Resellers, integrators and traditional, product-oriented solution providers have been migrating to the managed service model for at least a decade, and that transition will continue as more and more companies opt to become MSPs. Given that managed services are outperforming the overall IT market, this is no surprise. Companies considering a move to the managed services model should understand that it's a different business landscape and become familiar its distinguishing features.
All roads lead to managed services. Resellers, integrators and traditional, product-oriented solution providers have been migrating to the managed service model for at least a decade. The transition continues as still more companies opt to become MSPs.
The reasons for the shift are clear. Managed services offers a higher growth rate than other technology sectors and is outperforming the overall IT market. Research and Markets predicts that the global managed services market will grow at a 12.4 percent clip through 2018. Gartner Inc. projects the worldwide IT spending to grow 2.1 percent in 2014. There’s a bottom line benefit as well. Managed services, specialized areas such as managed security services in particular, offer the potential to generate considerably higher margins.
In addition, managed services provides the advantage of a recurring revenue stream, which also appeals to channel companies.
Exploring Managed Services
The managed services sector offers outstanding potential for channel partners who want to reduce their reliance on commoditized technology sales. It’s a different business landscape, so companies should become familiar its distinguishing features.
Here are a few items to think about:
Personnel -- An MSP will need a sales staff capable of selling a service as opposed to a product, and a technical staff with the appropriate certifications and expertise.
Technology Infrastructure -- A service provider needs a number of tools at the ready. A remote monitoring and management (RMM) system is a foundational technology for supporting a customer’s IT assets. Specialized MSPs will need to acquire additional components. A managed security services provider, for instance, will need access to a suite of security software.
Pricing -- A reseller accustomed to selling products and making money on the mark up and accompanying professional services will need to adjust its pricing model. Monthly billing cycles are the norm in managed services and individual offerings are typically tiered, so pricing is linked to the level of service provided.
New Business Practices -- Service providers need to adopt efficient business practices to realize the profit potential of the MSP market. Companies need to understand and control costs in this new line of business. Automation of service delivery becomes critical.
Overcoming The Challenges
Thoughtful planning can help an MSP ease the migration to managed services. Here are a few steps companies can take:
Conduct a gap analysis -- What resources -- both human and technical -- will a company need to enter the managed services space? A gap analysis will help provide a roadmap. A company may find that it needs to retrain personnel or hire new sales and technical employees. It’s at this stage, when a company can also make decisions on whether to acquire and manage its own infrastructure or work with a third-party hosting or cloud services provider. For instance, an MSP can build an on-premise managed security offering or opt to work with a cloud security firm.
Develop a marketing plan -- Will the freshly minted MSP have a ready target market for managed services within its existing customer base? Will it have to prospect for new customers? The marketing plan will likely call for a shift in how the MSP approaches a prospective customer. A technology-oriented reseller that historically dealt with the IT department head will need to present its message to C-level executives instead. Solution selling calls for a different marketing approach. An MSP will also need to make decisions on branding: will the entire company operate under a new marketing label or just the MSP line of business?
Revise business approaches -- Perhaps the greatest transition in this category is developing service level agreements (SLAs) and managing to them. This will require a new way of delivering services and measuring results.
Cultivate specializations -- Many MSPs provide server monitoring, which is a basic offering that is rapidly commoditizing. MSPs should look to differentiate themselves. Vertical market specialization provides one avenue. Heavily regulated industries such as healthcare have complex compliance requirements; a knowledgeable MSP who can help customers navigate those intricacies can stand out among its generalist peers. Technical specializations such as managed security provide another differentiation tack.
Automate service delivery -- The key efficiency bonus of managed services is performing many customer support duties remotely, instead of dispatching technicians for on-site support. But to make that efficiency a reality, MSPs need to automate service delivery. An MSP should evaluate and select an RMM system to manage customers’ IT assets. A professional services automation (PSA) system, meanwhile, provides additional automation for such tasks as project management, customer management, service desk operations and billing.
The steps outlined above will smooth the transition to a new and profitable way of doing business. This These steps are just a start. deliberate approach can put a new MSP business on the right footing.
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