Thursday, March 01, 2007

The Real Value of Managed Services

Here's a cautionary tale you can use as you see fit.

Once upon a time there was a client who signed up for managed service. But, Lo, he was not completely convinced of its value.

"You apply patches and come in remotely. How do I know you're working for me?"

And then one day his drive array gave him problems. And many hours later . . . Dell couldn't help . . . and Microsoft couldn't help . . . And everyone said the drives were dead and the data was gone.

But his Noble Outsourced I.T. Department came to the rescue. And many hours later, the system was back up, firmly convinced that it was just one minute after it went down. No data lost.

The only charges were for after-hours labor, requested by the client.

But, alas, all was not well. For this system has three line of business applications, and the vendors do not always behave. One, in particular, is fond of connecting to the server and making changes that affect other applications. Changing the SA password. Things like that.

So Mr. Rogue Vendor takes this opportunity to uninstall .net 2.0 and install .net 1.0. God only knows why. But the result is that the Noble Outsourced I.T. Department thinks this is fallout from the disaster recovery and proceeds to spend time making the basic processes (like sharepoint) work again.

The bottom line: Rogue vendor takes random action. Noble Outsourced I.T. department doesn't know what has happened and has to spend unbillable time fixing things. The loser vendor has created a situation where he can waste an unlimited amount of the Noble Outsourced I.T. Department's time (money).

And so, the Noble Outsourced I.T. Department wrote a letter to the client and informed him that there would no longer be any managed services available on the server until the client enforced the service agreement -- and made it very clear that all vendors must submit to management by the Noble Outsourced I.T. Department.

At this point, the client panics. Remember, he has just experienced invoices with many hours "covered by managed service agreement." There are emails and phone calls. Client can't stand the thought of paying by the hour for tech support.

"What do we have to do to get our server back on the managed service agreement?"

And then the Client's loyal and somewhat maniacal management consultant calls. "How can we get back on managed services? What do we have to do? I'm sure we can work this out. I'll have my people call your people. Exactly what do we need to tell Rogue Vendor so that we can get back on managed services?"

Deeeeeep Breath.


So the next time Client asks what he gets for his monthly cathedraticum, we can say "You get total and absolute support. But you gotta play by the rules."

Side note:

Click. Five minutes pass. Tick tick tick.

You've got email! From Client's loyal and somewhat maniacal management consultant. "I'm sure we can work this out. Otherwise we have to re-evaluate our relationship with Noble Outsourced I.T. Department."

Uh, yeah. Tip to dude: Don't plan on winning any poker tournaments.

Pick one: either pee all over yourself begging to get back on managed services, or threaten to cut us off. Don't do both.
The lesson for client is: A managed server is cheaper than break/fix support. In the long run, managed services will be cheaper and provide better service.

The lesson for the consultant is: Hold your ground. You absolutely have to manage LOB vendors. Otherwise, they have unlimited rights to force you to waste time cleaning up after rogue vendors who never make a plan and break more than they fix.

My friend Erick Simpson addresses this as a key point in your managed service business. Buy his book here:

Many consultants are afraid to give up big sums of money or big clients. But the truth is: If you have a relationship that causes you to lose money, you need to change it. Either get out or change the relationship.

Obviously, the first choice is to write a letter stating that the relationship continues. This one little thing is changing, but the big picture remains the same: The client will still get great tech support at a reasonable rate. Once you get rogue vendor under control, you'll put the server back on managed services.

Service is a beautiful thing. But at the end of the day, you're in business to make money. Don't stay in an unprofitable relationship. Establish guidelines that make sense and be willing to enforce them.

Send questions to Erick, not me. :-)


  1. Anonymous7:12 AM

    Thanks, Karl - I couldn't agree with you more. A method we've found very successful in taking control of these Vendors is to require our Clients to sign an LOA, or Letter of Agency, on their company letterhead. This provides us the authority to act on our Client's behalf when dealing with their Vendors. We send these LOA's to the Vendors, then follow up with a phone call to introduce ourselves and confirm our relationship with the Vendor from that point forward.

    We also establish the "rules of engagement" with the Vendor and inform them of our Standard Operating Procedures, as well as our expectations regarding our relationship with them.

    A point I always illustrate to our Partners is the fact that no matter how proactive your services may be to your Clients, their Vendors will consistently cause you to be reactive, since they are not being managed - by you or your Client.

    So instead of reacting to Vendors, take charge with an LOA. Now YOU can schedule when things occur with these Vendors, and make it clear that if they don't abide by your Standard Operating Procedures, they will be replaced by another Vendor that will.

    Great topic, great post - as always. Thanks, Karl.

  2. Anonymous5:02 AM

    A saying I live by is:

    I don't leave the house to break even or lose money. I can break even by watching TV with a beer.

    Thanks for the great pearls of wisdom,

    Upstate NY


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