Dear Clients and Friends,
The post-recession market has produced some interesting macroeconomic trends. One of those involves the traditional American dream of homeownership. For some people, homeownership simply isn’t as attractive or desirable as it once was. They would rather rent or lease—but not from fear of diminished investment potential as much as from a new desire of not being “constrained” by the investment. They want to be mobile, flexible, and able to change gears at any moment.
That principle is also in play in business today. Many organizations are transforming their operating models to improve agility and respond quicker to change.
One thing that allows them to do so is the ability to hire various outside parties to execute critical but non-core processes and systems. This strategy is known by a number of names—managed services, outsourcing, software as a service, and others.
Early on, companies used these managed services primarily as a cost-management strategy: a way to become more efficient, reduce costs, and/or realize more predictable cost structures for certain non-core functions. Initially, the focus was on outsourcing IT infrastructure services. The meteoric growth of Salesforce.com led a movement toward outsourcing key business applications. Today, there are options to outsource applications that drive functions from order-to-cash to procure-to-pay. And we’re seeing more companies outsource the business processes that go along with the technology.
At the leading edge, these capabilities are fueling “storefronts,” virtual businesses that come into being practically overnight—and the very types of organizations that are changing the competitive landscape in various industries and forcing long-established businesses to rethink their operating models. This new breed of business outsources virtually everything: branding and packaging to a marketing firm, manufacturing, bookkeeping and financial services, and so on, except for the highest-level core processes on which the business’s value proposition resides. Highly proprietary and vital pharmaceutical research and development is an excellent example.
Cost and efficiency remain drivers for a managed services strategy. But today’s organizations are driven more by quality of service, innovation, and speed to value. They can rely on services provided by people who make a living delivering a particular core competency and on organizations with the most up-to-date systems, processes, and skills—capabilities that would require significant investments of capital, resources, and, not insignificantly, time to build internally. For example, as acquisition/divestiture deal volume trends upward, managed services play a key role in quickly standing up a new company carved from parent quickly or integrating an acquisition.
We are past the tipping point. There is a build or buy option worth considering in just about every case. Where we used to see our clients evaluating the risks of managed services (for example, how safe is it to house data out of its internal data center?), today we see them evaluating the benefits and opportunities for competitive advantage.
One of the articles in this newsletter expands on how an investment in Managed Services can not only help you tackle the growing demands of your IT ecosystem, but help you to focus on your business.
I hope you find this information interesting and relevant. We are, of course, happy to discuss these or other topics of interest—any time you want.