CIO Toolkit. "We do your mess for less"
A Managed Services DIY Health Check is something you can do. It reviews all managed services contracts regarding their management, effectiveness, cost, and customer satisfaction.
Why do you need to review your Managed Services? Because you pay a hefty sum for them and often do not get what you are paying for. Outsourcing your IT is a good solution for controlling costs, but it can be dangerous for the provider and the customer if not properly managed.
Today, rather than being responsible for managing infrastructure, cloud-based solutions have enabled IT departments to dispense with the processes of acquiring, updating, and maintaining software and hardware, leaving these to third-party managed providers. By doing this, organizations can allocate a more significant share of their budget to activities that better contribute to improving business outcomes. Leveraging managed services from a cloud service or hosting provider allows organizations to free up their IT staff to work on more strategic, revenue-generating projects, instead of focusing on operating their own IT.
Assess Your Own Position
Take a moment to answer the following questions, it will give you a good perspective on where you are in terms of your managed services relationship and what level of service you are receiving.
Relationship.
1. How would you describe the outsourcer relationship? (Joint venture, partnership, friendly, contractually based, acrimonious.)
2. How satisfied are you and your users?
Contract.
1. Are their separate contracts with separate sets of schedules for each cloud platform?
2. Are new services negotiations held in good faith?
3. Are issues and disputes being handled to your advantage?
4. Are there any current or possible future contract disputes?
5. Is there a contract diary?
Account Management.
1. Is the providers contract manager held responsible for your overall satisfaction within the contract performance?
2. Does the providers contract manager have a detailed knowledge of the account?
3. Do both parties have a working knowledge of the contract Schedules?
4. What if any outstanding matters are there?
Costs.
1. Are you incurring unanticipated or Additional Costs?
2. What if any, financials are outstanding by both parties?
3. What financial disputes exist?
Delivery.
1. How would you rate SLA compliance? (Low, Medium, High)
2. Are business targets being met?
3. How would you rate Project Delivery performance? (Low, Medium, High)
4. How would you rate Service Delivery performance? (Low, Medium, High)
5. How would you rate the providers Service Desk performance? (Low, Medium, High)
6. What regular reporting is being received?
Customer IP.
1. Where is the IT Architecture function located?
2. Who controls Security Standards?
3. Who owns Data privacy (For example, does the outsourced data include personal data or competitively sensitive data such as trade secrets)?
4. Who owns the data and is data encryption implemented?
5. On termination of the contract, what data formats are available?
6. Who reviews the provider’s technology lock-in position (Where the supplier implements a proprietary solution)?
Disaster Recovery.
1. Have you personally toured the disaster recovery backup site?
2. How familiar are you with the DR plan?
3. Where is the DR plan physically located?
4. If you share a backup data centre with other customers, where are you in the recovery queue?
5. Have your staff been walked through the DR plan as an implementation exercise?
6. Can you take over the management of MSP functions if SLAs and other obligations are not being met?
There are basically three reasons why a company outsources its IT: 1, to save costs and keep them fixed over a longer term. 2, to focus more on its core business and 3, to improve IT service delivery. That’s the theory, and whilst the increased focus on core business activities is normally achieved, beyond that is something quite different. Costs are often only marginally reduced but not to the level anticipated or even stated in the contract. Costs may increase due to the dreaded ‘Additional Costs’ contract clause. IT service, project delivery and quality usually remain stubbornly bad. There are three reasons why providers do not deliver in accordance with their contracts. Firstly, the contracts are poorly executed, favouring the provider. Secondly, inexperienced customer contract managers lack the experience and skills to manage the contract and thirdly, smart providers who know how to milk their customer’s contracts meaning they get extra revenues and do not have to deliver on many promises.
I have been an Outsourcing Contract Manager several times. The key lesson I learnt is that unless carefully and skilfully managed, the promised services and improvements are not always forthcoming. This is even though the outsourcing business model is a good one where the provider can use an IT shared services solution (requiring fewer resources) to standardise the customer’s environment, reducing the cost of delivery and making it easier to achieve SLAs. But not all customers are moved under shared services arrangements as this involves up-front costs for the provider; rather, the customer’s services are left as is (no or little change to platforms or software), meaning there are reduced chances of achieving SLAs. This is where the outsourcer saying of “We do your mess for less” comes from.
Customers need to maintain the upper hand when it comes to managing their IT-managed services contracts to stop the provider from managing the contract exclusively for their own benefit.
The best practice customer approach is to firstly have a detailed contract and then to make sure that contract obligations are being honoured by managing the contract according to the contract Schedules - noting that most providers actively fight this approach as they do not want to be held accountable or be managed in this way.
This is how I managed contracts and it was the basis of the Contract Management Offices I set up, (I even won a Gartner award for that). My customers managed there contracts very successfully in large part because the future customer contract manager was part of the contract negotiations. We negotiated great contracts; we had a good contract management office that was smarter than the average provider and we managed according to the Schedules. Under the contracts I managed, pricing remained fixed, service delivery including projects improved, improvements were delivered, and the customers satisfaction rating went up.
The managed service providers do work hard, too hard in fact, they are generally a case of working harder not smarter - in this respect they are no different to most in-house IT departments. Generally, the providers fall into two categories. The first take your mess and do little to fix it, saving money by having fewer resources working across multiple contracts. (You can’t do that in house as you need dedicated resources.) The second take your mess, move it under a shared services umbrella where they can save money through standardization with the need for even fewer resources.
As for cost savings, if you have a poorly executed contract, the providers are absolute masters at increasing their revenues through the dreaded ‘Additional Services’ clause and Project pricing. Surprisingly, some customer budgets post outsourcings do not take account of this additional (corporate or group) IT cost as it goes under the radar as a separate business unit IT cost.
Contract Management
Before going any further, let’s be clear on how a contract is constructed. It is in two parts, the Terms and Conditions and the Schedules. The Terms and Conditions set out the legalese of the contract, this is where the lawyers do most of their work, post contract execution a customer is or at least should be only interested in a few sections, - Meetings, Financial Obligations and Contract Disputes. The Schedules on the other hand are the guts, the details of the contract, they spell out the Services and Improvements to be delivered along with associated SLAs. (E.g., If a File Server fails it must be recovered within one hour.)
The Schedules are lengthy due to the sheer volume of IT Services that are scoped out which is why when preparing and negotiating the contract, 80% of the time is taken up with the Schedules. The Schedules also spell out improvements to be made to the customer environment such as the rationalization of servers, rollout of a SOE and so on. They also describe methodologies, approaches, and techniques to be used by the provider in the execution of the contract. Therefore, the people who will manage the contract after its execution need to be part of the Schedules construction and negotiation.
Usual Contract Management problems
1. Unanticipated and additional services costs.
2. Poor service and project delivery.
3. Financial disputes.
4. Lack of a customer contract management office. (Different to supplier management.)
5. Post execution contract managers not party to the contract negotiation.
6. Poor contract management practices such as no contract diary or schedule compliance monitoring.
7. Inexperienced contract manager. (The customer contract manager needs to have a working knowledge of each of the outsourced services (e.g., Development, Infrastructure, Communications).
8. The IT Architecture function is outsourced. (This must be retained in-house to ensure that the customer controls the IT Strategy to ensure alignment with the Business Strategy.)
9. The legal department manages the contract. (This is a huge no, no, as the lawyers only understand the terms and conditions and not the schedules which represent the day-to-day work).
10. Contract management meetings not being held weekly.
11. Provider not meetings SLAs and other contract obligations.
12. Issues and disputes are not handled in accordance with the contract terms.
13. Lack of accurate customer management reporting.
How To Turn Things Around
If you’re suffering from cost overruns, hidden costs or additional costs and poor service delivery, there is a way to turn this around.
1) All contracts can be renegotiated, in full or in part, this can happen at any stage, it does not have to wait until contract renewal. Renegotiations are a part of outsourcing, and the providers are used to it, they do not want to lose the business any more than you want to have move elsewhere or come back in-house. It’s generally in both parties’ interests to take a fresh look at the contract after one year’s execution.
2) Failing this, putting in place a stronger contract management function goes a long way to getting what you need and what you are paying for. It is a case of the squeaky wheel gets the oil. Manage the contract strictly in accordance with the schedules and any special terms and conditions. Do not let the provider take any advantage of you, be spartan in your management approach.
3) Do not be afraid to withhold payments for full or partial non-delivery of service or failing to meet some other contractual obligation. This more than anything else will get the providers attention and if necessary, get your lawyers involved to lay out to the provider what a legal case could look like to justify withholding payments.
4) At weekly contract, service delivery meetings - take the provider through the sections of the contract that you are not happy with, be detailed, record everything (the lawyers may want those notes later) and insist on the provider taking down Actions to address each failure. Then manage the provider according to the Actions and insist on detailed written explanations of their responses to each action and every delivery failure.
5) Make changes to your contract management by establishing a contract management office.
Worlds Best Practices
A Contract Management Office for the exclusive management of managed services contracts. The setup of a customer contract management office looks like this.
1. A customer contract manager role or position is created depending on the scope and scale of the contract(s). The contract manager should ideally have been party to the contract negotiations; otherwise, they need to be extremely well-versed in the contract(s).
2. An IT management role or position as an SME for each of the major services the contract covers. For example, if Infrastructure, including Network and Communications, has been outsourced, then an Infrastructure Manager is required.
3. A Service Delivery Manager position is required to counterbalance the provider’s Service Desk and Service Delivery functions. This is a position and therefore is a full-time position.
4. The IT Architecture function is to remain in-house to ensure that the customer retains control over their technology destiny and to ensure alignment of IT and Business strategies. As such an IT Architecture role or position is required.
5. Creation of a Contract Diary that includes all events and obligations for both parties, such as regular meetings and contracts annual reviews.
6. Weekly Service Delivery meetings to review as a minimum all service delivery activities, Service Desk performance, SLA performance, Project performance, Improvements, Financials, Reporting, Customer satisfaction levels and Disputes. The provider’s Service Desk should also table two reports 1) the Top ten Problems report and 2) the Top ten Recurring Problems report.
Best Practice Outcomes
1. The squeaky wheel gets the oil.
2. Reduced or Fixed costs.
3. Cheaper Additional Services costs.
4. Improved Service Desk.
5. Improved Service Delivery and Project Performance.
6. Both parties have a detailed knowledge of the contract schedules and obligations.
7. Customer can maintain constant vigilance over service delivery, contract obligations and financials.
8. The managed service providers performance improves.
9. Should the providers performance fail to meet contractual obligations, the customer has a recorded history of events that can be used for legal action or for the withholding of payments.
10. Contract management practices such as a weekly review meeting and a contract diary keeps the customer in the driver’s seat.
11. The provider’s contract manager can be evaluated and held accountable for contract performance.
What are the challenges of managed service providers?
Despite their advantages, managed service providers may also come with challenges, for example:
1. Not all MSPs offer security measures. Many MSPs do not have a major focus on cybersecurity.
2. Dependent on third-party organizations. Organizations that depend on an MSP to handle daily tasks may form a reliance on them. If the MSP fails to follow through on the SLA, the organization could experience system downtime.
3. Waiting on a response. It may take time for an MSP to respond to an issue.
4. Potential upselling. An MSP may try and upsell an organization on technology or services they do not need.
5. Inaccessible information. An organization's information may not be freely accessible if the MSP is using a proprietary tool to manage and monitor its infrastructure.
6. What is the pricing model for managed service providers?
Managed service providers typically use one of the following pricing models:
1. Per-device pricing. The MSP charges the customer a flat fee for each device it manages.
2. Per-user pricing. The MSP charges a flat fee for each user, accommodating users who use multiple devices.
3. All-inclusive pricing. Also referred to as the all-you-can-eat model, the MSP charges a flat fee for its IT infrastructure support and management services.
4. Tiered pricing. Organizations can choose the bundle of services that best fits their needs. This is typically a favoured pricing model for MSPs.
5. Monitoring-only pricing. MSPs only offer to monitor and alerting services for an organization's IT infrastructure.
In each of these pricing approaches, the customer pays the flat fee on a regularly scheduled basis, often monthly. Such pricing methods let MSPs sell services under a subscription model. This approach provides the MSP with a monthly recurring revenue stream, in contrast to IT projects that tend to be one-time transactions.
MRR differs from other business models, as providers pursuing the break/fix model, for example, usually price their services on a time and materials basis. They generally bill an hourly rate for repairing a customer's IT equipment and charge for parts or replacement.