Tactical Advice

MSP Tool Kit

Managed service providers can reduce IT costs, but make sure to look at the entire picture before signing up.
This story appears in the November 2005 issue of BizTech Magazine.

By their nature, small businesses are short-handed. In successful, growing companies, there are always more information technology tasks than there are hands to juggle them. That's why small businesses are turning to managed service providers (MSPs) for help.

MSPs take responsibility for an IT or business function, usually performing it from a remote location over an Internet connection. They typically offer three types of services, says Jeffrey M. Kaplan, managing director of THINKstrategies, a consulting firm in Wellesley, Mass.:

  • supplying specific IT assets and managing them, such as desktop equipment and services;
  • providing a particular function, such as e-mail service or transaction processing;
  • performing a business process, such as customer relationship management.

When used judiciously, MSPs can help a company operate more efficiently, reduce costs and shift investments to more strategic areas, say analysts. But to achieve these benefits, companies must choose the right duties to outsource for the right reasons.

"There are a lot of good reasons for small businesses to use online managed services," says Laurie McCabe, vice president of small- and medium-sized business solutions for Access Markets International Partners, a consulting firm in New York. "They are quick and easy to deploy, you don't have to spend money on servers and resources to maintain application software, and you can pay as you go."

MSPs offer everything from e-mail services to managing 401k plans. "The first step is to identify what you need," says Ravi Singh, founder and CEO of ElectionMall Technologies, a Chicago company that sells Web tools to political campaign groups.

Prioritize Functions

To determine which functions to outsource, make a list of all company functions and divide it into two columns, suggests Kaplan. One column should contain all functions critical to the business, including those that involve contact with customers. The company should keep these functions in-house.

$2billion
Sales of online managed services to small businesses by 2009, quadruple the sales in 2004.
—AMI-Partners

In the second column, list all other functions. Among this group will be tasks that are important but that the company doesn't have enough time or skill to handle itself. For example, most companies need network monitoring, but few small companies can afford to have an IT employee devoted solely to this effort. There also will be crucial but time-consuming duties, such as patch management. These are functions companies should consider outsourcing to MSPs, Kaplan says.

Small businesses often use several providers depending on their specific needs. ElectionMall, for example, uses two vendors: 24 employees use a site hosted by Intranets.com of Burlington, Mass., to collaborate and share documents; four sales reps use a site hosted by Salesforce.com of San Francisco to track leads.

Look Before Leaping

Before a business outsources a function, however, it should study and document how it currently handles these duties. Businesses should figure out the costs of performing each duty themselves, the results they are achieving—or failing to achieve—and what problems they are encountering, Kaplan says. A company needs to get an accurate picture of how it's operating now, because that will form the basis upon which it can judge the service it gets from an MSP and help measure improvements.

"You need a starting point for a realistic set of expectations," Kaplan says.

Some things a company must consider are:

TCO: It is helpful to compare MSP fees to total cost of ownership (TCO)—essentially doing it oneself. Subscription prices vary widely by the service provided, the industry served and the number of employees receiving support, so companies should always compare the total cost of handling the service in-house against the costs charged by an MSP.

"When small businesses buy managed services, they tend to look at lowering the cost of hardware acquisition, rather than the TCO," notes Robert McNeill, senior analyst at Forrester Research of Cambridge, Mass. "But if we look at a standard PC, 80 percent of the cost is management and maintenance of it."

In addition to subscription fees, add the costs for installation, integration and training, he says. When figuring how much it costs to do it internally, companies need to include the salaries of IT workers who install and maintain hardware and software in addition to the purchase costs of the equipment. Also, include the administrative cost of personnel who keep records, a function usually automated by MSPs.

Security: Find out whether the MSP has experts to monitor emerging security threats to networks, operating systems and software applications. An MSP should provide up-to-date firewall, antivirus, antispam and intrusion-detection software and should continually update it and automatically download patches and updates to systems, McNeill says.

Service Level Agreement: The agreement details the availability of the service and what will happen if the MSP fails to deliver. The specifics are usually spelled out in a series of service levels that are unique to each agreement and the type of service provided. For example, if an MSP is hosting a high-volume e-commerce site, the SLA should specify the turnaround time for electronic purchases and what recourse is available if sales are lost because of service problems.

Finally, before signing on the dotted line, insist on a test drive. Have employees who will use the service test it for 30 to 90 days. An IT manager or the employee responsible for managing the MSP should oversee the trial to make sure everything functions as needed.

IT Takeaway

Keep this MSP checklist handy for service-level agreements.

Uptime: Specify the amount of guaranteed service time and make sure you know how downtime would affect your business. Most providers promise at least 99 percent uptime, which translates into a possible 87 hours of downtime in a year.
Scheduled service: Be sure this is included in the uptime calculation and that it fits your schedule. A retailer, for example, wouldn't want service done the day after Thanksgiving.
Performance: Make sure you and the MSP use a measure appropriate to your specific needs rather than a set of generic metrics. A small media company that relies on Web conferences might specify the latency, or lag time, for loading videos.
Security: Make sure to detail backup and recovery procedures for service if the MSP suffers an attack; include specific times for security responses and service restoration.
Penalties: Define financial penalties for failure to provide adequate uptime, performance or security. Don't expect to be compensated for lost sales, for instance, but do expect to be reimbursed with free service for specified periods based on failure to meet the agreement's service levels.
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