified this gap in perception and are determined to raise awareness of the advantages of managed services for medium-sized organizations; and a change in the market can be anticipated as a direct result of this.

These mid-market, managed service providers are offering flexible levels of service which can be tailored to meet individual needs rather than conforming to fixed standard packages, and are making them available on a pay-as-you-go basis to maximize the mid-market accessibility. This approach also means that managed services can easily scale to support business growth, something that can often again be more challenging for the medium-sized organization.

Slowly, some medium-sized UK organizations are beginning to understand the value and feasibility of selective managed services delivered by mid-market focused service providers and in the future there is likely to be a shift in the way in which IT functions are viewed and managed within these organizations. Just as today, many mid-market organizations outsource the day to day running of parts of their finance function, such as payroll and debt collection, to a third party to enable their in-house staff to focus on more strategic tasks such as management accountancy. So in future, mundane IT tasks such as performance monitoring, event log analysis and routine system administration will become functions that are, as a matter of course, contracted to specialist service providers.

So move over blue chip, it´s time for the medium-sized organization to take its inevitable place as the number one user of managed services.

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