Managed services

Strategic Outsourcing of Managed Services

By Girish Trivedi, Deputy Director, ICT Practice, Frost & Sullivan, South Asia & Middle East

Managed services transfer a companys routine operations to companies specialised in these activities. Managed service providers use the same resources for several companies, so costs are shared and prices reduced; sharing the infrastructure with other companies also greatly reduces capital expenditures. Managed services are scalable; users pay only for the services they use. Users neednt concern themselves with hiring and training ICT staff or with the installation, maintenance and management of software and hardware and can concentrate on their core business.

Girish Trivedi is the Deputy Director of Frost & Sullivans Telecom Practice - part of Information Communication and Technology Practice - in South Asia & the Middle East. His specific focus is in the fields of telecom strategies and enterprise communications. For over a decade, Mr Trivedi has been associated with business planning, research and consulting across the communications vertical market in Asia Pacific and North America. Mr Trivedi has been quoted in leading industry publications and business newspapers such as the Financial Times, Economic Times and Voice and Data and other international publication. Prior to his current role, Mr Trivedi worked with leading telecom companies and consulting companies in a variety of strategy and planning functions. Girish Trivedi holds an MBA (Marketing & Finance) and B.Sc (Botany Chemistry & Zoology).

With the world undergoing an economic transformation, sustenance is the topmost priority for most companies. Process improvements have reached their limit in many organisations and no longer add significant efficiency or cost benefits. With stress on top and bottom lines, it is becoming important for companies to concentrate on their core competencies and utilize services of third party vendors to achieve tasks, which although essential and strategic, are not necessarily their forte. Here we enter the world of managed services. A managed service is the practice of transferring the day-to-day operations of an organization to a vendor specializing in these activities. These vendors, called managed service providers (MSPs), manage the services of the organization based on negotiated service level agreements (SLAs). These agreements between the organization and managed service providers can range from a plain vanilla time and material model to a strategic partnership. MSPs lead the organization across the life cycle

of their managed operations - from design to implementation to maintenance and monitoring.

Chart 1: Expected traction in Managed Services (Source: Frost & Sullivan) Managed services in the IT and telecommunications space includes a variety of services: Managed security services: These

services protect an organizations critical assets, information and infrastructure. The key services include firewalls protection, intrusion detection, security monitoring, device management, ethical hacking. The services give comprehensive protection against intrusions and attacks. Managed voice services: With converged voice and data platforms offering cost benefits, managed voice services are becoming a popular way to support remote workforces and locations. Managed voice services are tailored to meet an organizations requirements and range from providing a complete communications network to complementing traditional and new PBX technologies. Managed network services: The key services include data and voice integration services, data centre services, virtual private networks, network management and storage management. Managed network services are one of the fastest growing segments in the managed services arena due to the immense growth in enterprise data requirements. Managed maintenance services: These

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services enable the remote management of IT infrastructure. They allow the internal IT staff to move away from routine maintenance activities to designing strategic systems that provide the company with advantages. These services include desktop, applications, OS, performance management, etc. Managed call centre services: Managed call centres (also called contact centres) give company customers several ways to interface with the organization, such as email, phone, live chat, web page interaction, etc. In addition, the organization can satisfy its customers without the overhead of maintaining and managing its systems. Forecasts of the overall managed services market in India, estimated at US$2.1 billion in 2008, predict growth at a compound annual growth rate (CAGR) of 21.3 per cent during the next five years. This growth is expected to be fuelled primarily by security and network services; more organizations are paying greater emphasis on reduced cost of ownership and moving to an operational expenditure model from a capital intensive model. This growth of managed services can be attributed to a number of factors: A focus on core business: Organizations can capitalize on the economies of scale achieved by MSPs servicing more than one customer. These enable the organizations to focus on tasks at the core of their businesses. Slowing economy: As the economy faces strain, enterprises are trying to bring their expenditures down. However, with increasing data and computing requirements, there are expenses that cannot be done away with. Partnerships with MSPs enable organizations to move from a CAPEX model to an OPEX model - trade capital expenditures for operational expenses. Lack of specialized personnel: Skilled human capital is required to maintain an IT infrastructure. The current lack of sufficient skilled manpower is driving up the costs of employing them. SMEs (small and medium enterprises) may not be able to afford these highly skilled workforces. Increased disaster recovery and business continuity needs: Disaster recovery and business continuity require management of IT infrastructure on a round-the-clock basis. In addition to their own in-house management, there is the need to maintain backup to restore operations as soon as possible. Adoption of new technologies: The speed of adopting new technologies increases when several customers of a managed service provider can share the cost of these

technologies reducing the total cost of ownership for each individual customer. Decreasing bandwidth cost: The tendency of the cost of bandwidth to decrease has made services from India much more economical than in other countries like the US. This lets vendors offer real-time managed services that satisfy demanding SLAs to offshore customers. These drivers for managed services are often somewhat offset by concerns about security and the loss of control that organizations face when engaging MSPs. In addition, outsourcing to an MSP involves internal reorganization that often causes job losses. Many MSPs are obtaining ISO and ITIL certifications as proof of their reliability and of the quality of their services to convince organizations to enter into SLAs with them. Managed services and SMEs SMEs in India increasingly realise the importance of IT for their business and the advantages it brings. Given the increasing dependence on IT, any amount of disruption or downtime to IT systems can affect business. Increasing complexity, hassles in managing the IT infrastructure, and the effects of disruptions are escalating the adoption of managed services amongst the SME segment. Few SMEs are able to afford and maintain an in-house IT staff to overcome these issues. SMEs can benefit from the first-rate infrastructure and personnel maintained by MSPs. Managed services are provided on a shared basis and SLAs are negotiated, highlighting the range of services, reliability, and security aspects provided to the client. Accreditation by ISO and ITIL sets the baselines for service levels offered and assures the security of information. The advent of software as a service (SaaS) has made delivery of services to clients more seamless. This model eliminates the need to purchase, install, and manage the application on every users computer. Instead, an independent software vendor (ISV) remotely hosts the applications. The ISV takes charge of the maintenance, support, and upgrading of the application and the user pays for the services based on the agreed upon licensing terms. SaaS is an on-demand service; the user pays on a continual basis, in accordance with usage, instead of paying up front to buy the software. For the ISV, SaaS provides the benefit of a continuous revenue stream in addition to maintaining control over the licensing and distribution of the application, thereby

preventing software piracy. The ISV hosts the application on a central data centre (mostly provided by a managed service provider) and provides access to customers through a web browser. Most software vendors incur considerable costs in developing and maintaining software. This software is generally tweaked for each customer. While this model can work well for large enterprise customers, the same is not expected to work for smaller customers who cannot afford the expense of customization. SaaS vendors make use of economies of scale and standardization to target these smaller customers, thereby exploiting the reasonably large long tail market. SaaS vendors could also offer solutions at a much lower cost than traditional vendors by eliminating the need to maintain IT infrastructure at the customer location. With the advent of SaaS, it becomes possible for the same software vendors to offer cost-effective service to customers at the lower end of the revenue chain. This is because the number of such customers is much larger than the number of enterprise customers thereby increasing the revenue pile. Key benefits that SMEs obtain from managed services are: Utilization of shared infrastructure: MSPs are able to maximize their investments in hardware and software and share these infrastructure costs among the subscribers. Shared usage reduces costs significantly and the savings can be passed on to the users. On demand pricing: Instead of purchasing their own computing and network equipment, SMEs can rent the services of a MSP as needed and pay for them according to their usage - they need not bother about system efficiencies, operation or maintenance. Service scalability: Freed from the task of installation, maintenance, and management of IT infrastructure an organization can concentrate on its strategic, core, activities. It can utilize the easily scalable infrastructure provided by the MSP to scale up or down based on its needs. Managed services make manageability of the IT and communications infrastructure easier. Managed services reach out to the underserved SME market, matching service offerings to the needs of SME customers. In periods of slow growth, organizations try to cut slack and concentrate on their value propositions, thereby giving a boost to the managed services market. India is poised to gain a considerable part of this market, having proved its mettle in off-shoring and services management. n

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