A BIG Opportunity!

Introduction

The global managed services market is expected to grow from $107.17 billion last year to $193.34 billion by 2019 at an estimated CAGR of 12.5%. This growth rate is largely being driven by advancements in cloud computing, big data and mobility services. These new ‘outsourced’ services are enabling organizations to bring in competences they previously lacked, reduce recurring in-house IT costs by up to 30-40% and to generate a potential 50-60% increase in efficiency.

Not surprisingly external managed services are high on most CFO’s list of options to reduce costs, and many IT resellers have been actively moving to meet this opportunity by adopting more services centric models. However, building a managed service capability can be complex, time-consuming, and costly. In addition to the expense of the necessary technical investments there is an impact on the bottom-line of an up-front CAPEX business, albeit these impacts can be mitigated through asset-light strategies for infrastructure and facilities.

The increased number of new managed service entrants will also start to exert a downwards pressure on pricing levels and associated margins through greater levels of competition, particularly in traditional service offerings (e.g. service desk, security and hosting), and in the longer term for newer services such as application management.

Strategy

Getting the overall managed service strategy right is critical for success in a progressively more competitive market. New entrants will have the advantage of a ‘clean sheet of paper’ to build low cost delivery systems but will have to work harder to convince customers to trust them with their core services. Cloud based platforms using facilities managed data centres will help convince customers that their systems and data are safe. We would also encourage both new and existing providers to consider the following points:

• Organic scaling overall, or focusing on a niche market where the Unique Selling Points (USP’s) can be more clearly and compellingly articulated, and competition might be less of a constraint or threat
• Cross-selling additional services to existing clients, and perhaps expanding the portfolio of services
• Reducing operational costs of delivery (e.g. more effective processes, systems, asset light and self-service)
• Reducing churn levels to lessen the need to backfill just to stand still
• ‘Tuning’ the existing client base to reduce overheads, cost and to free up capacity for new more profitable new business
• Acquisition to step change revenue levels and realize economies through both scale and consolidation.

Marketing

Traditionally marketing has been seen as a slightly ‘fuzzy’ area of responsibility with unclear linkage to sales, operations and finance. The smart managed services businesses will incorporate the following responsibilities within their marketing function:

• Generating sales contacts – Coordinating the process by which contacts become leads, leads become opportunities, and opportunities become revenue. Metrics based intelligence can be applied to analyze the success rate, and conditions of success or failure at each stage. Using this knowledge marketing can review and adapt future contact and lead generation campaigns, as well as developing metric-based plans for converting leads into revenue.

• Defining services and products portfolio – Few businesses have a central focus of responsibility for building deep insight into their target markets. Without this it is difficult to intelligently develop new products and services to meet untapped, under-served or emerging demand. It also increases the risk that the business will keep trying to sell products and services that have, or will have, diminishing demand, increasing competitive threats or reduced margins.

• Strategic partnership development – Partners want to see a broader business development plan that includes joint-marketing actions targeting both partner-internal audience and external audience to underpin sales activities and targets. Managed Services businesses in turn need to compete for attention, and to extract the most benefit from their partner. This means building a bigger and more strategic relationship.

Sales

There is a huge difference between selling boxes and selling services. Services require a consultative approach to convince customers to sign a service contract. Consultative selling needs dedicated sales teams for each type of service (e.g. managed and cloud services). Larger providers also need to take into account the different sales roles (e.g. farmers and hunters) to up-sell and attract new customers.

There is a lot of benefit to be had from hiring good sales people, providing well designed ‘cheat sheets’, and ‘buddying’ less experienced and newer team members with more experienced staff. In addition there is a need for a well organized, and continuous, development programme to progressively build sales understanding of the portfolio, ability to present USP’s and to build more advanced commercial and technical expertise.

Conclusion

The Managed Services Providers who best come to terms with the changes needed to address the potential opportunity will be those that benefit most from the growth and challenges we’re seeing in the market.