The managed IT services market is arguably undergoing its most dramatic changes since its inception nearly 20 years ago.
The need for all businesses across all industries to be digitally connected—particularly in the SMB market—is rapidly increasing, and the onset of cloud computing, a widening skills gap in the IT labor force and unrelenting cybersecurity threats are forcing service providers to re-examine their core competencies and find new means of optimizing service delivery and scaling profitably.
This article is the second in a series that explores how these new market dynamics are impacting managed services providers (MSPs) and IT solution providers (ITSPs).
In this installment, we explore the widening skills gap in today’s IT workforce, how MSPs can overcome a new labor shortage, and the impact that millennials are having in the workplace.
Defining the skills gap
Small- and medium-sized businesses (SMBs) are the growth engine of our economy.
And in today’s increasingly connected and digital landscape, the need for these organizations to maintain technologically advanced IT environments has become fundamental to their existence.
Regardless of industry, product, service or business model, technology plays an integral role in the success of virtually every business—and keeping these systems current, connected, available 24x7x365 and secure is paramount.
The complex and fluid nature of these environments is creating many significant challenges for managed services providers (MSPs), which now require skills that are scarce and extremely expensive; and the macro dynamics governing these issues are only worsening.
The growing demand for technical specialists, engineers and other human resources today is far greater than their actual availability, and this trend is expected to continue well into the next decade.
This skills gap has left many providers struggling to hire and retain IT talent, which often comprises the largest cost component in an MSP’s profit and loss statement.
The issue is further complicated by the fact that labor costs negatively affect gross margins, meaning service providers are often looking for opportunities to decrease these expenses—while keeping pace with emerging technologies and maintaining high levels of customer satisfaction.
Contention between broadening and improving skills to meet the increasing complexity of environments—while lowering costs—is a difficult equation to solve for.
STEM, millennials and the new IT workforce
There are a number of dynamics throughout the IT service industry that are contributing to this skills gap. Science, Technology, Engineering, and Math (STEM) have been on a linear decline in the public education system in the United States and throughout all first-world economies throughout Europe, and including Australia and South Africa. According to a recent study conducted by the World Economic Forum (FC), the US ranks in the lowest quartile of the top 26 most advanced and developing nations in the world. Our general labor population has migrated its academic and career interests towards medicine, liberal arts, social sciences and finance.
MSPs must adopt new ways of thinking to overcome these trends.
The millennial generation is also drastically changing the labor and workplace dynamics in this industry. Millennials are the first generation to be “born in the cloud”, where smartphones, internet-connected devices and other advanced technologies are a part of their lives and culture from day one.
Having immediate and always-on access to data, devices and applications—in a completely integrated technological domain—is the millennials’ birthright.
This group has established a new set of expectations in both business and personal environments that IT should “just work.”
Tolerance for downtime, inaccessibility or sluggish response times is at an all-time low, and these new levels of expectation are putting even greater demand on the small business IT services market.
The top end of the millennial generation today is only 34 years old, and the number of millennials in the workplace now outnumber the number of baby boomers; and the scales continue to tip as the latter will continue to retire at a rate of 10,000 per day for every work day until 2029.
In the managed services market, millennials represent a generation that has defined itself in a very different way than the baby boomers and Gen Xers who have been fulfilling IT market requirements for the past two decades.
Millennials are largely seen as choosing to do “higher-value” work, and don’t often consider lower-level IT support to be among their aspirations.
This further-supports the idea that MSPs should look to strategically outsource the lowest-value aspects of the service delivery supply chain; as Gen Xers who are today performing this work continue to retire, there are not necessarily new employees who are available and wanting to fill those gaps.
Partner, buy and build
The reality is that MSPs today are not able to overcome these labor shortages through traditional means of hiring and staffing—it’s simply not affordable.
But with careful consideration and planning, service providers can hire to fill select roles, outsource and leverage third-party partnerships where necessary, and deploy software tools and automation to fill in a few remaining gaps and build a scalable model for service delivery.
As we discussed in the first article in this series, MSPs should now be focused on the sustainable, high-value aspects of the supply chain—acting as strategic technology advisors and vCIOs for their customers, and focusing their high-value talent towards high-value work.
And if basic end user support, monitoring and other daily maintenance tasks can be outsourced to a trusted provider, in-house resources can focus on the work that they really want to complete.
This improves retention, and empowers staff to identify new revenue opportunities, improve internal processes and more.
Across critical functions like remote monitoring and management, backup and disaster recovery, security and others, MSPs should seek out solutions that provide more than just basic monitoring and alerting functionality.
As software automation, machine learning and data-driven intelligence become more prominent, MSPs should remain vigilant in seeking out tools and technologies that will require less time and attention from technical staff, who can then focus on higher-priority and more visibly valuable work.
The key to success here lies in the integration and connectivity between software, services and third-party partnerships.
While many software-only providers have acceptable technology, they force the MSP to rely on local labor that must be effectively hired, trained, retained and managed by the MSP.
These providers are disadvantaged from those that are leveraging an integrated outsourced model.
Taking things a step further, some software vendors have partnered with independent NOC and Help Desk operations; but this model is also fraught with numerous places for failure, as the alerts need to be triaged and passed between various teams or even vendors in order to be resolved.
From the customer’s perspective, there is no accountability—the tool vendor can blame the independent NOC, the NOC can blame the tool vendor, and so on.
To build a successful service delivery model that’s profitable and efficient at scale, MSPs should look to partner with a truly vertically integrated software and services provider.
Bridging the gap
All told, it's no surprise that IT has less than 1 percent unemployment nationwide. Employees that have the right skills and technical capabilities are highly sought after, and professionals in this industry today want to perform higher value work.
Infrastructure strategy, open source development and support, activities related to the cloud, and others are creating a strong propensity for IT professionals to move upmarket and into large enterprise opportunities where there are greater investments in these initiatives.
Serving the immediacy demands of more legacy technologies inherent to the small business market simply isn’t as desirable to today’s new labor force.
This has left the SMB IT market devoid of the majority of skills required to serve its ever-increasing needs—leaving the doorway open for MSPs to step in and win lucrative business opportunities within the small business market.
All that’s required is the right strategy, the right stratification of service delivery, and an effective blend of software, third-party partnerships and an effective model for service delivery.
Michael George is CEO of Continuum Managed Services.