Managed Services: What Are You Missing?

In the movie "Minority Report," police use technology and foresight to reduce more than 90% of the crime in Washington, D.C. by viewing offenses before they happen and proactively arresting the culprits. Imagine being a Tom Cruise-like hero to your customers by predicting and preventing the evils of hardware, software, and network downtime. In an industry where products and services quickly become commodities, Dimension Data Holdings plc differentiates itself from competitors and stays involved with its customers by offering managed services as a complement to in-house solutions.

With revenue of more than $2 billion in 2002, Dimension Data North America offers end-to-end solutions from network infrastructure to Web services applications and everything in between. According to Rich Schofield, VP of GSOA (global services operating architecture) services for Dimension Data North America, the ability to provide managed services is both a growth strategy and a customer service strategy. Managed services can include monitoring of:

• the security environment, such as intrusion detection, firewalls, and gateways
• network infrastructure components like hubs, routers, and switches
• storage resources including capacity and management
• application performance to detect bottlenecks or other inefficiencies in enterprise application such as ERP (enterprise resource planning) or CRM (customer relationship management).

Managed services accounted for about 7% of Dimension Data's North American sales in 2002 and could reach 10% in 2003. Each month, managed services sales increase at a rate of 8% to 10%. The integrator's average managed services customer is an organization of about $100 million or more, but it has also had success with smaller customers.

Tops Guns Target The Full Technology Stack
Even services can become commodities, which is why Dimension Data focuses on the entire application network, which it defines as the convergence of application integration and network infrastructure. "Being able to work the full stack [i.e. network, storage, and application infrastructure] is essential to guaranteeing performance," asserts Dr. Craig Miller, CTO of Dimension Data North America. For instance, one auto company customer's application checks the inventory at hundreds of dealer locations. That means it is imperative to make sure the network is operating effectively, as well as providing for delays or interruptions within the application.

Dimension Data has rescued customers from poorly designed applications that don't combine this expertise. "Application specialists often forget the physical world," says Miller, citing one database replication project as an example. A complex database on the East Coast had to be synchronized with one on the West Coast daily. Rather than addressing the complexity and sending only changes in the data from selected tables, the consultant attempted to replicate the entire database. There was less coding, but much more data had to be transmitted. The network couldn't handle it. The consultant didn't deliver because he ignored the physical limitations. Dimension Data combined application know-how and network expertise to design a solution that identifies and transfers just the small bits of data needed to make a complete copy.

The Color Of Money: The 'Gives And Gets' Of A Managed Services Contract
SLAs (service level agreements) for managed services are priced based on the number of components Dimension Data monitors and the level of monitoring involved. At the entry level, the end user's system is monitored to ensure whether it is up or down and provide basic metrics and problem notification. The midrange option provides somewhat more comprehensive metrics and sets thresholds for additional activities to take place once an event or disruption occurs. This level also includes quarterly reviews with the customer to discuss the overall health of the IT environment being monitored. The premiere level measures and tracks a more comprehensive list of operations. Rather than tracking whether the system is up or down, it focuses on whether the system is operating above or below its established standard, which is based on industry parameters and historical performance. Reviews of system performance are scheduled monthly at this level.

Notification milestones and escalation of notifications are provided to customers in a controlled fashion. "An operator must perform the actual notification," says Schofield. "That ensures a quality diagnosis and the appropriate updates and resolution." For example, an intrusion detection system will occasionally identify a harmless user as a potential threat. Involvement of an operator assures that the customer has to be concerned only about real problems.

Managed services contracts at Dimension Data include proactive engineering and services delivery management at the midrange level and above. These resources are assigned to every account, so the engineers thoroughly understand and are involved with the customer's solution on an ongoing basis. As technology, usage, and needs evolve, the proactive engineer will make recommendations for better performance and efficiency.

Implementing an effective managed services offering required a huge investment in Dimension Data's online services architecture, referred to as GSOA. The actual cost of GSOA is difficult to calculate. Some of the technology was gained through acquisition of other technology companies and then developed in-house over countless man-hours. The architecture investment was necessary to support real-time visibility and a standardized methodology and process to implement new tools and technologies quickly. It also supports SLA mechanisms. "We were able to finance the initiative because we were able to amortize it over a huge number of customers and projects," Schofield points out. "To be a serious managed service provider, you have to have software development expertise."

Making All The Right Moves In Selling Managed Services
The value end users see in managed services is the same as that in many other outsourced services. Because of the economies of scale, outsourcing is often cheaper and of a higher quality than an end user can provide with in-house resources. Managed services allow a company to operate with a reduced staff while realizing increased value from more efficient use of the infrastructure investment.

Despite these value propositions, the decision to purchase monitoring and management from Dimension Data is often based on a typical scenario. "Many customers come to us because they've been doing it themselves, and they haven't been doing it very well," observes Miller. "Every organization that was affected by Slammer [a worm that affected SQL servers] wasn't doing its maintenance right. Users often don't realize they're running an IP [Internet Protocol] application and get lax about installing patches." One small college's VoIP (voice over IP) system was brought down by Slammer. The CIO who signed off on the system to eliminate long-distance costs had the unenviable duty of informing the college president the new phone system was down. That experience taught the CIO the value of managed services.

Once monitoring is underway, Dimension Data offers customers the option of a portal that supports real-time SLA management. "The mistake many people make is committing to things they can't measure," comments Schofield. "Anytime a customer wants to see the current number of issues and whether expectations set forth in the SLA have been met or missed, the user can sign in to the portal." Armed with this information, a customer can continually assess the level of services Dimension Data is providing. Some customers have even agreed to pay the service provider a bonus if all expectations are met.

The Risky Business Of Maintaining The Competitive Edge
The approach to selling managed services often depends on the size of the company. Because smaller companies have fewer resources to perform monitoring and analysis, sales reps almost always include managed services in the initial proposal. For larger companies, managed services are often solicited through an RFP (request for proposal), but that doesn't ensure long-term services revenue. "Larger companies have to have a culture of outsourcing," says Schofield. "We've seen situations where we dealt with one group for years. When there was a changeover in corporate management, the management of the system went back in-house or vice versa." Though Schofield warns that the sales cycle is somewhat longer for managed services than other solutions, about 25% of Dimension Data's professional services customers purchase contracts. General uptime maintenance accounts for more than half of those agreements.

And while he doesn't offer any advice on how to do it, Miller says that predicting the future of the IT industry is Dimension Data's strategy for future growth. "We are constantly looking for the hard stuff at the edge so that we can be early deliverers," says Miller. "When there are fewer players, it's easier to maintain the margins."