Download Don't sweat the downturn

Don’t sweat the downturn
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.
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.
This forces 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; however,
organisations must not only address the
business plan as a reaction to the shortterm macroeconomic climate, but must
also consider how best to take advantage
of the future market recovery.
Flexible costing
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 that 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.
Potential benefits
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
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strategy
is a compelling argument. Add to this
the benefit of aligning IT services with
the business’ security policy, ensuring
compliance and data protection, 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.
Business case
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?
Flexible model
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.
Not just the cost
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.
risk is far higher than the in-house model.
In-house staff are more easily monitored
and controlled. It is essential to understand
and feel confident in the levels of security
offered by a managed service provider.
Flexibility – Can the service flex? To
decrease risk, it is essential to be able to
flex both up and down without incurring
penalties.
Transparency – Will the provider share
its financial position? Does the company
have good cash reserves? What is today’s
headcount and experience? If lower than 12
months ago, is there a valid reason?
Contractual obligations – Organisations
often overlook their own obligations.
Understand how the business is expected
to interact with the provider, check out any
prerequisites in the contract and ascertain
the cost implications.
Staff incentives – Does the provider offer
staff bonuses if customers’ SLAs are met?
If so, the company is less likely to cut costs
and the quality of service should remain
consistent despite financial pressure.
Price versus value – Ensure the provider
can demonstrate not only a good price
today, but also the value-based services
that will support the business as and when
the economy improves.
SLA – If the contract is 24x7 where is
the overnight cover? If based outside the
UK, can the provider demonstrate its
effectiveness and ability to meet the SLA?
Proactive or reactive – is the service
proactive? Will it drive up stability and
reduce downtime?
Scott Nursten is Managing Director of s2s.
Key questions:
Contract costs – Is the managed service
going to save money over the entire
contract length or is it a short-term fix? A
lot of contracts have step ups built in year
by year, which means by year three costs
are significantly higher than an in-house
resource.
Security – When an organisation is allowing
an external provider to control its systems,
networks and data, the potential security
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