Strategy & Leadership

Service, Not Features: How ‘Managed Services’ Boosts Revenue

It’s a tough game out there for original equipment manufacturers (OEMs) and technology providers today: Adoption and sales figures are flat, and customers are struggling with IT infrastructure that’s more complex than ever. But there’s a bright spot — managed services — the no. 1 growing line of business in service, according to the Technology Services Industry Association (TSIA).

The SmartVan spoke with George Humphrey, TSIA senior director of managed services research, about how OEMs and technology providers can bundle different services together to create a managed services model, which then helps offset stalled sales and boosts revenues. He shares what it takes to create an effective program and why companies often fail by misunderstanding their customers’ needs.

The SmartVan: What exactly do you mean by ‘managed services’?

George Humphrey: If you ask 30 different companies, you’d probably get 30 different answers. I always use the Wikipedia definition. It’s pretty simple, but it drives home the key message: Managed services is the practice of outsourcing day-to-day IT management responsibilities as a strategic method for improving operations. So, what does that mean? There are a number of managed services offerings such as remote monitoring, operating IT infrastructure and applications on behalf of a customer, optimizing that infrastructure and even transforming from one legacy operation to another and operating the end-to-end solution for the consumer. It can also mean hosting solutions. It’s a pretty broad umbrella.

SV: Are managed services a trend that companies are just now waking up to?

GH: It’s definitely a new trend. It’s not that managed services are new in the industry. They’ve been around for a dozen or two-dozen years, but they’ve been reset during the past 4-5 years by very different client expectations. Customers are looking for a strategic relationship with a provider that can help them mange and share the risk around technology consumption. These “newer” managed services are still relatively immature in the industry, yet it’s on the minds of every technology company that I speak with.

SV: Why are managed services so critical and what are the top benefits for the provider?

GH: Managed services are the No. 1 growing line of business in service–and in all of technology. Some companies get it and are making a faster shift toward a managed services model. Then there are some that are being dragged into it. Either way, a managed services contract leads to an up-sell 60% of the time, and a managed service provider dictates future purchases 85%-90% of the time. Once a company gets managed services right, it’s the gift that keeps on giving. It drives additional technology sales, professional services sales, and consulting time. As the trusted advisor, you’re sitting at the table with all the IT leaders of the company and can make recommendations. It’s a great, continued line of revenue.

SV: What does it take to instill this mentality and to develop managed services?

GH: The number one challenge and the biggest mistake that most companies make is a gross misunderstanding of what managed services really are. To get to that gross misunderstanding–and none of them will ever admit this–they tend to fundamentally misunderstand their customers’ needs and wants. Technology companies are really energized by feature diversity–adding features to an application and what’s in the next release. Those things are important, but how the customer consumes that technology is the biggest challenge. It’s not just about the technology companies are trying to implant into a customer; it’s about how they adopt it. Do they have the right skills and resources in their IT organization to operate it post installation? Do they have a budget to upgrade those skills? Do they have the right staff and talent? Do they have the right tools?

IT organizations are made of some of the smartest people in the world. It can be a major challenge to have them understand where they may have areas of deficiency. It takes a non-threatening, non-salesy conversation with the leadership in an organization to make them understand where they may have deficiencies. Managed services are about consulting around much more than technology. It’s consulting around business.

SV: Which companies really ‘get’ managed services?

GH: The companies that get it are closer to the SaaS model. EVault [cloud services provider] really gets it. There are other companies like Avaya, where I used to work. The leadership really gets it, but I wouldn’t say the rest of Avaya gets it. Many more companies don’t get it than the ones that do. More and more will get it, but it is going to be a long, arduous journey.

Managed services businesses are difficult to start up. They require a lot of investment and a lot of patience. They are slow to start up, like a locomotive, and they’re really heavy. But once you get them rolling, they’re impossible to stop.

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