Service level agreementOver the years the size of the available market for managed services has stubbornly remained less than 25 percent of the total IT market. The reason for this is two-fold. There are a large number of organizations that don’t view IT as anything more than office equipment. If a system or application goes offline, it’s more of a nuisance than anything else. Getting those organizations to invest in, much less value, a managed IT service is a major challenge. All too often, they aren’t worth pursuing because they aren’t willing to pay a premium for IT services. Most MSPs discover they end up losing money servicing these types of customers.

At the other end of the spectrum are companies that have made significant investments in IT and typically have their own internal IT organization. It’s difficult, but not impossible, to persuade those businesses that an MSP can add value above and beyond what they can do themselves.

Between those two extremes are a mass of companies that have some internal IT capability. Given the resources available and the size of the IT task at hand, they are generally understaffed from an IT perspective. As a rule, it’s these organizations that provide the most fertile ground for MSPs because they have some sense of the real value of IT. Their primary issue is finding a way to balance their IT needs against a constrained budget. The challenge MSPs face is finding a way to force that conversation.

SLAs as a differentiator

A new survey of 900 IT professionals working at small-to-medium enterprises conducted by Kaseya suggests that the key to having that conversation is the underappreciated service level agreement (SLA). The Kaseya study finds that only 21 percent of all respondents have SLAs in place for IT. Even among the 17 percent of organizations that have identified their IT organizations as being either aligned or strategic, only 41 percent say they have SLAs in place.

How to explain the value of an IT investment

Given the fact that most MSPs live and die by their ability to deliver on SLAs, it would be fair to say that in general MSPs are held to a much higher standard than the average internal IT organization. This willingness to bet their existence on meeting SLAs creates an opportunity for MSPs to significantly differentiate themselves from internal IT organizations that typically shy away from having to make a similar commitment.

Because IT leaders know they will have a tough time meeting a defined SLA, MSPs should more aggressively market the SLAs they are willing to wrap around a specific service. It’s not enough to say there’s a managed service alternative. Both the line-of-business executive paying for an IT service and the internal IT leader agreeing to employ it need to be convinced upfront that an external service will be more efficient.

As line-of-business executives become aware of those SLAs, they will compare them to what their internal IT organization provides. In many cases, internal IT organizations will be forced to concede that there are whole swaths of IT services that an external provider can provide more consistently than they can on their own. That doesn’t mean the internal IT organization should be eliminated. But it does mean a careful balance needs to be struck between what an internal IT organization can do and what an external service provider is capable of. The SLAs that an MSP is willing to guarantee provide the baseline for where that conversation should begin.

Slowly evolving IT organizations

Despite all the hype surrounding the business value of IT, Kaseya notes that the number of organizations more likely to service their own IT needs increased only about 3 percent last year. The Kaseya study asked respondents to classify their organizations approach to IT as being one of the following:

  • Reactive: Responding to individual user challenges and requests
  • Efficient: Having a systematic approach to solving known issues and dealing with daily tasks
  • Proactive: Taking a proactive approach to IT management, automating repetitive tasks and many remedial actions
  • Aligned: Tracking and managing against SLAs for availability and performance expectations
  • Strategic: Achieving IT operational excellence and taking a strategic role in driving business innovation

While the number of organizations classifying themselves as being aligned or strategic increased to 17 percent, the other 83 percent of respondents still identify as reactive, efficient, or proactive. While not every one of the organizations will be worth pursuing as a customer, those results suggest that the total size of the available market for managed services could be much higher than it is today. The challenge and opportunity facing MSPs now is determining their willingness to expand the market by putting their money where their SLA mouth is.

State of North American Managed Services report

Photo: Ralf Kleemann/Shutterstock

Mike Vizard

Posted by Mike Vizard

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications including InfoWorld, eWeek, CRN, Baseline, ComputerWorld, TMCNet, and Digital Review. He currently blogs for IT Business Edge and contributes to CIOinsight, The Channel Insider, Programmableweb and Slashdot. Mike blogs about emerging cloud technology for Intronis.

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