This is the first of a three-part series focused on helping business leaders unlock value in their organizations by applying managed services. A managed services journey takes organizations down a complex path of decisions and changes which we will split into:
- Part 1 – Understanding if It Is the Right Time to Embark on a Managed Services Journey
- Part 2 – Key Focus Areas of Planning and Organization to Improve Managed Services Success
- Part 3 – Validating, Sustaining, and Expanding Managed Services for the Future
In this segment, we will focus on determining if a managed services journey is a fit for an organization by focusing on five different success factors.
Let us start, however, with why the idea of using managed services is even considered in the first place. The concept of managed services – on paper – is an attractive proposition for organizational leaders. Lower costs, centralized tasks with experts who can focus on them, and all the while freeing up resources to focus on the core business…what is not to like?
At their most basic level, managed services provide cost and risk (read headache) containment of back-office functions – allowing leaders and owners to focus on core business. However, leading organizations are increasingly using managed services to improve speed to market and innovation. Per a 2023 study by PwC, companies using managed services for strategic advantage are on average seeing 43 more percentage points of performance premium (a metric combining the effects of profit margin and revenue growth) as opposed to those using managed services for cost-savings alone (1).
No matter what the objective though, implementing managed services is a difficult journey that can degrade value instead of building it if done incorrectly. It is difficult to find hard numbers on the successes of managed services implementations - owing to the many variables involved and often the privacy of the efforts and their results – however, we know from feedback in many executive forums that there are many challenges with their implementation. Some efforts fail, and others take longer and/or do not produce the targeted gains in efficiency, cost, and process improvement.
5 Success Factors to Consider Before Embarking on a Managed Services Journey
So, with those potential benefits and risks in mind, let us review some factors leaders should consider when weighing their ability to succeed in a managed services effort. This will also help leaders gauge how much supporting investment - and potentially support from external partners - may be needed for the implementation.
1. Does Your Organization Have an Honest and Supportive Culture?
Trust within an organization, between leaders, peers, and at all organizational levels, is probably the single most important factor in the success or failure of a managed services journey. There are several reasons it is so important:
- Alignment/Trust of the Need: There must be a shared belief that a shift to managed services is truly necessary and will be managed in a way that protects the company's values and employee dignity.
- Foundation for Teamwork: Managed services can create a complex web of responsibility - between the existing groups and the new managed services teams. An assumptive layer of presumed good intentions and willingness to accept/give guidance and work together must bridge the gaps - something that needs a foundation of trust to be possible.
- Ensuring Support: Leadership must have the ability to trust that those interacting with the managed services group will work with good intentions and seek to support (not sabotage) the efforts.
2. Do You Have Executive Support?
Direct and unwavering support, generally at C-Suite and perhaps even board level, is needed to provide the bridge to a successful managed services model. This is obviously easier to achieve if the board or C-level leaders are pushing for the change in the first place, but creating consensus with as many leaders as possible is still critical. The transition process is unavoidably disruptive and those who own/execute the Profit and Loss Statements (P&Ls) and are impacted by their performance must be onboard with the change.
- Temporary Negative Impacts Will Happen: There are many potential avenues the impacts can take, nonetheless, the organization can count on it happening and will need to prepare contingencies to have at the ready as they begin their journey - which will require leadership support.
- Heading off Resistance is Critical: Many mid/senior level leaders will see a threat to their power base in the organization via that managed services model, and any hint that leadership is not committed to the change will invite insurgent efforts to sabotage the work.
3. What is Your Process Maturity?
The current state of process maturity within the organization needs to be carefully factored into the implementation planning. If current processes are undocumented, haphazard, and/or unoptimized they will likely fail in their transition to a managed services model. To be clear, processes may very well still need to be adjusted since most internal processes are optimized for different circumstances than managed services execution, but making adjustments to a solid existing foundation is a much simpler proposition.
4. How Solid is Your Technology/Systems Infrastructure?
In good organizations, "business" and IT have been two halves of the same coin for decades. If that is not the case in an organization a few deep dives/assessments are probably prudent. The stakes are higher for the technology platforms when building managed services, for several reasons.
- Accessibility of Data and Systems: Managed services teams are frequently located across the globe and this can necessitate improvements in data accessibility/organization (to allow the teams to reach what they need but ONLY what they need), require bolstering of legacy systems that are not web/cloud-based, digitization of documents, and changes in system roles and security profiles.
- Work Management/Measurement Tools: Process areas that already have systems that allow work to be assigned, tracked, and reported on by units/tickets are in a much better place to start their managed services journey. For areas that do not have these tools, or consist of activities that do not lend themselves to being organized this way, extra thought will have to be given to how the work will be managed.
5. Do You Have a Measurement Capabilities?
Companies that are already mature in their ability to measure work and results - and embrace a need to do so - are in a much better place to begin managed services. While the likelihood is very high that metrics will need to be changed/expanded, companies that already have the basic tools to measure their work have a great head start. There are several reasons for this including:
- Compatibility with Vendors: Companies that provide managed services to clients are incredibly metrics-driven. Top vendors may be leery of engaging with clients who are not aligned to a measurement culture, since they may worry they could land in a situation where they cannot prove their value, control their work efforts, etc.
- Support of the Business Case: Without good metrics, it can be very difficult to prove the change that has been implemented by managed services is working out for the best. Crude measures can be used of course (eg: headcount/cost reduction vs. managed services fees) but these may be challenged if the quality/quantity of work provided can not be measured against what the organization previously was capable of.
- Letting Go of “How”: One of the most difficult things for many leaders in a managed services transition is to remove themselves from focusing on “how” tasks are being done and instead find and focus on measures of the output. Managed services teams are trained in optimizing tasks, have different operating environments, etc., and part of their mission over time is to find a better way to get to the same end. Leaders whose mindsets are already on measurement of results – and giving latitude to adjust/improve the process to get those results – will have far less adaption to make in their leadership styles when moving to managed services.
Final Thoughts
There are obviously many factors to be considered regarding whether to start a journey into managed services. This necessitates a fair amount of self-reflection and due diligence by organizations that should not be shortchanged. Compounding the effort is that, to avoid unnecessary angst among staff, many leaders try to keep the knowledge that managed services are even being considered to as few individuals within the organization as possible. As a result, this can be a good time to consider leveraging external assessments - from an organization that has expertise in managed services implementations but is separate from any external vendors you may be considering to provide managed services – to provide a neutral lens on evaluating the due diligence findings and also helping hands to gather/compile them.
In the next part of this series, we will dig into the planning and key focus areas that will be needed by organizations that decide to move forward.
- “Beyond the back office: How managed services partnerships drive outperformance” published by PwC, July 12, 2023
© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
