Increasing Role of Managed Services

1. Introduction:

The evolution to a converged world has put practically all businesses under increased competition and has squeezed their profit margins. To respond to these pressures, solutions that enable a shorter time to market for newer, differentiated services while increasing customer focus are required.

There is a strong pressure to use a combination of resources including the call center and the World Wide Web, in addition to the normal marketing and delivery channels. Issues around reliability and security in an IP -based world need to be addressed properly, as it is critical to minimize the risk of any IT failure that could adversely impact business. With a large contribution of information communication technology (ICT ) processes in the successful operation of any business and the core technology itself becoming obsolete very fast, it has become virtually impossible for any business organization to tackle all such issues in-house. Therefore, businesses have to sharpen their core competencies while seeking the best-of-breed services in other areas by outsourcing them to those who are capable of providing those services. Starting with the outsourcing of IT processes during the later part of last century, it has spread to other noncore areas like network security, web hosting, OSS BSS , call centers, network operation, etc. Most operational challenges center on the reduction of OPE X, optimization of CAPE X, access to technical expertise and competencies, improved performance and efficiency.

These requirements are impacting traditional business models and challenging businesses and telecom operators to ask: “What are our core areas? What is of strategic importance to us?” Earlier, many enterprises believed that their IT systems and telecom operators thought that their networks were of core importance. But convergence has shifted this strategic importance to the actual services provided in today’s dynamic market and to being proactive to market demands. For the Indian telecom operators, while there is a continued decrease in average revenue per user (ARPU ), primarily due to future expansions in rural, low-spend areas and competition from greenfield operators, there is an increased demand for new, value added and contentbased services. Operators do not have core expertise in the areas of value added services or content-based services. The shift in business dynamics has forced them to include an area once thought impossible to consider – strategic outsourcing of specific areas using managed services. As Jack Welch said, “You shouldn’t have something in your back office that exists in someone else’s front office.”

Contracting with a managed services provider (MSP ) appears to be a more flexible form of out-tasking, and with specified contract period(s) and built-in service level agreements (SLA s), it reduces the risks associated with long-term, all-encompassing outsourcing agreements. Managed service enables businesses to convert their capital expenditures into operating expenses and establish a more predictable cost structure for their operations. So, what exactly is managed services?

2. Managed Services

Managed Services may be defined as “the ongoing, automated and remote, but proactive, management of computing resources and business applications to ensure their continuous availability, optimal performance and maximum security.” The services are rendered by a third party managed service provider (MSP ) under contracted SLA s. The services may include design, planning, installation, operations and management, etc. SLA s are written in documents which define the nature and quality of service (QOS ) that is to be delivered by the MSP , with measurable key performance indicators (KPI s) and associated penalties. It may or may not involve the transfer of people and/or assets from the served to the serving organization for greater operational savings. Managed service arrangements also typically include more flexible contractual agreements and better reporting mechanisms to ensure the MSP is meeting the needs of the company.

Going up the value chain in the managed service model, the MSP becomes a partner in the business and, keeping in view his share of the returns, strives for increasing revenues through a combination of network upgrades, better uptimes, process re-engineering, etc., while maintaining control over expenditures. Outsourcing – for and against

Outsourcing using MSP may enable businesses to:

• Address lack of in-house skills, especially related to security, new technologies, and voice/data integration
• Address the problems of integration in a multi-party vendor scenario
• Have rapid growth by focusing on core business tasks
• Provide for 24 x 7 coverage
• Get insulated from technology obsolescence
• Provide for conversion of capital costs to a consistent monthly expense item

On the other hand, reasons why businesses may not choose to outsource include:

• Strategic decision/inability to quantify SLA in terms of KPI s
• Fear of leakage of confidential company data and processes
• Lack of accountability/responsibility (particularly when many processes are outsourced)
• Management inability to ‘sell’ the concept of managed services to own staff

Managed services has gained a large deal of success and popularity in the telecom and IT areas. The proliferation of the Internet, rapid technological developments in ICT and the fiercely competitive telecom market have been instrumental in this regard. The Telecom Operators are playing a dual role. They are taking the help of telecom and IT vendors to manage their network, billing and call center operations, value added services (VAS ), etc. They are also leveraging their network and expertise to provide managed services in areas like VPN s, web hosting, enterprise-wide networking, etc., to businesses and governments that are willing to outsource their telecom/IT related requirements. The size of the managed services segment of the telecom sector in India is estimated to be around US $3 billion, with both existing and greenfield operators opting for managed services for, perhaps, different reasons. Existing operators look at MSP s to reduce their OPE X while improving operational performance. The greenfield operators want their CAPE X to be minimized, as they seek early payback on their investments.

3. Problems of Telecom Operators

Telecom operators are under severe pressure due to falling tariffs and increased churn from the high percentage of the prepaid segment. They need to constantly innovate and attract customers with services the customer desires and, thus, improve their revenues and profits. The requirements are many – capture the market before the competition does, provide excellent service to end users and improve the return on investment for business to grow, to name just a few.

With the advent of digital switching, new features were introduced including intelligent network (IN )-based services. Internet, broadband and mobile telephony brought new paradigms to the customer experience. However, as the services improved, the end-user’s expectations started increasing. Although voice was considered the ‘killer app’ for telecom operators, it is now regarded as a commodity. With the advent of the Internet and the convergence of multimedia, voice, data and IT , and the availability of multiple delivery channels, the priority has shifted from pure voice to other non-voice revenue streams. The introduction of 3G will shift the competition to a higher level and may become the key to increased market share. Hence, operators need to differentiate themselves with new service offerings matching customer needs. Telecom operators have handed out the core activities of designing, rolling out, managing and upgrading their networks to parties (mostly equipment vendors) who have the expertise of network management. With the emergence of multiple technologies, standards, applications and a myriad of ever changing content, a managed services business model also enables them to transfer endto- end management of VAS services to a managed service provider with proven expertise in the delivery of these services. IT (Billing/OSS /BSS ) forms a crucial part of telecom operations and therefore it is critical for operators that they minimize the risk of any IT failures that could adversely impact their business, by handing their billing, OSS & BSS to a MSP . With multiple MSP s in place, operators can focus on activities that generate greater value for the business by exploiting their real core competencies: their ability to acquire customers and maintain customer loyalty.

Some telecom operators who have tasted initial success in the basic MSP model have ventured further and are trying out higher versions of the managed service model wherein the MSP is also made responsible for managing the capacity of the network and/or revenue from services on a deferred payment/revenue sharing model. Once these concepts are also built into the model, the MSP automatically becomes aware of his share of the pie and the need to attract and retain more and more customers through a combination of service innovation, timely network upgrades, higher uptimes, etc. Future versions of managed services may be all-encompassing including management of the customer interface.

4. Making the decision for Managed Services:

The decision to go for managed services has to be a strategic decision and management will have to make the call as to what are the ‘core areas’ where they would like to retain internal control and what are those areas they would like to hand off. The possible impact of these actions on the business delivery will have to be assessed beforehand. It may also be more appropriate that the outsourcing decision is taken in phases with experience gained during the initial phase playing a major role in deciding future endeavors.

While making the crucial decision, the organization would need to:
a) Identify the areas to be outsourced
b) Analyze the market for availability of genuine third party MSPs
c) Constitute a strong team for working out the modalities for outsourcing
d) Set realistic and measurable objectives. Define the SLA s and KPI s to be used for measuring the SLAs
e) Prepare an exhaustive document detailing the existing processes, proposed requirements including SLA s, KPI s, methods and periodicity for their measurements, proposed penalties in case KPI s are not met, nondisclosure clause, periodicity for review of the arrangement, etc.
f ) Float an RFP amongst prospective partners (MSPs)
g) Analyze the offer documents with specific emphasis on examining each MSP ’s service portfolio, delivery capabilities and business viability; enter into detailed discussions and negotiations before identifying a prospective partner

5. Benefits of Managed Services

A well-qualified MSP brings with him vast knowledge and expertise of all facets of the business including planning and operation and, hence, can bring about significant improvements in the processes leading to better customer experience. To the operator, it provides relief flowing out of process improvements – these may be in terms of reduced operational expenses/capital expenditure or in terms of early marketing of a new service/product. Keeping in mind the need for early capture of market, the MSP also ensures that the network of the operator is kept ‘future ready.’ The operator is thus able to focus on his core business activities and on the end customer.

Managed services also utilize a pay-as-you-grow or a pay-as-you-use subscription pricing model that eliminates the upfront financial commitments found in traditional maintenance and outsourcing arrangements.

6. MSP Selection – Probable Questions for Partner Selection

Outsourcing can bring tremendous benefits if the right partner is chosen. When evaluating potential partners the following factors may be considered:

1. What is the managed services provider’s experience in deploying and operating end-to-end managed services?
2. Does the MSP have experts (certified engineers and technicians) who have years of end-to-end solution experience in the area of managed services and are familiar with a wide range of multivendor systems and associated interoperability issues?
3. Does he have an extensive track record of designing and building service provider networks quickly and efficiently?
4. What level of systems integration expertise does he have?
5. Does he have in-house design, planning, engineering and training capabilities?
6. What is the scale of vendor management that the MSP is capable of ?
7. Does he have knowledge of what’s happening in the industry, particularly a vision of the future and the roadmap to achieve the same?

7. Business Models

Managed services may be categorized under the following business models, although there may be other ways of categorization.

Managed SLA

Under this, an SLA -driven managed services contract exists between the operator and the MSP . Here, the operator specifies the SLA s to be achieved, keeping in mind the implications for the network, infrastructure and operational requirements – and end user service requirements. With a managed SLA model, the operational approach may vary. In this scenario, the managed services provider may only be responsible for operational and management tasks related to achieving the SLA – and all hardware, software and applications are owned by the operator.

Managed Capacity

As an extension to the concept of MS , the MSP is now also made responsible for expanding the capacity of the network as per requirements. With a managed capacity model, the managed services provider is responsible for meeting SLA s, as well as managing capacity of the deployed solution(s) proactively. Various operational models can be adopted with this approach, though typically the managed services provider would share, or be entirely responsible, for costs involved in expanding capacity. This model is based on a co-ordinated effort on both parties, otherwise any promotional campaign may lead to network blockages due to increased traffic from new customers.

Managed Revenue

This model focuses on revenue assurance, one of the prime objects for the success of any business. In this model the operator and the managed services provider agree on revenue targets and generally share the costs of deploying and managing the service in line with the proportionate share of revenue between the parties. The aim of this model is to motivate the managed services partner to drive revenues, whilst maintaining strict controls on costs. In this model, the MSP will be required to also provide market intelligence, innovative services, analytical support, etc. This model is higher on the value chain and encompasses both SLA as well as capacity-based managed services in its fold.

8. Key Success Factors

While much has been written about managed services and its usefulness, it should not be assumed that MS is a panacea for all ills and a word of caution is advised. The success of MS will depend on a large number of factors. However, as I see it, the three key components for its success are:

• Right Technology
• Right People
• Right Processes

Besides this, a clear-cut governance mechanism will need to be put in place for MS to be a success. A high-performance governance process can transform the agreement into a strategic relationship that is focused squarely on adding value. The governance model should be designed to:

• Set expectations, goals and measurement methodologies
• Form peer-to-peer teams to closely monitor performance of services
• Establish clear accountability and provide an escalation path for dispute resolution
• Provide a process for changing scope and terms of the contract
• Offer a vehicle for leveraging new technologies with the objective of exceeding end customer expectations.

9. Conclusion

A large number of businesses including telecom service providers have resorted to managed services for outsourcing parts of their operational areas and a good number of case studies are available to demonstrate the success of this model. However, it needs a very rigorous effort in identifying specific area(s) to be outsourced based on requirement and availability of MSP , formation of a dedicated team, simulating business models, defining SLA s and KPI s, preparing RFP and evaluating proposals received thoroughly before launching the process. Surely, the businesses that successfully separate the design, implementation and management of their infrastructure from their core, customer focused areas will free resources and expertise to concentrate on the development and marketing of services that customers value. Managed services has to be a fundamental part of a long-term, value-creating strategy.