What exactly are managed services?

  • November 30, 2017
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  • Posted by Kevin Gemeroy

“Managed Services” has become the buzz phrase of choice across the IT industry over the past few years.  While the concept has been around forever, small to mid-sized businesses are regularly bombarded by companies offering to sell them their managed services.  From their internet service provider, to their copier company to their neighborhood IT shop, there’s a range of options at every price point, most of which are a fraction of what it actually costs to do the job well.

When it comes down to it, managed services aren’t rocket science.  The idea is that a vendor’s promise to “manage” a particular problem for a company in exchange for a fixed monthly fee.  Telephone and cable TV companies have been doing this for decades–offering a package of services to deliver your entertainment or communication needs for only $99 (or more) per month!

As these industries have declined, many of these companies have branched out into ancillary services.  They’ve got huge call center operations and their agents are used to solving customer service problems based on prepared scripts and solutions.  It seemed only natural to redirect this labor to “managing” the IT needs of small businesses, right?

Your printer and copier vendor has also likely made this move.  Over the past 20 years, these companies transformed their business models to operate on a pay-per-print basis.  In the process, they turbo charged their profits by hiding the true sale price of the machine or support contract to keep it stocked with supplies and printing.

That created an unforeseen problem.  As the world became more digital and as the tablet and e-mail replaced the reams of paper that everyone carried around, these copier dealers started to see their revenues decline.  The solution?  You guessed it – they can have their copier techs fix computers too!  Using the same fixed fee model, they figured they could keep their profits high and techs busy.  Unfortunately, they didn’t execute well.  The biggest IT disasters we see in small businesses are usually created by a copier company’s managed services division.

Well, there’s always the neighborhood IT shop, right?  It’s got a guy who’s great at fixing computers and he’s probably been doing it for 20 or 30 years.  If you stop by, you’re likely to get a story about the first IBM 386 or how Bill Gates said that nobody would ever need more than 512 kb of RAM.  Unfortunately, they’ve got their own challenges as well–namely changing technology and automation.  While they may be great at fixing computers, one person simply can’t keep up with the constant changes in the technology world or the need to improve efficiency through the use of automation.

As a result, the “managed services” marketplace is one that’s now commoditized, as multiple big players race to the bottom in a fight for the cheapest price and the worst service.  This is the exact opposite of what top-performing small to mid sized companies need.

So how does a CEO or CFO differentiate between all the companies offering managed services?  Like everything else, the devil is in the details.

A true managed service provider should be focused on one thing: making your IT work amazingly well.  Great MSPs understand that what it means to work on a fixed-fee basis, and the biggest win is when problems don’t exist.  Our company’s ability to make a profit is dependent on managing labor costs, since our revenue for any given client is essentially fixed.  Most importantly, our clients are only happy when we’re doing a great job, which makes their people more productive.

That’s why top-performing companies need to hire top-tier MSPs.  We both win if you succeed.  If your business and team grow and your IT enables that to happen, we grow our revenues and make a larger profit.  If your team is fighting problems and loses productivity, we both lose and we don’t make a dime.

At the end of the day, a top-tier MSP should try to understand your business first.  Then they need to understand your goals and objectives and create a detailed plan to achieve them through the use of technology.

The next time someone tries to sell you managed services, make sure they’re asking the right business questions.  If they try to sell you a server, copier, or cable TV along with their “gold” managed services plan, you should run away as fast as you possibly can.

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