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IT Managed Services: Mitigating Risk and Maintaining Leverage

Posted: 12/15/2017 - 23:19

The managed services market has been an interesting one to watch from a consultant’s point of view. There was a heavy trend towards outsourcing many key areas within IT, only for the pendulum to begin swinging to the other end of the spectrum where clients are now pulling some (or all) of those same services back in-house. Nevertheless, your organization is likely to use some level of managed services within the IT organization given constraints on budget, resources or expertise. To keep these managed service relationships from growing beyond the original scope and to ensure you retain leverage with supplier(s), Managed Service Providers (MSPs) need to, themselves, be managed very closely. To set expectations with your supplier from the onset, there are three themes that should be introduced into any MSP relationship: 

1) Measure and Track Supplier Performance: When a supplier takes over a function within your organization, it can be easy to simply measure the supplier on whether or not things continue to run as usual. For example, if you rely on a supplier to manage your network and there continues to be no major outages, they must be doing things right, right? Supplier performance needs to go beyond just availability and a “keeping the lights on” mentality. When contracting for your managed services, the pricing proposal is going to be dependent on the level of service outlined around availability, response times, resolution times and any other Service Level Agreements (SLAs) that are key to your service. 

Establish service levels for the key areas that truly affect your organization and that suppliers have demonstrated they are able to measure on a consistent basis. Align with the supplier on reporting expectations to capture the format, frequency and level of detail required for your organization, and then actually measure and track their performance! Establish your internal methodology, as well as escalation thresholds and KPIs outside of the contract-defined SLA. Communicate this to the supplier so that they understand how their overall performance is being measured. 

2) Maintain a Competitive Landscape: When you begin to rely on a supplier for certain areas or functions within the organization, you need to ensure that a balance of power is maintained within the relationship. When working with clients with long-term relationships in place, there tends to be some red flags that indicate that the supplier/MSP currently holds the leverage in the relationship: 

· Services have not been taken to market or have been taken to market very infrequently or informally. 

· Contracts have been renewed at original rates to keep the service as is. 

· Contract documents do not accurately reflect the current scope, or service/scope/requirements settings rely heavily on the incumbent MSP to explain. 

Any of these on their own can shift the balance of leverage between your organization and the MSP, but many times these work in tandem to make collecting competitive bids for the services a challenge. Whether you are establishing a new relationship or trying to gain control of an existing MSP relationship, it is critical to have very clear scope definition, defined responsibilities of the MSP and your internal resources, reporting on services performed and any necessary realignment of scope (and documentation around scope changes!). For example, if you are utilizing an MSP for your service desk, knowing ticket volumes, ticket types, resolution intervals and other key metrics are key to going to market for similar services. It can be tempting to “test” the market with high-level, unclear scope, but this will only frustrate alternate suppliers and will not act as a strong basis for improving your current relationship. As you bring on new resources or as scope/ requirements change throughout the span of the relationship, utilize your MSP to provide information/knowledge transfer back to your internal team. There should always be a balance between your internal team and the supplier in terms of knowledge of requirements and scope of services. 

3) Plan for the End: While it may seem counter-intuitive to plan for moving away from a supplier when you are in the process of establishing a relationship, it is actually a key part of contracting and maintaining the points mentioned above around performance and leverage. While ensuring clear documentation and consistent reporting will certainly help in any transition, there is almost always going to be overlap between incoming/outgoing relationships and more detailed information that the incumbent MSP will need to provide in order for another provider to take over service. First and foremost, any sourcing initiative and contractual transition allowance should provide ample time to actually gather the information needed and perform Knowledge Transfer (KT) as required. Ensure your agreement sets the expectations of the supplier for transition support and KT requirements should you not renew your agreement or otherwise determine to terminate early (e.g. SLA failures). 

To get the most from your IT MSP and continue to maintain your organization’s leverage, establish strong management practices that go beyond the traditional vendor management role and implement an agreement that clearly lays out supplier expectations. As the market continues to fluctuate in terms of demand for these services, also consider the right term length for your organization and the services in scope. Managed services typically need some time to prove their ROI, i.e. the MSP should become more efficient over time, so a term shorter than a year does not typically make sense, but this is not to say you need to lock into a term that is exorbitantly long. While you may see some of the MSP resources as part of your team, ensure this does not cloud your approach to supplier and scope management; you will need the leverage at your next contract renewal!

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About The Author

Torey Guingrich is a Senior Consultant at Source One Management Services, LLC with years of experience helping global companies drive greater value from their indirect expenditures, such as IT and Telecommunications investments. Torey is a trusted resource for helping clients optimize their and IT and telecom infrastructure through innovative cost management solutions, implementing best-in-class contracts, and monitoring ongoing supplier performance. She is a proven asset – leveraging her deep industry knowledge and experience to mitigate risks and deliver results.