Managed Services: An introduction

During my career, I've participated in various business optimization projects spanning a wide range of areas, from IT or the production floor to back-office operations. I've encountered very common as well as exceptionally rare scenarios, where many aspects had the potential for reshaping and improvement.

As part of a series of articles, of which this is the first, I've decided to share some of my observations and learnings I gathered over the years, hopefully to the greater benefit of all ??

Given my lifelong affinity for IT (for those familiar with me, that inner geek still thrives), my journey began primarily within the realm of IT. I found myself deeply engaged in a global infrastructure outsourcing initiative during the early stages of my career. Subsequently, I was part of the team that managed the realisation of a comprehensive application support optimization effort encompassing over 600 applications within a single organization. Later on, at one time I led a team that was responsible for the technical enablement of establishing shared services across various business functions including finance, logistics, customer services, HR, and procurement, spanning multiple regions.

Having dedicated 25 years to assisting companies in enhancing their efficiency across diverse processes, I've been involved in various initiatives, both internally and as an external supplier. Through these experiences, I've gained insights into the complexities of designing, constructing, and managing service organizations. This involves collaboration with numerous third parties and ensuring the success of such structures in supporting business objectives, optimizing operations, and genuinely reducing costs.

Cost savings?

The primary association that often comes to mind for many when they encounter managed services is likely "Cost savings." Indeed, cost savings represent one dimension worth considering, albeit a dimension with various facets.

In establishing a managed services organization—whether internally or through outsourcing—significant efficiencies can be realized. These efficiencies have the potential to yield cost savings and/or enhance operational performance.

Efficiencies can typically be achieved in various forms, including:

1. Consolidation of work: In geographically dispersed organizations, certain activities may occur across different locations, resulting in overlaps in work. Consolidating these activities can eliminate duplication.
2. Elimination of Redundant Work: During assessments to centralize activities, obsolete tasks that once served the company may be identified. Removing such redundant work can streamline operations.
3. Team Optimization: Centralizing activities enables the formation of larger, specialized teams with improved size and composition. This facilitates better workload distribution and ensures enhanced outcomes.
4. Process Standardization and Optimization: Variations in working methods between different sites, even when performing similar activities, are common due to human preferences and habits. This is particularly evident in companies that have grown through acquisitions. Standardizing and optimizing processes across locations can streamline operations and improve efficiency.

Each of the efficiencies outlined above has the potential to reduce operational costs for any organization over time, regardless of whether centralization is implemented without outsourcing or involving near- or off-shoring.

Turbo on cost-savings?

n today's world, where remote work is increasingly prevalent, an option worth considering is not only centralizing operations but also taking advantage of cost-effective offshoring opportunities.

The potential cost savings in this scenario can be substantial and may be pursued through several avenues:

1. Primary Reduction in Labor Costs: Naturally, the foremost source of cost savings stems from decreased labor expenses.
2. Secondary Expenses: Associated costs like office rentals, utilities, and maintenance services are expected to notably decrease.
3. Incentives and Tax Benefits: Numerous countries offer incentive programs aimed at enticing companies to conduct particular types of work within their borders. Such benefits often extend over several years.
4. The potential for increased productivity: Offshoring to locations with lower labor costs may also result in increased productivity due to factors such as extended operating hours or access to a larger talent pool.

So what to consider when looking at a scenario like this?

Here are some questions to consider when contemplating the introduction of models like this:

1. What is the primary objective of the initiative? Is it focused on achieving efficiencies, reducing redundant work, enhancing transparency, streamlining business processes, cost savings, or other objectives?
2. Which model might be more suitable for your organization? Are you considering in-house centralization, outsourcing, offshoring, or a hybrid approach?
3. From where should the service be delivered, and what are the reasons behind this choice?
4. What are the overarching implications of the proposed changes? Consider factors such as workforce implications, compliance with labor laws, adjustments in office utilization, etc.
5. What implementation approach would work best for your organization? Should it be a natural or gradual evolution, a centrally-driven initiative, or a different approach altogether?
6. Is it beneficial to use another initiative as a catalyst for this change, or will this initiative serve as the driving force for multiple others?
7. Should you first redesign processes and systems before centralizing, or opt for a lift-and-shift approach followed by simplification later on?
8. What level of risk is associated with the proposed changes, and how can it be mitigated effectively?
9. How will the proposed initiative impact existing relationships with stakeholders, both internal and external?
10. What technology infrastructure and support systems will be required to facilitate the implementation and ongoing operation of the new model

What's next?

I trust that this article has offered you some fundamental points to ponder when contemplating organizational restructuring. In forthcoming articles, I intend to delve deeper into many of the aspects briefly mentioned here.

Designing a strategy entails numerous factors to weigh, and executing it comes with several cautionary notes and potential stumbling blocks. Nevertheless, if the process is carried out effectively and a successful operation is established, the rewards can be substantial.

Questions and comments are welcomed below or by DM.

Until next time, signing off!

Xtophe