In a challenging economic environment with pricing and labor pressures, managed service providers can fill critical skill and leadership gaps.

By Sue Sato, Operation Manager at Nomura Research Institute

Amid pressures like inflation, geopolitical tension and labor-market challenges, a managed service provider (MSP) is optimally positioned to assist with technology transformation and maintenance needs to help scale up and keep critical infrastructure running.

MSPs encompass business process outsourcers (BPOs) and information technology outsourcers (ITOs). ITOs aim for efficiency through third-party network and IT system management, while BPOs focus on front-office and back-office process improvements. BPOs can also handle HR, finance, and other core operations.

“MSPs can offer significant cost savings for businesses with skills gaps and limited IT staff, helping to ensure business continuity,” according to IT trade group CompTIA. “Managed services are also scalable, allowing your relationship to grow or shrink alongside your business needs,” thus making IT services more productive and efficient.

Given current technology talent shortage, it's often easier to delegate work to an MSP with round-the-clock availability.

What is an MSP ?

Gartner defines MSP as a firm that offers network, application, infrastructure and security services through ongoing support. This could be through active administration on customers’ premises, in their MSP’s or in third-party data centers.

In Q2 2022, global spending on MSPs reached  $8.8 billion – surpassing the $8 billion annual contract value for the fifth consecutive quarter, per ISG research.

CompTia considers two types of MSPs.  Pure-play MSPs generate 75% or more of their revenue from recurring activities, often through a subscription model. By contrast, hybrid MSPs monetize services through recurring and non-recurring streams of work, including hardware sales and project-based services.

Some MSPs combine business process  IT outsourcing services as an integrated package to ensure high levels of reliability and stability.

CIOs under pressure

Demand for jobs that support digital transformation has risen since the pandemic, per report from The Wall Street Journal.  Failing to prepare for accelerated digitization is no longer an option, but recruiting, especially employees with technology expertise, is increasingly challenging.

The pandemic pushed many businesses to operate virtually, and some of these distributed office setups continue to be in place as we move out of the pandemic.  The new workplace means technology systems need additional oversight, given the preponderance of remote and hybrid work. A distributed workplace – with a digital footprint spread across homes and offices – creates opportunities for cybercriminals. It also increases the need for 24-hour support, a challenge MSPs, particularly ITOs, are set up to meet.

Hiring an MSP means you can delegate work to experts, allowing your teams to focus on value-added, knowledge-intensive tasks.

A tight talent market and rising labor costs add pressure on CIOs. Research shows tech wage salaries continue to rise as the war for talent intensifies. A recent report from Janco Associates found that IT salaries for existing staff and middle managers increased by just under 3% while new hires were paid 5%-6% more than existing staff.

“Pay rates for new hires in the 8-10% range were not uncommon,” said M. Victor Janulaitis, CIO at Janco. “That salary disparity is a driver of dissatisfaction and an increase in attrition rate among existing employees.”

Wage inflation increased employee attrition are prompting C-Suite leaders to invest in managed-service solutions to ensure critical infrastructure keeps running and new enterprise-wide technology initiatives are scaled quickly.

Why should you use an MSP?

Cost. Salary inflation, combined with increased employee turnover, mean enterprises may have difficulties keeping labor costs in check. However an MSP can ensure labor costs are more predictable, because of minimal startup costs: you simply engage the MSP for a turnkey solution. For example, KPMG Managed Services claims its platform can reduce total operational costs by 15-45%. Service-level agreements with MSPs allow for a working arrangement that suits your evolving needs.

Expertise. MSPs often have a global roster of experts who can assist promptly, keeping your headcount manageable. Moreover, since MSPs work across many organizations, they are able to provide efficient ongoing support for technology integrations quickly.

Proactive problem solving.  Cyberattacks are among the biggest risks companies face.  Regular check-ins and parameters established in service-level agreements by MSPs can help minimize the risk of threats by ensuring software updates or security patches are properly implemented. In addition, they can take action to resolve any performance or reliability issues.

Simplicity. With the rise of automation technologies, organizations want to get ahead of competitors. But the legwork to hire a team to get these technologies up and running can be prohibitive for many. MSP enables a single point of contact who can assist with license management, implementation and support services.

Flexibility. MSPs act like an extension of your workforce. MSPs can help handle specific  problems such as building out digital transformation initiatives, cloud migration and addressing technical debt.

A study from HFS Research found that cost is no longer the primary driver for companies to use MSPs. Instead, firms use MSPs to help them advance digital strategies and connect customer, employee and partner experiences.

In sum, an MSP is ideally placed to fill critical skill and labor gaps as technology oversight needs rise. BPOs and ITOs allow companies to add critical technology expertise efficiently while ensuring internal team members can focus on what they do best.