Moving from the Time and Materials Treadmill to a Managed Service

Today’s enterprises are managing more and more vendor relationships and paying for more and more distinct IT capabilities with distinct commercial contracts. Some projects have traditionally lent themselves to a simple calculation of the hours devoted to the project multiplied by agreed-upon rates, plus the cost of materials. But today, enterprises are re-examining some of these time and materials (T&M) contracts. They want to know what they might gain if they measure and pay for pre-defined outcomes in a managed service contract.

Contracts for data warehousing services, which combine data from multiple sources into one comprehensive and easily manipulated database, often start out as T&M deals. But the business demand for big data and the need to allocate resources differently is spurring a move to standard data marts and making a managed service approach more appealing. Enterprises that have traditionally used T&M-based data warehousing services are discovering that moving to a managed service model can increase efficiency and effectiveness while reducing costs and operational risk.

Transitioning to a managed service model requires a change of mindset. Planning for the transition should begin only once stakeholders are fully aligned with the decision. The following Top 5 steps will help to get the most out of the move:

1.	Rather than jumping directly to a managed service-based system, first plan an intermediate transition that helps you move from T&M to an estimation model. This involves asking the provider to define the required input, such as estimated time, for a defined and specific output. Then document the steps you will need to take to move to a fully managed service so you can discuss them with stakeholders and providers. Be wary of providers that become defensive and attempt to use the contract to wriggle out of a move to a managed service.
2.	Assess your data warehousing scenario to make sure it is suitable for transition. You’ll want to answer “yes” to the following questions: Is the service environment relatively stable? Are the requirements fairly well-defined and understood? Can the market and/or your organization define clear units of work for the service? Is the service provider’s underlying cost base relatively fixed? Are the expected future volumes fairly static, or likely to be disrupted by market flux or merger and acquisition activity? Can the defined outputs be mapped to charges? Does the provider have end-to-end responsibility for the service? Is there a relatively small number of potential variables in relation to units of work? Is your organization relatively mature in the way it procures services?
3.	A main goal of moving to a managed service model is finding ways to improve productivity and achieve the same level of output for a reduced level of work. Collaborate with your service provider to understand how it plans to maintain and manage the data warehouse to meet your business demand. Then work to stabilize and standardize business demand and leverage the provider’s economies of scale.
4.	Moving to a managed service model also enables your organization to manage performance via service levels reflecting business objectives, but it is important to flex service levels where necessary to allow the service provider to balance supply and demand. This will allow you to understand if the service levels are fit for purpose. Test if the service levels work from an end-to-end perspective with your wider technology supply chain.
5.	Finally, during the course of negotiations, ensure you don’t sacrifice a good working relationship for a reduction in costs. In the data warehousing world, this can negatively impact the service you receive.

For data warehousing that has been in existence for a while, incremental change is preferable. Organizations already on this journey need to ensure that end users understand the implications of standardized elements, such as off-the-shelf data marts, which require standardizing the way businesses consume data warehousing services.

If you decide to move your data warehousing services—or any appropriate outsourced functions—from T&M to a managed service model, be sure to keep the business in mind at all times so the larger objectives for change guide your work. ISG helps enterprises design sourcing models that are right for them. Contact us to discuss further.