According to a recent report UK businesses are taking six times as long as their US counterparts to react to the dramatic changes in the current market. This situation is largely due to the UK’s complex and time consuming employment laws, and is forcing UK businesses to respond to resourcing requirements a lot slower than they ought to as once someone is on the payroll, it becomes very difficult to let them go. The lure of lower IT costs is directing business owners towards considering a managed technology service over an in-house function, which with the right supplier can be a very cost effective move.
But is a managed service really right for the business? Cost is a key consideration in any tactical operational change but organisations must not only address the business plan as a reaction to the short-term macroeconomic climate, but must also consider how best to take advantage of the future market recovery.
An effective managed service offers the chance to reduce costs, improve operational performance and stability, add agility and mitigate risk. But achieving a managed service that delivers value requires some tough questions both internally and of potential suppliers, argues Scott Nursten, Managing Director, s2s.
As the effects of the recession are felt across every part of the UK economy, organisations are increasingly looking for ways to cut costs fast. For many organisations this has already resulted in a reduced in-house IT head count and attention is now being turned towards IT systems and services.
In addition to staff costs, organisations are questioning the energy footprint, data centre and office space requirements of internal IT resources. With shrinking revenue and a trend towards lower staff numbers across the board, fixed and inflexible IT costs which offer limited potential represent a significant business risk. This doesn’t have to be the case. Joining forces with the right supplier can offer controlled costs with the necessary flexibility to mitigate risk in the short term and drive business transformation when good times return.
But every organisation is now also aware of the risks associated with under-funded IT systems and the implications for stability, productivity and customer service. So while it is no surprise that increasing numbers are looking to assess the value of a managed IT service, the near universal focus on a cost-based decision is raising alarm bells.
Basing a key operational decision such as outsourcing IT solely on cost is not sound business practice. Not only are organisations potentially putting untenable pressure on suppliers, which is likely to lead to reduced levels of service and increased risk, but they are severely constraining their ability to react to the upturn as and when it arrives.
Without a doubt, a well run, efficient and effective managed service can deliver far more than cost savings. The expertise of a good managed service provider will deliver more from existing infrastructure allowing the business to ‘sweat the asset’ and improve the return from capital and operational expenditure.
Leveraging economies of scale, the Service Level Agreement (SLA) based contract should offer 24x7 UK based support at a level that completely eclipses the potential of an in-house team in terms of cost efficiency. It should also be based on a proactive strategy that means once a problem occurs, it either won’t happen again or the time to resolution decreases with every occurrence.
Critically, by opting for a third party resource an organisation can avoid the risk of being virtually held to ransom by experienced in-house staff for additional pay and benefits. The IT department is freed from the administrative overhead of employment regulations and resourcing issues and can focus on its primary purpose and objective: providing efficient platforms for business operations.
If the deal is structured correctly, a managed service should offer a company the agility to flex up and down as required. In the current volatile market, the ability to reduce IT costs or increase service level delivery in line with business performance is a compelling argument. Add to this the benefit of aligning IT services with the business’ security policy, ensuring compliance and data protection in this challenging climate and providing a critical edge in an increasingly competitive market place, and the true value that the right managed services provider can bring to an organisation becomes clear.
Yet a managed service is not the right solution for every organisation – however tight the situation may be today.
A key consideration is the level of talent and experience that exists within the IT team. While cutting costs is a primary goal today, business decision makers need to consider which actions best support the medium and long term key business strategies. Only through a broader and more holistic approach of both financial and strategic implications/drivers can the business arrive at the right decision.
When making any radical operational change such as outsourcing the IT function it is essential to understand the business case. What is the medium-term strategy? Does that include a new product or service launch that will require considerable IT input and support? Would a managed services provider be in a position to provide that level of insight? Indeed, would the organisation be happy to even share that strategic vision with a third party? And, critically, what is the risk associated with in-house IT versus a managed service?
If the business case stacks up, the pressure is now on to get the right contract to support the organisation not just through this recession but into the future. Check the contract! There are far too many managed services contracts that include massive hidden costs that can result in the overall deal costing up to three times the expected fee. The majority of contracts can also not be flexed up or down without incurring huge penalties, creating the same inflexible cost model as the in-house resource.
Furthermore the majority of contracts are designed from a legal rather than service level perspective. Understanding the business requirements and determining the right SLA is key – from the coverage required to the location of the support staff – if the overnight cover is in India, will the problem really be resolved by 8am?
And, of course, if a key objective is to mitigate risk, it is essential to undertake rigorous due diligence on potential suppliers. In this market there are clear signs that some organisations are struggling to keep afloat. In their bid to raise finance, many are looking to cut corners and are failing to focus attention on the provision of service to customers.
Before entering into any new contract, an organisation must be tough: verify the level of cash reserves, check the number and qualifications of staff today – and how that figure compares to 12 months ago. As an example, those providers working primarily in the finance sector may have genuine reasons for headcount reduction but they should be open to such questions.
A good provider should also be innovative as well as transparent. Costs today are an obvious driver and organisations should offer not only contracts that flex up and down in line with business needs but also newly designed services that offer a lower level of service, with less reporting, for example, to provide additional customer choice.
In a recession there is a very understandable temptation to look only at the cost aspect. But while that may help the business weather the storm in the short-term there is so much more to consider if an organisation is to determine whether or not a managed service is the right strategy.
Will a managed service deliver return on investment? Will the company be brave enough to outsource all IT functions to a third party, or will it opt to keep a couple of key staff ‘just in case’ – a move that may reduce the cost benefits? And has the organisation really assessed its business needs? Setting expectations in terms of up time, resolution time and business goals is key before, not during or after, discussions with potential providers.
It is only by undertaking a thorough price versus value comparison and assessing just how a managed service will affect the business when the economy improves that an organisation can make the right decision and, critically, opt for a provider that can actually deliver value to the business over the next few years, not just the next couple of months.
