A Leadership Perspectives White Paper

Transcription

1 DU White Paper CFO Managed Services (Nov 2010).qxp 03/11/ :00 Page 1 A Leadership Perspectives White Paper Reaping the Business Value of Managed Services Recommended next steps for business leaders Executive Summary Many organisations have cut technology spending over the past 18 months or so, and the managed services proposition of paying for business IT services solely on the basis of what the business needs and consumes resonates very strongly with CEOs and CFOs. Companies of any size can enjoy the benefits of the very latest communications and hosted IT through the adoption of pay-as-you-go managed services, which are better in quality than their traditional on-premise equivalents. By simplifying the management and reducing the cost of ICT delivery, specialist managed service providers can help enterprises achieve new levels of efficiency and growth by helping them overcome their IT operational and investment challenges. We review the strength of the business case, and the appeal of the managed service option.

2 DU White Paper CFO Managed Services (Nov 2010).qxp 03/11/ :00 Page 2 Business case overview Some organisations look towards wholesale IT outsourcing to assist them in achieving their business objectives, but today many more are looking for ways of taking delivery of more discrete managed services. Overall they are finding it an extremely effective sourcing strategy. Managed services providers like du manage and deliver a variety of high-quality network-based services, applications, and equipment to customer organisations. Providers deliver their services as a one-to-many or oneto-one service; the former where a service is being used by multiple customers, and the latter where there is a dedicated service between provider and customer. Payment for both of these service types is generally on a usage basis, be that the number of phone lines or mobiles supported, the number of desktops managed, the amount of data stored, the number of videoconferences sessions run, or payment transactions processed. In some instances, volume-based usage is giving way to unlimited use service packs. The outcome is the same: managed services is a way for organisations to do more with less. When a company subscribes to a managed service, a service provider manages the network equipment and applications according to the terms of a service-level agreement (SLA) established to meet the company s unique business needs. If needed, some managed services can be run off systems already installed on the customer premises. But in the main, managed services are hosted remotely meaning that the service provider hosts the equipment in its own facility instead of on the customer s premises, and delivers services to company employees on-demand over the WAN. Again, the outcome is the same: managed services is a way for organisations to consume high-quality IT-based business services without the need to invest heavily in additional infrastructure or people. IT Service Provider Customer 1 Internet Customer 3 Customer 2 The one-to-many economy of scale of managed services. Businesses sign up for integrated services such as , Internet access and unified communications, and pay a monthly fee per user in return. It is investment-free. There s no need to install expensive IT servers, and no IT personnel are needed on-site to maintain the set-up. Services are all housed remotely and will be hosted in a state-of-the-art data centre guarded by high levels of security and resilience, as well as extremely high availability guarantees. This brings out an important key difference between IT managed services and strategic outsourcing in that the latter will often involve the transfer of corporate assets both technology and staff-related to the service provider. Outsourcing will also usually hinge around a base of fixed charges. This is not the case with managed services. Contracts for managed services operate on a pay-as-yougo basis, and typically are much shorter in duration than those for strategic outsourcing and can run for as little as 12 months. The reason why this can be economical for both parties is the one-to-many delivery model of managed service provision, which enables the service operator to achieve a shorter payback period for a generic service offered to multiple customers. Even with a one-toone delivery model, where a basic service offer is modified for use by a particular customer, it is still possible to achieve a shorter payback period than if the service had to be created from scratch for every new customer. In this way the managed services model allows the service provider to maximise the efficiency and quality of their offerings, due to their narrow focus on an area that can be improved iteratively. Along with the economies that can be derived from operating on a larger scale, managed services should invariably be available at a lower cost than an enterprise could achieve itself, thereby increasing the value for the customer organisation.

3 DU White Paper CFO Managed Services (Nov 2010).qxp 03/11/ :00 Page 3 Mapping the business appeal of managed services options Enterprises are turning to managed services for the following reasons: Convenience: for fast procurement (and termination) of on-demand IT services which often can be made available on a self-service basis from a variety of networked devices. This convenience drives faster time to market and business agility. Adaptation to change: through the ability to mix and match IT-led business services, and increase or decrease their use as required. Innovation: managed services provided as an ondemand option makes it easier to try new approaches while taking fewer risks, via a pay-asyou-go approach known as utility computing or cloud. It also offers a way to leverage latest technology for business differentiation and competitive advantage. Simplicity: one of the biggest problems for enterprise CIOs is that their IT environments have become too complex making them inflexible, unreliable, and expensive to run. Managed services adoption reduces significant elements of the IT stack to standardised commodity services sourced as a black-box utility. Subsequently, there is less focus on technology and operations and more focus on service orchestration, integration, and delivering business value from IT services. Lower costs: economies of scale based on IT resource pooling coupled with the pay-as-you-go approach to using these resources is the core of the managed services proposition. Cost transparency/awareness: the ability to understand, measure, and manage who is using which IT resources at what cost for billing, planning, and optimisation purposes means IT costs are tied directly to business use. Quality of service: managed IT resources are more reliable, available, scalable, and secure than can be achieved using traditional in-house or on-premise IT systems and resources, as well as being greener. The big financial draw to managed services for the CFO is in paying for actual usage, rather than the business having to invest capital in an IT infrastructure that needs to be provisioned to meet occasional peak usage. The approach also provides access to best-ofbreed functionality that the organisation may otherwise not be able to afford. Indeed, the provider ensures optimal use of the service to which an organisation is subscribing, and makes sure the business complies with any prevailing legislative requirements regarding data security, information storage, privacy and ID theft prevention, etc. It is the freedom to concentrate on core business competencies, which perhaps is the biggest overall benefit. With managed services there is no need to invest in services, systems and skills that are not in the organisation s main area of expertise. Acquiring and retaining the right IT staff for systems can be difficult and costly, especially for 24 x 7 operation. Summary table of benefits of managed services Benefit Description Focus in-house IT resource on core competencies Payment for actual usage A reasonable level of control is retained by the customer Cost-saving opportunities Access to best-of-breed solutions Proactive use of the managed service Managed services generally provide key functions such as data and voice connectivity, messaging, security, business continuity and disaster recovery and offer data integrity and high availability, enabling the organisation to focus on its customers and business development activities. Payments are generally usage-based, e.g. per agent, per solution, per port, per day/week/month, per minute, per call, per transaction, etc. There is an option of retaining the assets of technology in a managed services agreement, so the customer organisation has more control than in a traditional outsourcing arrangement. Equally, services can be supplied directly from the providers infrastructure hosted at its premises and managed by its staff. By sharing the resources needed to achieve adequate security, monitoring, testing, and reliability amongst multiple customer organisations, a service provider can offer significant cost savings. Technology or services are purchased as ongoing charges to operational expenditure, rather than coming off an organisation s bottom line as capital expenditure. As many applications can be delivered as a managed service at a much lower cost than could be achieved on premise, purchasing them in this way can give organisations access to applications that they could not previously afford to buy. A managed service provider will not only deliver a service and respond to flexibility requirements when they arise, but will also demonstrate areas for potential improvement from both provider and customer perspectives.

4 DU White Paper CFO Managed Services (Nov 2010).qxp 03/11/ :00 Page 4 Tapping into a diverse and broad managed services market The principles that under-pin managed services are applicable across most vertical market sectors, tough some industries and sectors are bigger users of managed services than others. In financial services, for example, exchanges, brokerages, and e-trading companies are big users of hosting service providers. A key trend in this sector is to host trading systems close to financial exchanges, often in the same data centres as the exchanges, to minimise transaction latencies, something that is known as proximity hosting. Similarly, online booking systems for the leisure, hospitality, and travel industries have led to these industries becoming significant users of managed application services, while business operations in publishing, online retail and some aspects of the public sector have become increasingly web based, and also rely heavily on managed service operations for information storage and data caching. Much of the managed services business grew out of the use of third parties for web hosting. As online services in banking, insurance, and card payments have developed, the managed service providers have responded by specialising in the provision of secure data centres, networks, and the physical and logical security of their hosted platforms. Telecommunications providers like du have an added advantage, in that telcos also own the network, they have proven service delivery skills and resources, and have invested in the necessary data centre capacity and infrastructure. du has also built up a small ecosystem of specialist partners to address business demands, and can work with the likes of Injazat for managed data centre services, with Cisco or Polycom for the very latest videoconference and telepresence services, and with the leading data storage and information security software suppliers in the areas of managed storage and security. Network, voice/data convergence, and security services are currently among the highest growth markets, along with storage and business continuity services which are also attracting high rates of growth, at roughly 15% per annum through Doing more, paying less and working smarter with managed services The recession has put the focus squarely on taking costs out of business operations and doing more with less, and there is a level of acceptance that managed services has a role to play in this context. Driven by intense competition and restrictions in the availability of capital, many organisations are turning to managed services and outsourcing as key tools to enable them to reduce capital expenditure, to optimise operating costs and to accelerate the development and launch of new business services. As demand for a particular service increases or the business goes through a growth spurt, an outside partner should be able to upscale a service solution more rapidly than any internal IT team. The customer organisation does not bear any capital expenditure and the pay-per-usage model allows the shift from capital expenditures to ongoing operational charges, significantly reducing or removing the need for upfront investments. In effect, it is the managed services provider that takes on all of the risk of providing a scaled solution and workforce to meet future demand. The savings and service level benefits derived from a managed service offering will vary depending on the organisation s particular needs, its assets and the competencies and capability of its IT staffs. Research has shown that for services such as information protection, the greatest line-item savings are for computer hardware and software which are also the most common causes of backup failure or data loss. For other aspects, such as the provision of unified communications or enterprise data security, a managed service can offer the customer a level of expertise which surpasses the standard found internally.

5 DU White Paper CFO Managed Services (Nov 2010).qxp 03/11/ :00 Page 5 Adoption characteristics of UAE-based managed services offers The maturity of the managed services provider market in the UAE has now reached a point where there is a comprehensive basket of managed ICT services available, with pricing menus that are designed to appeal to businesses with a wide variety of needs. Start-up and early stage businesses, high growth-phase companies, as well as established and high-performer organisations, all have a need to be considering the managed service proposition. They will want to achieve different objectives and will want to drive some different business outcomes, with their decision-making processes. Generally, these are likely to align and there are bundles of value-added managed services available that will address the different business challenges of each segment (see chart below). These business solution sets might be delivered solely by a favoured managed service provider, or they could be sourced from a service provider s partner ecosystem. Customer type Start Up/Early Stage High Growth-Phase High-Performer Business issue The business sees IT as a costly, complex distraction from the core business. The business has become hampered by systems that require expensive and hard to recruit skills and/or is being constrained by resources that call for capital expenditure which is hard to justify. The business is running efficiently but is not able to maximise the gains of economy of scale as it strives for the benefits of a lean operation. Service provider solution set Smart workplace / Office in a box Everything that is needed for secure connectivity from a fixed or mobile desktop to hook into business applications and store business and customer data safely. Managed resources Managed network connectivity services Managed storage services Managed security processes Managed desktop support Managed efficiency Managed/hosted data centre services hosted from a sustainable, highly energy-efficient environment. Managed service desk operations, run from a 24x7 call centre. Software-as-a-service as an alternative to fixed licenced assets. Most appealing business outcome Pay as you go, low-cost/ zero-hassle, speed to market Shift available IT asset costs from capex to opex Operational excellence enhancement Adoption has started slowly in the Middle East but will soon accelerate, as the business appeal of managed services becomes better understood. Services are available from established telco providers like du alongside a handful of specialist managed service operations and du partners. These companies have proven and well-established skills as service providers, having made high levels of capital investment as they built out an industrial-strength network, with the necessary server and software infrastructure, supported by a skills base that is able to run a finely-tuned and fail-safe business service operation. Although a managed service can theoretically be delivered by a supplier anywhere in the world, there are benefits in partnering with a supplier like a local telco. Localised presence brings a level of intimacy and understanding of customer needs, on the one hand, and promises access to a network with a global reach on the other. du's managed service offerings are aimed at helping organisations enhance the business value of their IT investments through improved operational efficiency and service levels. The company can deliver as a managed service any mix of basic connectivity services with a guaranteed throughput from an organisation s local offices to any other local or foreign destination, and ensures a high quality connection with services that are reliable, secure and have a high level of redundancy. In order to guarantee that business data is transmitted in a confidential and secure manner, information can be encrypted and transferred through a private virtual network (VPN) tunnel that is automatically carved out of the IP infrastructure and secured by VPN-enabled and du managed network routers and software. There is no investment needed in additional VPN equipment at a customer s premises, making this more cost-effective than any self-build, internally managed solution.

6 DU White Paper CFO Managed Services (Nov 2010).qxp 03/11/ :00 Page 6 Shifting to Managed Services Enterprise Responsibility Service Provider Value Add Service Provider Responsibility CONNECTIVITY SERVICE Most Basic Access Increasing Use of Managed Services PROVISIONED SERVICE Managed VPNs Design Installation SLA Monitoring Troubleshoot INTEGRATED SERVICE Bundles Internet + Voice + Security Bundles Provisioned VERTICAL APPLICATIONS Business Solutions Integrated Services + Telepresence ecollaboration ecommerce elearning esecurity $ $$ $$$ $$$$ Enterprise Value Latest videoconferencing solutions are also available as a managed service, completely outsourced and managed by du either as a full scope telepresence environment or as streaming and web conferencing options, deployed from a reliable, secure and high-performance IP connectivity network. Customers are billed for the time they connect to the network, and for high-use customers wishing to fix their costs, unlimited usage packages are also available. There is similar flexibility in managed customer care applications, for managed business continuity services, and for managed information security services. They come with the same benefits of no capital expense and the guarantee of rock solid service level agreements. By tapping into such a managed service portfolio a business can choose to maintain as much or as little direct control over its IT operations and infrastructure as it needs so that both parties are free to focus entirely on their core business activities. Conclusions: A mandate for managed service cost efficiency The trend patterns being seen in businesses worldwide of compressed infrastructure capital budgets and the increased operating costs associated with in-house infrastructure management means the use of managed services is making its way onto the corporate agenda. Agenda item 1 Cash is king. Assess the internal cost of managing commodity services such as telco and datacommunications, and message security, or videoconferencing facilities and compare with market prices and the cash-flow benefits of managed services. Agenda item 2 Review the company sourcing strategy and consider if existing regimes allow the organisation to focus IT resource on delivering strategic benefits rather than repetitive services. What more could be achieved with existing resources? Agenda item 3 Target one area of the business where demand is climbing and costs are on the rise ( security, data storage or mobile communications) and have IT determine the cash release and TCO impact that could stem from moving the service out to a specialist service provider. This is the second in a regular series of Leadership Perspectives White Papers, produced by du enterprise marketing in association with Ovum, a preferred knowledge partner For more information, please leadershipseries@du.ae or visit