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Managed ServicesPart 1: Introduction to Competitive Advantage

February 2013

White Paper

Preface 01

Introduction 01

Evolvingvendorrelationshipto 05

Aligningthevision,missionandbusinessobjectives 05

TruePartnership;FromFeaturestoValue 06

Fromlineartocircularrelationshipmodel 09

Fromfixedtovariablecompensation 11

DescriptionofManagedServices 12

SupportServicesenhancedbyMonitoring andReportingdashboard 13

ApplicationManagement 13

ServiceLevelManagementandAvailability andCapacityManagement 13

BusinessProcessOutsourcing 14

BSSfromPrivateCloud 15

Conclusion 18

ManagedServices

Preface

AboutThisDocumentThis document provides a high-level view of the Managed Services markets and Tecnotree’s Managed Services offering, its features, benefits and value to CSPs. This document is intended for executive authorities within a CSP with responsibility for billing activities.

IntroductionThe Communication Service Provider (CSP) market is evolving dramatically due to new technologies, new products and services, new players entering the competition and due to totally new business models. At the same time average revenue per user (ARPU) is decreasing while investments in new technologies are on the rise. The situation calls for new thinking and new modes of operations combined with new types of vendor relations. As the telecommunications industry boasts to the most innovative, it needs to demonstrate its ability for out-of-the-box thinking in operating the core Information Technology assets, IT services and core business processes.

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The constant price erosion puts CSPs under continuous pressure to find ways of reducing operational costs and take complexity out of their Business Support Systems (BSS). At the same time, CSPs need to improve the end-user experience through self-service for the Facebook generation. Eroding average revenue per user increases the risk related to running communication services; therefore CSPs need to seek business models to reduce the risk by matching variable revenue streams with variable cost structure. Increasing competition imposes CSPs to identify their unique differentiating factors against their competitors and strengthen these factors while outsourcing the non-core functions.

BSS architectural complexity is increasing due to the rollout of new network elements such as LTE, while maintaining legacy fixed and mobile telephony networks (2G, 3G and 4G). This development forces CSPs to maintain multiple generations of BSS environments as well as competence, which is counterproductive to cutting costs and streamlining operations.

On the offerings front, the convergent CSP deploying broad content and service portfolios and offering also third party content will require a complete rethink in the way business support systems allow for flexible service deployment and convergent charging. The required sophistication in pricing, bundling and adaptation of service packages, compared to the one-size-fits-all paradigm dating back to early GSM adoption will be on an entirely different level.

The competitive landscape is dramatically changing due to the introduction of new players as platforms and ecosystems providers Apple, Google and Facebook are fuelling innovation in consumer and, increasingly, business services on both the fixed and mobile Internet. Amazon has set the benchmark for online retailing and cloud computing services. And Skype (owned by Microsoft since 2011) is reinventing telephony, using IP technology to provide new functionality and low-cost calls. CSPs need to take action to protect the revenue they get from legacy services like voice and SMS.

Evolving vendor relationshipThe new Managed Services (the practice of outsourcing day-to-day IT management responsibilities of Business Support Systems to a service provider) delivery model introduces a completely new mind-set for the CSP and Managed Services Provider (MSP) relationship. First and foremost, the focus from a set of features and functionalities changes to focus instead on abilities for creating true business value. The organisational relationship also has to change to reflect the altered characteristics of the new delivery model. And finally the compensation model has to change from fixed transaction to a business volume and performance-based compensation model.

With the growing demand for Managed Services, many will rush to claim to provide Managed Services, but only few can really complete the evolution with the right mind-set, organisational competences and compensation model. Section 2 describes the most relevant aspects that need to change in the mind-set, culture and mode of operations for becoming a true Value Partner.

Aligningthevision,missionandbusinessobjectivesManaged Services is a long-term partnership between the CSP and the MSP. The success rate is measured based on the MSPs ability to ensure the realisation of the business objectives of the CSP. Therefore, the CSP needs to share its vision, mission, values and business objectives with the MSP. The MSP in turn needs to ensure that its CSP-specific team internalises the CSP’s vision, mission, values and business objectives

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in order to align its own vision, mission, values and objectives to those of the CSP. The CSP may prefer cost efficiency to a rich feature set, or extremely short time-to-market to extensive testing. The alignment of the vision, mission, values and business objectives is documented in the Service Level Agreement between the parties.

TruePartnership; FromFeaturestoValueThe evolving competitive landscape calls for a completely new mind-set and efficiency in the customer-vendor relationships. The focus for the vendors shifts from value added to genuine value creation. The customer – vendor relationship transforms into an integrated ecosystem

Picture 1. The Business Objectives alignment

VISION MISSION VALUESBUSINESS

OBJECTIVES

VISION MISSION VALUES SLAs KPIs

OPERATOR PARTNER

OPERATOR SPECIFIC MANAGEDSERVICES TEAMS

or symbiosis whereby one cannot survive without the other. The compensation schemes are based on jointly agreed business derivatives and the vendor shares the risks and rewards of its customer success through performance-based pay-as-you-go business models.

For long, product-oriented software vendors have strived to strengthen their position in the value chain by transforming their role from that of product vendor to solution provider. Even though these efforts are commendable and highly welcome, it is not nearly enough in today’s highly competitive marketplace. Solution providers have good overall understanding of the technical requirements of their CSP customers, and they creatively design holistic solutions that generate added value to their customer. However they are still only providers, not partners.

In order to become a true Value Partner, you have to address the business needs of your customer, not merely their technical requirements. You have to innovatively create genuine business success. True Value Partners are involved in the ongoing, day-to-day customer interfacing business processes on behalf of their customers. A Value Partner takes over entire business processes and operates these processes as an integral part of their customer’s organisation. The focus of the relationship is to win market share and secure profitable growth by securing efficient operations of an entire business process. The CSP and the Value Partner create an ecosystem whereby each party may focus on their particular core competences.

Picture 2, Relationship evolution, describes the evolution of relationship from Supplier to Maintenance Partners and eventually Value Partner. The evolution is such that only the most dedicated and determined suppliers are ever able to become true partners.

The true partnership is reflected by the pay-as-you-go / pay-as-you-grow revenue model. The Value Partner is compensated mainly by the business success and value creation it is able to generate to its customer and measured in concrete, tangible indicators like revenue, number of subscribers or operational efficiency. Value Partners serving CSPs are usually compensated based on the volume of the subscriber base. The other factor that reflects the true nature of the partnership is that

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the compensation is not only volume-based but also measured by the qualitative Key Performance Indicators (KPI) reflecting the true value creation.

A partnership is highly strategic, closely knit, and a long-term engagement. In most cases, both parties make considerable investments in the early phases of the relationship: a new CSP in the form of network and marketing investments and the Value Partner in the form of forgoing upfront licensing revenue and even by accepting slight operational losses. The partnership focuses on the long term business success of the CSP. It is only through sufficient business volume that the Value Partner will enjoy the same revenue as it would enjoy with upfront license revenue. Therefore, the business focuses of both parties should

Picture 2. Relationship evolution

COMPONENTSSUPPLIER

SYSTEMSSUPPLIER

MAINTENANCEPARTNER

PERFORMANCEPARTNER

VALUE PARTNER

Network Competences

CUSTOMER’SBUSINESS

CUSTOMER’SPROCESS

CUSTOMER’SOPERATIONS

CUSTOMER’SRESOURCES

COMPONENTS ANDCONFIGURATIONS

OPERATIONS PROCESS BUSINESS

CustomerIntimacyand RelationshipManagement

Business model analysis according to customer intimacy (modi�ed from Kalliokoski et al., 2003) Source: Managing Servcie Business, Winning best practices and success stories, page 7.

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be aligned because both parties will enjoy business success only through sufficient growth in the CSP’s revenue and customer base.

Traditionally, the added value a vendor has created is measured by the quality and quantity of the features the delivered application has. In Managed Services, value creation is measured based on business drivers such as scalability to support subscriber base growth; accelerated time to market to react to market driven changes; comparative efficiency towards competitors thanks to the mode of operations; and performance-based pricing to align the business objectives of both the CSP and Value Partner.

Being a Value Partner requires a completely different mind-set than being a solution provider. A genuine Value Partner values the business success of their customers first and foremost in its own priorities. This might seem counterintuitive, because in the traditional mind-set you should always first secure your own success. But it is only a ‘putting-your-customer-first’ mind-set that qualifies you to become a true Value Partner. The competitive landscape is no longer about features and functionalities that can be easily commoditised, but about ecosystems, relationships and business integrity that cannot be copied or re-engineered.

FromalineartoacircularrelationshipmodelThe shift from product/solution orientation to service orientation also requires a change in the mindset and mode of operations

Picture 3. The traditional organisational alignment

PRODUCTMANAGEMENT

PRODUCTDEVELOPMENT MARKETING SALES DELIVERY SUPPORT

BUSINESS SOURCING IT BUSINESS /OPERATIONS

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between the CSP and the MSP. The linear organisation structure and interactions between the CSP customer and the vendor associated in the product/solution orientation is not feasible in the services economy. The old paradigm is based on transactions (purchase, acquire, implement and operate) with various organisations in charge of the different isolated transactions. Because services are consumed on a daily basis instead of acquiring them once such as products, the new relationship interaction paradigm has to be based on a continuous relationship.

Despite the fact that various departments in both the CSP and vendor organisations try to interact efficiently, the traditional, transactions-based approach has lacked a holistic view of true value creation. The lead time it takes for example to communicate a new requirement from the CSP’s business to the vendor’s account management team and further to product management, and finally to product development, is way too long in today’s competitive markets.

Picture 4. The encircled alignment

Sales andMarketing

ServiceDelivery

Monitoringand Support

Application and Service

Development

COMMUNICATIONSSERVICE PROVIDER

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In the new paradigm, the approach has to be changed from a linear to a circular model whereby the CSP is encircled by the MSP organisation to provide a complete, holistic and responsive approach as described in Picture 4 above. The long lead time is replaced by an immediate feedback loop. The feature-centric point of view is replaced by a business-driven point of view. The sub-optimisation within sales, delivery and support is replaced by a set of KPIs that govern the relationship and reflect the holistic capability to support the CSP’s business objectives.

FromfixedtovariablecompensationThe MSP’s compensation is derived from delivering true value to the CSP. The value is measured by the mutually agreed KPIs that reflect the business objectives of the CSP. The usual objectives are business growth measured by revenue or subscriber base, operational efficiency per transaction or subscriber served, applications and processes availability, and service quality. The compensation is usually divided into a larger business volume-based component and a smaller performance-based component. In practice, the volume-based service charge is adjusted by performance-based penalties or rewards.

Another way of describing the compensation is that it follows the pay-as-you-go model. In the Managed Services business model, instead of a fixed, large upfront license instalment, the instalments are divided over the tenure of the contract and, as described above, reflect the business success of the CSP.

The Managed Services fee is not only variable but it also proportionally decreases as business volumes increase, rendering economies of scale benefits to the CSP. In addition, the parties shall periodically assess the co-operational and operation models to seek further savings or process efficiencies.

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DescriptionofManagedServicesAs briefly mentioned earlier in this whitepaper, Managed Services is the practice of outsourcing day-to-day IT management responsibilities of the set of applications that the CSP has acquired to support its business operations and now desires to outsource to an MSP. Managed Services does not include the acquisition of the suite of BSS applications but the operation of them. Managed Services includes the traditional Service Desk and Support and Maintenance services associated with the annual Support and Maintenance agreement in a licensing business model. But the scope in Managed Services extends to proactively maintaining the applications, monitoring the availability of the applications and securing the future capacity of the applications. Managed Services furthermore ensures the secure processing and storing of data.

The mission of Managed Services is to secure the availability, capacity, stability and cost efficiency of the business critical set of IT resources, applications, IT services and business processes. Managed Services addresses the holistic view of the components, interfaces, services and business processes needed to carry out the entire business process that constitute the service to the subscriber base of the CSP.

Whereas Annual Maintenance Agreements address the software error fixes on the applications, Managed Services addresses the availability and capacity of the set of applications and resources to support the business processes. Unique to Managed Services is its business orientation instead of feature or technology orientation.

One of the characteristics of Managed Services is the possibility to pick and choose what services the CSP needs:

SupportServicesenhancedbyMonitoringandReportingdashboardThe simplest scope of Managed Services is to enhance the Service Desk and Incident and Problem Management, usually part of the annual maintenance contract with Monitoring services. Monitoring is the function that provides the availability and capacity data of the applications and related IT services. The data is utilised in both ad hoc and forward-looking decision-making and evaluated in Incident, Problem, Availability, Capacity, and Service Level Management sub processes.

ApplicationManagementThe next natural addition to the scope is Application Management. Application Management is responsible for managing applications throughout their lifecycle. This process plays an important role in the application-related aspects of designing, testing, operating and improving IT and business services, as well as in developing the skills required to operate the applications.

ServiceLevelManagementandAvailabilityandCapacityManagementService Level Management is the processes of planning, coordinating, drafting, agreeing, monitoring and reporting of the Service Level Agreement, and an ongoing review of the service achievements to

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ensure that the agreed service quality is achieved and improved. Availability Management covers the design, implementation, measurement, management and improvement of the service and component availability. Capacity Management ensures that the capacity and performance of the BSS applications and related IT resources matches and exceeds the mutually agreed business volumes in a cost-effective and timely manner.

Further strengthened by Change Management, Configuration Management and Security Management, Service Level Management ensures the proactive forward-looking management of the BSS applications and related IT resources to secure business continuity and scalability to meet the business needs of the CSP.

BusinessProcessOutsourcingBusiness Process Outsourcing (BPO) involves the contracting of the operations and responsibilities of specific business functions and processes to the MSP. In the BSS scope, the BPO services involve Revenue Management, Billing and Collection processes and customer services.

In total, the Managed Services of a holistic service offering are governed by a stringent Service Level Agreement (SLA). The KPIs of the SLA are derived from the growth, availability, capacity and quality indicators that best represent the business success of the CSP customer.

The holistic view of Managed Services is presented in Picture 5.

The in-depth description of Managed Services and its various sub-services is in the document Tecnotree Managed Services: Service Description.

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BSSfromPrivateCloudWith the phenomenal success of Salesforce.com and other Software-as-a-Service (SaaS) applications, CSPs are investigating the possibility to acquire their Business Support Systems (BSS) also as cloud services. With personal data security concerns and variations in business processes and required interfaces, the notion of BSS from the public cloud as a one-size-fits-all application is not at all achievable. However, combining the

Picture 5. The holistic view of Managed Services

Business Process Outsourcing & Professional ServicesService Requests / Product Con�gurations Requests / Operational Tasks

Revenue Management

Change Management Security Management

Application Management

Monitoring and Reporting Dashboard

Software Support and Maintenance

Incident and Problem Management

Service Desk

Capacity Management

Service Level Management

Con�guration Management

Availability Management

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cost efficiencies of the cloud as a delivery mechanism with the security and data protection possibilities of the Private Cloud, you have a cost-efficient and secure delivery platform for BSS applications.

BSS from Private Cloud is a combination of the Managed Services described in section 3 and the BSS Suite of applications as a cloud service.

1. BSSApplicationSuite The BSS Application Suite forms the intelligence and capabilities to run the CSP business that is managed - or in other words outsourced - to the MSP for the day-to-day IT management responsibilities. The best equipped party to provide Managed Services for the BSS Suite of applications is the BSS vendor itself, because it best knows the suite of applications and has the knowledge to provide first, second and third level support. Often the MSP also operates 3rd party applications that supplement the core BSS Suite of applications.

2. Infrastructure-as-a-Service To provide the computing power, storage capacity, firewalls, load balancers, and networks to run the BSS Application Suite, MSP partners with the leading Infrastructure-as-a-Service (IaaS) providers. For wide area connectivity, the Internet is used in combination with carrier clouds and dedicated virtual private networks that best apply to the various use cases. The IaaS provider shall also be in charge of maintaining the operating system whereas the MSP will maintain the BSS Application Suite. The MSP is also in charge of monitoring the computing and storage capacity and to secure additional capacity as needed to exceed the agreed KPIs. Sufficient data communication connectivity with load balancing capabilities secures the performance and low latency for the BSS Application Suite. The actual setup will be planned and deployed to satisfy redundancy and disaster recovery requirements as well as local data protections laws.

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In order to comply with the Information Security Management aspects and ensure the secure operation of personal data, the BSS Application Suite is installed on a dedicated Private Cloud. In other words, the application suite and the data are installed and stored in extremely secured servers in redundant hosting locations within the bounds stipulated by the local data protection laws.

The components of the BSS from Private Cloud are described in picture 6.

Business Process Outsourcing & Professional ServicesService Requests / Product Con�gurations Requests / Operational Tasks

Revenue Management

BSS Application Suite

Change Management Security Management

Application Management

Monitoring and Reporting Dashboard

Software Support and Maintenance

Incident and Problem Management

Service Desk

Capacity Management

Service Level Management

Con�guration Management

Availability Management

Data Center ServicesHardware, Hosting and Data Communication Services

Picture 6. BSS from Private Cloud

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ConclusionThe new competitive landscape that CSPs face requires a new paradigm in providing and operating mission critical Business Support Systems. Focusing on the core business processes and core competences and outsourcing the rest to subject matter experts is the way of the future. The various forms of Cloud Computing, together with the continually increasing data communication capacity, introduce unprecedented opportunities for providing the traditional onsite application from the cloud.

The cost efficiency, operational agility and superb versatility of the Tecnotree Managed Services and Tecnotree Application Suite in Private Cloud will help CSPs to achieve sustainable competitive advantage. Tecnotree has a wealth of experience operating mission critical Business Support Systems provided from Private Clouds. Tecnotree firmly believes that the only way to formulate a true performance partnership is to tie the compensation model to the business success of the CSP partner and to the quality of service provided by the MSP.

The use of the Internet has revolutionised the way consumers communicate, consume content, enjoy entertainment and collaborate. The same paradigm changing revolution shall sweep across corporate corridors and open entirely new opportunities to design, deploy and utilise business applications. During the next ten years all business applications shall be cloud enabled. Any Business Support System renewal or major upgrade that would not evaluate the possibilities of partnership-based outsourcing and Cloud Computing would pose the danger of being stuck in the current status quo and lose competitiveness against more forward-looking competitors.

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PoweringtheDigitalMarketplace

For more information on Tecnotree and its products and services, please visit www.tecnotree.com or email to marketing@tecnotree.com

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