White Paper. Managed Services. Part 2: True Value Creation Partnership. February ISO 9001 No. FS 28117

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1 White Paper Managed Services Part 2: True Value Creation Partnership February 2013 ISO 9001 No. FS 28117

2 Managed Services Preface 01 Introduction 01 Transition to Managed Services 05 Telecom domain knowhow 05 Own BSS suite of applications 06 Improved Service portfolio 09 Distributed Delivery model 11 Critical success factors XX Managed Services Value Creation 12 Focus on core competences 13 Just in Time 13 Formation of true partnership 13 Risk Management partnership 14 Conclusion 18

3 3 About This Document This document provides guidance on how a transition to Managed Services takes place for a Communications Service Provider (CSP). This document is intended for executive authorities within a CSP with responsibility for billing activities Introduction Driven by the demands for increased business agility, systems architectural simplicity, secured scalability and the relentless drive for improved cost efficiency, CSPs are increasingly looking for Managed Services to improve their performance and advance their competitiveness. Managed Services operations focuses on four core elements that deliver competitive advantage to CSPs: 1) scalability, 2) stability, 3) simplicity and 4) agility. Scalability provides continuous growth potential as the subscriber base grows; transaction volume increases and new devices join the connected ecosystem. Stability provides trouble free operations, excellent customer experience and operational efficiency. Simplicity drives down both operational costs and system complexity as new products and services are added into the offering portfolio. Business agility and short time-to-market ensures the ability to react to changes in the marketplace and deliver innovation in the ever-changing competitive landscape. Partnering with a Managed Services Provider (MSP) helps CSPs gain concrete sustainable competitive advantage. The MSP can provide economies of scale through its global operations, which helps to drive down the costs per subscriber, served and improve profit margins. The best-in-the-industry subject matter expertise boosts operational efficiency with CSP-specific best business practices. MSPs compensation is based on the Key Performance Indicators (KPIs) that reflect the business objectives of the Managed Services partnership. The compensation shall be derived from both quantitative business volume and qualitative performance. The pay-as-you-go compensation model turns fixed capital expenses into variable operational expenses

4 4 and frees funds otherwise tied into up-front investments to marketing and business development. Managed Services is the practice of outsourcing day-to-day IT management responsibilities of the set of applications that the CSP has acquired to support its business operations and now desires to outsource to an MSP. Managed Services does not include the acquisition of the suite of BSS applications but the operation of them. Managed Services includes the traditional service desk and support and maintenance services associated with the annual support and maintenance agreement in a licensing business model. But the scope in Managed Services extends to proactively maintaining the applications, monitoring the availability of the applications and securing the future capacity of the applications. Managed Services furthermore ensures the secure processing and storing of data. The mission of Managed Services is to secure the availability, capacity, stability and cost efficiency of the business critical set of IT resources, applications, IT services and business processes. Managed Services addresses the holistic view of the components, interfaces, services and business processes needed to carry out the entire business process that constitute the service to the subscriber base of the CSP. Whereas annual maintenance agreements address the software error fixes on the applications, Managed Services addresses the availability and capacity of the set of applications and resources to support the business processes. Unique to Managed Services is its business orientation instead of feature or technology orientation Transition to Managed Services The transition to Managed Services revolutionises the sourcing of mission-critical IT services and requires careful planning, professional sourcing and disciplined management and governance.

5 5 Planning phase requires identifying the business direction and achieving buy-it from all relevant stakeholders. The activities are the formulation of the business strategy of the transition to Managed Services. If the business objective is not defined clearly enough, nothing that follows can support the objectives. Derived from the strategy, the CSP has to define which competences and business processes are core and what processes are non-core. The planning phase also includes the usual risk assessment and cost estimations. The outcome is reached when a broad selection of stakeholders complete the planning focusing on strategic objectives and communicate the outcome to every stakeholder involved. The sourcing phase includes the selection of the right partner and designing a contractual framework to reflect the strategic objectives of a win-win partnership. Service level agreement shall set the expectations and govern the culture. Therefore striking a one sided strict agreement is a tactical win but does not foster a wholesome long-term partnership. The sourcing checklist includes securing sufficient CSP business domain knowledge at the MSP as well as long-term key resources. MSP s ability to comply with standards such as ITIL and TM Forum s Frameworks helps the adoption of 3rd parties into the partnership. The alignment of the top management vision and expectation for the partnership is crucial and needs to be secured in the sourcing phase because in the operation phase both parties have aligned their operations according to their individual expectations and aligning detailed expectations is emotionally and financially challenging. In the operational phase the parties need to secure continuous strategic fit by having joint management of the service delivery. A governance body populated by top executives helps to balance the stakeholder expectation, focus on the big picture while seeking continuous process improvements and monitors the performance and the budget. The incentives and penalties should reflect the business objectives while setting demanding expectations and rewarding for achieving business benefits. The governance body is in charge of continuous resource planning to support business growth and adapt to evolving competence requirements as the business evolves over time. The transition to Managed Services has three alternative routes: 1) outsourcing the existing in-house operations to an MSP, 2) outsourcing in connection with replacing the existing BSS platform and at the same

6 6 time outsourcing the existing in-house operations to an MSP or 3) starting from greenfield and outsourcing the BSS operations to an MSP. If the application vendor has sufficient domain knowhow and Managed Services skills, the transition is usually well managed. Extending the role of the BSS vendor from Support and Maintenance Services to Managed Services is rather natural because the vendor has good knowledge of its own applications. The requirements for qualifying to become a reliable BSS MSP are specific and demanding. There are many who desire to have the competences but there are only a few who have the competence to become a world class MSP. Telecom domain knowhow Thorough telecom domain knowhow is the most important qualification in becoming a valued MSP partner. The domain knowhow has to be based on telecom business processes instead of applications and features thereof. Managed Services addresses the availability of business processes, not only a specific set of applications. Because the parties form a closely-knit Managed Services partnership, both parties have to have an equal level of competence. When discussing process improvements or application enhancements, both parties need to be able to contribute. The domain competence contributes also to process improvements and customer experience because the MSP knows firsthand the processes serving and is able to innovate better processes to serve its customers. Own BSS suite of applications The time to market is considerably shortened if the MSP supports its own BSS application suite. The MSP that supports 3rd party applications will never have the in-depth knowhow of the applications of the application vendor itself. Time to market is improved considerably by the fact that the communication needed to close the development cycle, from requirements specification to deployment, remains at all times within the MSP organisation.

7 7 Improved Service portfolio The MSP has to have a broad selection of services that it can provide to the CSP on a pick and choose basis. The services are business support applications that seamlessly integrate into the core business support system, which as stand-alone would be costly to acquire and maintain. Likewise the services may require extensive business process monitoring and business activity monitoring, which as stand-alone may be prohibitively expensive but affordably available from a centralised 24/7 operations centre. The CSP may also white label the Managed Services to its customer and in such manner broaden its services portfolio especially in new business areas like Cloud Services. Distributed Delivery model The Distributed Delivery model requires global presence onsite, near shore and offshore. The cost efficiencies are maximised by the right allocation of onsite, near shore and offshore resources. The allocation will evolve over time and depend on the maturity of the relationship. The portion of onsite resources is higher at the beginning of the relationship to ensure well-managed deployment. Over time the resources shall be repatriated to the near shore or offshore location delivering the same quality of service with lower operational costs. This deployment model has several benefits for the CSP partner. With the onsite team, the MSP has thorough understanding of the business requirements of both new development and process improvements. The MSP has one efficient operational team with profound knowledge of the application suite, and the ability to seamlessly allocate resources between onsite, near shore and offshore based on the ever-evolving requirements. The offshore team offers a wealth of resources and depth of knowledge of seasonal requirements for providing additional resources and expertise.

8 8 Critical success factors The most critical success factors in transitioning to Managed Services are the clear description of roles and responsibilities and transparency in goal setting. Almost equally important is the well-defined scope of the services. Usually documenting the definition of out-of-scope also helps to ensure mutual understanding. Any oversight in the sourcing phase on the above success factors will hunt the relationship the entire term of the relationship. Thorough planning on human resources planning eases the transitions and focus on continuous innovations keeps the relationship engaged and rewarding. Managed Services Value Creation The old paradigm of value addition is no longer sufficient to produce extraordinary results. Adding value implies adding to something that already exists. In other words, providing incremental addition to the value the CSP already has been able to produce on its own. True Value Partners create value. Creating value implies to producing value that has not existed before, or that the CSP is not able to produce on its own. Value creation is accomplished by providing exponential value with incremental cost. This is achieved by rearranging the assets (both tangible and intangible) in such a manner that the unique setup of the assets will create the value that did not exist there before. The superbly popular iphone is an example of combining the components of the mobile communication ecosystem system in such a manner that, together, the combination creates extraordinary value. No one single component outshines the competition but it is the ecosystem and interworking of the hardware, operating system, applications, location based information, personal data (preferences) and the culture of eye for detail, that produces the whole product that wins market share, justifies premium pricing, delivers best-in-the-industry margins and finally best returns to the shareholders.

9 9 At the end of the day, this is the essence of providing superior Managed Services: identifying the unique characteristics of the assets and rearranging them together with the assets of the Managed Services Partners in a way that creates extraordinary value. This is also what makes the difference between MSPs: most provide features and added value but only a few create a business ecosystem and true value. Focus on core competences Outsourcing core IT and business processes to an MSP frees the CSP to concentrate its competences and energy on its core functions such as product development, sales and marketing. A Formula 1 racing team consists of teams of subject matter experts in their particular fields. The driver has all the right to expect that every sub team shall provide best-in-the-industry service and performance while the driver focuses on taking over one competitor at a time, finally winning the race. In today s hyper competition, a CSP has to define its competitive advantages, focus on them and outsource the rest to the best-in-theindustry partners. The MSP has the depth of knowledge and breadth of resources that would take years for the CSP to acquire and prohibitively expensive to maintain. Just in Time Managed Services do not only provide the right competences, they also deliver the right capacity just in time. A Managed Services contract is designed based on the vision, mission and business objectives of the CSP and the MSP shall guarantee the availability of any and all the needed resources: storage capacity, computing power, connectivity bandwidth, personnel, applications and business services to achieve the business objectives. This approach reduces the upfront investment needed to provide communications services and the released financial resources may be used for the core activities like sales and marketing. The fixed high

10 10 upfront capital expenses are replaced by variable operational expenses, and funds that would be tied to fixed assets can be released to activities that matter most. Formation of true partnership True value creation requires the total synchronisation of values, objectives and operations between the CSP and the MSP. The alignment is governed by the Service Level Agreement but implemented by aligning the operational model and culture. The partnership is further strengthened by the compensation model that rewards and penalises the MSP based on the realisation of the CSP business objectives and agreed quality of service. When launching a greenfield operation together, both parties make investments to help lift the business off the ground and the MSP becomes almost a co-investor with the CSP. Risk Management partnership Managing business-related risk is more important than ever in these turbulent times. The MSP not only provides the right capacity just in time but it also charges for its services based on the realisation of the business objectives of the CSP. The revenue structure for the CSPs is mainly based on variable volumes of the number of subscribers multiplied by the minutes of usage, text messages sent, and gigabytes consumed. The MSP becomes a risk-sharing partner with the equally variable compensation model based on the number of subscribers or transactions. In the old-school licensing business model, the software vendor received an upfront licensing fee and made its business case long before the CSP had even launched its business. In the new SaaS age every participant in the ecosystem has to prove their value creation abilities and demonstrate commitment to the joint business objectives. Therefore the upfront license fee is replaced by a monthly service charge.

11 11 Conclusion The new competitive landscape that CSPs face requires a new paradigm in providing and operating mission critical Business Support Systems. Forward looking CSPs focus on the core business processes and core competences and outsource the rest to subject matter experts. The various forms of Cloud Computing, together with the continually increasing data communication capacity, introduce unprecedented opportunities for providing the traditional onsite application from the cloud. The cost efficiency, operational agility and superb versatility of the Tecnotree Managed Services and Tecnotree Application Suite in Private Cloud help CSPs to achieve sustainable competitive advantage towards its competitors. Tecnotree has a wealth of experience operating mission critical Business Support Systems provided from Private Clouds that provide the CSP partners a quantum leap in business agility and efficiency. Tecnotree firmly believes that the only way to formulate a true performance partnership is to tie the compensation model to the business success of the CSP partner and to the quality of service provided by the MSP. The use of the Internet has revolutionised the way consumers communicate, consume content, enjoy entertainment and collaborate. The same paradigm changing revolution shall sweep across corporate corridors and open entirely new opportunities to design, deploy and utilise business applications. During the next ten years all business applications shall be cloud enabled. Any Business Support System renewal or major upgrade that would not evaluate the possibilities of partnership-based outsourcing and Cloud Computing would pose the danger of being stuck in the current status quo and lose competitiveness against more forward looking competitors.

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