When companies outsource IT services, they often expect the external provider to provide the same service as it was previously provided by their own IT department. This so-called classic outsourcing forces the provider into a customer-specific corset that limits the potential for optimization and cost savings. Standardized Managed Services offer an efficient and attractively priced alternative to classic outsourcing, but have limitations. Why and under which framework conditions their use can nevertheless be worthwhile is explained in the following
First, we take a look at the two outsourcing options and highlight their main advantages and disadvantages:
1. Classic IT Outsourcing
With the classic IT outsourcing, the client expects the provider to deliver the service previously provided internally in a largely identical manner externally. The provider is often given additional process and tool specifications.
In most cases, classic outsourcing is also connected with the transfer of IT personnel to the provider. Since the provider takes over the operational tasks, the employees are no longer needed internally. The internal reduction of personnel is usually the only way to ensure the profitability of the outsourcing measure. At the provider, the staff taken over ensures customer-specific operational knowledge and service continuity.
The main advantage of classic outsourcing is that the services to be provided externally in the future correspond exactly with services previously provided internally.
Firstly, this means that the services can be described in the request for proposal exactly as they are specified internally. Of course, the latter only applies if the services have been defined exactly internally so far. If the existing service specification can be used as the basis for the request for proposal, gray areas in the provider contract and the potential for later conflicts with the provider can be reduced.
In addition, everything remains the same for the IT users with regard to the service after outsourcing, at best only the contact persons will change. These are good prerequisites for a smooth transfer of services from the client to the provider.
In practice, however, the service transition is not always as smooth as the one just described:
- Firstly, many companies have to describe the services to be taken over externally in writing for the first time, as they have no or no current service catalogue and no other service specifications. This can lead to many things being represented incorrectly or forgotten. The external service is soon no longer identical to the previously internal service.
- Secondly, the entire internal operations team does not usually switch to the provider. This means that the provider also uses employees from its existing pool to set up and operate the service. These employees are not familiar with the customer-specific service environment. Thus, even if personnel is transferred to the provider, there is still a risk potential for service setup and operation.
A permanent disadvantage over the entire operating phase is that the provider must maintain a special operating team for the customer’s services. This team must be trained for the customer’s specific environment, in contrast to the standard internal processes and tools used for other customers. The scope of services and the technologies used are also often only maintained for this one customer. As a result, the provider has little potential for rationalization in the services compared to the internal service provision by the customer, and thus his margins are often lower.
The incentive for the provider to invest in service optimization is therefore low, since it usually only benefits this one customer.
2. Managed Services
Managed Services are standardized IT services of a provider, which he carries out in the same way for all customers and whose scope and service level are identical for all customers. For such a service, the provider preferably uses multitenant technology to serve multiple customers on one platform (e.g. for a managed server service, a hypervisor to provide virtual servers for each customer on the same platform). From the customer³s point of view, the provider operates the infrastructure elements included in the service remotely as far as possible. Only in exceptional cases is the provider on-site at the customer´s premises.
Since the provider provides the service identically for all customers, he can use scaling effects, an effect called “IT industrialization”. This means in particular that he can offer a thoroughly optimized, efficiently provided service at a reasonable price despite advantageous margins. Due to the high turnover generated by the service, the provider has a vested interest in constantly optimizing the service delivery. It can also serve new customers at marginal cost.
Because of the economic importance of the Managed Service for the provider, he is keen to ensure that a large part of his team is highly skilled in the use of tools and processes. Furthermore, the provider will trim its operating personnel to be service-oriented in terms of competence and efficiency, with the result that the quality of managed services – despite low prices – is higher than that of customized services.
In addition, providers will provide a precise specification of the Managed Services they offer, as this generally reduces the risk of grey areas in contractual agreements. It also allows the provider to offer the same service to all customers without any major interpretation discussion with individual customers.
A Managed Services provider is generally not interested in taking over a customer’s IT staff. Due to economies of scale, it requires little or no additional staff to take over a customer’s services. In addition, he would have to train the new staff in processes of his Managed Services and its customer-specific service operations knowledge would lose a great deal of importance.
Managed Services do not cover special customer-specific requirements that deviate from the market, unless they are requested in the same form by a reasonable proportion of other existing customers.
3. When are Managed Services Beneficial?
Many clients do not see any chance to use standardized Managed Services due to existing special requirements in their own company. However, the impressive advantages of Managed Services (good service quality at an attractive price) should be reason enough to question their own special requirements for each required service.
With classic commodity services (these are in particular infrastructure services such as workplace, server, storage), which every company needs in a similar basic quality, special requirements are only tenable in very few exceptional cases when viewed objectively: If other companies in the industry can manage with the basic quality, why not the own one?
Those who consistently orient their services to market standards and standardize them where possible, open up the opportunity to take advantage of managed services.