Organizations are recognizing that there is no single outsourcing approach that works for every service requirement. Companies shouldn’t force-fit an approach that isn’t the right one. However, more and more IT teams are turning to managed service providers to handle certain functions — typically well-defined capabilities such as application support and data center management— in order to allow IT teams to focus more on strategic initiatives.
But a significant challenge remains: organizations need to step back and let the service provider do their job. Part of the problem may be how we define managed services, and the variation in the way managed services are delivered.
While there are several ways to define managed services, the most important consideration is that rather than specifying and managing a set of activities, the company specifies a set of outcomes and the service provider manages the environment and defines “how” to achieve those outcomes. Those outcomes are aligned to prescribed service levels at predictable costs.
“If you ask yourself who is managing the activity, that helps you know if it’s a managed service,” says Randy Wiele, Shared Services and Outsourcing Advisory at KPMG. “If the client is managing or co-managing, it is not a fully managed service.
Managed Services differs significantly from the two other common forms of outsourcing: Staff augmentation, which is traditionally the lowest level of outsourcing services, is used to augment capabilities and capacities when staffing needs require it. The next commonly used approach is co-sourcing, where both the company and the service provider offer resources to support a defined project.
Managed services, however,were created to be distinctive from either — and to take efficiency, speed and agility to the next level. After decades where traditional outsourcing either wasn’t managed properly or client control defeated some of the key reasons to outsource, managed services today is a way to focus on outcomes and leverage service provider core competencies with assurance that the services will be delivered as prescribed.
The progression toward managed services
Moving toward a managed services engagement is a significant change in focus that requires a complete rethinking of the roles of both the service provider and the client organization in order to make the delivery model work, says Wiele. It can take time for an organization to make this journey, which ultimately can offer a higher level of service at lower costs. “In fact, the progressive nature of this journey can define how much of a managed service it really is,” he explains. In a full managed service progression, for example, it is the service provider that would pick staff, location, methods, and tools and be fully responsible for managing all of those elements.
This can be a difficult transition for many companies who may want to retain certain amounts of control and responsibility, particularly around methods and tools. In the applications space, for instance, the organization may want to retain development control and put maintenance control in the hands of a managed services provider, but use common tools and methodologies across both.
The key to getting full value from managed services is to move beyond that and focus on tilting the level of management toward the service provider. “The client has to let go of a desire to be prescriptive in how work gets done,” says Wiele. “While it is essential for the client to define what work gets done, the provider is responsible for how.”
Success with managed services: Three must-haves
Want to make managed services work in your company? There are several keys for success, says Wiele.
1. The company must let go of traditional roles of control.
The biggest stumbling block for managed service success, says Wiele, tends to be a culture that stubbornly holds on and struggles to let go of traditional roles. “We want the client to step aside from the management of the supplier’s work and empower the supplier to perform, deliver and report on the work,” he says.
What tends to happen in an environment where the managed service doesn’t work well is client resources jump in too soon to fix a problem, rather than letting the service provider take charge and deliver their work. “If that happens over an extended period, duplicate work teams form — where the client is still paying for the service provider as well as the new team,” says Wiele.
2. The supplier must accept responsibility and deliver on outcomes.
The managed services provider must be willing to accept and perform all of the tasks required to accomplish the function and deliver the resulting outcomes. “They can’t look to the client for specific direction when charged with that responsibility,” Wiele explains. In addition, service providers are very cost-driven; care must be taken to ensure that periodic activities, such as capacity management, are performed as required. This avoids the risk that certain required activities are curtailed in an effort to achieve cost targets which in the end can cause outcomes to not be achieved.
“There is no one right or wrong way to do this,” Wiele emphasizes. “But it’s important to operate under the agreed-upon structure wherein the operational control and responsibility are aligned with the parties to the agreement.
3. Select the right person to be accountable for the service in the client organization.
Another key lesson is that is very critical: selecting the right person to be accountable for the service in the client organization. “The skills for that role are very different than the skills required to manage the technical environment,” says Wiele. “The focus for that resource should be on leadership, collaboration, empowerment, and business knowledge; not technical knowledge.” Too often, the same resource that managed the technical environment is selected to oversee the managed service. This tends not to work well, largely because they don’t have the new skills yet and tend to fall back on trying to manage the service rather than overseeing the service provider.
A managed services ideal: Lower cost, higher service level, delivery of outcome
The journey toward managed services requires a high level of detail to define the service, additional commercial protection for both parties, a shift of end-to-end management responsibility from client to service provider and a commensurate shifting of risk between the parties.
But the ideal result is well worth it: Lower costs, a higher service level and the delivery of an agreed-upon outcome. “This allows the client resources to focus on other more strategic, higher value-oriented activities,” says Wiele.