As soon as most people think of managed services they’re struck with what seems like a tidal wave of emotions – fear, excitement, curiosity and uncertainty, just to name a few. That’s because the managed services model continues to evolve and many have differing views as how to define as well as implement it successfully.

In simplistic terms, managed services is an organization’s ability to deliver upon a defined set of services for a fixed or flat monthly fee. Today’s businesses want to deal with predictable costs and true managed service providers (MSPs) deliver on this promise. These services include:

A shift in technology and changing customer requirements has accelerated the demand for managed services, forcing the end of the traditional voice VAR. In order to survive and prosper, these providers must make the transition today, not tomorrow. Technology Assurance Group (TAG), an international organization of unified communications companies, has devoted the last five years to developing the path for its member companies – data and voice VARs – to become MSPs profitably. We have guided our members toward this direction for five reasons.

1. Whoever Owns the LAN Owns the Telephony. There is no such thing as two separate networks anymore – data and voice became one a long time ago. Many VARs that missed this boat are out of business today. As a result of convergence, telephony essentially has become just another application riding on the LAN. Therefore, he who owns the LAN owns the telephony – and, by the way, telephony is a relatively small portion of what’s on the LAN. It doesn’t make sense for a customer to deal with a VAR for data and another for telephony, when they can partner quite easily with an MSP that manages, monitors and controls the entire network including the telephony. Companies are now demanding that a single source fulfill all of their technology requests, regardless of the application.

2. Customers’ Endless Pursuit of Reducing Ongoing Costs. It is a necessity for all companies – both large and small – to continually evaluate their cost structures, especially during a down economy. MSPs enable companies to control costs by reducing their IT staffs. Why pay an IT professional an exorbitant amount of money to run around the office fixing e-mail problems, answering questions about Microsoft Word or Excel software applications or setting up a new employee on the network? This all can be done by an MSP remotely. The in-house high-level IT professional that remains, then, can focus on what that position was intended to do – proactively support the company’s strategic business objectives through the utilization of technology. If you cannot fulfill your customer’s need to reduce cost in this fashion you will lose them forever.

3. Disruptive Technology Replaces Feet on the Street. The latest state of technology is rapidly diminishing the days of on-site IT support. Typically, when network or desktop problems arise and escalate inside a company, the response time of the two-man shop or internal staff is quite slow, ranging anywhere from four to eight hours. This dramatically increases employee complaints and lowers productivity. Eventually everything is back up and running, but it begs the question – how much time and money was lost because of the downtime? With the advent of such disruptive technologies as VoIP (pure and hosted), network monitoring tools and off-site remote data backup, it has become quite easy to effectively manage an organization’s network infrastructure and support employee IT issues through an off-site network operations center (NOC) and help desk. Research has shown that 80 percent of all problems an employee may experience can be solved remotely by a knowledgeable IT professional.

4. Transformation From Vendor to Trusted Adviser. The only way to be viewed as a true trusted adviser by your customer is to take away the pain of managing their technology. The level of demand and sophistication is driving up complexity. Distinct disciplines or specialties have emerged. The breadth and depth of technology an organization requires immediately places the resources at a small to medium business at a distinct disadvantage. Every company has become dependent on its IT infrastructure to perform at a high level, while effectively delivering its products or services. As a result, it has become more difficult to maintain the expertise to properly deploy, manage and monitor this new technology, especially as a business evolves. This is the MSP’s core competency and companies are looking to them to handle this function of their business.

5. Proactive vs. Reactive Relationship. History has taught us that the break-fix model does not work for the customer or the VAR. It’s a reactionary model where a customer loses valuable time and money and experiences disruption to their business while the VAR fails to make a profit. The VAR, if lucky, is making wages rather than building valuable equity in their business. The MSP model begins by designing a stable and secure environment for their customer, backs it up with the proactive management of their technology, and services all needs through 24×7 support. The marketplace has dictated this proactive model to the VAR community. As a result, MSPs are displacing IT consultants, voice VARs and internal IT departments.

Becoming an MSP

A profitable game plan for data and voice VARs exists to transform their companies into MSPs at very little risk. Through extensive financial modeling, industry benchmarking, the formulation of key strategic partnerships and the development of pricing and compensation models, TAG has produced a model that brings benefit to the VAR turned MSP and – more importantly – to the customer.

There are two approaches to becoming an MSP. With the first approach, the VAR can make a large capital investment to set up their own NOC and help desk by expanding their facility and purchasing a number of network monitoring tools as well as other applications. With this approach the VAR is basically entering the call center industry and has to deal with everything that comes with it – hiring, training, firing, staffing, managing, etc. In this scenario it is quite difficult to scale, because as soon as one body is fully utilized, another is added and that body is significantly underutilized.

Profitability is much greater and more quickly realized with the second approach. In this model the VAR outsources the NOC and help desk to a third-party provider focused on offering these services. The VAR expedites their position as becoming a trusted adviser because they’re focused on achieving their customer’s strategic business goals through the utilization and proper implementation of the latest technology. Scalability is not an issue in this situation, barriers to entry are extremely low and the risks of MSP transformation are diminished.

The outsourced model, ultimately, has greater ability to target the three primary segments of the marketplace for a regional MSP. First, it displaces the two-person data shop running around with their cell phones providing very poor service to companies under 25 employees. Second, it allows companies with 25 to 50 employees to eliminate the IT person that is solely focused on fixing menial problems. Lastly, those companies with greater than 50 employees may reduce their IT department to a high-level individual focused on growing the business through technology. This person then becomes the conduit to the MSP in helping to successfully manage the relationship. TAG’s member companies that have made this transition are realizing 20 to 30 percent EBITDA (earnings before interest, taxes, depreciation and amortization), otherwise known as net income.

Brian Suerth is executive vice president and a partner at Technology Assurance Group, where he is responsible for managing TAG’s team of business consultants, supporting the development and execution of the company’s strategic direction, and creating innovative programs designed to increase TAG Member profitability. He can be reached at [email protected].