Managed Services: A
strategic delivery model
Introduction
With each pivotal crisis the corporate world
faces, necessary and creative approaches
appear to help companies endure the crisis
and emerge better, stronger and with a new
level of preparedness. This has certainly been
the case, in recent history, with Y2K, the dotcom bubble, corporate scandals, the 2008
financial collapse and, most recently, the
COVID-19 global pandemic.
During each of these challenges, especially
the more recent ones, multinational companies
faced a new reality: A global footprint and
workforce—which are typically strengths—can
become weaknesses because global markets
are not easily predictable. As a result, companies
should adopt a dynamic service delivery model,
which is key to survival and staying competitive.
During challenging times, companies that
manage cash effectively, keep costs low, have
robust business continuity plans and have
dynamic business models are most likely to
weather the crises and emerge successfully.
It is through this lens that we discuss Global
Business Services and, more specifically, a
managed services delivery model.
Operating Model Framework
With each challenge, it becomes more apparent
that corporate leaders must expect the
unexpected, be agile and proactively devise
strategies to help their companies endure
challenges that may have seemed improbable
in the past.
Managed Services: A strategic delivery model | 1
In the near future, managed services will likely be the default operating model for specialty services
and capabilities, just as traditional outsourcing is usually the default for back-office transaction
processing today.
The framework illustrates how back-office services are segmented; which helps a company assess
how those services should be delivered, and by whom. Transaction Processing refers to those lowmedium complexity/low cost services traditionally outsourced to offshore providers. However, for this
discussion we’ll focus on the higher complexity/higher cost services, Business Insights and Specialty
Services; which we will collectively refer to as Managed Services.
We believe effectively leveraging Managed Services helps companies not only keep fixed costs lower
and manage cash; but it also can be the cornerstone of a dynamic business model that is key to a
viable business continuity plan, as we are seeing companies struggle with maintaining core support
functions during these challenging times.
Even before the COVID-19 pandemic, many of our clients had initiated discussions, conducted
pilots or implemented disruptive managed services solutions. Due to innovation in technology and
enhanced capabilities from 3rd party providers, what may not have been conceivable options just 5
to 10 years ago are now being explored.
The use of 3rd party managed services providers is now perceived as a viable option for more
complex and risk prone processes to further reduce costs, your back-office footprint, and support a
more dynamic and flexible business model.
Managed Services: A strategic delivery model | 2
What is a managed service?
Not your traditional outsourced back-office services
Managed services is a business model in which a company leverages specialty providers to execute,
optimize, and transform specific business functions on its behalf. The business functions discussed
here are more complex and require a higher degree of skill and insight than the routine back-office
functions that companies traditionally outsource.
Due to the complexity, the strategic partner selected typically will have access to very skilled and
knowledgeable resources on a global basis. These professionals can offer support in an advisory
capacity as well—skills that the company often lacks in-house. The strategic partner also focuses on
operational efficiency and quality of services delivered.
Traditional outsourced services vs. managed services
(These represent examples, not an exhaustive list.)
Traditional outsourced services are usually of low-medium complexity and low cost (i.e., back-office
accounting, transaction processing), unlike functions within managed services, which are usually of
higher complexity and higher cost. Companies continue to seek a model that balances control with
fixed vs. variable costs to manage complex back-office business functions, and the managed services
model is considered a plausible option. The recent trend is toward more high-complexity/high-cost
functions and processes, which are enabled by technology and automation. This approach can yield
cost-reduction benefits and increased quality when performed by a managed services provider.
Managed Services: A strategic delivery model | 3
The case for managed services
It is more than a cost-reduction play
The most obvious benefit of leveraging managed services is a lower operating cost, as managed
services providers can leverage their scale to provide the required services to a company for less
than it would cost the company to employ a full-time staff member to provide equivalent support
or level of service. Although the cost savings should not be discounted or overlooked, managed
services providers also offer other considerable benefits. To effectively harness the full impact and
power of managed services, companies should look beyond the cost savings.
Other valuable benefits of managed services include the following:
Capabilities
With the rapid evolution of technology and global regulations, the expectations of the workforce are
constantly changing. The skills, knowledge and insight a company must leverage in some backoffice functions to make crucial decisions is often specialized and nuanced. They may also be vastly
different, depending on the decisions being made.
As it is impractical and ineffective for a company to employ staff members who have every possible
capability it may ever need; to mitigate this, companies usually rely on adhoc support from a
myriad of third parties. This is inefficient, as it can be time consuming and costly to enter into new
statements of work each time a new issue arises. As such, leveraging a managed services provider
can prove to be more efficient, and allows a company to have nearly immediate access to a diverse
workforce that is highly skilled in many different disciplines, and are available when needed.
Managed services providers typically leverage apprenticeship models, which enable their staff to
get a variety of experiences across industries and benefit from continuous training. Additionally,
these providers can provide access to these skilled professionals at a lower cost than individual
companies, which typically face steep competition to attract and retain such talent.
As companies face complex issues or undergo special projects—especially those that are
jurisdictionally specific—having global managed services professionals readily available is key. By
not leveraging the appropriate managed services provider, companies may end up delaying critical
decisions, missing compliance deadlines or milestones, or reaching incorrect conclusions. None of
which are beneficial or desirable.
Managed Services: A strategic delivery model | 4
Technology and data
Over the past several years, managed services providers have been investing significantly in
technology, especially emerging technologies and data management tools. They have placed a
lot more focus on cloud solutions, automation, data management and data analysis. They’ve also
prioritized making significant efforts to upskill their workforce on digital tools.
Companies that leverage managed services providers tend to benefit significantly from these emerging
technologies and data tools without having to make the investment themselves. Additionally, as
companies continue to work with managed services providers, their own staff can get increased
exposure to these emerging technologies and become more proficient with using them. The company
is also able to benefit from access to data tools that can better help them manage and analyze data
and leverage it for better decision-making.
Global support
In the age of globalization—and in an environment where companies are continuing to expand
globally and may operate in 100+ countries—having access to specialized global resources when
needed is critical for the success of many companies. However, it is often difficult for companies
to hire all their required global resources in-house, as the administrative infrastructure and cost
required are often cost-prohibitive. On the other hand, top managed services providers already have
a global network of resources ready to deploy in nearly every country. By engaging with one of these
providers, a company would immediately gain access to these resources.
Managed Services: A strategic delivery model | 5
Scalable (variable vs. fixed costs)
A company’s needs and the demands placed on it are continually evolving. Whether small and
growing or large and globally complex, the level of support required to facilitate ongoing business
activities or special projects is not consistent and tends to fluctuate. There are times when more or
less support is required to meet current demands and priorities. This volatility is hard for a company
to predict, let alone maintain an appropriate number of workers for. However, leveraging managed
services providers allows a company to easily and cost-effectively scale up or scale down the
support it requires.
This ability to scale up and down allows a company to transition more of its costs to variable rather
than fixed budgets. Instead of maintaining a large number of support staff with significant overhead,
a company would be able to increase or decrease support staff as needed in a managed services
operating model, thereby incurring costs for just the support it needs at a specific time. In fact,
managed services providers can offer various cost tierings based on time incurred, number of
transactions, or other similar metrics.
A managed services provider is also able to provide additional synergies and cost savings through
integration of services if they are provided across multiple functional areas.
Without managed services, a company would be challenged to maintain a fixed support model
(e.g., employing staff for the peaks), which is costly and difficult to manage. As an example, when a
company attempts to scale up in-house resources, it has to consider hiring lead times and hidden
costs, onboarding and training requirements, availability of qualified candidates and other employer
related legal obstacles. Similarly, when a company looks to scale down resources, it must consider
severance costs, work council/union consultations, and how soon those resources may be needed
again in the future. As a result, it is usually impractical for a company to assume it can dynamically
adjust its resource structure to quickly adapt to changing demands and needs.
Managed Services: A strategic delivery model | 6
Business continuity
When a company faces the impacts of a global virus pandemic, natural disasters, or any other
extraordinary event that impacts operations and inhibits employees’ ability to complete key tasks,
managed services can effectively help mitigate the associated risks. During times like these, it
becomes the managed services provider’s responsibility to ensure that required operational activities
continue, as this is the provider’s core competency. A managed services provider should have the
appropriate measures in place to ensure little-to-no disruption, allowing a company to focus on their
core business operations and customers.
During the COVID-19 pandemic, employees being unable to access their traditional workspaces
posed significant challenges to companies; as many companies had trouble providing laptops and
remote network access to their staff. In fact, 60% of the CFOs surveyed expected lost productivity
to be an issue at the onset of the COVID-19 crisis.1 As a result, many companies without managed
services in place scrambled to figure out how to keep providing essential back-office services and
key financial accounting and related activities, while still meeting local regulatory filing deadlines.
Agility
During the COVID-19 pandemic, many employees were required to quickly learn to use virtual
collaboration tools and adjust to remote working styles. This change was seamless for some, but
significantly challenging for many—especially for workers who were not tech-savvy or companies
that lacked a strong underlying IT infrastructure that’s conducive to a virtual environment. Many
companies also struggled to provide laptops, VPN access and network bandwidth to remote
employees, which resulted in a strain on the business and a significant loss of productivity.
Alternatively, most managed services providers are prepared to operate in a virtual environment,
as that is a core competency, and they continue to make significant investments in emerging
technologies, virtual communication platforms and staff training. These providers are also agile
and can pivot as required between onsite and virtual support.
Leading practice learnings
In-house staff at any given company may be at a disadvantage and often look for leading practices
from other successful companies or the industry overall. These employees usually are ingrained with
the company’s traditional way of doing things. However, managed services providers are often on the
cutting edge of industry-leading practices and have the benefit of seeing differing perspectives given
their exposure to a wide array of companies. They have gone through trial and error approaches
to uncover what works and what doesn’t. With this added perspective and industry knowledge,
managed services providers are able to share this insight with the companies they support.
Source: PwC COVID-19 US/Mexico CFO Pulse Survey March 25, 2020:
base of 55
1
Managed Services: A strategic delivery model | 7
Market trends
Market trends show a strong demand for managed services
As shown by market trends, even before the COVID-19 global crisis, the managed services global
market was expected to grow by 91% by 2025 as compared to 2019.2 However, it may be too early
to tell how this recent crisis will impact the existing market trends. Based on client conversations
and sentiments, it is expected that many companies will begin identifying alternative service delivery
models and reassessing their business continuity plans, which will likely drive additional market
interest and demand for managed services.
C-Suite Focus: Global CEO survey
shows shift to internally focused
initiatives to drive growth:
Demand: Change in C-Suite focus is
driving market demand to reimagine
Managed Services models:
59%
91%
of US CEOs point to cost reduction as a top
agenda item and a key component of what
will drive growth.
growth expected in the global Managed Services
market between 2019 and 2025.
(orbisresearch.com)
(PwC’s 21st CEO Survey, 2018)
77%
of CEO’s are planning to leverage ‘operational
efficiencies’ to drive revenue growth.
(PwC’s 22nd CEO Survey, 2019)
Single source of truth,
data quality and analytics
is usually a strong focus for companies when
implementing Managed Services initiatives
2
www.orbisresearch.com
Managed Services: A strategic delivery model | 8
Which managed services are right for your company?
A detailed bottoms-up analysis is key to evaluating functions and processes
suitable for managed services.
Some common decision drivers to transition a function or process to a managed services
provider include:
•
High-cost base and recurring investment outside of core competency
•
Level of knowledge and expertise required (expertise continues to change over time)
•
Very manual activities (in-house technology investment could drive automation)
•
Degree of impact from an error or non-compliance (high risk and reputation exposure)
•
Disparate systems with ineffective data management and analysis
•
Continuously changing industry and regulatory compliance requirements
•
Increasing risks of possible business disruptions or customer impacts.
Although the above decision drivers are common, evaluating potential candidates for a managed
services model could vary, depending on how much control a company is comfortable with
relinquishing. Below are priority functions and processes many companies are considering to transition
to a managed services model: Determining functions and processes to be transitioned to a managed
services model is critical and should be the result of a detailed bottoms-up analysis, solid business
case and clear measurements of success. Understanding if a function or process could potentially be
transitioned is the first step toward a decision on the “best fit” delivery model. A structured decision
process can be used to determine what functions or processes qualify for managed services and
whether a full managed services model or hybrid approach should be employed.
(These represent examples, not an exhaustive list.)
Managed Services: A strategic delivery model | 9
Most companies utilize a delivery-model decision tree process to evaluate the organizational
implications of services and activities on overall internal cost objectives. Above is an illustration of
how decision criteria interplay and can be used to identify viable candidates for managed services.
Once functions and processes are identified as viable candidates, a detailed bottoms-up analysis
and business case will further justify the pros and cons of a proposed managed services model.
***This is not a one-size-fits-all approach, and further evaluation and analysis will be required to
define company-specific criteria.
Managed
Services
Retain
Do you need historical or institutional knowledge to
perform function?
Is new technology and ongoing capital investment required
to perform process efficiently?
Does the service provide a competitive advantage or
customer facing need requirement?
Does the service require training, new skills and in depth
technical knowledge?
Can someone else provide the same service cheaper
or better?
Does the process require global regulatory or governmental
compliance expertise?
Is there reputational risk of not performing timely, accurately
or to the level expected?
Managed Services: A strategic delivery model | 10
The good and bad of managed services
Considerations and opportunities
While a managed services model offers promising cost-reduction opportunities, scalability and
access to talent, it is also necessary to understand the pros and cons of such models. The most
important considerations are, the degree of control and shared responsibility with a managed
services provider. Too often companies have unclear or poorly defined expectations and servicelevel agreements which results in greater challenges. Furthermore, the level of transition complexity
and change management is commonly understated, which often inhibits a successful hand-off and
ultimately falls short of the desired outcomes.
It’s critical to have a company-appointed resource to help manage and govern the provider
engagement to maximize the output from this relationship. If executed properly, the pros can
outweigh the cons of the managed services model, so careful consideration of all aspects is
required prior to making a decision on what functions and processes to transition to managed
services. Below is an example of pros and cons of a managed services model to be considered
as part of the decision-making process. While this list is not exhaustive, it can help rationalize your
potential business functions. Further, depending on which specific managed services activity is
deployed, potential “cons” can be mitigated.
Managed Services: A strategic delivery model | 11
Finally, it should be noted that third-party service contracts typically have a “force majeure” clause
included. While often overlooked, this clause provides a provider with a potential reprieve if services
are impacted due to unforeseen catastrophic events. As such, when entering into managed services
contracts and other similar third-party contracts, companies should have a detailed discussion with the
provider regarding this issue.
Some agreement should be reached up front on what minimum levels of service will be required or
expected should this clause be enacted. Based on our experience, providers are better prepared to
keep services going during unforeseen circumstances, similar to the COVID-19 crisis, but this still
warrants a conversation and alignment on expectations between parties.
Managed Services: A strategic delivery model | 12
Conclusion
COVID-19 has reinvigorated managed services conversations. Given the challenges faced during
this crisis, companies now have an urgent need and are more interested in exploring how best to
leverage managed services to help them overcome similar challenges.
Leveraging managed services helps to reduce operating costs and support a dynamic operating
model. It also plays a significant role in business continuity and disaster recovery planning—especially
when considered through the lens of the recent COVID-19 pandemic.
The recent trends in managed services include more complex and specialized functions—not the
traditional transactional processes and call center activities typically outsourced in the past. Although
there are some considerations to work through when it comes to managed services, companies have
started to acknowledge the value of these services, along with the need for a flexible delivery strategy.
Companies have been strongly considering managed services as a viable business strategy even
before the COVID-19 pandemic, and we expect the interest in and demand for managed services to
increase exponentially in the near future.
Suggested next steps
1. Consider: Through internal and external conversations, consider the Global Business Services
Framework; what your company’s strategy should be for back-office services; and how your
company can benefit from managed services.
2. Assess: Perform assessments on which activities and functions in your company are conducive
to a managed services delivery model.
3. Build cost profile and business case: Gain full appreciation for the true cost of performing identified
services in-house vs. the cost to leverage a managed services provider. Also consider whether your
company can meet compliance requirements while performing the services in-house.
4. Establish requirements: Determine the expected service levels required once managed services
are deployed.
5. Evaluate and decide: Evaluate possible managed services providers and make a decision on
the best fit.
6. Transition: Develop and execute a managed services transition plan.
7. Improve: Routinely evaluate managed services provided and give feedback so provider can
continuously improve services offered.
As you undergo a managed services transition, PwC, a major managed services provider across
several disciplines, is able to support companies in many different capacities. PwC can also help a
company with the following: perform a strategic assessment on which activities can be effectively
outsourced to a managed services provider, suggest appropriate service-level requirements, conduct
an evaluation of possible providers, facilitate the contracting and negotiation processes, develop and
execute a transition plan, and regularly perform assessments of existing managed services.
Managed Services: A strategic delivery model | 13
Contact
Edward Ponagai
Jamie Barakat
Verne Perigord
PwC Advisory Services
PwC Advisory Services
PwC Advisory Services
(312) 550-5834
(847) 942-2296
(312) 919-0408
edward.ponagai@pwc.com
jamie.j.barakat@pwc.com
verne.perigord@pwc.com
www.pwc.com
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structure for further details. This content is for general information purposes only and should not be used as a
substitute for consultation with professional advisors. 738896-2020
Managed Services: A strategic delivery model | 14