At TSIA, we work with hundreds of tech companies of all sizes and market segments to help them stay on top of emerging industry trends. According to a 2014 poll of our members, over 70% of them have either launched or are developing a managed services business. However, as these tech leaders start to embrace managed services, they learn very quickly how daunting and different these business models are from hardware, software, and traditional services such as professional, support, and field services.

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 how do you know where to start when building your own managed services business? In this post, I’ll discuss a seven-step approach you need to consider as you begin the journey. 

Step 1: Document Your Strategy

This doesn’t mean come up with 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 LT on an ongoing basis.

strategic framework document graphic  

(Click image to enlarge.)
Here's an example of what your documented strategy could look like.

Step 2: Define the Organization Structure

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 business: 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.

Step 3: Define the Offer

The offer is the foundation of the managed services business, and 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 their 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.

umbrella graphic: monitor, operate, optimize, transform, managed xaas/cloud  

(Click image to enlarge.)
Which kind of offer will your managed service business provide?

Step 4: Specialization of Sales

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 needs 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, rather than the IT organization, though they are an influencer.

Step 5: Service Delivery

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, and needs to be proactive, predictive, and preventive. Standardization, scalability, and automation are crucial. No other function in managed services has a greater impact on profitability and customer satisfaction than delivery. 

Step 6: Client Operations

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, as they are the face of the service. This team needs to focus on customer satisfaction, contract performance, renewals, and upselling/cross-selling.

Step 7: Financial Operations

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.

A Good Place to Start

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. If you find this blog interesting, stay tuned. We’ll be expanding this into a Service Insight document in early 2016. 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.

Step 4: Specialization of Sales

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 needs 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, rather than the IT organization, though they are an influencer.

Step 5: Service Delivery

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, and needs to be proactive, predictive, and preventive. Standardization, scalability, and automation are crucial. No other function in managed services has a greater impact on profitability and customer satisfaction than delivery.

Step 6: Client Operations

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, as they are the face of the service. This team needs to focus on customer satisfaction, contract performance, renewals, and upselling/cross-selling.

Step 7: Financial Operations

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.

A Good Place to Start

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. If you find this blog interesting, stay tuned. We’ll be expanding this into a Service Insight document in early 2016. 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.

 
 
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George Humphrey

About Author George Humphrey

George Humphrey, is the vice president of research, Managed Services, for TSIA. He is a networking and communications industry veteran of over 20 years with extensive experience in managed infrastructure and application services. 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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