In Australia, it wouldn’t be long before AWS and Azure had onshore data centres and that would be all she wrote for on-prem data centres. Just like Jeff Bezos called it back in 2007, the days of running kit in your own data centre were numbered.
And sure enough, Cloud boomed. It is no longer the alternative but the defacto standard for where to run business-critical workloads. What is interesting about this shift is that it wasn’t driven purely by economics. Although many Transition to Cloud strategies and business cases were based on the “lower cost!” rationale, for most organisations, while Cloud has a different cost profile over the longer term, it may or may not be cheaper in real dollar terms.
So if it wasn’t economics, then why has the transition to Cloud been so broadly adopted? Simple – Cloud was better. And in IT, this matters. Cloud delivers greater scalability, agility, security, reliability and platform capabilities than could ever be provided via an individual data centre. AWS, Google and Microsoft invest billions and billions in Cloud capabilities. Most organisations cannot match the level of investment.
Working in this space in the early 2010s, you could see the writing on the wall. Commoditised workloads were leading the transition to Cloud – workloads like Exchange and SharePoint moving from on-premise installations to Office 365. In the years that followed, the transition progressed from these commoditised workloads to complex bespoke line-of-business workloads. Cloud just offered too many benefits. The shift was on – to make Cloud, i.e. IaaS, PaaS or SaaS, the defacto hosting standard.
Interestingly there was often a disconnect between a CIO’s strategy and the managers of the Teams currently responsible for delivering these workloads in many organisations. The Managers of these teams were often sceptical about Cloud. Now, their position was understandable – it came from a place of uncertainty of the future and a loss of power and status. Unfortunately, they were positioning themselves against a tidal wave. Cloud was the future.
In the early-2010s, there was another shift in IT Strategy – another tidal wave started. As a new breed of CIOs moved into organisations championing cloud and newer ways of working in IT, many came to the same realisations about managing their IT solutions:
- Realisation #1 – “We’re not an IT company”
Sure, every company these days is a Software company. Every company reaches their customers through applications and IT channels. But most companies are still not IT Products or Services organisations. As a general rule, if less than 50% of your workforce Engineers / Developers / IT Consultants, then you’re not an IT Products or Services organisation. Your core business lies elsewhere.
Being an IT Products or Services organisation means the IT talent pool is deep. You’re in a position to draw on the knowledge and skills required to build and support your IT solutions effectively. It is almost always better for these organisations to “build it”, rather than “buy it.” However, for organisations that are not in this position, IT teams are often limited in capability and capacity. Teams are often stretched to maximum capabilities and are not able to flex support when additional seasonal work occurs.
Many of the new breed of CIOs realised this fact. That, even though they delivered Products and/or Services to customers through IT channels, they were not IT companies. This realisation had significant impact on how many CIOs defined their IT Operating model – creating a shift away from the build it to the buy it model.
- Realisation #2 – “We can only spend a dollar once”
For CIOs, they needed to decide on the best way to spend their dollar and which investments generated the best return. Money can only be spent once – the opportunity cost. This means it is a question of how to maximise the return on each dollar.
Many organisations still maintain a physical footprint, combined with digital channels. For a Government Department, do they invest an extra dollar in providing services to their constituents or one extra dollar on hiring the top IT talent to maintain IT systems? Keep in mind that “maintaining” IT systems only keeps systems as they were yesterday. Thus, every extra dollar spent on maintaining IT is one dollar spent to keep things as they were.
Building internal teams to deliver IT is expensive. People cost. And it’s a lot more than you think. Many only identify an individual’s salary as the cost borne by organisations. But when you translate that salary cost to a fully-loaded equivalent – adding in costs for recruitment/retrenchment per annum ratios, ongoing training budgets, employee overheads (desk, PC etc.), overtime costs, whitespace underutilisation, and performance management overheads – there is commonly a 25-40% overhead above an individual’s base salary when calculating the fully loaded cost.
Rather than building internal IT teams, many CIOs decided on a lean in-house strategy – keep high-business value functions in-house, but find specialist partners to manage and run supporting essential or commoditised functions. This approach meant organisations would keep high-value roles, software and/or IT channels in-house to manage and run. Which makes sense – there is little point in outsourcing your business value. But it also allowed those functions that did not fit into this category to be outsourced to, wait for it, IT Products or Services organisations! It allowed CIOs to realise the benefits of being an IT Products or Services organisation without having to be one.
- Realisation #3 – “I have no guarantee of outcomes”
Businesses create customers. To do this, they need to generate outcomes that will produce those customers seeking the goods and/or services produced. The investment made in the generation of these outcomes – the people, time and cost involved – leads most businesses to find methods to generate a surety of outcomes in a highly unpredictable global environment.
Internal teams do not guarantee the outcomes for organisations. There’s no
outcomes-based contract in place in individual employment contracts. No Availability metrics targeted. No response and resolution times set. These can be set internally as “KPIs” or “OLAs” for individual team members, but there is a reality behind this. There is limited avenues for recourse for failure – aside from possible performance management, termination and re-recruitment. And this is a challenging, expensive and lengthy process in most organisations, one that most try to avoid. So when performance is not up to scratch and impacting your customers, you’re limited to stomping your feet and yelling.
By changing to outcomes forming a contractual commitment with a 3rd party, there can be real teeth in the agreement. Many 3rd parties will base their business and reputation on achieving these outcomes, so the business is based on a guarantee of outcomes, or worse case, a guarantee of effort and application towards achieving outcomes for customers. But, if they fail, and the impact on your business is significant, then an appropriately structured contract will provide avenues for recourse to protect shareholder value.
- Realisation #4 – “Good people are hard to find. They are even harder to replace”
Bell curves can be brutal. If you’ve ever worked as part of an organisation that reviews the performance of their employees based on the bell curve, then you know how unfair it can feel to grade performance in this way. But, the bell curve is real. If you could plot the entire IT talent pool for a given technology on a graph, it would look like a bell curve. And, the reality is that the top talent in the market gravitate towards IT Product or Services organisations.
For companies that are not IT Product or Services organisations, attracting Top IT talent is hard because you are competing against IT Product or Services organisations for the same talent. Prospective salaries are one point of talent competition, but there are many other dimensions like culture, prestige and IT career opportunities where these organisations may have an advantage. Companies like Atlassian, Google, Microsoft and Capgemini have an established workplace brand in the IT job market, which can be very attractive to prospective employees.
Even if you successfully find and hire top talent, replacing them becomes a challenge when they leave – regardless of whether they progress their career internally or externally. In IT, job markets are shifting at a fast rate. In general, most organisations are looking for similar skillsets as certain technologies take hold in organisations simultaneously. Finding a replacement at an equivalent top-tier skill level with a similar salary expectation becomes a challenge. Often, compromises need to be made on one or the other – either talent level or cost has to suffer.
- Realisation #5 – “My team doesn’t scale”
Coupled with the shift to cloud technologies through the 2010s was the shift to Agile Software Development more broadly. This agile approach brought more rapid release cycles for IT solutions. Gone were the days of half-yearly minor releases and 3-yearly major releases. Many organisations were moving to monthly or fortnightly releases to accommodate changing business priorities.
This shift meant team workloads became more unstable. Longer release time horizons allowed for a consistent approach to resource planning and how a team could manage the workload. The shorter time frames now in effect meant that a static team could not manage spikes in workload. Instead, teams would need to be elastic and “flex” in size temporarily to manage the spike, then return to a baseline.
Even with the use of direct contractors to compliment a team, this was very challenging. Most organisations don’t have the number of contractors readily available in multiple IT domains needed to flex up for a short period to meet a spike. Also, Contractors are usually seeking out longer-term work as well, generally not interested in short engagements. Further, the time and effort to hire a new Contractor has its own overheads on the organisation. It’s not as simple as people think. Thus, options to “flex” to meet fluctuating workloads were limited.
- Realisation #6 – “To execute on my IT Strategy, I need a different way”
The 5 realisations above led many to a similar conclusion – to make their IT strategy a success, they needed to make the day-to-day “Run” of IT someone else’s problem. They needed to find partners who were IT companies – specialists in the exact technologies that required support. They needed to find partners who could generate those most bang-for-buck and cost-effective. They needed partners who were contractually committed to their outcomes. They needed partners who were seen as attractive workplaces by the top-tier talent. And they needed partners who could flex resources as and when required – be it for short periods or longer periods.
The solution was Managed Services.
It’s important to note that Managed Services is not IT Outsourcing. In the early 2000s, IT Outsourcing had been a failure for many organisations. It had delivered lower levels of service and higher operational costs. IT Outsourcing saw organisations transferring the responsibility of IT “Run” management, but not the accountability for delivery. Thus, the framework to ensure that high levels of service were delivered was not in place. And, to address the lack of accountability, it often devolved into mirrored-IT in many organisations, with internal teams created with roles that effectively mirrored supplier roles –doubling (or tripling) the underlying cost.
Managed Services, however, transferred the accountability for the service outcomes. It commonly delivers outcomes and experiences above those that were delivered previously. In addition to being a way to counter the realisations above, many CIOs now see that Managed Services provided a thorough set of benefits:
- Managed Services, the provider commits to the Service Level outcomes to be delivered and then aligns their business to deliver these outcomes. As it is an outcomes-based service, accountability is inherent in the framework.
- Further, the Managed Service Provider (MSP) view of the customer relationship is a multi-year, mutually beneficial one. Not having the right solutions to deliver the outcomes committed is a sure-fire way to ensure contracts are not extended, crippling the business model.
- With Managed Services, finding the right people is part of the supplier’s business model. Not only finding, but then ensuring their skills are consistently expanded to meet customers’ changing needs. Additionally, they focus on demand management so that services can scale when needed to meet objectives. And, as the show must go on when people do leave, they establish processes to ensure knowledge is retained within the provider, rather than in the heads of individuals.
- Managed Services bring best-practice, as they are not limited to a single customer or single project. They benefit from all key learnings and best practices from a broad range of customers and a broad range of implementations. A high-quality MSP will use this knowledge to develop a backlog of ongoing continual service improvement activities, ensuring that best practice is maintained for each customer across the technology stack they support.
- For Managed Services Providers, solving a problem for one customer can be solving for many. Thus, their investment in the right tools for the technology stack they support can be spread across their customer base, i.e. the cost is fractional for each customer and decreases with each customer account added. The benefits they deliver can be applied to all customers, meaning that the value of the service delivered is increased. This model generates an exponential relationship between costs to implement and value delivered and drives efficiencies in service, supporting the expansion and sustaining the profitability of their business.
Managed Services is not new. But the rate of uptake and spend has been significant, shifting from the ten-of-billions to the hundreds-of-billions in spend across the Managed Services industry, with projections only to increase over time. No longer simply break/fix IT, Managed Services should be providing your organisation with a proactive and flexible service that maximises the committed contractual outcomes.
If Managed Services is not part of how you intend to execute against your IT strategy, then you should re-assess. The wave is already here, and it’s time to seize the opportunity.