Taking the third option

Many organisations are moving to a ‘best of both worlds’ between insourcing and outsourcing – Managed Services.

Efficient management of IT Support has become a crucial issue for organisations across all sectors. It is being increasingly recognised not only as a means to improve the whole business, but also as an instrument to create strategic advantage and added business value.

Many organisations identify two distinct types of management options for their IT Support – controlled and visible in-sourcing and the apparently cost-efficient outsourcing.  But for organisations dealing with high value users, non standard applications or sensitive data, outsourcing can represent too big a risk, leaving the single option of keeping IT Support in-house. Financial institutions, law firms, professional services businesses and some sections of the public sector may well then believe that they have no option but to ignore a potentially sizable benefit in cost and efficiency.

However, there is a third option embraced by a diverse pool of organisations such as software giant Microsoft, public sector body Serious Fraud Office and law firm Simmons & Simmons that allow the utilisation of outsourcing benefits with none of the drawbacks – the Managed Service.

A recent survey of CIOs showed that 19 per cent of those interviewed are already using Managed Services for their IT Service Desk, and that number is expected to rise to 34 per cent towards the middle of 2011. According to participants in the CIO Market Pulse Survey for Management Excellence they chose Managed Services primarily due to a lack of appropriate internal resources, a desire to retain control and the need to reduce costs.

A Managed Service was seen as the best option for their organisation because it was thought to be less risky than traditional outsourcing and more efficient than internal management. In fact, this solution can be regarded as more than just the halfway house between insourcing and outsourcing, it is now in many cases a superior solution incorporating all the best features of both and none of the weaknesses.

Its main strengths are similar to those of outsourcing – for instance, the provider manages all aspects of the function, from staff to operations and is responsible for Service Level Agreements and TUPE. The differences mainly involve the physical location of the team, with a Managed Service utilising the clients office space and infrastructure and an Outsource placing the team anywhere in the world.

Although outsourcing is universally assumed to be the cheapest option since it is often carried out in countries where the cost of labour is very low, statistics show that overall cost savings often don’t exceed a mere 10-15%. In fact, when the possible degradation of service and inevitable cultural changes are forced into the user base and given a cost, the actual saving can be in low single digits. The problem becomes even more acute when the user base comprises staff who generate income streams or are a high salary cost to the business.

Using high value users’ time to prop up a poor performing support function can easily be costed and the results are startling. Using just an average user cost to a business  of say £20 p.h., simple maths demonstrates that 30 extra minutes per month per user spent interacting with a poor Service Desk, in a 2000 user business will cost it £240,000 p.a. in lost working time. Using the same equation with a Doctor, Lawyer or Banker’s costs produces frightening numbers.

Moreover, offshoring presents an increased risk of data security breaches: there have been many stories in the press of offshore employees selling credit card, health and other personal details collected from client databases.  It can be difficult to control and monitor an office located on the other side of the globe, but the problem of data security does not end with offshoring – even when the outsourced support function is located near the client’s office, all information stored and processed in the systems owned by the provider is at risk, and so is the intellectual property.

If the function is run on the client site and the assets are owned by the client, there is a sense of control over the data and intellectual property. These characteristics make Managed Services similar to insourcing. However, unlike an in-house solution, management of operations, processes and staff is left to the expertise of professionals who are measured via SLA and more often than not, subject to penalties for failure to perform.

Little wonder then that organisations across all sectors are embracing ‘the third option’. Microsoft made headlines when a press release announced that their Service Desk, desk-side services and infrastructure and application support were managed onsite by a provider. Although some of the firm’s critics took it as a sign of weakness, assuming that a software company should be an expert at managing the Service Desk as well, the IT community understood that it was a strategic move driven by the desire to create cost-efficiencies in a safe way. If the likes of Microsoft choose managed services over in-sourcing and outsourcing as the best solution for them, it is likely that the model will apply for many other organisations where control and cost reduction is vital.

It appears that instead of forcing more organisations to offshore to cheaper countries, the economic environment is leading to managed services becoming the favoured choice. According to the CIO survey, 40 per cent of organisations are adopting this option as a result of the economic climate for different aspects of their IT. In comparison, only 26 per cent are turning to outsourcing and 29 per cent are keeping services in-house.

Taking all of this into account, the evidence appears to suggest that the future of IT Support as a business enabler rests on finding the right balance between control and delegation, thus ensuring efficiency meets security in an environment which remains in sight and firmly in mind. Although outsourcing and insourcing still have a place in many organisations, as sourcing models mature and evolve it is becoming apparent that a significant number of organisations will move towards more bespoke, internally managed solutions to meet their particular needs.

Richard Forkan, Director

Find this article on Outsource Magazine: http://www.outsourcemagazine.co.uk/articles/item/3589-taking-the-third-option