ARN

Managing customer expectations through managed services

As digital transformation takes shape, customers are turning to the channel to create an innovative edge through managed services.
James Henderson (ARN); Itzik Swissa (F5 Networks); George Kassianou (ACK IT Services); James Ormesher (VMtech); Claudia Couzi (AC3); Craig Sims (CCNA); Tony Lam (Dicker Data); Nick Beaugeard (HubOne) and Ryan Delany (Trend Micro)

James Henderson (ARN); Itzik Swissa (F5 Networks); George Kassianou (ACK IT Services); James Ormesher (VMtech); Claudia Couzi (AC3); Craig Sims (CCNA); Tony Lam (Dicker Data); Nick Beaugeard (HubOne) and Ryan Delany (Trend Micro)

As market spending rises, businesses are no longer bargain shopping, with customers finding new ways to maximise managed service providers (MSPs).

Consequently, end-users in Australia are resisting the urge to align with the lowest-cost provider, instead favouring partners that understand deeper business requirements.

Therefore, as outsourcing continues to evolve, MSPs must evolve alongside, providing advanced services beyond basic operations to differentiate.

Because the modern day, well- informed customer is under pressure to capitalise on new and emerging technologies flooding the market, creating increased demand for next- generation managed services.

“Customers are starting to see increased pressure from within the business, especially during the past 12 months,” AC3 head of service integration and management Claudia Couzi observed.

“The market is filled with new technologies such as cloud, digital transformation, business agility and cyber security, which means IT has become a central part of doing business.

“Customers are facing lots of pressures in those areas because they are not specialised across those key domains.

“Therefore, they are relying on service providers to offer expertise, knowledge and guidance to keep pace in the market.”

Whether it be artificial intelligence, the Internet of Things (IoT) or machine learning, relentless waves of technological innovation are crashing down on Australian shores, resulting in seemingly endless options and technologies available for companies.

Consequently, and through the guidance of MSPs, end-users must develop a pace that can be sustained irrespective of what the future holds.

Claudia Couzi (AC3)
Claudia Couzi (AC3)

“Such pressures are combining to drive a willingness to adopt managed services,” VMtech national sales manager James Ormesher said.

“Technology today is playing a greater role in the go-to-market strategies of businesses and if that can be outsourced to an external provider, it allows organisations to free up resources and internal staff to generate new business.”

Across Australia, organisations are seeking to execute on new technological initiatives in a bid to drive disruption and recruit new customers, placing faith in service providers to augment skills, develop strategies and deliver business value while reducing risk and addressing critical security issues.

“We’re seeing customers adopt managed services across large and small contracts, and demand across Australia is increasing,” F5 Networks territory account manager Itzik Swissa added. “We are the Swiss Army Knife of the application services space which means we wear so many different hats across our different technology pillars.

“Because of this we’re enabling our partner community to consume F5 in an easy way through our back- end integration and technology, which reflects the market’s push into managed services.”

Spanning Australia, and the wider global market, customer demand for IT and business services continues to accelerate as businesses increase deployment of digital and cloud solutions specifically.

According to IDC research, worldwide revenues for IT services and business services totalled US$475 billion in the first half of 2017, representing an increase of four per cent year-over-year.

Within the next 12 months, the analyst firm expects worldwide services revenues to surpass US$1 trillion in 2018.

But while IT services spending delivered more than two thirds of overall services revenue during the first six months of the year, investment on business services grew faster than the overall market at six per cent year-over-year.

“A strong transformation from traditional resell to managed services is underway,” Trend Micro global solutions marketing manager Ryan Delany said. “A few years ago, MSPs were unknown and only the most mature partners were operating in this space.

Itzik Swissa (F5 Networks)
Itzik Swissa (F5 Networks)

“Today however, more partners are heading in that direction to the point that the market is beginning to mature across the channel.

“As a vendor, we’re not the cheapest or most expensive option in the market but we win a lot of business away from the cheaper vendors because we don’t compete on price, rather value.”

But for Delany, less mature partners are more price conscious, favouring dollar savings over delivering strategic outcomes for the end-user.

“Less mature providers are still focused on the cheapest offering available,” he acknowledged.

From a channel standpoint, IT services revenues during the past 12 months were largely driven by spending on technology outsourcing and project-oriented services, such as application development and systems and network implementation, while business services spending was led by business process outsourcing and business consulting services.

As outlined by IDC, the largest market segment of end-user spending and vendor revenue came from business process outsourcing with first half revenues of US$92.9 billion.

Delving deeper, systems integration was the second largest foundation market at US$62.1 billion, while business consulting was third, followed by IT outsourcing and software deployment and support services.

In addition, the fastest growing markets were hosting infrastructure services (9.8 per cent growth) and business consulting (8.2 per cent growth), with IT outsourcing the only market to experience declining revenues.

“Partners today are selecting one or two technologies, such as cloud and security, and are entering the market through providing managed services around those technologies,” Dicker Data cloud lead Tony Lam added.

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“But there needs to be more available and on offer than that because partners must provide customers with comfort around everything that they do.

“Those partners will win. I use the word comfort because that’s what customers want, they want to know service providers have everything covered.”

Customer demands

As digitalisation and technological innovation change the role of the CIO, leaders are rapidly scaling digital businesses, making 2018 a defining moment for customers who don’t want to be left behind in an increasingly competitive market.

In the year ahead, technology leaders are expected to transition from delivery executive to business executive, from controlling cost and engineering processes, to driving revenue and exploiting data.

“We’re seeing approaches in market that are business outcomes focused whereby customers are separating out the technology from the outcome,” Ormesher added. “There’s a real drive to aggregate, centralise and bring innovation inside the organisation because it’s difficult for customers.

“The market is filled with new technologies and vendors, so we are spending time with customers — within the managed services contract — to conduct quarterly reviews around innovation and new technologies.”

Because while the customer today demands providers meet more stringent requirements - such as always-on, speed of provisioning, and the ability to adjust service requirements more quickly - Ormesher said MSPs must now bring more to the table in terms of innovation.

Failure to do so will result in almost immediate irrelevance.

“Customer’s don’t just want providers to keep the lights on, they want to be taken to the next level,” he added. “As an MSP, if you are just keeping the lights on, then you will become redundant pretty quickly in the eyes of the customer.

“Businesses today can go out to market very quickly and research their own information and make decisions. We view a managed services contract as the start of our engagement, and we ensure our customer continues to innovate going forward.

“Customers are now demanding this approach in the contract which means we must constantly research what is coming next and provide that information back to the business.”

Ryan Delany (Trend Micro)
Ryan Delany (Trend Micro)

In observing a changing managed services scene across Australia, Couzi said businesses previously outsourced technology services in a bid to cut costs, with the market evolving considerably during the past 12-24 months.

“That proved too much risk and customers at the time still weren’t receiving a better service,” Couzi recalled. “So then the market moved to businesses managing IT to maintain an element of control and governance.

“But now customers are looking to MSPs to become experts in areas of the market that they can’t keep up with, whether that be current or emerging technologies trends, or an external threat such as cyber security. Customers want to be the experts without investing time and people into technologies.

“Therefore, we can provide learnings, insights and expertise to provide information and advice in a compressed timeframe. This is a huge value proposition for MSPs today.”

From an investment perspective, technology shifts are not only changing what customers are consuming, but also the way MSPs sell and influence the end-user, as buying behaviours evolve alongside increased end-user education.

“Customers are more knowledgeable today,” CCNA director Craig Sims added. “In the old days, when you put a solution together for the customer, they understood 20 per cent of the offering up front and you had to explain the other 80 per cent later.

“That has completely flipped in the market now. Customers today already know 80 per cent of the solution and we’re just pulling everything together for the last 20 per cent.”

Consequently, customers are now defining business outcomes and requirements, taking control of the conversation to drive innovation throughout the organisation. But such customer knowledge, for an MSP, comes at a price.

“The problem resides in the Qantas lounge because we’re dealing with CEOs that receive all their IT advice in a magazine,” ACK IT Services managing director George Kassianou said. “They believe they can address all of their issues by sending everything to the cloud, because they read it in a magazine.

“But when you’re in front of the customer and you’re trying to explain the difference, that’s when challenges arise because sometimes these perceived informed buyers are misinformed. Customers see a silver bullet and they run for it but as an MSP, we know that it won’t solve the problem.”

James Ormesher (VMtech)
James Ormesher (VMtech)

Specific to the small business sector, HubOne CEO Nick Beaugeard said customers are seeking out specialised solutions, solutions capable of addressing specific niche needs.

When becoming specialised however, MSPs mustn’t become vague, instead deep diving into the heart of an industry, become submerged in sub- sectors and inundating customers with unique expertise.

“Customers align with providers that carry a deep industry focus,” said Beaugeard, in aligning with the accountancy industry across Australia and New Zealand. “We’ve excelled within the accounting vertical because we have tailored solutions and that’s a huge drawcard for the customer because it’s half the battle already won.

“Customers are also looking for someone who is a specialist in their industry to deliver a whole of business outcome.”

In looking ahead, the role of the CIO — and the tech buyers operating on the peripherals of the IT department — will grow and develop as digital business spreads, creating a “more for less” expectation of MSPs.

“If you’re not engaging with your customers regularly, then you are going to lose them,” Sims added. “A lot of the managed services agreements being pushed onto us from the customers now have 12 month renewals.

“Therefore, if you’re not servicing the customer efficiently throughout the year, you will be replaced. Customers know that they are paying monthly fees and nine months into that contract, if you’re not servicing them you will get caught out quickly.”

Echoing Sim’s observations, Swissa acknowledged that customers in Australia are “very vicious” when it comes to technology loyalty, with a strong tendency to switch providers if high standards are not being delivered upon.

“If they are under-serviced, they will skip and move to another MSP,” Swissa added. “We see that happening all of the time. Partners must put a lot of effort into keeping the customer happy.”

Customer risk

Despite the C-suite in business organisations today recognising the fast pace of technological developments, executives grapple with the key question: what happens next and when?

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And perhaps crucially, how this impacts their company’s customers and business operations, and subsequently, managed services agreements.

“Customers are asking different questions,” Kassianou acknowledged. “They will hear something on the news, such as data breach compliance, and they will ask how to become compliant.

“Customers ask MSPs to deliver that solution back to them because customers would rather outsource that to the MSP to make it our problem, not their problem.”

According to Kassianou, contracts are now starting to get written that way, with customers increasingly focused on mitigating risk.

“I wouldn’t necessarily use the word mitigating,” Beaugeard added. “I think customers are just offsetting the risk to somebody else, full stop,”

The word risk, and all it represents in the context of a managed services contract, is a word used with caution throughout the channel, as partners and vendors juggle responsibility up and down the supply chain.

“I’d like to think it’s a team scenario but ultimately if they are singing a managed services contract with VMtech, then we are providing a service to that customer,” Ormesher added. “We are making the technology choices underneath and customers are even saying that they don’t care about the decision we make.

“This means it’s the responsibility of the partners to carefully select vendor solutions because it’s important to have those service agreements in place, alongside added support mechanisms and the ability to escalate any issues if required.

Craig Sims (CCNA) and Claudia Couzi (AC3)
Craig Sims (CCNA) and Claudia Couzi (AC3)

“Our view is that the customer comes to us and therefore it’s our relationship. Then it’s about negotiating a contract that is acceptable to both parties, has an acceptable level of risk because the more risk the customer passes on, then the more cost.”

Delving deeper, Couzi said certain customers are “very acutely aware of risk”, choosing to work directly with a vendor instead, before bringing in an MSP to manage the IT.

“They prefer that approach but others prefer to wrap it all up and the contracts will definitely reflect whatever approach is taken,” Couzi said. “It then comes down to the MSP to ensure they have the right relationships and arrangements with the different vendors in place, which also involves the right levels of support and mitigation.”

Such an approach has resulted in a recalibration of the channel, as partners assume the role of the customer when procuring technologies through the traditional supply chain.

“We make the call,” Couzi explained. “MSPs used to have a splash of logos on their websites which showed they partnered with every vendor but there’s been a huge wave of maturity in the industry, on both sides of the channel.

“Vendors have also become more stringent in who they partner with and we’ve seen this play out through an increase in certifications and revenue commitments, which in its own right has contributed to a reduction in logos.

Therefore, customers know now that when an MSP carries a certain logo, there is a strong level of commitment behind it rather than simply applying to be a partner and the vendor saying yes.”

With regards to risk and responsibility, Sims said customers — in general — “don’t care” which vendor technology sits behind an outcome, again placing the power of selection in the hands of the provider.

“We’re seeing a huge move away from vendors owning the customer from that perspective,” he said. “This means the MSP is taking on that management and risk. As our business has developed to take on more solution sets, we have aligned with fewer vendors.”

George Kassianou (ACK IT Services)
George Kassianou (ACK IT Services)

For Kassianou, once a customer decides to dictate technology or vendor selection to the MSP, they are subsequently placing risk back on themselves, risk that is reflected in the contract.

“If they ask for an outcome then as long as you deliver the outcome, the technology doesn’t matter,” Kassianou added. “Generally, the smaller businesses just want an outcome but the larger organisations can be more specific around technologies and vendors. But once they do that, they must bring more to the table.

“We don’t use multiple vendors, we have placed strategic and solid bets and they are not based on price or profit. Our decisions are based on the level of service that our customers will receive. By limiting ourselves to trusted vendors, we know we can deliver a known result to customers.

“We know the products inside and out, we know we have leverage and we know that we can take our business elsewhere if a vendor doesn’t come to the table. Vendors realise this too and they are now coming to the table.”

Through operating in a specialised industry, Beaugeard said HubOne also spends time in the boardroom with customers, in a bid to outline key roles and responsibilities to avoid any contractual confusion going forward.

“We educate the board because it doesn’t matter what contract you have in place, they are still responsible for business continuity, security and keeping customer data safe,” he said. “In a sales process, that level of conversation actually goes in your favour and creates a far better relationship because providing shareholder value and protecting customer assets is the responsibility of the directors.”

Going forward, MSPs will be expected to carry more responsibility and risk, creating a need for vendors to meet the channel halfway in a bid to better service the customer.

“From an F5 perspective, as a vendor we are just as responsible,” Swissa added. “When you deliver a technology and problems arise, you must be available and on hand to help, it’s very much a partnership and we are as committed as the MSP in that respect.

“We don’t see the contractual aspect as much because that’s with the MSP but we are committed to the same SLA and the same standards — we are in it for the long haul in that respect.”

This ARN Roundtable was sponsored by F5 Networks and Trend Micro. Photos by Christine Wong.