The Cloud

Moving to Managed Services Is Neither Free Nor Easy

As more and more companies move to managed services and “bring your own device,” CFOs have to weigh the financial and operational consequences.
John ParkinsonOctober 4, 2013

Social. Mobile. Cloud. It’s hard to spend much time with technologists these days without hearing about these hot trends in technology for business.

Because of technology’s evolution, employees want to use their own devices for both work and personal use. Their devices are usually newer and more capable than corporate technology, with its longer depreciation and support cycles. Additionally, as hiring contractors and consultants becomes more commonplace, providing them with standard technology gets increasingly costly. Let’s assume we can successfully navigate the new complexities of security, application compatibility and permitted-use policy. Should the CFO care that the information-technology organization is no longer buying laptops, printers and phones every three years or so — and tablets every other year?

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More and more of what used to be done in house by the IT organization can now be provided as a managed service, including infrastructure, platform, software or business outcome. This is seen by industry analysts and service providers as the future provisioning model for business technology capabilities. But moving from on-premise capital investment cycles to capacity based, pay-as-you-go pricing (and eventually to outcome-based pricing) has some potential advantages and some potential disadvantages, too.

John Parkinson

John Parkinson

Buying as much as possible as a service reduces capital budgets and, with the right degree and granularity of instrumentation, aligns what the organization pays more closely with what it uses. Getting technology assets off the balance sheet can be a good thing, although depreciation and amortization timing factors will influence when the best time to move will be. Although technology costs tend to fall on a per-unit basis, we always are adding capacity, speed or power, and budgets seldom track down as fast or at all. Service providers have levels of scale, utilization and engineering talent that individual enterprises cannot usually achieve. In many areas of technology, these factors can drive down service costs by a significant amount and the company can avoid many of the disruptions and risks associated with both periodic refresh cycles for on-premise equipment and the operational perils of obsolete technologies.

For the CFO, here are some questions to ask and concerns to consider:

First, does the business have a good handle on what IT assets it currently has, what it paid for them and when they will be fully depreciated? This might seem a silly question in an age of enterprise resource planning-based asset tracking systems, but there are still many businesses that don’t do this well or at all. I once saw a CFO faced with an $80 million writedown for a mixture of obsolete and new but unused equipment that had accumulated in odd corners and closets all over the business. The question is worth asking.

Second, be wary of the costs of managed-storage services. While computational and connectivity costs can be adjusted dynamically to match moment-to-moment capacity requirements, data is forever and the costs to store large amounts of company information in the cloud will often be higher than expected. Make sure the business has good capacity plans and a way to check that reality matches the plans.

Third, be aware that a move to a managed-services model and the cloud makes a company extremely dependent on network connections, and outages can have significant impact on business operations. Service-level agreements may be necessary, but they are inadequate protection for potential loss of business; penalties won’t make up for lost profits and loss of customer confidence. The organziation will have to harden its network to ensure both diversity of services and redundant capacity. That’s going to cost the company more.

Fourth, management and the IT organization will have to rethink how the business supports its employees and its customers when there are technology problems. Employees and service providers will be making technology choices outside of the company’s control, so traditional help-desk models won’t work. More sophisticated asset tracking, incident management and problem-resolution processes must be put in place. Consider managed services but recognize that the level of integration required will probably be greater than you are used to. Technical-integration and vendor-management skills will likely need to be enhanced, and the company will need to know what levels of service it is paying for.

Fifth, talk to the office of the general counsel about liability for issues created by the misuse of employees’ personal technology in a business context. This is a rapidly evolving landscape and will require some policy changes, some additional education, some new monitoring practices, and some additional risk-management thinking. It’s a good idea to revisit the governance, risk and compliance approach to IT to ensure that someone is thinking about these issues and that management won’t get blindsided.

With all of these issues to consider, is the shift to BYOD and managed services worth it? Financially speaking, it may be, although the transition won’t be free or easy. But the bigger issue is that organizations may have little or no choice. As the momentum (economic, social and technological) behind these shifts continues to grow, businesses that resist may be at a disadvantage when hiring talent and seeking customers. If the speed with which these shifts occur is slower than predicted, it will pay to know where you stand and have plans in place ahead of time.

John Parkinson is an affiliate partner at Waterstone Management Group in Chicago. He has been a global business and technology executive and a strategist for more than 35 years.