Managed Services: Opening New Vistas

Even as the economy emerges out of the influence of recession, enterprises are looking for innovative ways to prune their IT budgets and manage their infrastructure more effectively. The traditional outsourcing arrangements are gradually giving way to more flexible and cost-effective pay-as-you-go models or managed services.

The term ‘Managed Service' typically refers to a service contract in which a vendor takes responsibility for delivery of one or more elements of IT services without necessarily involving transfer of people and assets. Enterprises are able to avoid the huge costs incurred in purchase and maintenance of IT infrastructure as they can choose to buy only the services they need. With the availability of cloud technologies, today almost everything is being offered as a service-Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS), Storage-as-a-Service, and so on.

"Enterprises are more open to innovative models now. The Indian market is at an inflection point," says G Dharanibalan, executive, offerings management and development, IBM. With leading global vendors such as IBM, Dell, and HP focusing on the Indian market with their services offerings, the customers are also showing greater interest in managed services. "As more and more global businesses come to India, the acceptance of managed services has also gone up," explains Prasad Nambiar, senior VP and national head, managed services, Tulip Telecom. "In fact, the Indian market has much greater growth potential because we already have a large outsourcing base in the country," he asserts.

Leading IT service companies are looking at India and China as high-growth markets for managed services. According to Dataquest estimates, the overall managed services market in India currently stands at `10,755 crore and is growing at about 11%. Although market experts had earlier predicted a growth of 15-20%, the overall slump in the market had its impact on the pace of growth. "The market did grow a bit slower than we had projected. Some large projects got delayed and deals were stuck due to slow decision making," explains Nirupam Chaudhuri, research manager, software and IT services, IDC India. However looking at the economic scenario, even this moderate growth holds promise.

The industry is now looking at managed services as a big opportunity. Indian service providers including Wipro Infotech, TCS, HCL Infosystems, Tulip Telecom, and iGate have all increased their focus on the domestic managed services market. Tulip Telecom attributes 30% of its revenues to managed services, while iGate puts the share at 15%. "We have always had a clear focus on the Indian market as we see a lot of potential here," says Kiran Desai, VP and BU head, managed services, Wipro Infotech. The company bagged some large projects during the year including ESIC, which involves connecting 1,200 hospitals across the country. "We believe India is ready for such complex projects now. Managed services can play a big role in spreading the benefits of various government led programs across the nation," he says.

The Government Factor

Interestingly, the managed services market also received a push from the government sector with a number of e-governance projects and other IT driven initiatives taking off during the year. Most of the leading vendors bagged large government projects ranging from the large scale UIDAI (Aadhar) initiative to various state level WAN projects led by governments in Gujarat, Haryana, West Bengal, and Assam. Several other initiatives in infrastructure, healthcare, and education also led to increased deployment of large scale managed networks in the country.

"Earlier this market was being driven only by the private sector. But with the government and public sector companies coming in a big way the domestic market is actually growing better than the global market," says Pramod Deval, India sales head, iGATE.

While government initiatives have contributed to the growth, they have also created challenges owing to the slow decision making process, procedural hurdles, and unpredictability of such projects. "In such deals one can never be sure of the final outcome. Despite making the best offer you may not finally bag the project," explains Deval.

The other industry verticals that fueled growth included BFSI, manufacturing, and retail sectors. The rate of adoption in telecom and IT/BPO sectors, which have been among the early takers of IT services, has now reached a certain saturation level.
Evolving Market & Strategies

With enterprises showing greater preference for the on demand model, managed services have now become an integral part of every IT service provider's portfolio. From infrastructure management to applications development, storage or security, an entire range of services is available under the managed services spectrum.

The managed services model is evolving in tandem with the rapidly changing business and technology dynamics, and vendors are also trying to adapt their strategies with emerging opportunities. "Players with multi-technology capability, ability to provide an end-to-end service, and consistently high-service standards coupled with innovation will grow at a pace which will surpass the normal growth curve," believes Nikhil Gulati, director, business development, managed services, Aricent.

Among the market leaders, companies like IBM have an edge with their ability to provide end-to-end capabilities and products. This certainly provides greater assurance to the customers. "Most of the service providers offer a mix of solutions from multiple vendors and that creates a bit of uncertainty. We have a clear advantage as we own the technology we provide," says G Dharanibalan of IBM.

Dell, which is known for its customer-oriented approach, tries to woo its customers by offering a highly flexible service model. "We do not lock our customers into owning the tool set, which is often the practice of other big IT providers," explains Sumed Marwaha, country manager, Infrastructure and Managed Services (IMS), Dell Services India.

HP's strategy, on the other hand, is to focus on selective opportunities. Sudhir Rao, CTO, enterprise services India, HP, elaborates further, "We are looking at increasing our business within our current installed base. At the same time, we are also seeking new projects and initiating innovations specific to the Indian markets."

Among the Indian companies with a full service portfolio, Tata Communications offers a diverse range of networking, hosting, and data center services through its large global network of telecom infrastructure. The company owns 42 data centers worldwide and provides infrastructure to numerous other service providers and carrier companies. Most of the other telecom vendors, including Alcatel-Lucent, Huawei, NSN, Ericsson, etc, today offer their infrastructure as a managed service.

The Drivers

In the initial phases, the adoption of managed services was restricted mainly to the large enterprises, but that is not the case anymore. In fact, it is the SMB segment that is emerging as the biggest market driver. Despite an overall sluggish economy, the mid-sized companies have been showing a keen desire to invest in technologies that can drive their efficiency levels. Cloud based technologies have made IT services more affordable and accessible for such companies. Says Chaudhuri of IDC, "We are seeing a trend towards smaller deals and effective SLAs."

The initial concerns about security and lack of control over critical data are gradually fading away as vendors strengthen their security infrastructure. The maturing of service models combined with streamlining of delivery processes and control mechanisms are encouraging more enterprises to jump on to the managed service bandwagon. The huge advantage in terms of flexibility, scalability, and cost-effectiveness far outnumber the challenges. Though some enterprises are still going for selective adoption in critical areas like storage and networking, many of them are now expanding their usage to management of networks, servers, PCs, communications equipment, and other devices as well.

Besides the cost advantage they offer, managed services enable companies to access best-of-breed infrastructure and services from multiple providers. There is a tremendous scope for business optimization and improvement in efficiency levels without incurring additional costs of creating and managing the infrastructure. According to Springboard Research, the current managed services pricing model in India is still Service Level Agreement (SLA) based but as the market evolves, more granular pricing models such as pay-per-user and pay-per-seat are expected to emerge.

The Roadblocks

Being a relatively new segment, there are many concerns among the customers that will need to be addressed. The delivery models and SLAs will have to be designed in accordance with the security requirements and regulatory norms. Service providers will also need to invest in trained resources that can efficiently manage such complex technologies and infrastructure for multiple clients.

"This is undoubtedly a huge opportunity area. But if India has to establish itself as a service provider to the rest of the world, we will need to have the right people and resources in place," points out Amit Sinha Roy, VP, marketing and strategy, global enterprise solutions, Tata Communications.

While the market is on a take off stage, service providers will have to gear up to enhance their capabilities, skills, and knowledge so that they can effectively cater to the wide range of demands from different customers. The CIOs are now demanding more in terms of productivity enhancement, process optimization, and integrated management rather than just focusing on the ‘cost factor.'

Consolidation and commoditization of IT services is putting pressure on service providers to constantly innovate and provide high-quality services. The next-generation managed services will require vendors to work effectively in a multi-vendor scenario and ensure seamless delivery within the ecosystem.