What is a managed service provider? Strategic outsourcing for IT services explained

MSPs are increasingly being turned to as strategic outsourcing partners that remotely manage or delivery IT services, thanks to talent and technologies most enterprises lack.

What is a managed service provider? Strategic outsourcing for IT services explained
Gorodenkoff / Shutterstock

Managed service provider defined

A managed service provider (MSP) is an outsourcer contracted to remotely manage or deliver IT services such as network, application, infrastructure, or security management to a client company by assuming full responsibility for those services, determining proactively what technologies and services are needed to fulfill the client’s needs.

Services delivered by an MSP are delivered by employees located at the client’s locations, or elsewhere. MSPs can also bundle in hardware, software, or cloud technology as part of their offerings.

Managed service provider business model

Managed service providers structure their business to offer technology services cheaper than what it would cost an enterprise to do itself, at a higher level of quality, and with more flexibility and scalability. This is achieved through efficiencies of scale, as an MSP is able to hire specialists that smaller enterprises in particular may not be able to justify, and through automation, artificial intelligence, and machine learning — technologies that client companies may not have the expertise to implement themselves.

What differentiates managed service providers from traditional outsourcing companies is that when an enterprise outsources an IT department or function, the outsourcing company either picks up those employees or replaces them with a roughly equivalent number of employees elsewhere. An MSP, however, focuses not on the jobs themselves, but the end results the customer seeks. For example, an enterprise might contract an MSP to handle support calls to a certain level of satisfaction and response time. As long as the managed service provider meets those metrics, it doesn’t matter whether it uses dedicated staff, automation, or some other system to handle calls for that customer; the MSP decides.

There is a great deal of overlap between these definitions, however, and many companies traditionally thought of as offering business process outsourcing are now operating more as managed service providers.

Managed services also differs from traditional IT consulting arrangements in that consulting is typically project-based, while managed services are ongoing subscriptions.

Managed service providers examples

Key players in the managed services market include Accenture, Fujitsu, IBM, Cisco Systems, Ericsson, Lenovo, DXC, and Hewlett Packard Enterprise Development, according to Grand View Research.

Key services offered by MSPs include data center management, network management, mobility management, infrastructure management, backup and recovery management, communication management, and security management.

Managed service providers, however, come in all sizes, with the MSPAlliance, an international association of cloud and managed service providers, estimating around 150,000 MSPs across the globe.

Some MSPs specialize in particular areas, such as network management or cloud management, while others offer one-stop-shopping. According to the MSPAlliance, MSPs typically offer network operation center services, remote monitoring and management tools, and service desk capabilities.

Strategic managed service providers

Managed service providers have evolved of late to offer services that support strategic and longer-term business planning, including digital transformation consulting, compliance audits, technology roadmaps, and needs assessments.

Another area of growth for MSPs has been in providing internet of things (IoT) services, with 50% of MSPs seeing IoT as a significant revenue opportunity, according to CompTIA.

Benefits of managed service providers

Top benefits of using a managed services provider include improved security, more flexibility and scalability, access to top technical and industry expertise, and reduced costs, according to NTT’s 2021 global managed services survey.

An MSP can also offer variable billing models based on a variety of measures. Variable billing can provide additional revenue opportunities for the MSP, while offering a great deal of flexibility and scalability to a customer. For example, an enterprise that has large investments in hardware and software can’t just reverse that investment during downturns. Similarly, layoffs can be very costly and cause long-term damage once the business turns around if those employees have since found other jobs. Similarly, adding capacity during temporary business surges can be difficult.

MSPs can also invest in technologies and expertise in ways that individual companies, especially smaller ones, cannot, resulting in greater efficiency and performance.

MSPs can also help bridge talent gaps. Take, for example, legacy systems. As older employees retire, young people are increasingly reluctant to learn obsolete languages and technologies. An MSP can not only staff legacy skills but train for them, given their large client bases.

Enterprises can also turn to managed services providers for cutting-edge applications to accelerate adoption, even when they don’t have the staff to use or implement those technologies.

Current state of the MSP market

According to Mordor Research, the managed services market will grow to $274 billion by 2026, up from $152 billion in 2020, buoyed by increased adoption of the model, with many companies turning to MSPs to mitigate the impact of the pandemic in the past year. To wit, the percentage of companies using MSPs to manage more than half of their IT needs increased from 25% last year to 38% in 2021, according to NTT’s 2021 global managed services survey.

The past year’s pandemic also saw a surge in demand for cloud-based solutions and an increased drive to accelerate digital transformations, with customer demand moving away from “bread and butter” services system integration and help desk services to remote work support and cybersecurity as well, according to a recent Acronis survey of managed service providers.

Fifty-four percent of managed service providers reported an increase in cloud management revenue last year, and 65% increased their revenue from cybersecurity services, even during the global economic depression, according to a survey by Kaseva.

As companies sent employees to work from home and revamped their business models, managed service providers were in a unique position to help, with infrastructure already in place and remote work the norm rather than the exception.

Managed service provider jobs

At an MSP, IT professionals can work with a wide variety of companies in different industries and gain more experience than they can with a single company. Working for an MSP also offers more geographic options, as many MSPs have long relied on remote staff.

Managed service providers find talent the same way other companies do, through networking and job postings. Salaries are roughly comparable to other IT jobs, according to MSP executives, who add that slight premiums can be found in the MSP job market due to competition for skills and business models that can accommodate them.

Managed services providers hire IT professionals with a wide variety of experience levels and skill sets, though individual companies may focus on particular industries or technologies. For example, an MSP specializing in managed network services will skew toward professionals with traditional computer engineering, software engineering, and systems engineering backgrounds, in addition to software developers, and networking and security experts.

MSPs are also investing heavily in artificial intelligence and machine learning given the growth potential for their client bases.

Copyright © 2021 IDG Communications, Inc.

The CIO Fall digital issue is here! Learn how CIO100 award-winning organizations are reimagining products and services for a new era of customer and employee engagement.