Why More IT Executives are Moving to Managed Services
Software delivery is moving faster than ever, thanks to improved processes and increased IT maturity. However, faster does not always mean better. In fact, according to the 2019 ‘State of Agile Report,’ the vast majority of respondents (83 percent) said their organizations were below a high level of competency with agile practices, revealing there’s significant room for improvement through agile coaching and training.
To combat this deficit, IT spending is on the rise. A recent survey published by TEKsystems found that 57 percent of IT executives expected their IT budgets to increase in 2019—the highest level reported since 2014.
Why? Today, more and more IT companies are under significant pressure to keep up with customer expectations, application and service functionality, and security compliance—all while delivering value and keeping costs in check. As a result, many IT executives are investing in more predictable cost models, such as managed services.
If you’re one of those executives, and you’re in the process of weighing the pros and cons of staff augmentation versus managed services, then you’re likely among the 74 percent of IT leaders who are frustrated with their current software delivery speed.
In this article, we will provide a brief overview of managed services, and why more organizations are shifting to this model to accelerate and evolve their IT practices.
What is Managed Services?
Managed Services is a software delivery model that involves the partnership of an IT or software development company and an outside vendor. The outside vendor manages all or some of the hiring company’s software development. The managed services team works with the client to map out a product development plan and also accepts responsibility and accountability for delivery.
What’s the Difference Between Managed Services and Staff Augmentation?
What are the key differences between a managed services and staff augmentation model? Managed services focuses on delivering value rather than a set list of tasks, features, or user stories.
An accomplished managed services team can build a sustainable, reliable process that blends and integrates teams to generate more predictable, valuable, and sophisticated outcomes through frequent, iterative software delivery cycles.
In fact, among the IT executives surveyed in the “IT Forecast Survey,” 52 percent of respondents expected to see an increase in managed services spending compared to the 48 percent for staff augmentation. Although these survey results show that both staff augmentation and managed services models are used within the industry, data shows that the IT industry is trending toward a managed services model.
The goals—and potential— of a managed services team is to get the job done, but while doing so, evolving practices to achieve greater organizational value as delivery processes mature with each delivery cycle.
What Are the Benefits of Managed Services?
In addition to having more value-based development and delivery iterations, here some other benefits of managed services:
- Value-Based Outcomes: As we explained briefly above, managed services models are typically tied to delivering valuable outcomes—and this is also reflected in the pricing model. Rather than paying for a set number of hours, pricing is based on iterations (usually two-week “sprints”) and product delivery through a service-level agreement (SLA).
- Accelerated Evolution: Because managed services teams are financially incentivized to deliver, the value of the software features they produce is typically higher than that of staff augmentation or internal IT teams. As a result, managed services teams can help define reliable processes that lead to delivery systems that accelerate over time, ultimately evolving the organization.
- Sustainable and Reliable Processes: In addition to value-based delivery, managed services teams focus on defining and improving processes, which drive value with each delivery cycle. By defining reliable processes, managed services teams focus on the quality of outputs rather than inputs. Reliable processes are results-driven, which mean that organizations can evolve and at a lower cost than working with staff augmentation or another outsourcing model.
- Lower Costs: As we mentioned briefly above, most IT organizations that adopt staff augmentation models often pay for hours rather than value. This can mean elevated development and production costs that sacrifice quality and overall value. However, managed services models often present fixed costs based on specific iteration deliveries. This helps the hiring IT company to more effectively budget and predict costs. Managed services engagements are also easier to scale over time when compared with hiring an in-house team.
- Improved Risk Management: Every business, project, or experiment carries a certain element and amount of risk. Although most IT teams that work within agile environments accept that there will always be a level of uncertainty with projects and initiatives, managed services can help reduce overall risks and uncertainties related to deliveries by absorbing the delivery risk, as defined in the SLA. IT companies that attempt to implement and support all IT services in-house often struggle with significantly higher research and development and product development costs, as well as longer deployment times.
When employing a managed services partner, an organization can solely focus on defining and driving business value, rather than building and maintaining an IT department. Internal IT departments are then elevated to focus on business strategy versus software execution.
Does Your Organization Need Managed Services?
So, how do you know if your IT company needs managed services? The first red flag is when IT executives observe a decline in value or an increase in customer complaints. If your customers aren’t happy, that’s hurting your organization. Poor quality software is the likely culprit and your delivery model may be to blame.
Here are some other symptoms that your company likely needs managed services:
- Internal teams don’t achieve or accomplish organizational goals due to a lack of service and support
- IT organizations experience too many service interruptions and/or downtime
- Constant budget overruns
- Increase in customer complaints and issues
- Lost data or security breaches
Managed Services Can Help Organizations Deliver the Highest-Value Outcomes
Because managed services teams focus on an improved set of processes, value to the organization increases with each delivery cycle. This evolves the organization, increasing the quality of output at a lower long-term cost than staff augmentation or outsourcing.
If you’re interested in learning more about how a managed services model can help evolve your organization, download our white paper, Overcoming Software Delivery Stagnation, today.
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