Managed Services Model Demands Accountability

"The true value of what the MSP offers is accountability, a single neck to choke and a removal of a lot of the excuses of the past," said Rob Scott, managing partner at law firm Scott & Scott L.L.C. in Dallas. "I think MSPs are insanely aware of this."

So aware, in fact, that the prospects of liability and accountability typically loom large over the decision by a VAR or integrator to adopt the managed services model.

"Liability is a very important issue and often is the most important impediment for VARs and integrators who are considering managed services because they hesitate to assume the risks and liabilities of managing a customer's IT operations," said Jeff Kaplan, president of analyst firm ThinkStrategies in Wellesley, Mass.

But once a VAR or integrator agrees to take over some or all of a customer's IT functions through a managed services contract, assumption of liability is unavoidable.

"Clearly articulating the level of liability a provider is willing to assume in their service agreements with customers is essential to establishing trust and safeguarding both parties in the relationship," Kaplan said.

While liability law as it applies to managed services is still evolving, much like the service model itself, providers are subject to breach-of-contract and negligence claims, Scott said.

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That is why providers must be realistic about the levels of service and skills they can offer, enter into watertight contracts with customers and make sure they fulfill their contractual obligations, he added.

"Avoid the temptation that has infected technology companies forever to promise the world and make excuses along the way," Scott said. "Make sure that what you promised will be delivered, because the core value proposition is accountability."

Scott's firm specializes in technology, and it counsels clients on IT security, software audit defense and regulatory compliance. In addition to legal services, the firm has a technology practice that provides automated compliance and audit tools to clients, all of which Scott says are protected by the attorney-client privilege.

Scott, who is a member of the MSP Alliance, which represents MSPs and vendors, works with providers on how to protect themselves from liability risks.

His solutions for mitigating risks include diligently monitoring security and privacy laws that affect providers, regularly reviewing business practices as the law changes, and avoiding giving clients legal advice.

Through managed services, providers remotely take over IT functions at customer sites. Customers pay utility-like monthly fees with the expectation of predictable service, while the providers get the benefit of predictable revenue.

Click here to read about why Hewlett-Packard's Gilroy sees services as the future of the channel.

Scott said he believes adoption of the managed services model has the potential for exponential growth. However, VARs and integrators making the transition to the model face tough challenges, including how to handle liability.

"Ultimately, MSPs will have to become very knowledgeable with regards to the regulatory and liability issues facing their clients," said Charles Weaver, president of the MSP Alliance in Chico, Calif.

Regulatory compliance pressures that customers are facing at the local, state, federal and international levels are not going away, he said. "Therefore, any MSP that desires to be competitive and meaningful in the marketplace should educate themselves on how they can provide services to alleviate those non-technical pressures," Weaver said.

Some of the VARS and integrators making the transition to managed services have a good grasp of the legal and liability issues, but most still do not, Weaver said. Successful providers, however, have a least a cursory understanding of the legal requirements, he said.

Kaplan said he believes the existing providers of managed services overall are doing a good job of managing liability, based on the customer satisfaction rates and service renewals.

MSPs say once customers become comfortable with the managed services model, they have no reason to abandon the model, so the vast majority of customers renew their contracts.

In addition, once they come to rely on their IT services provider, they will turn to the provider for additional services, sometimes asking for skills that the providers may not even have in-house.

And that's when many providers turn to other VARS, integrators or service providers to provide those services through partnerships. Through these arrangements, customers get the services they need via a single point of contact, which they typically find more desirable than having to deal with different providers for different services.

Partnerships, not only with other providers but also with the technology vendors, are key to the successful delivery of managed services, Scott said.

"You're only as good as who you partner with," he said.

In partnering with vendors, Scott added, managed services providers must get solid commitments that the vendors are the rightful owners of the technology and that it does what it is supposed to.

MSPs, he said, find themselves in the middle, having to manage a lot of potential risks. Those include the risks at the vendor and customer levels, as well as at the level of the customers' own customers. Nevertheless, a transition to managed services from the traditional product-centric model of reselling makes sense.

"The benefits vastly outweigh the impediments," he said. "The break/fix, time-block and other models will die. It's either adapt now or be fizzled out."