Managed Services | 04.24.2018

Consumption Model Trends Drive Managed Services

One of the things our clients ask us all the time is, “What do you see out in the marketplace in terms of what’s driving IT spending, especially around managed services?” And one of the obvious things is that lines of business are very important in terms of how technology dollars are distributed. It’s not just up to the CIO, the CTO, and the IT organization anymore.

LOBs often want to consume their technology as a service, with SLAs. What they don’t want is a lot of staff to manage and onsite equipment to support and refresh. They want flexibility and they want system upgrades and maintenance to be part of a contract.

You could see this trend starting at least a couple of years ago, but now we have the discussion about managed services, consumption models, and, of course, the cloud with every client because they all have a cloud strategy.

Hybrid Consumption Models: CapEx-OpEx

For example, an enterprise size healthcare client had a large infrastructure build-out it was getting ready to do—roughly 2,500 switches across 100 buildings. And this company has always bought everything and delivered services with internal resources.

But on top of this infrastructure build out, the company was also planning a new half-billion-dollar cancer center with all new clinical technology. And it wanted to talk to us about how managed services might work with that and what the consumption model would look like versus a CapEx model.

It was really looking at hardware-as-a-service where Carousel would manage, support, and finance it — including ongoing technology upgrades, old asset disposal, and implementation; a very sophisticated “pay-by-the-drink” model.

And for this client, it really came down to diverting some of their CapEx spend into clinical assets rather than network assets. So, we’re starting to see managed services models that are a hybrid of CapEx and OpEx—consumption plus assets.

Of course, not all managed service providers have pockets deep enough to handle service contracts that include large asset purchases. That’s why Carousel has its own finance arm.

Anyone can build an enterprise management platform and say I’m going to watch your environment and do it 24×7 and do it on a shoestring with a few servers. But, to really invest in network operation centers, with 24×7 coverage, and consumption economics that include large-scale asset purchases—that’s a different story. Plus, you need someone with the finance expertise to sit down with a CFO and walk them through the nitty gritty of the model.

A Predictable Cost Model

What comes up most often when I talk to clients about this is the value of a predictable cost model. They don’t have to renew a separate maintenance contract every year. They don’t have to keep hot spares onsite just in case. They know if they want an upgrade to an innovative technology there’s that option in the contract. And they know the deal has been vetted at the CFO level.

It really gets back to the old question, “How much time and resources do you want to spend just keeping the lights on (KTLO)?” You’ve seen the Gartner chart that shows for many companies, 65 percent of their time is spent KTLO from the IT perspective. Then maybe 20 percent goes to strategy and, if they’re lucky, maybe 15 percent goes to transformation.

That’s why companies come to us. Because we’ll do the KTLO—the 65 percent. So, whether you’re in healthcare or manufacturing or retail, you can focus on strategy and business transformation to keep up with your competitors. And let us focus on making sure you have the latest technology to win in the market.