Holding Managed Services Providers (MSPs) Accountable to a BPO-Based Standard (Part 1)

Observing the broader procurement BPO market in recent years, we’ve seen a number of trends emerge among the leaders in the industry. When it comes to the world of managed services providers (MSPs), however, few firms, if any, mirror these trends, at least not consistently. Part of the reason for this is that many MSPs have long-standing relationships with their clients, often owning to the history of their staffing firm-based parent company. (Many MSPs work in either a stated vendor-neutral or non-vendor neutral manner, even if they are part of a staffing firm’s based P&L, indirectly or directly.)

From a foundational perspective, MSPs provide a number of core services that we explore in the report “The Managed Services Connection— The Evolving Roles of MSPs in Services Procurement.” In this analysis, we suggest that on the most fundamental level, all MSPs should provide transactional management in the area of contracted services (or outcomes), including the area of cost reduction.

Yet in a traditional context, MSPs rarely assume control of policies and overall process management, which both remain under the businesses’ command. They do, however, provide regular reporting updates to procurement, HR and other organizations involved in overall services procurement program management. In certain cases based on company requirements and provider capabilities, MSP scope is evolving to encompass a broader role that looks closer to a true BPO rather than simply a transactional administrator. In these cases, MSPs introduce innovation into the services procurement equation, including methodologies for continuous improvement, cost savings and process efficiency.

MSPs also often assume a secondary role in companies, adding a range of additional functional contributions to the services procurement equation including domain expertise, vertical (i.e., industry focused) innovation and regulatory knowhow. From an industry-specific perspective, MSPs with specific domain knowledge can be particularly helpful in introducing common values such as customer data protection, insurance, site specifications and technology awareness. When organizations evaluate MSPs based in part or in whole on their ability to introduce vertically focused domain knowledge, they need to create a complete list of areas to weight and place significance on. This checklist and evaluation foundation can also serve as the basis of an ongoing service level agreement (SLA) with the MSP to track and measure their performance.

Certain MSPs bring greater strength in global market environments. Because of this, whenever an organization determines geographical decisions that they should factor into an MSP sourcing decision, they should be proportionate to both the total spend and potential risk of the company’s international services spend portfolio. After a process like this, an organization may opt to work with multiple MSPs holding strengths in particular markets rather than consolidating their overall program management activities to a single provider.

At the time we completed the above paper, we had seen an increased demand for the more mature MSPs in the market to expand their process models. This was because programs that had been instituted several years ago had maximized their returns and were now looking for ways to expand horizontally across indirect service categories. Here we observe two primary challenges. First, the current MSP does not contain the breadth of category expertise to accurately expand beyond their core competency. Second, some organizations are unwilling to take the risk associated with a true BPO and the “one throat to choke” contractual obligations.

Looking back on this analysis, we unfortunately observe that not much has changed in the managed services provider ecosystem, including the two of the primary challenges outlined above. What’s needed, we believe, is something new, an orientation toward the management of buying services (temporary, professional and other kinds) that the current generation of procurement BPOs are more likely to bring than many of the incumbent MSPs.

We believe procurement outsourcing providers are already encroaching on MSP territory in certain gateway services categories such as consulting, systems integration, audit, IT outsourcing and legal services. While these categories may prove the initial battleground between traditional MSPs expanding their capabilities around SOW and project-based sourcing, we believe BPOs are likely to move further downstream, even into the management of contingent-based spending.

There are three key reasons for this. First, BPOs often bring a more empathetic and better understanding about the impact of services categories on the broader business beyond HR and procurement, including how best to engage senior stakeholders in driving to better outcomes. Second, the more effective BPOs have built engaging models around subject matter and category expertise including category-specific enabling technology (both of which are critical to move beyond initial wave compliance and savings opportunities for services procurement). And third, many BPOs have a stronger appreciation for the broader solution platform requirements outside of just vendor management system (VMS) enablement for contingent spending. This includes the ability to map and leverage sourcing (including optimization tools), contract management, supplier management, P2P and other procurement systems with a VMS environment.

In the second part of this post, we flesh out these three areas in more detail and suggest how procurement organizations can get more from existing MSP partners — as well as push potential BPO vendors to do the same.