Archive for the ‘Managed Services’ Category

Managed Services Momentum

April 8, 2013

At the end of 2012, TSIA brought on a new Senior Director of Research to lead our efforts in the area of Managed Services.

Since joining our team, George Humphrey has been working with TSIA members to establish a new operational benchmark for Managed Service organizations. Since Managed Services has become quite the hot topic within tech services, George has also been popular with the tech press.

To learn more about our new Managed Services benchmark, contact George directly: george.humphrey@tsia.com

To read George’s latest comments in the tech press, visit Diane Royer’s article titled

Managed Services is Sizzling Hot

http://www.telecomreseller.com/2013/04/08/managed-services-is-sizzling-hot/

 

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Managed Services Mistakes

January 8, 2013

In my last post related to Managed Services (Framing Managed Services), I made the following observation:

Managed Services is the fastest growing service line for hardware and software companies that have established support and professional service businesses.

At TSIA, we see this trend continuing in 2013. To support this critical service line, we have hired a veteran from the Managed Services industry to lead a new TSIA service discipline dedicated to Managed Services. George Humphrey joins us from Avaya where he helped build and optimize their Managed Services offerings.

This week, George was debriefing me on conversations he has had during his first thirty days with the advisory board members of this new discipline. Companies currently represented on the board include: Avaya, Cisco, EMC, JDA Software, Microsoft, IBM, Symantec, and Ricoh.

As George summarized the discussions, I was transported back in time. I felt like it was twelve years ago, when I first started working with multiple product companies regarding their Professional Services business. At that time, all of the PS leaders suffered from the same handicap—they could not benchmark the financial performance of their business against similar embedded organizations. Because no meaningful benchmark existed, management teams (and executive teams and boards) were forced to guess what reasonable or unreasonable performance was. This vacuum of facts created many absurd expectations. Today, Managed Service organizations are suffering from this same exact vacuum of facts. Just as Professional Services embedded within a product company IS NOT the same business as independent consulting, Managed Services within product companies IS NOT the same business as independent Managed Services.

George said to me “I see it again and again—companies under estimating the time and investment required maturing an MS platform.” With no baselines grounded in fact, I have found management teams will gravitate to optimistic fiction.

As we talked more, George began outlining the common mistakes he has seen product companies make as they work to establish an MS business. Besides underinvesting in general, product companies also miscalculate the shift required in the sales model. Managed Services is different from every other service line product companies establish such as Professional Services, Education Services, and Support Services. Why? Because Managed Services DOES NOT naturally relate to a product transaction. Think about the consequences of that reality for a moment. They are massive when it comes to creating demand for this service line.

By the end of the conversation, George had outlined several more challenges commonly faced by embedded MS organizations. I have asked George to publish a paper for the MS membership titled: “The Top Five Mistakes Made When Building a Managed Services Business.” Even before the data from his new MS benchmark starts flowing in, he knows what these common friction points are.

For more information on George’s work and TSIA’s Managed Services Discipline, contract George directly at george.humphrey@tsia.com

Eleven Things I Learned

November 9, 2012

On the last day of the recent TSW conference, I summarized the key insights I was taking away from my converesations with attendees over the three days. To watch this presentation, visit:

http://vimeo.com/52654677

Below are the insights I cover in the video.

1. Managed Services

  • Growing, profitable, but don’t call it Managed Services.
  • Limit liability? Org structure? Rev Rec? Comp Models? Financial Model?

 

2. Margin Box

  • Fixation on achieving certain margin targets for embedded service business lines. This means we walk away from customer opportunities because they don’t meet a specific target. We could be boxing ourselves in.
  • What matters: Total margin dollars (rev * margin) not margin %

3. Service Controlled R&D

  •  Service executive is given control of 5% to 15% of the product R&D budget. Focus those resources on capabilities that help customers realize value.

4. Solution Managers

  • Not product managers. Not service marketing managers. They are comped on the growth of both product and service revenues.

5. “On site is Insight”

  • Quote from Bill McDermott during his keynote. Why he believes service capabilities are so critical for product companies.

 

6. Success Science

  • You understand what makes your best customers your best customers.
  • Best customers = spend lots with you because they are being successful
  • Do you have a cohesive vision throughout the entire company concerning what makes your best customers your best customers?

7. Place Big Bets

  • Ex: Stand up a business consulting capability
  • Ex: Stand up a hosted version of your product for a customer
  • Ex: Aggressive reskilling program for services (technical to business)

8. Remove the Complexity of Services

  • For your customers
  • More importantly: for your sales force
  • Complexity look like: stove piped service capabilities, overlapping offers, death by a thousand packages

9. Starting up SaaS

  • 2 years to profitability
  • Amount you spend on sales and marketing impacts time to profitability
  • Design of the platform can dramatically impact time to profitability

 

10. Financial Model of Your Company

  1. Has to change
  2. Transition as quick as possible to the best model possible
  3. New model will not be throwing off 25 to 40 points of profit

11. Disenfranchising your team

  • Be savvy about orchestrating change
  • You have to bring the company along with you (R&D, Sales, Finance)
  • Don’t sacrifice your best people in this process

Framing Managed Services

September 10, 2012

Every year TSIA benchmarks the growth rate of service revenues in over one hundred major technology companies. From this data, we know three things:

  • For some original equipment manufacturers (OEMs), Managed Services has already become a core source of revenue and profits.
  • For other OEMs, Managed Services become a new, hot services offering.
  • On average, Managed Services is the fastest growing service line for hardware and software companies that have established support and professional service businesses.

So Managed Services is becoming an ever more important component of the economic engine for OEMs. The real challenge is to truly understand what is actually in this fast growing service line.

I have spent the past three months speaking with TSIA members about their Managed Service businesses. It is clear the lines between Managed Services and SaaS have blurred.  CRN published an article titled Managed Vs. Cloud Services attempting to clearly define the difference between Managed Services and SaaS. I can tell you, the OEMs are not very concerned about following these definitions. In fact, many OEMs have Managed Service offerings that would comfortably fall into Gartner’s definition of SaaS.

To add to the confusion, the lines between Outsourcing and Managed Services have also blurred. Brainstorm states that the difference between Outsourcing and Managed Services is the length of contract. Sorry, OEMs are cutting very complex, multi-year deals that are being classified as “managed services.”

So, why does all this matter? Because at some point in time, CFO’s at OEMs will want to understand how their Managed Services business is performing. They will want to benchmark growth and profitability. But benchmark against what? If you own a Managed Services business, this question will become critical at some point in time.   To help address this dilemma, TSIA has published a new white paper:

Service Insight: Framing Managed Services

Enjoy!

Telecom and the Services Chasm

August 25, 2010

Today I read an interesting article with the following headline:

Managed Services Revenue to Surpass Infrastructure Sales for Major Telecom Vendors

The article referenced some recent research conducted by Heavy Reading (www.heavyreading.com) that predicts the following trends in the telecom industry:

  • As network operators continue to look for new ways to reduce operating costs, telecom equipment vendors are nearing a tipping point at which the managed and professional services they provide will deliver substantially more revenue than infrastructure sales
  • Driven by network operators’ desire for cost savings, simplified network operations, and shorter time to market for new services, managed and professional services have become a rapidly growing business for telecom equipment vendors over the past five years. Today these services account for 35 percent to 48 percent of total revenues for leading vendors, and this figure is forecast to reach 60 percent within the next seven years.

The Telecom industry, and product companies serving that industry, find themselves smack in the middle of a “services chasm” market as described in “Bridging the Services Chasm.” In this type of market, traditional product revenues and margins have slowed as the market has matured. Product companies in the market must decide if they will change their revenue stream by diversifying into new service lines (we call that a change mix strategy), or stay focused on being a product provider and seek new product markets to pursue (we call that a change market strategy).

Revenue Mix and Maturing Markets

The Telecom industry, and this recent prediction of revenue trends, is a perfect example to help illustrate the dynamics that play out in maturing markets. Historically, telecom equipment providers such as Lucent, Alcatel, and Nortel, have all been very product-centric companies, with the vast majority of their revenues coming from actual product sales. However, the folks at Heavy Reading are predicting a dramatic shift in revenue mix for “leading” telecom providers as documented in the image below:

This mix from product revenues to service revenues is playing out in EVERY technology sector. From storage to servers to software, more and more revenue is being generated through service transactions as opposed to product transactions. This is the trend that leads product companies gasping at the edge of the services chasm. Thank you, Heavy Reading, for reiterating the reality.

Product Providers and the Services Chasm

When markets mature and companies enter the services chasm, there is one type of company that is at extreme risk of failing: The Product Provider. These are companies that receive a majority of their revenues from product transactions and have a small percentage of revenues coming from services. This imbalance makes it very difficult for them to adjust to the type of shift in revenue mix documented above.

As we look at the telecom industry, there were two major technology providers serving North America that struggled in the services chasm:

  • Nortel
  • Lucent

Nortel went bankrupt—clearly they were unable to navigate the services chasm. Lucent took a hard run up the services hill post 2001. They even hired a senior executive from EDS to lead the charge. However, the effort did little to change the revenue mix of the company. Lucent’s history is discussed in the first chapter of Bridging the Services Chasm. Now, Lucent has thrown its hat into the ring with another historically product-centric company, Alcatel, to ride out the services chasm storm engulfing their industry. Yet, look at the revenue trends for Lucent from 2001 – 2006 and then Alcatel Lucent from 2007 – 2009:

The graphs above show two critical facts:

  • Top line revenues for the combined companies is not really growing
  • Services remain a relatively small portion of total revenues

How out of sync is the revenue mix of Alcatel-Lucent with the revenue mix predictions from Heavy Reading? This is the risk all product providers face as their market matures.  Pay attention Dell. Pay attention Microsoft. Pay attention Cisco. The trends pounding Alcatel-Lucent will be pounding your bottom lines. Change market or change mix. But don’t spend too much time thrashing around in the services chasm.

Managed Services

April 15, 2009

Almost forgot to let folks know. Bo DiMuccio and I are hosting a webcast on Thursday to discuss recent results from our first TPSA study on Managed Services. Register by going to:

http://www.tpsaonline.com/webcasts.asp#mspst

Defining Managed Services

September 4, 2008

Since blogging on the topic of the services spectrum, a few folks pinged me regarding a tighter definition for managed services. This is a timely conversation because TPSA is currently recruiting companies to participate in our first benchmark study for Managed Services.

Previously, I defined managed services in the following way:

Managed Services:  Paid to Operate. Services designed to help a customer manage their technology environment on an ongoing basis. Provider does not take direct ownership for customer employees or capital. Contracts are time based and often include target service level agreements. Pricing can be fixed or activity level based.

This definition is very simpatico with other definitions that exist in the public domain. (more…)