Managed Services - Will it remain a Cost plus Game?
Networks are changing, consumption patterns are changing and so are the business models in almost every part of Telco & OEM relationship. These will evolve further as we enter 5G. However, Managed Services is one business that has always remained a cost plus game and the new models have not evolved enough.
You get a scope, you work costs and then obviously it depends if you and your company has enough hunger to carry it to closure. Industry has become so predictable that one can safely predict deal closure price nowadays.
Strategically, Network Managed Services was always thought of as a great enabler for product sales as you would get more insights into Telco operations - traffic trends, challenges and potential levers for additional sales. It was also liked by the OEM Management Boards for its great top line and predictable business nature. However, recently, things started to fritter apart as many deals started becoming unprofitable. But that’s a story for another day!!
Cost plus model takes away the need for innovation at either side. It encourages status quo and puts the focus on managing costs rather than creating a win-win business model. Industry has now shifted to Buyer-Vendor relationship from the partnership model it worked on earlier.
So, why is it remained a cost plus game? I see some reasons for its stunted commercial innovation
1. Productization: Industry takes it just as another service business like a network roll out or a customer support service. MSPs do not think of MS as a product and therefore do not also have predictable road maps. This could also be due to the nature of the business where Operators have stopped having 5-7 year focused view. This shortsightedness at both ends have stopped the value creation
2. Tunnel Vision: Largely due to Operators seeking outsourcing as cost reduction plan rather than a transformation exercise, MSPs start thinking of short term tangible rather than mid or long term value creation
3. RoI Challenge: Automation and Innovation needs have large turnaround time. For RoI on innovation to be delivered, the duration of the contracts are not large enough to create create break evens on the investments made
So, what could be a better way to produce a Managed Services "win-win" contracts? I see the following options:
- Outsourcing contracts can have a separately carved out innovation model. This will help Operators and MSPs to have stable, long term and continuous transformation plans in place. This innovation model need to have a separate innovation management process
- New commercial models can include many new concepts - inclusion of operator's business KPIs, subscriber network perception, revenue share in certain specific cases, etc.
- There is a greater need that operators look at longer term duration of the contracts to achieve better value of their opex and business needs.
For future to be brighter, there seems to be a dire need to change
Digital Transformation | Global Program Mgmt. | Pre-Sales & Business Development
6yExcellent Prospective and well articulated Munish Maheshwari Here’re my 2¢. If we want Managed Services beyond a cost game, we must challenge the model itself. At the end of day, basic premise of the model is - saving cost for buyer and subsequently the vendor optimising its own cost while delivering managed service. The MSP receives “fee for services” from buyer and there’s a large mismatch in risk proportion each caries in the relationship. Its not a true partnership and hence the innovation suffers. To see how we’re transforming business in Software Product Engineering space with our buyers (ISVs) - now partners, please check https://www.linkedin.com/pulse/ip-partnership-disruptive-business-innovation-manish-dandona/ We strive to extend innovation beyond technology to business models. This may or may not resonate completely in telecom space, yet this can surely breed an idea or two!
Telecom & ICT Executive | Co-Founder | Angel Investor
6yGood Read !
Business Development - Migrations & Modernization at Amazon Web Services (AWS)
6yGood reflections... Options 1 & 2 have been injected in MS contracts already few years ago. It will work if both Operator and MSP are able to jointly extract the money value of innovation and experience improvements brought forward. The partnership needs to evolve to next level where the business outcome is centre of everything and the operator technical and MSP teams works together with business teams. Longer terms contracts is real challenge now a days and a diluting parameter of Outsourcing business model, it's due to the market variations the operators are into. Be it competition, technology changes, internet players, OTT, etc. .Even the matured market are not looking at having a long term contract.. Since the new business models around their ecosystem is evolving the most (Netflix, Amazon Prime are few e.g.)..
CEO Cornerstone - CEO, Advisor, Bath College Governor, leader in Mobile Network Infrastructure, Network Sharing, Corporate scale business transformation and developing people and teams to achieve brilliant things
6ySounds like a plea for longer contracts and carving out innovation so it doesn't become a core part of the contract - in effect minimising or transferring risk of value loss from the MSP's perspective Personally I believe that close partnership between contracting companies (easy to say harder to do) is essential, as is some form of balanced commercial gain share to support innovation that rewards positive efficiency and effectiveness 'gains' during the contract term. Get this right and the term naturally gets extended (why would you change partners) creating a virtuous circle of value creation