A Look at the State of Managed Services Today

The long-term survival of a large segment of today’s IT firms depends upon them cultivating a business that sells and delivers technology services on a recurring revenue basis. This objective marks a shift away from conventional reliance on product-based transactions and/or one-off project engagements to a more predictable operational model that charges customers much like a utility company bills monthly for services-rendered. Burgeoning trends such as cloud computing and mobility, combined with expanded customer choice for procuring technology, are factors contributing to the urgent need for transition in the industry.

For many IT firms, this has meant a foray into managed services – either as an add-on part of an existing business or as a complete overhaul from what they had been doing previously. The managed services model typically takes on the form of an ongoing contractual arrangement in which the third-party provider (or MSP) remotely monitors, manages and updates a customer’s technology infrastructure, systems and services such as email, network and security software. The MSP may also handle increasingly complex pieces of technology such as line-of-business applications and analytics. IT functions once commonly handled in-house become outsourced, effectively.

After nearly a decade in fruition, managed services is becoming more commonly practiced across the channel and generating demand among end-users. It’s a steadily growing market – roughly half of IT firms today report offering at least some managed services, according to CompTIA’s recent research study, “Trends in Managed Services Operations.” This growth comes despite some uncertainty about the overlap and/or impact that newer cloud-based models may impose. It should be stated, though, that the No. 1 reason channel firms not doing managed services today give for staying out of the market is that they are waiting to see what impact the cloud-based business model is going to have.

Not only are more channel companies beginning to offer managed services, they are also getting better at it. Roughly 4 in 10 characterize themselves as “skilled experts” in managed services today, while just more than half claim to be “competent and getting better.” Just 9 percent of respondents reported being early in their managed services learning curve – in other words, not quite there yet.

Asked to rate the current operational efficiency of their managed services business, two-thirds of channel firms reported that they perform efficiently in some aspects of their operation, while needing work in others. A third of companies consider themselves very efficient – a “well-oiled machine.”

From a strategic perspective, the drivers for managed services are largely financial: the desire to increase sales revenue, build recurring revenue and penetrate new accounts with value-added services. But the factors behind the shift also reflect new realities in the industry. Nearly two-thirds of channel firms cited the need to protect their customer base as the reason they were engaged in managed services. These companies are recognizing that end-users have more leverage in today’s market when it comes to how they procure technology, how they pay for it, and who, if anyone, they will engage to implement and manage it.

As companies add or transition to managed services they face challenges in operational structure and efficiency. Sales team restructuring, including hiring new employees and retraining old ones, as well as developing a new type of compensation plan, rank high on the to-do lists of firms moving away from product-based transactions to sell and market themselves around IT services that are provided remotely.

Sales considerations aren’t the only challenge. Determining how to price managed services is another tricky hurdle. Getting processes – technical and business – working efficiently is also an imperative. Without process efficiency, the managed services model tends to fail.

Clearly, there’s still work to be done. For the full CompTIA report on managed services operations, go to the Member Resource Center at www.comptia.org.