Download - Managed Services Summit
Managed Services Summit
Thomas Lah, TSIAMay 10th , 2012
Agenda3:00-3:30 p.m.
Introduction and Overview of TSIA Research on Managed Services
Thomas Lah, Executive Director, TSIA
3:30-4:15 p.m.
Lessons Learned from a Career in Building Managed Services Businesses
George Humphrey, Director Global Strategy, Managed Services, Avaya
4:15-4:45 p.m.
Managed Services Critical Information Needs
Group Discussion
4:45-5:00 p.m.
Next Steps
J.B. Wood, President and CEO, TSIA
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3
TSIA COVERAGE:
Five Major Service Disciplines
Strategy Engineering Finance Marketing Operations Sales Staffing Technology
SS FS PS SRGSupportServices
FieldServices
ProfessionalServices
Service RevenueGeneration
ESEducationServices
W W W . T S I A . C O M
MSManagedServices
2012 PS Research Activities
Public Financial Data
Service Line Benchmarking
Topical Studies
Case Studies and
Peer Networking
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Comparison 1: Benchmarking Practices
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Req
uir
ed
P
ract
ice
Your Practice
Peer Group
Majority Practice
Industry Majority Practice
Yes = Good
Yes = Better
In Alignment?
No = Worse
No = Bad
Comparison 2: Practice “Zones”
Practices are business processes that help companies achieve target results.
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PacesetterPractice
Reasonable Practice
Common
Practice
Recommended Practice
Required Practice
+/- 10% of Avg“On Target”
Average
Off Target(High)
Off Target(Low)
Metrics/Results Zones
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Important Exceptions
• Results or metrics that are off target relative to both the industry and peers, but in a clearly positive way are rated as “differentiated” (Ex: extremely high project margins)
• Key metrics or results that are off target relative to both the industry and peers and in a clearly negative way are rated as “critical off target” (extremely low project margins)
Metrics are analytical measurements intended to quantify the state of a business. They are independent variables or leading indicators for the performance of a PS business. Examples are attach rates, billable utilization, and project duration
Results are analytical measurements intended to
quantify the state of a business. These are
dependent variables or lagging indicators for the
performance of a PS business. Results are
produced by practices and metrics. Examples are
project margin, field margin and net operating income.
Evaluation Framework
Each self-reported practice was compared to the majority practices of the industry and the target peer group
On target industry practices were worth 3 points; on target peer group practices were worth 5 points
Each self-reported metric and result was compared to the average metrics and results of the industry and the target peer group
On target or better industry metrics and results were worth 3 points; on target peer metrics and results were worth 5 points
Differentiated practices/metrics: points taken off the table Missing of off target critical practices/metrics: points doubled Scores are expressed as % of total possible points and assigned color coding as
follows: 0% - 24%: RED 25% - 49%: ORANGE 50% - 74%: OLIVE 75% - 100%: GREEN
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Putting It All Together: An Example
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Overall Rating
(Points divided by total possible)Practice or Metric
Missing or Off Target(Possible points unchanged)
DifferentiatedMetric or Practice(Points taken off the table)
CRITICAL Practice or Metric Missing or Off
Target(Possible points doubled)
Service Line Dashboards
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Services Continuum
Software as Service
Managed Services
Paid to Operate
Support Services
Paid to support remotely
Field Services
Paid to support onsite
Education
Paid to teach
Professional
Services
Paid to Implement and
Integrate
Outsourcing
Paid to own
Management
Consulting
Paid to advise
The Services Continuum
Technology Intensive
Human Capital Intensive
Parameters of Managed Services
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Hosted On PremOff Prem
Location: How are the services delivered?
Ownership: Who owns the hardware, software?
Group DiscussionHow do you define “Managed Services?”
Managed Service Offerings Votes
Manage (but don’t own) on premise technology with on premise resources
10
Remotely manage technology and processes 18
Hosted software or hardware capabilities 15
Own the technology, processes ,and people on behalf of the customer (IaaS)
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13
Where Managed Services Lives
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Who Owns Managed Service Offerings Votes
Support Services
Professional Services
Managed Services
Other
Managed Services Research
Thomas Lah| TSIA
2008 TSIA Research StudySection Items %1. Company and TPS Demographics 8 6.6%2. Managed Services BU Profile 19 15.6%3. Managed Services Business Model/Results 15 12.3%4. Sales Practices 10 8.2%5. Delivery Practices 3 2.5%6. Engineering Practices 9 7.4%7. Marketing Practices 7 5.7%8. CRM Practices 5 4.1%9. Operations Practices 8 6.6%10. Partner Management Practices and Results 8 6.6%11. Economic Impact Practices and Results 6 4.9%12. Contract Practices and Results 24 19.7%
Total 122 100%
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Charter and Organization
Managed Services BU Role
62%
15% 15%8%
0%
10%
20%
30%
40%
50%
60%
70%
Semi-IndependentBU
Cross-ServiceOffering
PS Offering Independent BU
62%: “Managed Services is a semi-independent business unit with tight integration to another services line of business (e.g., CS or PS)”
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15%
62%15%
Organization: Who has primary responsibility for management of the managed services function?
Sales Executive
C-LevelExecutive
Professional Services
Channels
Pre-SalesEng.
Field Services
TechnicalServices
Education
CustomerSupport
ManagedServices Exec
Services Executive
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Core Functions
•Onsite management of customer systems and applications that may include actually owning the systems
•Remote management of customer systems and applications
•Software-a- a-Service (SaaS)—license and environment provided in one offering
•Hosted application support —customer buys software license separately, managed service provides application environment
•The management of IT related processes for the customer (capacity planning, adds/moves/changes)
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Core Functions
Which of the following describe the fundamental nature or purpose of your MS business?
(All that apply)
77% 69%46% 46% 31% 23%
23% 31%54% 54% 69% 77%
0%
20%
40%
60%
80%
100%
OnsiteMgt
RemoteMgt
SaaS HostedApp
IT Mgt Other
No
Yes
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Process areas
In what process areas does your Managed Services business currently operate?(Please select all that apply)
· Infrastructure management· Business integration· Application or application life cycle management· IT service management· Desktop management· Server management· Network management· CIO or Strategic assessment· Security management· Back-up or recovery services· Support Services· Other
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Core FunctionsIn what process areas does your MS business operate?
8%
15%
31%
31%
31%
31%
38%
46%
46%
46%
54%
77%
92%
85%
69%
69%
69%
69%
62%
54%
54%
54%
46%
23%
0% 20% 40% 60% 80% 100%
DT Mgt
Bus Int
Server Mgt
Network Mgt
CIO Assess
Sec Mgt
Suppor Svcs
ALCM
ITSM
Other
Back-up Svcs
Infrast Mgt
Yes No
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Managed Services BU Basics
Parameter Low Avg High
MS Annual Revenue ($M) $4 $403 $2,100
MS % of Total Revenue 1% 8.6% 53%
Current MS Customers 6 296 1,800
Total MS Customers 6 399 2,200
MS Employees 10 695 7053
% of All Customers using MS 2% 8.7% 20%
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Managed Services Business Model
Metric Low Avg High
Contract Margin 18% 33.3% 47%
Field Margin 15% 28.7% 47%
Total Direct Costs 0% 8.5% 21.7%
Direct Net OI 5% 21.4% 36%
Total Allocated Costs 0% 9.7% 27%
Allocated Net OI 5% 11.7% 36%
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Contract Metrics: Summary
Contract Parameter Low Avg High
Closed: Actual Duration 8 mos. 36 mos. 72 mos.
Active: Projected Duration 12 mos. 36 mos. 60 mos.
Closed: Projected Annual Value $75k $4.7m $13.3m
Closed: Actual Annual Value $75k $4.6m $16.7m
Active: Projected Annual Value $30k $5.5m $24m
Closed: Projected Margin 20% 35.9% 50%
Closed: Actual Margin 18% 37.6% 55%
Active: Projected Margin 20% 35.8% 50%
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Key Practices Summary
Topic Observation %Engineering org model Vast majority have dedicated engineering 85%
Channel vs. direct sales Vast majority primarily sell direct 81%
Marketing org model Large majority have dedicated marketing 69%
Contract C-Sat Large majority DO NOT measure contract C-Sat 62%
MS dashboard Large majority have an MS operations dashboard 62%
Real-time contract profit Large majority CAN NOT track contract profit RT 62%
Sales org model Majority have a dedicated sales force 54%
Partner certification Majority DO NOT have formal partner certification 54%
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Managed Services Business Model
Managed Service Business Model: Basics
36%
21.4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Contract Gross Margin Direct Net OI
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Managed Services Business Model
PS and MS Business Model Comparison
33.3%
21.4%
34.0%
10.8%
0%5%
10%15%20%25%30%35%40%
Contract/Project Gross Margin Direct Net OI
Managed Svcs Professional Svcs
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Managed Services Business Model
MS Business Model, including Costs (% of MS Revenues)
33.3%
5.2%
28.7%
8.5%
21.4%
0%5%
10%15%
20%25%30%35%
Contract GrossMargin
Field Costs Field GrossMargin
Total Belowthe Line
Direct Net OI
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Managed Services Business Model
MS and PS Business Model Comparison
33.3%
5.2%
28.7%
8.5%
21.4%
34%
8.8%
25.3%
14.5%10.8%
0%5%
10%15%20%25%30%35%40%
Contract GrossMargin
Field Costs Field GrossMargin
Direct Belowthe Line Total
Direct Net OI
Managed Svcs Professional Svcs
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Managed Services Business Model
Managed Services Direct Below the Line Costs (% of MS Revenue)
4.3%
0.5%1.7% 2.0%
8.5%
0%1%2%3%4%5%6%7%8%9%
Direct Sales Direct Mktg Direct Engin Direct G&A Direct Belowthe Line Total
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Managed Services Business Model
Total Direct Below the Line Costs as % of Field Margin
30%
57%
0%
10%
20%
30%
40%
50%
60%
70%
Managed Svcs Professional Svcs
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MS Business Model Takeaways Pattern Recognition
Direct cost model for MS: about twice as profitable as PS MS is more profitable including allocations than PS is without
allocations• Main reason 1: much lower field costs (expected)• Main reason 2: much lower below the line investments (not
expected) Relatively, MS invests much more in direct sales and much less in
direct G&A than PS Relatively, allocations are much higher than direct investments for
Engineering, much lower for G&A
Pattern Differences Business model line items ranges are wide
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Key Takeaways from 2008 Study Key On Target Results
Contract margin: 30% - 35% Operating Income: 20% - 25% Investment level: 7%-10% Sub-contracting margins: 10%-19%
Aligned with typical PS sub-contracting margins
Growth rate: 20%-29% Key Common Practices
Charter weighted toward revenue growth Break out from CS and PS into semi-independent BU Pricing: monthly Contract length: 3-year Fund dedicated Services Engineering for MS
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Lessons Learned from a Career in Building Managed Services Businesses
George Humphrey, Global Strategy and Product Line ManagementAvaya Operations Services
May 9, 2012Common success factors and failure points, open Q&A
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 3636
Four Things To Focus On
① Defining Managed Services (Offer)
② Selling Managed Services
③ Delivery
④ Operations
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 3737
Background
Managed Services Definition:
Out-Tasking, Selective Sourcing and Outsourcing
Remote Management leveraging vendor IP
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 3838
① Offer
Definition– ITIL Alignment
– “Productization”
Differentiation– Breadth of offers in your domain
– Unique value-prop
– Intellectual property
Marketing– Leverage analysts and press
– Must have references (best form of advertising)
– Advertising/email campaigns not very effective
Metrics backing P&L by offer
Must Measure:P&L by Offer
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 3939
② Selling Managed Services
Dedicated MS Sales Specialists – MUST HAVE– Typically sales force sells something else (Hardware, Transport, etc)
– Front line sales force identifies and shepherds day 1
Compensation
– Must sell on TCV not Revenue
Find compelling event– Technology refresh, IT downsizing, restricted budgets, M&A, transport
transformation, etc.
Focus on the value proposition– TCO Reduction
– Accelerated ROI
– Improved performance Must Measure:Funnel & TCV Bookings
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 4040
③ Delivery
Service Automation – MS Platform– CMDB
– Capture, correlation, remediation
– Performance monitoring and management
– Portal for service transparency
– ITIL Aligned ITSM architecture/tools
Process– ITIL Aligned
– 90% of engineers just follow process
– Don’t need cowboys!
Customization– Based on standard offer
– Delivery team must be part of customization
Must Measure:% Proactive% Resolved in xHrs% SLAs hit by client
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 4141
③ Delivery (Continued)
Onboarding– First 6 moths is key
– Client participation key
Offshoring– Yes – non country specific functions
– Major cost advantages
– Governance is crucial
Organization– Delivery and Sales tightly linked
– ITIL Aligned
Must Measure:% Proactive% Resolved in xHrs% SLAs hit by client
Avaya - Proprietary. Use pursuant to your signed agreement or Avaya policy. 4242
Operations
3yr P&L by Offer– Revenue
– Cost
– Expense Plan
Proactive Contract Management– Typical is 3 yr seeing requests for 5yr+
– Obsessive forecasting down to each client
Vendor/Supplier Management– Gartner: 60% of Outsourcers outsource to other outsourcers
Business Process Governance– Accounting, Finance, HR Governance, etc
Must Measure:All Metrics of the entire organization
Managed ServicesCritical Data Needs
Thomas Lah| TSIA
Service Line Dashboards
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Top Industry Metrics
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Area Key Metrics
Sales Contract Length, Discounting Rate
Delivery
Partner Management
Operations
Offering Development
Marketing
Financial Business Model
Top Industry Practices to Benchmark
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Area Key Practices
Sales Dedicated Sales, $ for $, Contract Size
Delivery
Partner Management
Operations
Offering Development
Marketing
Financial Business Model