Managed services on the rise

In today`s ICT sector, the buzzwords include some hot technology: service-oriented architecture, Web services, virtualisation, on-demand computing and software as a service.

However, when it comes to The Next Big Thing in IT, if some of SA`s top IT services providers are to be believed, the 800-pound gorilla that will dominate the corporate IT jungle for the next year or two is managed services.

It`s a difficult beast to get one`s head around, not least because everyone has their own definition. In its simplest form, managed services involve three things: a customer, a service provider and an agreement to offer an IT service. The rest is up to what the customer wants, and what the provider can offer.

Don`t confuse managed services with outsourcing. The old style of outsourcing involved handing over the entire IT operation and assets to an outside company. Today, organisations are looking for ways to maintain control of their IT requirements while selectively "out-tasking" specific IT functions.

Peter Dixon, GM of innovation at Dimension Data, boils managed services down to a company requesting a service provider to maintain, operate and manage a particular area of IT. Rob Kimmings, managing executive of the outsourcing services management centre at Business Connexion (BCX), views it as a holistic process that unbundles IT services. Dan van der Westhuizen, GijimaAst`s divisional executive for infrastructure, software solutions, says the only limit to managed services is what you can take to market.

Even with diverse views on its exact definition, the one point everybody does agree on is, used correctly, managed services allows companies to effectively manage technology in specific areas to deliver real business benefits.

The reality is that without effective automation, IT will simply die.

Dan van der Westhuizen, divisional executive, GijimaAst

The most recalcitrant CIOs are realising managed services can provide effective and reliable IT solutions that also generate substantial cost-savings and real business value. At the same time, successful service providers are cottoning on to what it takes to build, sell and deliver high-quality and profitable services.

"More and more, business people want information rather than systems, new business capabilities rather than infrastructure," says Kimmings.

Johannesburg-based research house BMI-TechKnowledge estimates services account for up to 45% of all IT spend in SA; and that figure is set to boom in the next few years. Depending on who you speak to, the services market is growing at between 6% and 11% a year.

In SA, the desktop remains the primary source of most managed service deals, even though it is regarded as little more than a commodity - or, as it is somewhat scornfully said in the industry, a "break-fix". That doesn`t stop the desktop from accounting for 50% to 60% of the average corporation`s IT budget. It also remains an obvious area in which to reduce that most dreaded of acronyms, TCO (total cost of ownership).

"There`s still value in the desktop, because it stays the real interface for the end-user," says Choice Technologies` GM for services, Nico van Noordwyk. "Just ask yourself: how well do you function without it? When it breaks, how quickly can it be fixed? What is the effect on the business if the desktop goes down for any length of time?"

Kimmings agrees the desktop remains a key area of the managed services portfolio. Managing more than 10 000 desktops each for three major industrial clients, BCX says it has reduced on-site labour costs by 30% and service agreement times from 16 hours to 15 minutes. "That`s making a real difference at a business level," he says.

However, more sophisticated managed services is where the real action is. That`s why service providers are offering front-end professional services such as IT audits and needs assessments, along with planning, design, project management and optimisation services.

Using sophisticated service management centres, service providers are finding remote management, automated intelligent processes and a healthy portion of self-help are the road to low overheads and high margins. They not only deal with daily alarms, failures and pressing patch requirements, but provide a host of services like automated configuration management, patch management, security policy generation and enforcement, and IT health monitoring.

With budgets being so tight, where does one start? A few technologies seem to be gaining momentum:
IT health monitoring services
* Configuration and patch management tools
* Configuration management databases
* Policy generation and enforcement software
* Compliance and auditing tools

The beauty of tools like these is they give CIOs a bird`s-eye view of an organisation`s key systems. But some critics say these systems also create new layers of complexity. Is automation just substituting one set of problems for another? Considering the costs associated with on-site troubleshooting, the short answer is no.

When one considers 20% of all calls to help-desks are password related, resolving these calls over the phone - or, even better, through self-help facilities - is first prize. The cost of a technician going out to fix a password glitch? A cool R500. Do that 10, or 20, times a month, and that`s enough to dent anyone`s profitability.

GijimaAst`s Van der Westhuizen takes the view that automation is not the customer`s problem. "The reality is, without effective automation, IT will simply die. But as far as the customer is concerned, the critical element of managed services is standardised solutions - actually taking away complexity while still delivering services against agreed objectives."

To BCX`s Kimmings, automation is a non-issue. "By automating processes, we`re allowing business decisions to be taken in a pre-emptive manner. In many cases, potential problems are detected and fixed without the client even being aware of them. The bottom line is this approach removes up to 40% of management costs - and isn`t removing costs much of the point of the modern IT organisation?"

It`s not all plain sailing, though. There are still numerous challenges facing service providers in SA. One common theme to emerge is many companies grapple with uniquely local constraints and business culture.

Lucky Khumalo, CEO of Mthombo IT Services, says companies unwittingly sabotage their managed services efforts by clinging to the high-value sectors of their IT organisation. "They keep the key parts to themselves, and this effectively stops the full TCO model being applied. Customers expect TCO to go down, but keep pockets of the business, which means they remain saddled with infrastructure costs and expensive people who only specialise in one area."

There`s a clear trend away from big outsourcing deals, but at the end of the day companies still want to deal with a single, trusted provider who can take a holistic view of their organisation and manage their services as a whole.

Rob Kimmings, managing exec, outsourcing, BCX

Choice Technologies` Van Noordwyk is even blunter about this phenomenon: "Companies just won`t let go! Which means they keep costs on board. This means they don`t get the results, which in turn results in them getting disillusioned with the whole idea of managed services. It`s really up to us, as service providers, to educate the end-user more fully about the benefits and implications of managed services."

Multinationals tend to be more mature about their approach to managed services, and are reaping the benefits of lower head counts and the removal of infrastructure from their balance sheets. But while automation and outsourcing reduces head count, there is one area where the automation of services is actually creating more work: coordination.

As pieces of the value chain break off and become more specialised, the need for coordination of the various pieces increases. Enter a new breed of service provider: the single service aggregator.

"We, for one, are certainly looking to position ourselves as a single service aggregator," says Kimmings. "There`s a clear trend away from big outsourcing deals, but at the end of the day, companies still want to deal with a single, trusted provider who can take a holistic view of their organisation and manage their services as a whole."

Clients are always after consistency. Today, though, they also want thought leadership and innovation.

Peter Dixon, GM of innovation, DiData

DiData`s Dixon is equally upbeat about the opportunities in this area. "We`re seeing a definite increase in multi-sourcing, where a client outsources to several different providers. This is partly to reduce risk, and partly to get the best skills in each area. But they don`t necessarily have the time or the inclination to manage each supplier, which is where the single service aggregator comes in. That`s a good opportunity for us."

Taking another step forward, some industry players like GijimaAst`s Van der Westhuizen see managed services naturally evolving to a utility, or on demand computing model. He cites analysts like Crawford del Prete, senior VP of hardware and communications at the US-based think-tank IDC, who says utility computing will become the primary driver of the IT industry in the next decade. Del Prete defines utility computing as the ability to seamlessly access and scale computing capacity on demand across geography, application and operating system.

IT and telecoms solutions provider Intelleca has applied the concept of "on demand" in a novel way. It claims to be the first South African company to offer call centre services on demand. This has practically removed the entry barriers to what has traditionally been a staggeringly expensive exercise. Medium-sized call centres can cost R10 million, but now just about anyone can have a call centre - and can scale up or down as they please.

"Value is all about giving the customer exactly what they want," says Intelleca MD Mike Renzon. "We`ve taken maturing technology and married it to a clear business need. This is the future of call centres."

A recurring gripe is that local IT executives want "better managed services" from their providers. Some sources suggest dissatisfaction with outsourced services can be as high as 50%, suggesting the traditional disconnect between providers and customers is alive and well.

Part of the problem results from a communication gap between providers and users over what managed services really are. The service providers tend to think if they provide figures on uptime, along with the ability to troubleshoot and reconfigure malfunctioning components, they`re "managing" the service. And 10 years ago, that was fine.

Today though, an army of more discerning users want their managed services to ensure critical applications are performing effectively. They are demanding their service provider be proactive on issues that compromise business functionality and take immediate action, not wait to be informed.

More than ever, they are conducting due diligence checks, including rigorous reference checks, to ensure potential providers are up to scratch. They are getting uppity about subcontractors who do not fit their culture or needs, and are trying to tweak service level agreements to reflect business outcomes.

"Companies are far wiser than before about who they let in," says Mthombo IT`s Khumalo. "We`re seeing a lot more closed tenders with companies that are pre-qualified, and far more rigorous due diligence in open tenders as well, even in government."

What`s the bottom line? Service providers need to better understand - and implement - user requirements. By the same token, part of the problem lies with IT executives.

"Clients are always after consistency," says DiData`s Dixon. "Today, though, they also want thought leadership and innovation. This is where understanding the values of the contract is key. Does the client want you to deliver operations at a given level, or constantly improve technology and operations to add business value? We need to understand the difference between price and value."

In other words, it`s important to make sure the interests of service providers and their customers are properly aligned. Do it right upfront, and it`s roses and moonshine. But judging by the feedback from many end-users, there`s still some way to go.