§ Evaluate the current delivery of services, using the metrics that were collected
When conducting the external review, the organization should be sure to:
§ Define the scope and objectives of the review
§ Determine the research approach (e.g., market analysis or benchmarking)
§ Develop criteria to determine what vendors look at
When performing the cost/benefit analysis, the organization should be sure to:
§ Account for the time value of money
§ Calculate the different pricing options, such as cost plus, fixed price, or time and materials
§ Determine the payback period
§ Determine the desired type of outsourcing agreement (e.g., co-sourcing or outtasking)
§ Develop alternatives
§ List assumptions and constraints
§ Make a recommendation
THE DESIRED RESULTS
While IT outsourcing can be beneficial, it can also devastate a company. For that reason alone, management must see to it that all the necessary actions have been taken to ensure that the former occurs. In too many cases, firms are realizing that the outsourcing of their IT services could have been done better, or never should have occurred in the first place. As a result, everyone is frustrated and angry, and there are costs that no one ever thought would accrue. Fortunately, if the above actions are executed, such results need not happen.
Chapter 26: The Management Service Provider Option
Janet Butler
OVERVIEW
Conventional wisdom warns companies against outsourcing their core competencies and, at one time, management fell into this category. Now, however, especially with the rise of E-business, organizations require exceptional management to survive.
Because this is not always available in-house, management service providers (MSP) are springing up to fill the need.
MSPs are an emerging type of vendor that lets customers outsource various aspects of information technology (IT) management. If an MSP can guarantee that an organization’
s network or applications will remain up and running, and downtime will be nearly or completely eliminated, an organization should seriously consider this option.
MSPs appeal, in particular, to small and mid-sized companies, as well as E-businesses, as an alternative to the expense of building their own management systems. While these businesses might require 24×7 availability, they do not have the resources to ensure this uptime by doing their own management. However, an MSP can do so, notifying the customer of potential problems or slowdowns.
In fact, some analysts predict that 50 to 70 percent of organizations will use a service provider to assist in building or hosting their E-commerce applications. In-house management costs are steep, and include management platforms and point products; management integration tools such as a central console; and staff to install, configure, test, and maintain systems. Businesses must also gauge the cost of downtime.
The cost savings attributed to MSPs can be substantial. Companies save not only the hefty price of the software itself, but the cost of internally hosting management software, which is estimated at three to nine times the cost of the software, plus ongoing staff costs.
Still, in turning to MSPs, IT managers give up some control and visibility into their infrastructure. Also, because the services might lack the functionality of traditional management platforms, flexibility is an issue; it becomes difficult to add new technologies and systems to the IT infrastructure. Therefore, if IT is critical to the organization, such as in the financial services and telecommunications industries, companies might want to retain management control.
According to one analyst, there are approximately 70 vendors in the management service provider category. These include Manage.com, Luminate.net, NetSolve, Envive Corp., StrataSource, and SiteLine. By the end of 2000, MSPs generated more than $90 million in revenue, and analysts predict $4 billion by 2005.
Major management solution providers are also beginning to offer MSP services, including Computer Associates and Hewlett-Packard; the latter has a new HP
OpenView service provider unit. Some vendors such as TriActive are changing their marketing message from application service provider (ASP) to MSP. And other management software vendors, such as BMC, are forging alliances with MSPs, and buying companies with point products.
MSP BENEFITS
MSP drivers include the shortage of skilled professionals, the increasing complexity of network and systems management, the rapid evolution of technology, and the need to monitor on a 24x7x365 basis. An MSP offers organizations a subscription-based external service to manage their infrastructure resources or applications. The MSP
vendor provides tool implementation and external tool hosting, or hosting within the customer environment. MSPs predominantly target E-business applications and small to mid-sized companies.
In addition to cost advantages, MSPs offer these organizations rapid time to value, due to quick implementation; an ongoing relationship, to ensure subscription renewal; supplementation of staff resources with additional expertise; and an outside perspective. Because the MSP hosts the solution, the organization can be up and running quickly. This fast implementation contrasts sharply with the long implementation times required for an organization to host a solution in-house.
The MSP model also supplements the IT staff in new technology areas — specifically, in E-commerce application management. By doing the repetitive work, MSPs free the IT staff to focus on higher-level, value-added programs.
One analyst group recently estimated that the demand for IT professionals exceeds the supply by 30 percent. The labor shortage is particularly acute in network and systems management, which people have not been trained for, and which does not represent a growth path.
Frameworks have failed to solve the labor shortage problem. Enterprise management tools from the likes of Compuware, Tivoli, and Computer Associates are too expensive, too difficult to implement, and require too many people. So the management solution becomes a management problem in and of itself, whereby enterprise software is partially implemented, it becomes shelfware, or its use is not widespread across all environments. When its champions leave the company, the tools are seldom used.
By contrast, the MSP allows people to manage via the Internet on a subscription basis, so a $100,000 to $150,000 up-front cost is not required. Not only is there a low cost of entry, but payment on a monthly basis means the work comes out of the services budget, rather than that of capital acquisition. Therefore, organizations do not get caught up in budget/approval cycles, where different price points require different authorizations. The monthly basis keeps the sale lower in the organization, helping both vendors and users.
In addition, the MSP bears the initial and continuing costs of investing in hardware and software infrastructure, while the customer company simply pays a monthly fee.
There is also relatively low risk to companies that choose an MSP solution. If the provider is not meeting its needs, the organization can cancel the subscription and go elsewhere.
SOURCING APPROACHES
In managing their IT environments, organizations have traditionally focused on enterprise tools, purchasing them via perpetual license, and taking advantage of volume discounts. The tools range from point products to comprehensive management frameworks, providing the entire range of systems management functionality. In addition, organizations often augment their tool purchases with vendor-supplied implementation services.
The MSP offers an alternative model that takes different forms. For example, the MSP might sell directly to enterprises, or it might package its offerings with another service provider, such as an application service provider (ASP) or Internet service provider (ISP).
Some organizations have turned to the “legacy MSP.” Here, the management service provider functions as a layer between the complexity of an enterprise management framework and the user. The MSP takes traditional enterprise software, installs it, and runs it for the organization, with both the customer and MSP operating the software. Characteristically, there is dedicated hardware for each customer.
For example, MSPs such as TriActive might run the Tivoli environment for a user, wrapping their technical expertise around it. In this hosted model for enterprise software, the customer gets the benefit of the framework, while being shielded from its complexity, and attains faster implementation of the software, and lower up-front costs than with a software-based approach.
However, there is a higher cost of entry than with other types of MSPs. While users pay on a monthly basis, they must commit to the cost over a longer period of time.
In addition, users are still limited by the inherent disadvantages of frameworks, including the software’
s functionality, complex deployment, and scalability. After all, these are classic client/server products that have been extended to the Internet and tend to focus on such processes as network node management and software distribution, rather than offering service level agreements, application management, or performance management.
The turnkey MSP, which might be considered a variant or subset of the legacy MSP, is a service whereby the MSP installs products on the client site and remotely manages the infrastructure. Such MSPs will manage entire systems, an entire application, or an entire management process, such as the help desk. The turnkey MSP is subscription based and process focused, although enabled by tools — which generally come from traditional software vendors.
When these MSPs provide a holistic end-to-end systems strategy, they might be considered to be “Tivoli in MSP format.” However, while the MSPs are now selling Tivoli capabilities, they could change vendor, because they all work with numerous vendors. The product partner of the moment is unknown to the end user, who just gets the required management reports or service delivery.