Managed services compared to conventional outsourcing: discerning the distinction

Managed Services vs. Traditional Outsourcing: Understanding the Difference

Managed services and traditional outsourcing both involve contracting outside companies to handle certain business functions, but they differ significantly in terms of their approach, scope, and level of involvement. Here’s a breakdown of the key differences:

1. Definition and Focus

• Managed Services:
  Managed services refer to the practice of outsourcing the management of specific IT functions or business processes to a third-party provider. The provider takes a proactive approach in maintaining and improving these services through continuous monitoring, management, and support. Managed services are typically ongoing and long-term, focusing on improving operational efficiency.

• Traditional Outsourcing:
  Traditional outsourcing involves contracting out a specific task or function to an external vendor. This could be anything from customer service to IT support to manufacturing. The vendor performs the agreed-upon tasks, often with little to no ongoing management from the client. It’s typically more transactional and short-term than managed services.

2. Scope and Services Provided

• Managed Services:
  Managed services generally encompass a broader, more comprehensive range of responsibilities. Providers manage not only the daily operations but also strategic oversight, optimization, and sometimes innovation in areas like:

  • IT infrastructure (e.g., cloud services, networks, data centers)

  • Security monitoring and management

  • Software management and updates

  • Backup and disaster recovery

  • User support and troubleshooting

  • Compliance management

• Traditional Outsourcing:
  Traditional outsourcing is more focused on specific, defined tasks. These could be limited to:

  • Customer service (e.g., call centers)

  • IT support (e.g., help desk services)

  • Data entry

  • Manufacturing or assembly

  • Payroll processing

3. Approach: Proactive vs. Reactive

• Managed Services:
  Managed service providers (MSPs) are generally proactive. They monitor systems in real-time, anticipate problems before they arise, and take preventative actions to avoid downtime or performance issues. This means you’re often getting ahead of problems, not just reacting to them.

• Traditional Outsourcing:
  Traditional outsourcing is often more reactive. The vendor provides a service as agreed, but typically only steps in when a problem arises or when it’s specifically asked to do so. There’s less focus on continuous improvement or monitoring.

4. Long-term vs. Short-term Relationship

• Managed Services:
  Managed services are designed to be long-term relationships, often lasting for years. The provider becomes a strategic partner, helping the client with ongoing improvements and innovations. They are an integral part of the client’s operations.

• Traditional Outsourcing:
  Traditional outsourcing arrangements tend to be more transactional and short-term. They often focus on specific deliverables within a set timeframe, and the relationship may not extend beyond the specific project or task at hand.

5. Pricing Model

• Managed Services:
  Managed services typically operate on a subscription-based pricing model. Clients pay a fixed monthly or annual fee for continuous support and service. This can be cost-effective because it allows for predictable budgeting.

• Traditional Outsourcing:
  Traditional outsourcing often involves project-based or hourly pricing. The cost is usually tied to the specific service or function being outsourced, and it can vary based on the amount of work required or the length of the contract.

6. Control and Oversight

• Managed Services:
  In managed services, the client usually retains a degree of oversight but entrusts the provider with significant autonomy over how to manage and improve the outsourced function. The provider is responsible for ensuring that everything runs smoothly, and regular reports are usually provided.

• Traditional Outsourcing:
  With traditional outsourcing, the client typically retains more control and oversight over the specific tasks being performed. They may micromanage certain aspects of the process, and the provider may only focus on delivering a finished product or specific service.

7. Risk Management and Accountability

• Managed Services:
  Managed service providers take on more risk. Since they are responsible for the ongoing performance and availability of services, they often assume liability for downtime, security breaches, or other failures. There are typically service-level agreements (SLAs) in place to ensure performance metrics are met.

• Traditional Outsourcing:
  With traditional outsourcing, the client usually bears more of the risk. If the outsourced function underperforms, it’s often the client’s responsibility to address the issue. The vendor may be less accountable for overall outcomes and more focused on specific deliverables.

8. Examples of Use Cases

• Managed Services:

  • IT Managed Services: A company outsources its IT infrastructure management to an MSP, which handles everything from network monitoring to security patches to disaster recovery.

  • Cloud Services: A business outsources its cloud infrastructure management to a managed service provider, which ensures uptime, scaling, and security.

  • Security Operations: A business contracts an MSP to handle all aspects of its cybersecurity operations, including threat monitoring, incident response, and compliance management.

• Traditional Outsourcing:

  • Customer Support: A company outsources its call center or help desk services to an external provider.

  • Data Entry: A business outsources routine data entry work to a third-party vendor.

  • Manufacturing: A company outsources its production process to a third-party manufacturer in another country.