On the spot

On the Spot - Managed Services

In this month's On the Spot feature, we asked local experts why South African companies should opt for a managed service as opposed to outsourcing. Or are they the same thing?
1 July 2008

Local organisations seem to use the terms `outsourcing` and `managed services` relatively interchangeably, but there is a difference. Technically speaking, an outsource, according to BMI-T, involves a long-term, contractual arrangement in which a service provider takes ownership of and responsibility for managing all or part of a client`s information systems infrastructure and operations based on a service-level agreement.

A managed service, on the other hand, as defined by Dr Gerard Macioce*, is the practice of transferring day-to-day related management responsibility as a strategic method for improved, effective and efficient operations.

Brainstorm sought local views on the matter.

* Managed services offer a significant advantage over outsourcing. A customer contracts for a complete service, rather than components. Of particular importance is the ability of the managed service provider to act as an outsource broker. It is impossible for any outsourcer to have all the skills a customer requires. This opens the way for an outsource broker, who co-ordinates other, independent outsourcers to deliver the solution required. An outsource broker reduces risk, eases management, lets customers focus on their core business and provides a single point of access to a broad pool of skills.
Andrew Holden, MD of Bytes Outsource Services

* The decision to opt for a managed service over an outsource is dependant on the business drivers and the nature of the services to be provided. The difference between outsourcing and managed services is that outsourcing includes the provision of associated infrastructure and negates the need for clients to outlay capital. The benefits to the client of outsourcing and the retention of working capital associated with IT infrastructure have to be evaluated against the risk and reduced flexibility given that IT assets are left in the hands of the outsource service provider. Each model has its merits and applicability.
Peter Winn, executive director of services at Faritec

The decision is dependant on the business drivers and the nature of the services to be provided.
Peter Winn, Faritec
* The tendency of organisations to purchase their IT as a service instead of doing everything themselves is manifest in the growing popularity of managed services. A managed service provider is tasked with delivering one or more IT functions as a service that clients can use when required. This methodology allows the client to focus on efficient business operations without the hassle of owning and managing skills and infrastructure. Outsourcing, on the other hand, is the process of removing entire departments, including equipment, people and functionality, from an organisation to the service provider. It delivers a set service and is not flexible at all. The flexibility of managed services means the client retains overall control of the function and its costs at all times, which keeps the service provider honest.
Manny Moreira, CEO of Edge Evolve

* Managed services differs from outsourcing in that it does not involve the transfer of assets and people from the customer to the service provider, but offers the same advantages as outsourcing. These include economies of scale afforded by utilising a provider that services numerous organisations and the expertise that such a provider injects into the customer organisation. Long-term and exclusive relationships with one outsourcing partner tend to neglect two critical success factors: innovation, since outsourcing service providers are subject to permanent cost pressure and, therefore, have little interest in optimising or renewing infrastructure technology, and quality. According to a 2007 Capgemini study, on average, more than half of major outsourced deals turned out worse than expected and had to be substantially renegotiated or were aborted prematurely.
Dumisani Mtoba, portfolio manager for services at Fujitsu Siemens Computers

* A managed service offers many advantages over outsourcing. The best time to opt for a managed service is when time is critical to business value. It minimises the risk of in-house deployment or lengthy outsource negotiations and allows the company to focus on its core business issues. With key services, applications and software on a pre-deployed infrastructure over a secure connection with around-the-clock support, a managed service offers quicker time to value, lower investment, higher levels of customisation and higher returns on investment. Essentially, a managed service allows a business to deploy software and services immediately without infrastructure and training overheads.
Haydn Pinnell, MD of Gallium

* Managed services and outsourcing each come with a unique set of advantages. Companies should look at these closely to identify which option will deliver the most benefit. Where IT is a strong and strategic part of the business, a managed service allows the flexibility to outsource non-core operations, like the call centre. Where IT is a non-core component of the business (yet critical for the business success), outsourcing is commonly preferred as it comes with infrastructure, expertise and best practice benefits. The customer normally retains ownership of strategy in an outsourced environment, using the outsourcer`s consultants and information to base this on.
Patrick Farrell, business unit manager for managed services at M-IT

* Author of `An analysis of process improvement methodologies used by United States federal government information systems programs`.