In my initial article, What’s a Managed Service Provider (MSP), I introduced the concept of an MSP and its advantages. The article describes how a growing organization evolves when it transitions from calling an individual IT service provider each time an issue presents itself to developing a relationship with a trusted partner that delivers a full scope of IT services. To review some pertinent definitions: an IT services provider follows a traditional model of being contacted when needed and are paid for their services by time and materials. An MSP provides the full scope of services and in many cases, the outsourced MSP is the business’s IT department. Today the MSP deliverable of a flat fee for services has become widespread and accepted. For a business to transition to an MSP, one vital characteristic must be present… trust. Trust can be difficult to create if the company has no prior experience with the provider. On the other hand, trust can be built when the provider is transparent with their motivations and offerings within the MSP model. In this article, I will dig deeper into the MSP offering to help answer the question is the MSP model right for your business?
Primary Components of the MSP
The concept of managed services has become so popular that some IT providers fail to offer other options to their prospects. A typical MSP agreement will include all phone and remote support services as well as an allowance for on-site labor. Projects out of the scope of the agreement are billed according to time and materials. MSP customers will typically receive a discounted labor rate on project work. The MSP model allows the provider to include a rental fee for certain critical IT infrastructure hardware. Critical IT hardware may be devices such as firewalls, the first defense of IT security and ethernet switches that are the foundation of the IT network. The MSP requires a detailed understanding and control of all the devices on the network in order to manage them properly.
What’s driving the MSP model?
The growth of the MSP model has come from the way it benefits customers as well as advantages realized by the MSP. While the MSP Model is not always the customers first choice, there are factors in the market that are driving customers to embrace this model. To follow are the primary factors that have driven the customer to accept the model.
A scarce and competitive marketplace for talent-
Most small and medium-sized businesses can’t find or can’t afford the IT resources their company requires. When they do find affordable candidates, they typically have a specific skill set that can’t match the depth of expertise the MSP can deliver.
Organic growth and mergers-
Because of the organization’s explosive growth, sometimes through mergers, it is impossible for the customer to maintain or even be aware of the IT team they require at any given time. The MSP relationship and their technical staff can allow the business to scale up or down quickly their IT support.
Chief Information Officer (CIO) as a service-
Since its inception, IT providers have always looked for ways to create additional value for their clients. One of the first ways they accomplished this is by making recommendations for future technology to test and implement. This is the type of service the CIO provides for a large enterprise, which can take the form of periodic meetings where the provider is updated on the business strategy to help determine technological recommendations. These regularly scheduled meetings or Quarterly Business Reviews (QBRs) initiate a mutually beneficial relationship that lead to a long-term partnership.
As a service instead of purchase-
Renting technology infrastructure instead of an outright purchase may be advantageous due to IT hardware’s limited life. It can also create positive cashflow and other financial advantages for the business. This is an “as a service” model introduced by the cloud computing industry where expensive server hardware is rented instead of purchased.
The IT provider will also receive benefits from the MSP model. It was in large part designed by providers to solve the challenges of both parties.
Historically the small IT service provider has struggled, as any small business, creating a consistent revenue and cash flow. The MSP model with its monthly recurring charge (MRC) helps to relieve this challenge. Predictable revenue in addition to an educated customer who is more aware and consistent with their IT demands helps to build the successful model. In a similar fashion, the MSP model helps with hiring decisions and scheduling technicians for customer service calls. With this partnership, the MSP gets to know the needs of the customer better and can predict their requirements more accurately.
Outsourcing by the Outsource-
Some parts of the total MSP solution are not provided by the local provider but rather outsourced to one of their vendors. These services are typically security and monitoring based offerings that offer great value but are costly to implement without large quantities of clients. These services will take the form of malware and antivirus software for endpoints coupled with proactive monitoring as a service. These services enhance the offering and can add profit margin for the MSP. Some popular providers of these types of services are SolarWinds, Webroot and Datto. These companies have grown significantly as part of the MSP trend. They work exclusively with MSPs, never end-users, which helps protect the MSP product.
The MSP model makes sense for most businesses, but not all businesses all the time. When a client has recently experienced growth and is desperate for quality support it can be an easier conversion for the MSP provider. It will be a challenge to justify the cost if the customer’s experience has been in the pay-as-you-go model. This is where the MSP needs to show flexibility and understand that trust is a major part of the solution. They may need to scale back some services and present a custom solution that eases the customer into the MSP model and builds the trust required. A supplier agnostic advisor like Two Ears One Mouth IT Consulting can assure the supplier selection process is transparent and the best option is chosen that will enable trust and a long term partnership.
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