Andy Ross, CEO of Northgate Managed Services, takes a retrospective look at the challenges faced by IT managed services in 2009 and the prospects for the sector and predictions for the market in 2010.
As the economic downturn continues to drive a reduction in discretionary spend across UK businesses, we have seen a significant shift away from the use of IT for organisational transformation and innovation, to the greater need to improve efficiency and cut costs. The shortage of capital has resulted in large-scale projects which would usually account for up to 20 percent additional spend on top of annual service agreements, being replaced with strategies to support and extend the shelf-life of existing IT infrastructure.
In order to survive and grow in these budget-conscious times, the ability to adapt to the changing needs of clients and deliver real business value has become paramount. Customers now expect to get lots more for much less when considering IT investments and IT outsourcing.
IT service providers that have retained market position and experienced success throughout 2009 have been those that have planned well for this shift and demonstrated high levels of flexibility to clients without compromising on quality. As every company assesses its operational costs and expenditure, providers have had to tailor IT solutions to meet individual budgets and objectives – from the simple provision of IT consultancy and guidance or implementation of one-off projects, to the complete outsourcing of IT requirements as part of a managed service.
Managed service providers should always evaluate a company’s existing IT resources and how they can be improved as a first step before recommending new solutions. However, in this economic climate, the first and most important priority is generating cost savings. Value-added services such as lifecycle management for desktop resources, application support, and hardware maintenance and repair solutions offer real business value and are becoming a first port-of-call over an IT overhaul for the majority of UK companies, but these often need to be funded from immediate and cashable savings.
Managed print solutions are also becoming increasingly popular. Without proper management and monitoring, a company’s daily ‘print run’ and inefficient use of printers and copiers can have a big impact on budget, security and the environment. Managed print solutions help companies use their assets more intelligently and efficiently, putting an end to unpredictable print costs. It is also popular as a way to prevent leaks of important information to competitors or into the public domain, which could have dramatic financial, legal or HR repercussions for business during tough times.
A key trend we have seen throughout 2009 is the move towards a flexible working environment to help increase productivity and efficiency, as well as to minimise operational overheads. Staff are no longer chained to their desk in an office. In fact, businesses are encouraging employees to spend more time working at home – reducing travel time, reducing carbon emissions and taking the often stressful commute out of employees’ daily routine. This has resulted in a rising demand for the ‘office desk experience’ at home setup for staff, including secure, reliable infrastructure and communications platforms and 24/7 on-site and remote support.
Across the majority of the industry, there is now an increased requirement for on-demand solutions, from hosted data centres and Software as a Service (SaaS), to pay-as-you-go access to technical staff in the bid to reduce support costs. The uptake of technologies such as Voice over IP (VoIP), converged networks, wireless technologies, and video conferencing has steadily increased and many of our clients are now looking at the cloud to take advantage of its flexibility in terms of deployment and low investment risks. There is still a strong commitment from UK organisations to reducing their carbon footprint; however, over the past 18-months or so, the use of virtual technologies to reduce travel and energy consumption has primarily been driven by saving money.
An increasing challenge for managed service providers is the responsibility for the security, resilience and integrity of organisational data and providing that guarantee and reassurance to clients. Moving from an environment where a company has complete control of its data and processes, to an outsourced environment where it is being managed and processed by someone else, requires modifications to management processes to ensure consistency for data security throughout an organisation. The impact of data loss on companies – operational, financial and reputational, means that the security and protection of company data is becoming one of the highest priorities for many organisations.
The recession has brought with it a significant change in the customer-supplier dynamic, and many customers, even those that have long-term outsourcing contracts, are looking to their managed service providers to flex services and reduce costs and charges. It is important now more than ever, that providers continue to assess every IT option available to help businesses save money and become an intrinsic part of their clients’ move towards increased efficiency. It is no good waiting until contract renewal stage to suggest new ways of working, the industry has become more competitive so providers must continually innovate and pass on cost savings to customers. A major element of this success is a managed service provider’s supply chain. Providers that have been most successful this year are those that have built long-term strategic partnerships over the years with selected suppliers to ensure that customers continue to benefit from robust technology and a competitive price. It is also important that providers take an agnostic approach to supplier management to ensure they are not pigeonholed by a particular brand or costing structure.
This year has also seen a continuing trend in public sector procurements becoming longer and more complex. The cost of progressing to tender has risen through the increasing use of the Competitive Dialogue procurement process, leaving many smaller providers unable to compete.
In order to compete in the current marketplace, it has also become important to implement innovative financing approaches offering more flexible payment options and allowing clients to turn traditional capex items into opex. As is commonplace in the market nowadays, we allow customers to benefit from their solution straight away with payment spread over an agreed period or even the life of the contract. Increasingly we are using lease finance to allow customers to invest in new IT infrastructures without the hit of a large upfront investment.
The recession is certainly driving customers to look offshore in a bid to cut costs. As a company with presence across the UK and with a centre of excellence in Northern Ireland, Northgate Managed Services offers a near shore alternative. To compete with offshore competitors, providers must continue to review the market and solutions to minimise costs – a challenge that smaller providers could struggle with in 2010.
In addition to delivering remote support, many of the infrastructure support services we provide to clients require us to be present thier sites – some of our SLAs require us to replace failed equipment within 15 minutes – and we just can’t do that from an offshore location.
A continued shortage of skilled IT professionals in the UK has provided further opportunities for offshore companies to pick up contracts. Moving into 2010, we believe there needs to be a stronger commitment to tap into the huge talent pool that exists amongst 16-19 year olds across the UK. We as an industry need to start offering school leavers a direct route to employment so that they can develop a long-term career in the IT sector. By implementing our IT Apprenticeship scheme as an additional option to our existing graduate recruitment scheme, we are developing a qualified and talented workforce that will help us grow our business over the long term and allow us to remain price competitive.
The current recession has had an impact on all areas of business and IT managed services certainly hasn’t escaped. That aside, some companies have had a challenging but successful year, maintaining high levels of service and client retention and growth.
As many forward-thinking businesses did, we anticipated the recession and implemented a robust plan based upon three key principles; to continue to deliver our commitments and value to clients; to protect the jobs of all permanent employees and to continue to deliver financial results to our shareholders. This focus and direction has been the lynchpin for the retention of all 15 major clients that came up for renewal in 2009.
Looking to the future – 2010
In 2010, opportunities for IT managed service providers to implement and support virtualisation of their IT infrastructures and develop flexible and mobile working practices will continue to grow. The introduction of the Carbon Reduction Commitment in the UK and the need to reduce energy expenditure will drive further investment in greener technologies. However, the main priority for customers will still be to achieve significant cost reduction.
Resilience, protection and security of data will continue to be an ongoing challenge for both businesses and providers, and will lead to an increase in projects to create the robust architectures and processes needed to offer the necessary levels of protection in an increasingly open and networked business world.
The increased complexity of procurement processes and client contracts could also see a marked increase in acquisitions and mergers of smaller suppliers, moving towards a more oligopolistic market. There is already a blurring between hardware and services companies and this trend is likely to continue.
The introduction of Next Generation Networks and the seemingly relentless move to doing business on and across the Internet will mean changes in 2010. This will lead to the need for better operational controls, and many organisations wanting to take advantage of the benefits of these networks and the Internet can deliver, will need to not only change their existing underlying telecoms infrastructures, but also have a complete re-think as to how their systems and applications are architected. This is a major opportunity for managed service providers, and could lead to a completely new flavour of IT outsourcing service offerings. 2010 could just be the year when the Internet comes of age in the world of business
www.northgate-is.com/managedservices
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