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The Future of Hospitality Applications - Part 2: Demystifying Managed Services

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June 01, 2003
Managed | Services
Sally Kelly - skelly@bearingpoint.net
Donald G.Gallagher- BearingPoint

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© 2003 Hospitality Upgrade. No reproduction without written permission.

In the spring issue of Hospitality Upgrade we discussed the future of hospitality applications. For this edition, we will demystify managed services by breaking it down into its component parts and demonstrating its flexibility as an approach to solving business problems. Managed services allows hotel executives on both the business and information technology (IT) sides of the house to re-evaluate their approach to IT capital expenditure and ongoing operating costs.

Through this revised approach they can focus on the genuine talent of the hospitality industry — customer service. The critical questions to ask when considering managed services are: Which applications are critical for the hotel to differentiate itself and attract the right type of guest in sufficient numbers to drive revenue, and which are simply routine operational spend? When examining these questions consider application maintenance, a huge component of any company’s technology budget. Ninety percent of most IT budgets are spent on just keeping the lights on. Is this strategic or routine operational activity?

Managed Services – Objectives
What are the reasons that companies consider managed services? And what business objectives does it help to satisfy? Tables 1 and 2 highlight the principal reasons that companies turn to managed services and what the associated business motivations are.

So, what exactly is managed services? How does it differ from traditional outsourcing or the application service provider (ASP) model? Simply put, managed services is focused on solving business problems and is flexible enough to adapt to a specific company’s needs. Managed services is a tightly coupled set of business and technology services: infrastructure management, applications management, business process outsourcing, help desk and service management. Infrastructure consists of hardware, operating systems, database software and networking components. Application management consists of application software including packaged software licenses; implementation and configuration; and software maintenance including annual packaged software maintenance fees. Help desk is the traditional interface between the end user and the managed services provider. It can include a complete help desk function that takes direct end users calls — Level 1; addresses administrative issues such as logon IDs — Level 2; and application problems, and break/fix or procedures — Level 3. Business process outsourcing involves actual business services performed by the managed service provider.

A good example of business process outsourcing is a human resource application provided under the managed services model. The managed services provider would purchase, install and operate the hardware, system and application software, and might also perform administrative HR services such as handling employee profile information and deductions benefits. The service management component provides the management structure that ensures all functions are working together and that the end user is satisfied with the service.

Service management is the interface between the managed service provider and the organization’s executive management team.

The intent of managed services is to allow a business to rapidly implement solutions involving complex technology issues and to effectively adapt to a changing business environment. Speed to market with any offering is a way to establish and sustain competitive advantage.

Managed services is not a one-size-fits-all solution or the simple outsourcing of an information technology group. Managed services is an option that allows an organization to leverage its strengths and to choose the services that are provided. If you already have a world-class help desk, you may only need the break/fix component. If you already have a world-class data center, you may not need the managed services provider’s infrastructure component.

A managed services provider should be able to easily configure its services to meet your needs and not force you into any pre-defined, pre-configured solution.

Service Level Agreements Defined
One of the essential components of any managed services solution is establishing the right service level agreements (SLAs) for your organization up front. What gets measured, gets done. So, when thinking about what type of service that you require consider the points in Table 3.

Pricing Approach
Knowing how managed services can allow your business to get where it needs to be more rapidly, and how it can guarantee the service you receive, the final piece is how it is priced. The good news is there are significant advantages to be gained from managed services pricing. One of the most important aspects is that your managed services provider should be able to configure pricing to fit your specific capital and operating expense needs.

In the traditional model there is a steep investment of capital in the first year and significant trailing costs in subsequent years. In the managed service approach, the financing option explored here is to level these costs so that the entire project and its trailing support can be managed as a flat monthly recurring operating expense.

This is only one example of managed services pricing. There are a variety of other pricing options that can be offered. One pricing option that could be of particular interest to the hospitality industry is the pay-as-you-go model where there is a cost-per-transaction fee levied. This model would allow the hotel operator to risk share with the managed services provider by allowing the transaction fee to scale based on business volume. The importance of managed services for hotels is that it allows for flattened investment, something that is of real benefit for our industry. As anyone who has invested in a technology-related project will confirm, the benefits that will accrue to your organization from the implementation of a new technology are going to start slowly after the initial implementation is complete and grow in the years thereafter. Managed services is an option that can allow your organization to better align its costs and benefits, a critical differentiator in the marketplace today.

Donald G. Gallagher is a managing director with BearingPoint, Inc., one of the world’s largest business consulting and systems integration firms, in the Global Hospitality segment of the Financial Services business unit. Sally Kelly is a senior manager with BearingPoint’s Global Hospitality segment. They can be reached at dgallagher@bearingpoint.net  or skelly@bearingpoint.net respectively.

© Hospitality Upgrade 2003. Reproduction without written permission is prohibited.

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