Have you been served? How economic imperatives are driving managed services

1 Jan 2010

The new economic landscape is propelling greater numbers of organisations in the direction of managed services. It’s about time, say its proponents.

It’s like all those soppy love songs on the radio … it’s so hard to let go. In this case, it is traditional organisations letting go of managing all of their IT resources in-house and opting instead to outsource this function to companies with the expertise, time and resources to manage IT more efficiently.

Driven by the tough economic climate, firms are deciding that it’s better to focus on their organisations’ core business of generating revenue, identifying opportunities and being more versatile in a challenging but different marketplace.

For the business, it means that it pays just one fixed cost and, under SLA rules, is guaranteed a reliable service as well as technology updates. For the bean counters it’s a no-brainer.

But for CIOs and IT directors, there is still the issue of letting go. Many fear it may cost them their livelihoods, a valid fear in the current climate. Others fear it may limit their power structure and control over the technological destiny of the organisations. But, for many, these fears are often groundless.

CIOs and IT directors that do decide to go down the managed services route discover that, instead of compiling server logs and fiddling with cables and servers, they can fulfil their destiny of playing a more strategic role in the organisation.

CIOs can instead support the business needs of growing customer bases by driving the web strategy forward, for example, and reducing the perception of the IT department as a cost base and instead making IT a business saviour.

But, in Ireland, the trend is still yet to be fully realised across the business landscape; while many organisations are opting for managed services, others still have cold feet.

Psychologically, it isn’t far removed from the idea of moving to e-working in organisations. While the practice of allowing workers to work from home or on the road is catching like wildfire in the US, the UK and across continental Europe, Irish management teams are slow to move, confusing home working with absenteeism.

But for managed services, which introduces hassle-free IT at a fixed cost, it should be a no-brainer for management teams.

“Traditionally, it has been hard to let go,” says John Casey, sales manager with Irish IT service firm Datapac. “But economic circumstances are dictating to companies that if they want to save money, this is the way to go.”

Hugh Dawson, head of managed services at HiberniaEvros, agrees: “It depends who you talk to. These days, companies either don’t have the funds or the skillsets to manage an entire IT helpdesk. They are under pressure to reduce headcount and need new expertise all the time to keep up with the growing complexity of IT. There are good managed services providers in the marketplace with the expertise and support they need.”

Niall Feely, director of small and medium business at Eircom’s Business Markets division, says managed services technologies are becoming more structured to allow firms to expand the service offering as they need.

“Because of the downturn, people are trying to conserve cash. They don’t have the money to be throwing at a costly IT project, but the ability to get an employee up and running for as little as €10 a month is compelling. Sometimes the IT department of an organisation spends so much more time supporting email than it does supporting mission-critical hardware and software, not to mention working with businesspeople on the overriding business strategy.”

The key value add, says Casey, is that IT becomes like a utility bill. “Usually one person in the business would be kept up to date on all changes such as licensing or new platforms coming down the line, and the good thing is these organisations have access to a wealth of knowledge from the service provider as well as the latest applications at a cheaper cost.”

Casey says that one of the biggest barriers to date has been lack of connectivity, whether it is DSL or a leased line. Without these it would be impossible to conduct managed service in such a way that an external IT resource can manage a company’s needs – from email to server management.

“The bad perception around broadband availability would have interfered in the early days, but now I’m happy to say that this is dissipating and the quality of broadband is opening up the broad remit of managed services. This is allowing for a lot more remote management to be done and, as a result, the kind of services on offer are becoming bigger and better.”

Casey says that cloud computing – the ability to access software on demand or as a service via the internet – will go through the same hurdle as managed services. “There will be hang-ups around security, but the advantages will outweigh the concerns and fears will dissipate over time.”

Ultimately, he says the value of managed services for IT professionals is about freeing them up from the mundane tasks or grunt work involved in checking server and event logs, for example, and moving up the ranks and adding more value to the business. He adds that companies making the switch to managed services can, in Ireland, range from 10-user networks up to 250-user networks.

“Often a key motivator is financials and the cost of replacing an IT person who has moved on. That person would typically cost around €50,000 a year. You can outsource that management function to an IT managed services provider for a fraction of the cost. It’s all about economies of scale.”

Dawson says that cost alone isn’t the sole motivator and that the smooth running of a business and its strategic priorities should also tip the balance for or against.

“It’s about being in a position to transfer the day-to-day responsibilities of IT in such a way that it improves their operations and makes the organisation more efficient and effective.”

HiberniaEvros provides two forms of managed ser-vices: Omniwatch, where organisations can select a level of support that matches their requirements; and Omnisource, a flexible IT infrastructure outsourcing service designed to bring real savings to your IT budget.

“The important thing to remember before embarking on a managed services mission is the aim is to take away the painpoints in an organisation and free up internal resources to deal with more pressing problems.

“If you are a finance director and you are under pressure to reduce headcount, consolidate support contracts and introduce savings to the business, managed services is the way to go. If you are an IT director, it frees up you and your team to be a more strategic and meaningful force for the business.”

Dawson says that one of the barriers he sees for managed services is that firms don’t always know what it is about. “Managed services are different to cloud computing and shared services. The thing they need to ask themselves is: why spend large sums on managing infrastructure yourself when there are companies out there who can do it more efficiently and for less cost?”

Typically, he explains, a transition to a managed services structure for an organisation would take place over two weeks before everything is up and running.

Eircom, Ireland’s largest telecoms company, has been involved in the managed services space for some time and in recent months entered into a strategic cloud-computing alliance with Microsoft to provide software via the internet to businesses on a rental basis.

“Our plan is to provide a number of key Microsoft products, an email marketing product and a security package from McAfee on a rental basis to subscribers before Christmas,” explains Feely. “After that, we intend to offer a broader range of applications for businesses such as HR software, accounts software and also to work with local software providers.”

Feely says Eircom has invested heavily – to the tune of €100m – in a contract with Digital Realty Trust to occupy a 125,000 sq ft data centre in north Dublin. “People are going down the route of managed services for reasons of cost, speed and flexibility. They no longer want to spend large sums on software or hardware, instead they want to have all the IT resources they need at a fixed operational cost.

“Also, if you look at the amount of time spent by IT managers on service packs, patches and server logs, they need to move away from the low-value work and start providing real insight and strategic muscle for the business.”

The growth in managed services and an appetite amongst businesses to outsource to data centres is a trend that will continue in 2010, says Tanya Duncan, managing director of data-centre firm Interxion.

“We conducted a survey with analyst house IDC and interviewed over 800 companies in eight countries across Europe. The results showed that in the next five years 30pc of companies will be outsourcing some portion of their data centre services.

“The IDC research shows that enterprises have now accepted the value proposition of carrier-independent data centres and they would be hard pressed to replicate the efficiency of the shared infrastructure approach in-house.

“In addition, we will continue to see the development of new technologies such as Blade and now Pizza servers. They have the complex mechanical and electrical engineering requirements, together with deployments of IT infrastructure, which also have an increased complexity of the network requirements.

“So nearly every company in the world now is faced with a simple decision; that is to outsource to a third party rather than go out and build a data centre themselves. The latter requires 18 months to complete if you are able to gain the right planning permissions, find the right site and actually acquire the various data centre components (generators, uninterruptable power supplies, crack units) and will require a multimillion-pound upfront investment. So is this going to slow down? I seriously doubt it.”

Duncan says there is also the issue of space, or lack of it. “A recent study showed that 60pc of UK data centres were going to run out of space within the next two years. Although this study was based on UK findings, this is the true situation across all of Europe.”

Across Europe, Interxion is investing €90m in adding 13,000 sq m of data centre footprint. In Ireland, Interxion is growing at a rate of 50pc a year and recently revealed it will be spending some €12m to expand its data centre in Dublin, with power management at the core of this investment.

“Data centres are not only running out of space, they are more than likely running out of power before they run out of space and then they’re also running out of network capacity,” she explains.

The new Dublin data centre will have a total of 2,455 sq m of gross space, with the first phase of equipped space scheduled to be ready for customer installations in early 2010.

Duncan concludes by saying that increased levels of broadband penetration, allowing delivery of goods and services online, as well as underpinning the movement away from the client-server environment to web-based applications, where critical applications are being outsourced to the web, show a positive future for managed services.

“These require a highly resilient infrastructure with multiple connectivity options to ensure optimum availability. And legislative mandates covering business continuity and disaster recovery require whole or part of IT infrastructure and systems to be housed outside of the company’s primary site. Combine this with the fact that outsourcing data-centre requirements means companies can reduce capital expenditure while benefiting from enterprise-class data-centre infrastructure.”

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years