It was interesting to hear several buyers at the recent (May 2013) SIG Global Sourcing Summit wanting to sign more and more managed services contracts. The trend was clearly evident and seems to be maturing gradually and catching pace in several areas including IT, BPO, cloud, real estate etc

Managed services are generally defined as the practice of outsourcing day-to-day management responsibilities as a strategic method for improving operations. The person or organisation who has direct oversight of the organisation or system being managed is the client and the organisation that accepts and provides the managed service is the managed service provider (MSP). While the day-to-day operation is outsourced to the service provider, the client still remains accountable to deliver the functionality, performance, and experience to its business.

Managed services models can be difficult to implement; however, the benefits can be enormous and long-term once successfully implemented. Some of the key benefits come from:

  • Outsourcing day-to-day work to free up the client teams to focus on more strategic business needs.
    Better cost-predictability and putting discipline on demand management.
    Implementing formal mechanisms to measure demand, assigned capacity, vendor performance and continuous improvements.
    Shifting the delivery risk from client to the provider.
    Cost savings and specialization depending on specific situations.

What mechanisms and practices build successful managed services?

Implementing managed services is hard work. Clients and buyers must collaboratively work together in the initial phases of managed service engagements to clearly establish the service. Understanding the nuances of managed services can easily get confusing for starters and therefore buyers must ensure that differences with contingent and SOW-based professional services engagements are well socialized during change management sessions.

successful managed service

A successful managed services would keep a long-term perspective and implement the following mechanisms and practices:

  • Clear specification of the scope of services that the service provider will deliver.
  • Clearly defined deliverables and expected outcomes.
  • Performance measures to provide an objective measure of how agreed outcomes are being delivered. Performance
  • measures can be in form of Service Level Agreements (SLA) built on well-defined metrics and data sources.
  • Mutually agreed Unit of Work (UOW), estimation and pricing models.
  • The service provider manages the service day-to-day with minimal (to eventually none) client involvement by establishing teams, processes, controls and reporting mechanisms.
  • Strong governance and reporting mechanisms.
  • Experienced client and vendor oversight that keeps a strong relationship and delivery focus to ensure that conflicting situations are properly resolved in time and outcomes are aligned to business needs.
  • Change management and communication focus – especially during the transition phase of the service when client teams may resist a move into managed services.
  • Agreed rewards for exceeding service levels and penalties for missing service levels.
  • Service improvement plan that improves the service and matures it over time for greater benefits.
  • Optimisation focus to derive greater benefits and consolidate similar services to build larger scale for better efficiencies. The benefits can be in the form of productivity gains, process improvements, better demand management, new ideas, innovation and other situational factors.
  • Value tracking mechanisms to ensure that managed services are delivering the intended value.

Managed services implementation requires service providers to bring forward matured processes, strong leadership, and experience of delivering similar services. Providers, therefore, today need to mature their service offerings to provide more comfort and trust to their clients to demonstrate their readiness to take engagements in the managed services model.

At the same time providers need to keep a rigorous focus on service improvements, reporting, and value tracking to generate the desired benefits from the managed services. The increased efforts to take an end-to-end view of managed services will be rewarded by the clients who count on you to keep their business running at high efficiency.