2005
All it takes is planning, planning and planning
By
Geof Wheelwright
Financial Times,
01 June 2005
Managed services are positioned by providers as a great way to receive business benefit and cost advantages quickly by letting someone else run “non-core” elements of your business for you - and do so in a way that is measurable, accountable and scaleable.
But a lot can go wrong between the time that a company decides that it wants to start using managed services and the moment that those services are fully operational and providing real benefit.
Steve Varley, managing consultant for the PA Consulting Group, suggests that the depth and quality in the planning of the transition from in house services to using a managed service plays a big role in whether or not it will be a success.
“After months of negotiation, with the ink finally drying on their new managed services contract, organisations could be forgiven for thinking the hard work is over. Alas, this view could not be further from the truth, for the next hurdle is the biggest: the transition of the services, people and assets,” says Mr Varley. “A poor transition can negate much of the potential benefit that has been so carefully negotiated.
“Interruptions to business continuity or reductions in quality of service as a result of a poor transition can take many millions of pounds from the bottom line, not to mention any potential damage to reputation or brand.
“In order to reduce the risks to service continuity at transition date, it is wise to plan carefully all the relevant areas that will contribute to the managed service. Ideally preparations should start during the contract negotiations phase, many months before the onset of transition.
“This enables transition to hit the ground running with most of the relevant information on scope, performance baselines, work in progress, budgets and payment mechanisms clearly understood and agreed,” says Mr Varley.
Martin Canning, vice-president of IDC’s European Services Group, warns that the transition to managed services must take place with a view of the medium to long term benefits of the agreement.
“A lot of companies go into the contract phase without thinking about the long-term implications of the agreement,” he says. “Very often the rationale for moving to managed services is short term cost savings. And when things change (as the needs of the client change), it can be hard to show the value if the parties involved haven’t thought what the on-going value might be.
“So one of the reasons that people say managed serviced contracts fail is that expectations were not set properly - and they may not have been failures, it may be that they just didn’t set expectations properly at the outset.”
Part of that “expectation setting” can lie in what the services are called. Mr Canning said that a recent IDC survey of managed services trends in Europe, for example, showed the “near disappearance of the differentiation between outsourcing and managed services”.
The survey also showed that the demand for them is growing - with IDC predicting that the managed services market will reach almost $13.3bn in western Europe in 2008, representing a compound annual growth rate of 7.3 per cent.
“The word outsourcing tends to get used for almost everything,” he adds. “In terms of what they are buying, companies may be buying managed services, but if you talk to them, they say they have outsourced it.
“They are not too worried about whether it is outsourcing or managed services. It seems that the phrase “managed service” has a less negative connotation around jobs and people moving out of the company.”
Meanwhile, Colin Mattey, director of commercial and brands at British Telecom’s Major Business unit, suggests that while short term cost savings have been the major motivation for moving to managed services, it is no longer the only driver.
“Increasingly the aim is also to gain substantial business benefits from the new systems provided,” he says. “We work to establish a strong business case early on so that clients are happy with what they will get back. The business case will only be as good as the client information that goes into it. It is vital to establish and agree the total cost of current service provision and the level of service provided by the in house team for BT to work out how much it can improve on this.”
He also warns that it is essential to have a clear and agreed plan for when things do go wrong - and that needs to take place when the transition is being planned, not during the first major interruption in service.
“You have to define clear escalation procedures in order to resolve problems at the lowest practicable level, and ensure that key people have the responsibility to deal with problems quickly,” he says.
A final word of advice comes from Neville Howard, consulting partner at Deloitte Touche, who suggests that companies moving to a managed service should actually start with modest goals.
“Migration to a managed or outsourced service is often meant to transform the customer’s service - perhaps introducing new technology, addressing service issues or reducing costs,” he says.
“In practice, at the point of transition the supplier is typically taking over the existing in house service, and nothing may change on day one. In fact, the greatest challenge is making sure nothing changes, as over-ambitious transformation programmes run the risk of disrupting services.
“We encourage our clients to build in a period when the supplier changes nothing, proving their ability to manage steady state before they make any changes.
“This minimises the risk of disruption and gives the supplier the knowledge they will need to hit the subsequent transformation deadlines.”
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