At the Breakaway conference hosted by CompTIA in Orlando, Fla., in early August, I had the privilege of being asked to moderate a panel on managed services. The theme of the panel was to come up with a list of items that the panelists wished they knew about creating, managing and delivering managed services before they got started down this path.
What follows here is a list of 17 areas across operations, finance, sales and marketing, staffing, and pricing that the panelists wished they knew more about before transforming their business models around managed services. Special thanks to Gerard Kane, from Perimeter Internetworking; Peter Manni, from Siemens; Sue Watts, from Unisys; M.J. Shoer, from Jenaly Technology Group; Jim Alves, from Kaseya; and Paul Nadjarian, from OnForce, for sharing their insights.
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Operations
An understanding of the fundamental changes in internal processes is needed to effectively deliver managed services. This covers everything from account transition, setup, communication and ongoing delivery, and it may also encompass some nontraditional elements, such as interaction with other, related vendors, purchasing, and so on.
A better understanding of the tools available to deliver managed services also is needed. There is a lot of confusion in the marketplace.
Clients don’t have realistic expectations relative to SLA compliance.
Clients may hire lawyers to create RFPs with completely unrealistic demands and expectations.
Clients don’t have loyalty to their service vendors. Today they sign five-year deals with specific costs/vendors and want to go to RFP after year one.
The simple decision for most people is a “build vs. buy” scenario. Many VARs will traditionally try to do it themselves, but this is not an easy area to enter, and there are certain barriers to consider such as regulations and certifications. In many cases it makes good sense for resellers to partner with one or multiple providers to build out their portfolio.
Develop a plan for adding services that will look at incorporating a portfolio of services over time and then get successful at selling them. Due diligence of any relationship will be critical: Look at track record, customer history, financial situation, certifications and regulatory compliance. For most VARs it would be wiser to partner initially, and then after gaining experience and customer traction, look to build services that are viewed as core/strategic to the reseller’s future success.
Sales and marketing
The marketing and sales materials needed to support this type of business are significantly different from existing materials.
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Look at how the sales organization is compensated for these types of sales. The motivation must be there for both the initial sale and long-term cultivation of the customers. Typically managed services can be “layered” over time to deliver more customer value and more revenue.
Finance
Most VARs will need to examine how they realize revenue today with considerations to cash flow, and so on. Since many are still dependent on the hardware margin blended with services, the switch to an “annuity business” is enticing. Nonetheless, the VAR will need to consider the financial implications of a switch to this model.
Complexity enters the picture when providers attempt to scale the growth of their managed services. Providers wish they knew how to scale that growth without scaling costs.
Staffing
The type of skills needed for architects is substantially different. In particular, the amount of variability in what you agree to deliver from one client to another (i.e, nonstandard offering/delivery model) has a huge impact on your cost structure. A highly skilled solution architect who understands cost levers, value propositions, etc., can steer the client to a more consistent service offer that can result in significantly lower delivery costs and higher margins.
The skills necessary to sell managed services are totally different than those possessed by successful hardware/software salespeople. The amount of effort to retrain is huge and the percentage of success stories is very small in proportion to the training effort, even with the most successful hardware/software salespeople. Selling this type of service requires someone who can sell based on strategic issues, rather than price. The ability to sell to the C-level is critical.
Figure out how much training will be needed for both the entire staff and, most importantly, those dedicated to the delivery of the managed services offering.
Pricing
The cost and price is different for managed services than what is necessary for a more traditional integration model.
The impact of small changes in service design can have large and often disproportional impact on the cost to deliver the service. It is therefore imperative to understand the cost levers as quickly as possible when undertaking new offerings.
By their nature, managed services can increase the complexity of a provider’s business because they incorporate a number of variable elements and costs. The provider begins with a menu of items that will be included in the service package, and the costs associated with delivering those services. The provider must somehow figure out how to price the package and manage the costs. Each element in the managed-service offering may have a separate cost structure in which prices vary and margins fluctuate. A provider needs to understand the mix and the appropriate overall cost structure.
All in all, it’s pretty clear that making the move to a managed services business model is not as simple as flicking a switch. It takes patience, a clear plan and a willingness to utterly change every aspect of your business. But like all journeys, the financial rewards derived from making this switch are well worth the effort.
Michael Vizard is editorial director of Ziff Davis Media’s Enterprise Technology group. He can be reached at michael_vizard@ziffdavis.com.