Five mistakes Managed Serviced Providers should avoid

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Outsourcing of the IT function has been common for many years, usually with an objective of managing operational costs or spinning off non-core business functions.   A class of service providers, a Managed Service Provider (“MSP”) has grown up to meet client’s outsourcing needs.

As with any other business, an MSP needs to avoid mistakes in either its business model or operation.  This short note sets out five of the more common errors committed by current or former MSPs and how to avoid or rectify them.  Obviously, it’s not a comprehensive list, but more a series of pointers to common errors.

1. Getting the sales model wrong – It’s a relationship sale – not a product sale.
   Many MSPs, particularly those in the transition from Value Added Resellers (“VAR”) of products use the wrong sales and marketing model.   The sales model is no longer based on the technologies that sell, often crudely defined as reads, feeds and speeds, but on the reputation of the MSP and its performance with clients.  An MSP is now selling an ability to deliver services according to a Service Level Agreement and demonstrating a commitment to maintaining a high degree of professionalism over a long period.The sales process is very different, as is the ongoing client relationship. Simply put, selling services is not a “knock and drop” sale.   Sales and operational management staff will have close contact with the client during the acquisition stage of the sale, and unlike a product sale, this level of interaction will continue through the lifetime of the MSP and Client association, or reputational damage will happen and the MSP may lose the client.

2. Prevent not fix – Not having the correct mix of skills
   By and large technical IT people are problem solvers.  Their focus is on fixing what is broken.   That is not what is needed in an operational environment of managing client systems.  Having broken systems can cost money by compromising service levels and certainly damages the reputation of the MSP.  In the worst-case scenario, it could compromise the client business by denying it’s staff access to systems and data. Ideally, the MSP has a minimum of problems by being proactive and fixing things before they break.   A mix of staff types is needed, those can foresee issues and prepare preventative and remedial measures, and traditional IT problem solvers who can fix what has broken.The problem-solving tendencies of IT need to be focussed on what could go wrong and how to prevent it, supplemented by what to do if it does happen.  Risk analyses, risk scenarios and risk avoidance and recovery procedures need to be high on the operational agenda.   An MSP will also consider preparing individual client disaster recovery plans.

3. Selling Services the MSP cannot provide
   IT has fads and fashions, just as any other industry.  Currently, it is Cloud Computing and many MSPs are being asked to implement public and private Clouds for their clients.  There will be opportunities for an MSP to acquire new clients looking for an MSP supplying these technologies, and the upgrade of their existing clients to the newest trends in infrastructure.If an MSP commits to providing services based on the latest trends, they will need to have the skills and expertise on board to be able to provide them.  If they try and fail, then rather than gaining clients, they may well lose them.   It’s a reputational risk.This can be a bit of a double-edged sword.  Business development requires that they need to be able to be able to deliver according to the latest trends to retain existing clients and attract new.  However, often the investment in new staff and technologies puts a strain on cash-flow in the business.

4. Complacency sets in with a long-term client.
   If an MSP has been working with a client for some time, it is inevitable that they become part of the furniture and the distinction between client and MSP staff becomes blurred.  Without keeping a close eye on the client relationship and often without realising it, the MSP and the client can gradually slip away into complacency.Often it is neither the fault of the MSP nor the client, but more a gradual mutual slide into convenient and comfortable practices.Key indicators include:

• A rise in disputes with the client over seemingly trivial matters.
• Service levels slipping because no-one takes them seriously and no action will be taken anyway.
• Innovation slowing. A key part of an MSP support profile is to identify where new technologies or a different use of current technologies will be of benefit to the client.
• Operational meetings are postponed and not rescheduled.
• Documentation is incomplete and out of date.
• The client finds a problem before you do.The answer is eternal vigilance.  Regular operational meetings, for example, change request boards, service level review meetings and the like must continue as scheduled.  Documentation must be updated and issued as usual.  Sometimes a planned programme of staff rotation is necessary to revitalise the operation. 

5. Rates are too low.
   You might not believe it, but it can happen.  The usual sign is that potential clients don’t argue over price.  An MSP needs to look at its financial model, particularly margins, and see what competitors are charging.  They can then potentially increase rates. There is then a bit of wriggle room to give discounted rates or provide additional services without harming operational margins.

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