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Managed Services - Elephant Trap or God Send?

It isn't possible to cover all aspects of managed service provision in a brief overview such as this as the subject scope is so vast you could write a book on the subject; in fact some have done so. This is not intended to be a tutorial but hopefully this overview will get you thinking and provide some guidance along the way. I am going to approach this overview from an IT managed service perspective. However a managed service doesn't have to be an IT service it could just as easily be a business service.

What is a Managed Service?

The NCC define Managed Service as "... one of selective outsourcing, where a preferred partner manages certain applications and services driven by the customer's desire to mitigate risk and realise increased reward." Quite succinct and to the point.

Within the IT world a managed service can encompass everything from hardware provision and hosting, application development and maintenance, capacity planning and monitoring, service level management and reporting, and disaster planning and recovery to name a few. In fact a complete end-to-end service.

This "black box" approach to providing a service makes it easier to define contractual responsibilities and deliverables. There is much less scope for ambiguity if the boundaries are well defined.

Unfortunately for various reasons not all organisations can take the black box approach and that leads to compromise, to quote the NCC above, one of the drivers is a "... desire to mitigate risk ..." Sometimes a customer will want to purchase the hardware for accounting purposes or host the hardware for security reasons. The more "sharing" of the responsibilities for the black box between customer and supplier the harder it is to mitigate risk. And the more likely it is that finger pointing will come into play if the service suffers outages. With the supplier providing all of the black box components there is no ambiguity - the supplier is 100% responsible.

What are the upsides?

If you are a business service provider the big upside is the "one stop shop" approach. All of the technical skills required to design, build, test and deploy your service can be delivered by a single supplier. Once you have completed your own acceptance testing of the service the supplier can then manage the operation of the service on your behalf. For example if you are a retailer and you wanted to move into internet sales but don't have the technical expertise to build the web solution a managed service may be an ideal solution for you.

Funding the service can also be easier using the managed service approach. Your supplier will want to make a profit for providing you with the service and that's fair enough. It's pointless watching them go to the wall because the deal didn't turn a margin for them. Your supplier has ways that they can pass on savings through economies of scale. It may be possible for your supplier to share some infrastructure and services provided to other customers and pass on some of those savings to you. Also you shouldn't have a large upfront outlay to make. The managed service provision will be spread over one or more years so your cost profile will be flatter. Typically the service will span 3 or 5 years with extensions available once the term is complete.

Once your service is operational the managed service provider will report on the availability of the service at agreed intervals. If issues arise the managed service provider is responsible for resolving the issue and restoring the full availability to the service. We will touch on Service Level Agreements later in this overview.

What are the downsides?

The most obvious downside is that you put a part of the delivery of your business service in the hands of someone else. This may be the hardest bullet to bite if you like to be in total control all of the time. If something goes wrong you can't rush in and fix it even if you have the expertise to do so, it's now someone else's responsibility to resolve issues.

We talk a little about contractual requirements later but one of the downsides to a managed service is change. It is not uncommon for service providers to quote an attractive price for the managed service knowing that they will make the best returns on the changes you ask them to make, and change is inevitable. This can be a costly surprise but there are ways to mitigate this risk.

Like some relationships, over time things may not work out as planned. Perhaps you feel you could get a better service elsewhere. Worst case scenario your service provider ceases trading. How do you move to a new provider? Do you own the rights to the solution or will you have to start over again? Moving to another supplier can be problematic and of course once your supplier knows that you are planning to go elsewhere it's unlikely you'll keep his full attention.

Is it right for you?

For organisations that do not want to become involved in providing the IT solution and the ongoing service management it has tremendous advantages provided the downside is mitigated. Even organisations that provide IT services can find managed services have appeal, for example they can negate the need to train staff in a new but infrequently used skill set.

The secret to success is knowing what you want the service provider to do for you, how much you are prepared to pay, and to have the contractual controls in place to manage your supplier. Like a marriage, mutual trust goes a long way towards making the relationship work so pick a supplier that you can get along with.

What are the must do activities?

Tomes have been written on what should be done and what shouldn't be done. We will cover some but in a short overview it's difficult to get into depth. ITIL provide best practice for service management and many organisations follow the ITIL guidelines but the whole process of agreeing and establishing a managed service goes beyond even ITIL.

The best piece of advice is to go into this with your eyes open. If it doesn't feel right then back away, maybe it isn't for you or maybe you just need to find an alternative supplier. Remember this is a long term commitment that you are going to make so it has to be right. The right supplier will make the process easy and as painless as possible. If it becomes painful maybe they don't want your business so much?

Unless you are experienced in negotiating managed service contracts get some help from an independent source. It will save a lot of heartache later and you will have a far better chance of a successful outcome. Don't accept any offer by your supplier to provide someone to act for you. You want someone who has your best interests at heart not someone with split loyalties.

Unless you are very lucky and buying an "off the shelf" solution it is likely that some application development work will be required in order to build the software solution for your business. Before any development work can take place it will be necessary to discuss your requirements with you. This is the first potential money pit. Because at this stage the supplier will have no idea how large or how small the exercise of gathering your requirements may be they will almost certainly want to charge you on a time and materials basis and that is like agreeing to an open cheque.

Before you engage in any requirements gathering with the supplier sit down and decide want you want the system to do. What service availability do you need? What reports do you need from the system to be able to run your business? How often do you need them? Does the system have to interface or interact with other systems, for example your suppliers? Does it have to meet any imposed standards, for example the payment card industry data security standard if you are processing credit card transactions? The more requirements you can define and document in an ordered way prior to going through the formal process of requirements gathering the more money you will save. You will also demonstrate to your supplier that you are in control of the process.

One of your requirements will be the service level that you will want the service to achieve or put another way its availability. The higher the availability the more the service will cost you. Do you need 24x365 service availability or could you live with less? The availability you require will be documented in the Service Level Agreement (SLA). The SLA will also document times to resolve problems. Care needs to be taken when stipulating SLAs; study the words carefully. Time to respond is not the same as time to resolve! You also need to give your supplier an incentive to resolve issues as quickly as possible and service credits for outages or other issues are common approaches. However credits may not compensate you if the service is unavailable for long periods of time. If the service is critical to your business you might like to consider making the service credits penal on the supplier, but be warned if you do they will likely build that into their cost model and your service charges will be higher so it's a case of weighing up the impact on your business should the service be unavailable for a period.

As well as agreeing the SLAs that you want your supplier to meet you should also define and document the service the supplier will provide. For example will there any additional charges for connection to the internet? Does the service include charges for power? Does the service include off-site backups? The more "black box" your service is, the easier it will be to define the service and the contractual boundaries and thus responsibilities.

If all goes well you may never have to refer to the document again but you may at some time wish to change your service provider or perhaps you no longer feel you have a need for the service and this last topic is the exit strategy.

In truth there are all sorts of reasons why people may need to exit from their agreement but it is best to agree how the exit strategy will be enacted and what penalties if any would be incurred. My advice is don't sign any contract until you have an exit strategy agreed and documented or it could be an expensive mistake.

Where can I buy a managed service from?

If you already have an IT supplier talk to them about your requirements. Usually people want a quote from more than one supplier but it can save a lot of work if your existing supplier can provide the service you want at an affordable price. If you want to ask for quotes from other suppliers you are going to have to provide a pretty good set of requirements and a service definition for them to be able to give you an estimated price.

By necessity this is a brief overview for a wide ranging topic. If you would like to know more we are always happy to help. You can email us at or by phone at +44 (0) 7771 784 246 or use our feedback form here.

If you have decided that the managed service route is for you and you are looking to engage someone to work on your behalf please consider adding us to your list.

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