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If your company has decided to develop a managed services business, you’ve probably already discovered just how daunting it can be. The managed service provider business model is very different from the models for hardware, software, and traditional services like professional, support, and field services. If you need guidance on navigating this tricky transition, read on.
The good news is you are not alone. According to a poll of TSIA members, over 70% of them have either launched or are building managed services businesses.
But the world of managed services is rapidly evolving. Though many of the value propositions remain—such as total cost of ownership (TCO) reduction, risk aversion, acceleration of the adoption of next gen tech, etc.—there has been a tremendous amount of focus on standardization of the offer, specialization of sales, scalability and automation of delivery, and optimization of client governance.
So where should you start? Follow this seven-step approach to learn how to build a managed services business.
Don’t think you can just create a good PowerPoint presentation backed up by an Excel spreadsheet with some projections on revenue and cost. Those are good, but they’re not even close to being enough.
A good strategy document is used to focus efforts and to evangelize your activities. It needs to detail all aspects of the MS business: offer, sales, marketing, delivery, finance, sourcing/supplier management, client management, and so on. The strategy document needs to include measurable and auditable targets and objectives for each of the areas listed above. I recommend making these objectives quarterly targets that need to be reviewed by the leadership team on an ongoing basis.
Here's an example of what your documented strategy could look like:
Here's an example of what your documented strategy could look like.
Sounds easy enough. However, executing on it is incredibly challenging, and investing in the right skills and resources is crucial. The organizational functions in managed services have the same names as other businesses: offer management, sales, marketing, delivery, finance, etc. The skills and acumen required for these functions in managed services are dramatically different than those in a product business.
The offer is the foundation of the managed services business. Getting it wrong will result in slow, painful growth, if you do grow at all. The offer must be market-focused, which will often require a tech company to step outside its comfort zone.
The offer needs to be focused on reducing or eliminating the pain the customer is experiencing because of their technology. It could be financial pain, operational pain, etc. Managed services is the first offer for a tech company that focuses on outcomes.
Selling managed services is very different from selling technology or attach services (Support, Field, Professional Services). Because the offer is focused on outcomes, the sales resource need to understand the technology being managed, the operations required to manage the tech (at least at a high level) and they need to understand the customer’s financial operations. These deals are more complex, take longer to quote and take longer to close. The decision is typically made at the CXO level or by the VP of a major line of business. Not the IT organization. IT is an influencer.
Just like selling managed services is different, delivering managed services is different. Delivery is not just your operations; it is the customer’s operations. The delivery model is what ensures the intended outcome of the offer is achieved. The delivery needs to be proactive, predictive and preventative. Standardization, scalability and automation are crucial. No other function in managed services has a greater impact on profitability and customer satisfaction than delivery.
Keep the customer happy and they will be the gift that keeps on giving. The client operations team needs to deal with how the customer “feels”. This is where the ongoing relationship with senior executives happens. They are the face of the service. This team needs to focus on customer sat, contract performance, renewals and upselling/cross selling.
In managed services, the finance organization is either your best friend or your worst nightmare. You must have someone in the managed services organization that understands the financials of your business better than the finance organization.
The financial operation of managed services is yet another area that is dramatically different than that of a product or attach-services business. Revenue forecasting, revenue recognition, margin calculation (gross and net), ongoing resource, and operations investments, all require unique considerations.
We’ve seen so many fast-growing managed services businesses with great offers and really good people fall apart because of a naïve approach to the financial governance of their business.
Getting your head around these seven key areas won’t solve all of your problems in managed services, nor will they guarantee success. However, not putting considerable focus on any one of these can create a fatal flaw preventing sustainable success.
Most importantly, have fun building your managed services business! If you like roller coasters and thrill rides at an amusement park, you’ll love being a leader in a managed services business. It’s a wild and rewarding ride.
December 9, 2015
George Humphrey is the vice president and managing director of service and delivery research and advisory for TSIA. Given his extensive background, George also directly supports the managed services research practice. He is a networking and communications industry veteran with over 25+ years of experience. Throughout his career, he has held several leadership positions in managed services, including global strategy, product line management, marketing, operations, and client management.
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