Understanding the Changing Landscape for IT Services. A Guide for SMB IT Managed Service Providers and IT Solution Providers WHITE PAPER MARK CATTINI

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1 Understanding the Changing Landscape for IT Services A Guide for SMB IT Managed Service Providers and IT Solution Providers MARK CATTINI President and Chief Executive Officer Autotask Corporation

2 CONTENTS Executive Summary 3 The IT Marketplace 4 Primary Influences Impacting How SMBs Use Information Technology 4 The Economy 5 Technology Re-prioritization 5 Personal and Mobile Devices 5 Software as a Service 6 The Future for SMB MSPs and ITSPs 7 Understanding Your Business as an MSP or ITSP 9 Service Intelligence Beyond Professional Services Automation 9 Efficiency 9 Predictability 9 Measurability 10 Profitability 10 Alternatives to a Service Intelligence Platform 10 Use Point Solutions to Manage Your Business 10 Build Your Own Service Intelligence Platform 10 Resist Change and Maintain Your Current Business Model 11 Conclusion 11 About Autotask 12 About Author :: Mark Cattini 12 About Contributing Author :: Richard Tubb 12 2

3 EXECUTIVE SUMMARY According to published research, by 2015 almost $224 billion or 35 percent of small and medium sized businesses (SMBs) information technology budgets will be spent on outsourced IT services, including IT consulting and implementation services. This is compared to 22 percent of spending in 2011, indicating strong year-over-year growth over the next several years. The primary drivers for this growth include: Economic realities the slow growth of the economies in the Western world is encouraging businesses to stick to their knitting and change their cost models to become more variable and to outsource where they can. Technology deployment the need for a rapid return on investment has brought about a re-prioritization of technology implementations (e.g., the return on investment realized by deploying a software as a service (SaaS) real-time customer insight application tends to be more immediate as compared to other traditional deployments such as an upgrade to a server operating system or an additional module in an accounting system.) As technology needs evolve and increase for end-users the opportunity for IT service providers to help their clients strategize and adopt new technology becomes significant. The Connected Generation is shifting the workplace environment to be a 24/7 always on, always connected, no-manual required culture. In addition, technology-confident business executives are comfortable with self-provisioning simple applications and avoiding the IT department altogether in some cases. As technology needs evolve and increase for end-users the opportunity for IT service providers to help their clients strategize and adopt new technology becomes significant. As a result, the IT industry is migrating towards a managed service, consultative approach. As an IT service provider, this shift will challenge you to become more responsive and adapt your offerings in an effort to ensure your clients maximize their return on technology investments. As IT service providers increase focus and attention on providing consultative services, the time and effort associated with running essential business operations will need to evolve as well. This paper outlines the advantages of working with a service intelligence platform provider, such as Autotask, to modernize your IT services business. By implementing an intelligent, comprehensive management system, you can effectively evolve your business to capitalize on market trends, avoid the cost and complications required to integrate point solutions, gain real-time insight into your business and make fact-based decisions to ensure profitable growth. 3 Copyright 2013 Autotask Corporation

4 The IT Marketplace In study after study, businesses worldwide indicate that they plan to devote more of their overall budgets to outsourcing IT services. In 2011, on aggregate, 22 percent of a company s IT budget was devoted to outsourced IT services. That figure is predicted to grow to 35 percent by SMB Spend: United States SMBs will account for an increasing share of overall corporate IT spending in the U.S. Justin Jaffe, IDC Over the next months, there will be a shift in the types of IT services that businesses demand. Leading analyst firms predict that IT outsourcing, consulting and training services will grow almost 10 percent from a $691 billion dollar spend to a $790 billion dollar spend by It is estimated that of that figure, $164 billion, will be for outsourced IT services including Desktop and mainframe support Distributed systems and networks Application hosting, management and testing Single-instance software deployments Nearly $60 billion more will be spent on IT consulting and implementation services including consultancy services such as SMB Spend: Europe Fastest growing segment in Europe is SMBs with employees. IT strategy Security assessments Process change Systems integration Services Grow to 35% of IT Budgets by 2015 IT services and outsourcing IT staff salary and benefits Software Communications equipment Computers and peripheral equipment! Outsourcing to cut costs! Cloud and SaaS 17% 19% 22% 26% 32% 34% 35% 41% 40% 39% 38% 37% 37% 37% 14% 13% 11% 10% 7% 10% 10% 10% 7% 7% 9% 9% 9% 9% 18% 18% 18% 17% 15% 13% 12% Source: July 29, 2010, The Coming Upheaval in Tech Services Forrester report These changes present an opportunity for IT Managed Service Providers (MSPs) and IT Solution Providers (ITSPs) to not only realize attractive profit margins, but to differentiate your business from the competition. Primary Influences Impacting How SMBs Use Information Technology There are four key areas affecting the landscape of IT services the economy, technology re-prioritization, personal and mobile device technology and software as a service (SaaS). 4

5 THE ECONOMY SMBs are just as vulnerable to the slow growth or stagnant economies as large enterprises. In the current environment, there is a need to re-evaluate cost structures. One of the most obvious strategies is to reduce fixed costs where possible replacing them with variable costs, in other words, move from CAPEX to OPEX hence the migration to outsourcing. Consider this, in % of medium businesses that planned to invest in IT also expected revenue growth compared to 17% that planned decreased IT spending and flat or negative growth. 73% vs. 17% TECHNOLOGY RE-PRIORITIZATION Traditionally, the mission of the IT department was about standardization servers, desktops, networks, infrastructure, core applications like accounting systems were methodically planned out and systematically deployed. Market data suggests that IT budgets are now moving away from upgrading legacy systems and instead are designed more to support business needs with applications that are rapidly deployed and have a clear, immediate return on investment (ROI). One example would be the rise of Salesforce.com and other customer-facing, sales-enabling applications. Salesforce.com s acquisition of Radian6, a social media and monitoring application, and then later BuddyMedia, are examples of how important applications outside the normal realm of the IT department have become commonplace to the increasingly tech-savvy business community. Whether it is a small and medium sized business or a large enterprise business, the question of whether or not a company realizes any tangible benefits from upgrading a mainstream operating system or core legacy application is more rigorously challenged. The immediate return tends to be elusive despite the fact that over time the company will be forced to upgrade, as their current versions of the software will at some point no longer be supported. On the contrary, in the case of sales, marketing or engineering applications that bring improved process and analytics to a business, or better enable a go-to-market strategy, it is arguably easier to determine that they do in fact produce immediate gains for an organization. Source: SMB Group, 2011 SMB Routes to Market 2 Additionally, the days of large IT projects with deployments over an extensive time period are increasingly looked at with cynicism as they historically have run over time and over budget. Today businesses want new applications up and running immediately with demonstrable value. PERSONAL AND MOBILE DEVICES Over the past years, the role and influence of the IT department has changed significantly. A mere decade ago the IT department was seen as a gatekeeper controlling everything on the corporate network. The modern reality is that IT cannot function in this way anymore. All businesses now have easy access to the Internet from desktops, laptops and mobile devices. Furthermore, in many cases almost any employee within an organization can seek out and start using SaaS applications as they deem necessary. The change in the marketing department is a great example. If a marketing manager in a digital agency wants a social media tool, they can easily find one for as little as $50 a seat per month that can be deployed nearly instantaneously. Will they ask the IT department to manage this? The likely answer is no. There is a very good chance that marketing is not even going to consult the IT department as they might present an unwanted obstacle. 5 Copyright 2013 Autotask Corporation

6 Today s workforce comes with certain expectations about the technology they use based on their interactions with applications and personal devices in their daily lives resulting in a specific digital footprint. The freedom of choice and immediate provisioning is the new standard whereas standardization is in effect now counter-cultured. Another example is the use of LinkedIn as a sales, networking and recruitment tool, and even Twitter as a customer service vehicle. The adoption of these consumer applications is increasingly popular across the entire spectrum of businesses from SMBs to very large enterprises. Savvy businesses are adapting to the consumerization of IT and leveraging multiple applications to connect with their customers, and enable their workforce to be optimally productive. Today s workforce comes with certain expectations about the technology they use based on their personal digital footprint. Think about what your clients have on their own network today. iphones Android devices Blackberry devices Laptops, Windows and Mac Tablets Hundreds of applications The reality is that many of the employees at the organizations you support will bring their devices with them rather than have them procured centrally, as they have developed their own digital footprint which dictates preferred devices, applications and social networking tools. Apple and more recently Samsung are leading this relentless charge to the consumerization of IT. With Apple shipping 17 million ipads and 26 million iphones during fiscal Quarter 3, 2012 alone 3, it will be impossible for this not to affect network infrastructures. The age of Bring Your Own Device (BYOD) is clearly upon us. Even the most staid and rigorous IT standard corporations have now accepted this new reality and are managing accordingly. The good news is that this presents an opportunity for MSPs and ITSPs. Businesses are going to need help formulating a strategy around this democratization of IT. They also will require support as the Connected Generation, which is very comfortable with emerging technologies and how to deploy them, becomes the norm. As time progresses, this segment of the workforce will become middle and senior management and how they think about technology will radically impact the technology roadmap for their organization. You are in the unique position to help them with contextual expert advice and a strategy to navigate this change. SOFTWARE AS A SERVICE The SaaS model has become a meaningful trend in providing software to businesses, and it is not hard to see why this is such a compelling approach. Few businesses want to invest heavily in servers and network equipment that typically have a functional life of 3-5 years before requiring replacement, or pay for upfront license agreements when the nature of their business is fluid. Why pay for 50 fixed user licenses today when tomorrow the company might only have 30 employees, or next year have a need to grow to 60 employees? The SaaS or cloud model offers businesses the flexibility to grow, or shrink, as they require. SaaS offerings can be rapidly deployed, and if a SaaS offering does not work or is not used it can be turned off quickly. 6

7 The demand for SaaS is growing exponentially. Some examples of the bigger players in the market moving toward SaaS include:»microsoft.» Their biggest strategy shift in the past two years has been towards cloud technology. Based on published reports, 90 percent of Microsoft s Research & Development budget (about $8 billion) has been devoted to cloud research and development. General Motors. In November 2011, the automobile giant selected Google to provide cloud-based and collaboration tools to its 100,000 employees 4. SAP. The leading global ERP firm acquired SaaS human capital management application vendor SuccessFactors for $3.4 billion 5. IBM. Acquired SaaS analytics and social application vendor Kenexa for $1.3 billion 6.»Oracle.» Its acquisitions of Rightnow, Taleo and Eloqua indicates how it is shifting its direction to be more inclusive of the cloud 7.»Salesforce.» Acquired Radian6 and BuddyMedia to expand its SaaS offerings with social media capabilities 8. With the projected increase in the growth of the SaaS market (shown in the image below), you can expect to see a steady migration toward a hybrid IT environment. And of course the hybrid cloud provides the flexibility of in-house applications with the scalability and benefits of cloud-based services 9. SaaS Market Forecast: 25.3% CAGR For comparison: global packaged software market forecasts 5.8% CARG for same period. In addition, SaaS is not narrowly deployed for one or two applications or only a few industries the way a packaged software offering tends to be specialized for a specific application and industry s use. It has an innate flexibility that makes it ideal for use across all industries. The SaaS trend indicates that over time there will be less installed software as a percentage of deployments, moving towards more service and productivity tools and applications. Whereas a business might have (or had) employees using Microsoft Office, , document management systems and accounting applications which are installed locally on a PC and connected to one or more servers all located in a server room on-site the typical business will soon (or already does) look different with tablets, wireless printers and a much more simplified on-site network infrastructure. This means that the IT requirements of a business will shift from management of on-site resources such as server maintenance, hardware upgrades and backups to SaaS and cloud-enabled solutions. The Future for SMB MSPs and ITSPs While the requirement to support server maintenance, hardware upgrades and backups will gradually reduce, the necessity to be a trusted advisor will grow. The leadership of small or medium sized businesses do not have the time or likely the interest to understand the business advantages of SaaS or cloud, however, they will certainly be faced with many choices that will need to be addressed from an IT perspective. From a new generation of workers that will demand Bring Your Own Application (BYOA) and Bring Your Own Device (BYOD) through to cash flow strategies that include moving to on-demand applications, SMBs will increasingly look to their ITSP as a strategic partner in making critical business decisions and to navigate the changes of this hybrid model. IT Solution Providers will over time become more and more service orchestrators in which you manage the ever growing choices and integration possibilities for your clients. Source: IDC. In billions. 7 Copyright 2013 Autotask Corporation

8 Available Technology Drives Business Model The wired environment: on premises, packaged software, high CAPEX. Then The nature of projects that IT companies take on will start to look different. The necessity for large on-site hardware deployments is decreasing as well as the requirements for complex network infrastructures. There will still be infrastructure management requirements, but with the reduced amount of servers and network equipment, hybrid environments (i.e. a mixture of on-site and cloud services) will become the norm. The revenue of ITSPs will shift from project-based to recurring, derived from hosted services and the customization of such services, matching their customers desire to move from CAPEX to OPEX. The hybrid environment: migration toward wireless, mobile, BYOD, BYOA, shift toward OPEX. Now The virtualized environment: managed services, cloud, SaaS, IaaS, PaaS, HaaS, high OPEX. The New Now There will be numerous new opportunities to develop and expand application deployment and integration services for SaaS products. IT companies who specialize in connecting multiple SaaS services to help simplify their use will be in demand. ITSPs will become more proactive in designing business processes and delivering the technology to support them. This is a critical shift and is perhaps the largest opportunity and change required to thrive in the new world. As more and more applications become more readily available through SaaS, more opportunities to drive efficiencies and insight increase in every part of the business. IT service providers will increasingly be looked at as trusted advisors, becoming more deeply involved in the business to find opportunities for applications that deliver operational efficiency and/or greater business insight. Research shows that one of the most pervasive trends in the adoption of new technology in SMBs is business analytics tools, which satisfy the drive for greater intelligence about their businesses. While the maintenance of SaaS services sits firmly in the lap of the SaaS vendor, a necessity for Service Level Agreement (SLA) monitoring and management will arise. Businesses, especially larger businesses with multiple SaaS vendors and contracts, will look to those who can manage and report back on the performance of these SaaS vendors. There are tremendous opportunities for IT services companies, but you will need to be able to understand and focus on your customers unique business issues. 8

9 Understanding Your Business as an MSP or ITSP As your business grows and evolves, it will become missioncritical for you to ensure you re making fact-based decisions. In order to manage through the changing landscape of IT services you will need to employ process, automation and a comprehensive system to manage all the moving parts. While all companies are looking for insight into their business, this is especially true for IT service companies. Ask yourself the following questions: Who is my most profitable client? Not the client who is billed the most, but the client that actually generates the most profit. Who is my most valuable technician? Not the technician who knows the most, or the one who works/bills the most hours, but the one who is best utilized and generates the most business. Which of my contracts and services consistently generate the highest margins? A typical IT business has a variety of services to offer clients, but of these services, which are core to the business, support growth or eat into time and profits? Service Intelligence Beyond Professional Services Automation The term Professional Services Automation (PSA) has become commonly known as the integration of the different systems a typical SMB IT company uses to manage its business. But merely integrating these point solutions is not enough. The IT business is a complex one, and to better service your clients you need real and actionable intelligence about your service delivery and your business as a whole. There are four primary areas that a service intelligence platform should focus on for any IT company. EFFICIENCY The service intelligence platform should provide a central repository for all of your business information, such as Clients and prospect data Service history Asset, inventory and configuration details Projects Contracts and SLAs It should also provide a method for creating customized workflow rules to automate repetitive business processes. Integration is important. The platform should integrate into other tools used within a typical IT business, including Remote monitoring & management Backup & disaster recovery Security Integration into your finance and accounting system is also important to ensure billing is seamless and manual processing is minimized or completely eliminated. PREDICTABILITY The service intelligence platform should provide you with information that allows you to accurately predict what your business needs to thrive. Ultimately, the system that is fit for purpose will allow you to: Make accurate predictions about your business to understand what it costs to deliver a project or service Understand the existing revenue stream and the revenue that you are about to secure Allow you to understand in advance how best to keep your team engaged and generating revenue for the maximum number of hours each month A service intelligence platform should provide real-time visibility into the dynamics and metrics that matter most to your business, enabling you to not only gain control of your business, but to give you a better understanding of what drives it what affects day-to-day operations. Gathering such intelligence will enable you to build a business that meets your goals. 9 Copyright 2013 Autotask Corporation

10 MEASURABILITY A purpose-built service intelligence platform will provide essential business health and management metrics. These important data points will enable you to make informed decisions about business strategy and eliminate the guesswork when managing day-to-day operations such as estimating a complex project or pricing services. Such metrics will also help you create contracts and SLAs that reflect the real value of your solutions and services to clients. Further, having metrics of this nature allows you to know exactly what it will take in terms of time and resources to be successful when making strategic business decisions such as moving into a new vertical market or offering a new technology solution. PROFITABILITY A fact-based service intelligence platform will enable you to be more efficient and gain instant visibility into every aspect of your business. This will lead to increased profitability across your entire client portfolio. Knowing the right solutions and services to offer to maximize your total, bottom-line profit, and not just margin percentages, will result in increased profitability on every single engagement. Regardless of your business model or the types of contracts you use, you are no longer relying on best guesses or gut feelings you are working from facts and metrics that give the true story. Alternatives to a Service Intelligence Platform USE POINT SOLUTIONS TO MANAGE YOUR BUSINESS The tools that are most familiar to the SMB IT market are typically Helpdesk, service desk & ticketing CRM Billing Project management Why not build it yourself? The answer to that is fairly straightforward. Software development is about scale. These systems typically work in isolation with manual processes required to share critical data and make it available for decision makers to see and, more importantly, act upon. Integrating these platforms takes time and effort, and the evolving nature of these individual tools means that on-going upgrades and support is needed to keep the systems talking to one another. A service intelligence platform with an open API that is accessible to all systems within a business dramatically reduces the amount of time and effort required to manage these tools, freeing you up to do what you do best providing best-in-class solutions to your clients. BUILD YOUR OWN SERVICE INTELLIGENCE PLATFORM Many IT businesses possess the internal knowledge and experience it would take to expertly build their own equivalent of a service intelligence platform. With expertise in platforms such as SharePoint, SQL and other tools that would be the foundations of any customized service intelligence platform, it is a natural question to ask Why not build it ourselves? The answer to that is fairly straightforward. Software development is about scale. The time and effort required to not only build, but continuously update and improve such a feature-rich industry standard platform is substantial. Furthermore, you should determine the type of business you are in software development or IT services? You would never consider writing your own spreadsheet, or accounting software, so why would you consider building a service intelligence platform as opposed to procuring one. Finally, the overwhelming benefit of working with an industry standard platform, like Autotask, is the community of peers, vendors and partners that has built up, over several years, around such a platform. This community openly shares expertise and best practices for working on the platform. Proprietary models do not benefit from that level of industrywide engagement. 10

11 RESIST CHANGE AND MAINTAIN YOUR CURRENT BUSINESS MODEL For many years, the desktop PC market had widespread competition from several manufacturers essentially building a business based on the demand for desktop computers. Personal computing has completely changed over the course of a few short years with a surge in mobile devices and smartphones. According to a September 2012 Pew Research study, 45 percent of American adults now own a smartphone of some kind, up from 35 percent in May Smartphone owners now outnumber users of more basic phones and the desktop PC market continues to dwindle significantly 10. Likewise, many IT service companies made (and still make) a living re-selling hardware and software licenses at a margin mark-up although you constantly hear in the IT community there s no margin in this anymore. Cloud computing and SaaS are leading yet another major shift in the world of business, which in turn creates opportunity for forward-thinking business owners. The role is rapidly evolving from one of pure technical know-how to trusted business advisor offering expert advice and insight. Conclusion With nearly $220 billion to be spent in the outsourced IT service market, the opportunity for MSPs and ITSPs is significant. But like any high return opportunity, it comes with challenges and risk. The world of business is changing through a combination of economic necessity, attitudes towards technology and the evolution of SaaS and virtualization. Expertise built up in the legacy systems of servers, networks and on-site infrastructures is now taking a back seat to the world of SaaS. Service intelligence is the key to delivering both a profitable and efficient set of services and solutions to SMB clients. For any IT business, the implementation of a service intelligence platform will make the difference between adapting to the new reality of business and growing your company or remaining where you are and as a result, shrinking and potentially becoming obsolete. Endnotes 1. Forrester Research Report. The Coming Upheaval in Tech Services. 29 July Source: SMB Group, 2011 SMB Routes to Market 3. Wilcox, Joe. Apple Q by the Numbers: $35B revenue, $9.32 EPS. Betanews. 4 July Efrati, Amir. GM Signs Google Apps Pact, in Initial Step Toward Cloud. Wall Street Journal. 4 November Olavsrud, Thor. SAP to Acquire SuccessFactors in $3.4 Billion Deal. enterpriseappstoday. 5 December Dignan, Larry. IBM buys DemandTec for $440 million, adds to analytics, commerce line-up. ZDNet. 8 December Rusli, Evelyn. Oracle Embraces the Cloud With $1.9 Billion Taleo Deal. New York Times DealBook. 9 February Schroeder, Stan. Salesforce Acquires Radian6 for $326 Million. Mashable. 30 March Linthicum, David. Why the hybrid cloud model is the best approach. InfoWorld. 27 January Pew Internet & American Life Project. Smartphones Particularly Popular With Young Adults, High Earners. PewResearchCenter Publications. Contact Autotask today. CORPORATE HEADQUARTERS: East Greenbush, USA T: autotask.com INTERNATIONAL HEADQUARTERS: London, England T: autotask.co.uk Munich, Germany T: +49 (0) autotask.com/de Bejing, China T: autotask.com/zh-chs Sydney, Australia T: Copyright 2013 Autotask Corporation

12 ABOUT AUTOTASK Autotask Corporation provides the world s leading hosted IT business management software to streamline and optimize business processes for technology solution providers. The software integrates a broad range of critical business systems, including customer relationship management (CRM), service desk, tech scheduling, project management, billing and reporting and provides real-time service delivery intelligence to help users understand the factors that drive their business and their profitability. Autotask is accessible from virtually any computing or mobile device connected to the Internet and features a worldclass API that seamlessly integrates with the other systems and tools that providers rely on to run their businesses. AUTHOR MARK CATTINI CONTRIBUTING AUTHOR RICHARD TUBB As President and Chief Executive Officer of Autotask Corporation, Cattini is responsible for leading the company s growth and ensuring that its global IT business management and service intelligence solutions meet the developing needs of IT and technology solutions providers around the world. Most recently, Cattini served as President and CEO of Awareness, Inc., a social media software development company. Prior to his tenure at Awareness, Cattini was President and CEO of MapInfo Corporation, a publicly-traded NASDAQ company and leading provider of location-based intelligence solutions. Under his leadership, MapInfo experienced 17 consecutive quarters of record growth, which led to the company being acquired by Pitney Bowes in Mark also worked in a variety of sales and sales management roles at Lotus Development UK, and Lotus Europe for over 8 years. Cattini holds a B.A. in Business Studies, with Honors, from Thames Valley University, London, England. Richard Tubb has more than 15 years of experience in the IT industry. He has worked at large corporations such as Ernst & Young and the NHS and was also the owner of an award-winning IT Managed Service Provider, which delivered outsourced IT solutions to SMBs in the UK. Tubb is now an IT business consultant, providing expert advice and guidance to IT companies who want to grow their business in a scalable and sustainable way. Learn more, tubblog.co.uk AMERICAS East Greenbush, New York USA phone INTERNATIONAL London, UK phone +44 (0) Copyright 2013 Autotask Corporation