More small and medium-sized businesses (SMBs) are moving to the cloud—and, specifically to cloud-based managed services—with a vengeance. As VP National Enterprise Sales at CenturyLink, I see this firsthand every day.
But why are SMBs doing this? And why should you, as an SMB owner, care?
In a phrase: return on investment (ROI).
CompTIA, which performs an annual survey on managed services and SMBs, found a significant new trend this year: About a third (28%) of SMBs now proactively seek higher ROI from managed services than what they can achieve with “do-it-yourself” IT.
This means that they get a better bang for their buck by trusting third-party experts to take over certain aspects of IT for them, rather than taking on the full burden themselves.
This is the first time that ROI has appeared on the radar of SMBs when it comes to managed services. Previously, most SMBs said they cared about operational efficiency and enhanced security.
The ABCs of ROI
Still, how do you begin to figure out the ROI of managed services? It can be tricky. So I thought I’d share with you what I’ve seen CenturyLink customers do. I’ve observed two different attitudes toward managed services out there. And you might find that you fall into one of these two camps.
- Smaller businesses tend to justify managed services by using them as a substitute for hiring in-house IT staff. That is, instead of keeping a full- or part-time IT person on payroll, they choose managed services instead.
- Medium-sized businesses, however—those with, say, up to 100 employees—typically use managed services to augment their internal IT resources. And this is actually where calculating ROI becomes complicated—when outsourcing IT services is an “and” rather than an “either/or” proposition.
This mixed approach to IT service delivery provides both technical expertise and economic value. Here are a few areas to focus on when determining ROI:
- Opening up cash flow
I’m willing to bet that in your company, cash flow is an issue. It typically is for SMBs. Managed services can really help here by transforming capital expenses (CapEx) into operational expenses (OpEx). You basically “rent” the equipment and services for a competitive monthly fee. No upfront investment is needed. Plus, your business gets valuable tax deductions that also help your ultimate ROI (see Figure 1). In the end what you have is a more predictable and consistent expense model, and removes the uncertainty of capital expenses from your day-to-day challenges.
Figure 1: Transforming CapEx to OpEx
- Giving You Expertise You Need at a Lower Cost
A second part of ROI to consider is that managed services give you the expert help you need without having to hire specialists. And that’s significant cost-avoidance. According to the Bureau of Labor Statistics, the salary of a network administrator is about $73,000. An IT security specialist costs even more: $115,000 annually.
So rather than paying that out—and don’t forget, by the time you pay for benefits, and training, and taxes, you pretty much have to double the salary to get the true cost of hiring an employee—you could pay a reasonable per-person monthly subscription. For that monthly fee, you’d get leading-edge networking and security know-how and expertise.
- Making Your Business “Greener”
Then you have energy savings. Because your applications and other network services are powered in the cloud, you have no need for large numbers of servers and associated storage devices that require power and cooling. And the fact is, that using data centers run by managed service providers to serve large numbers of customers is much more efficient and environmentally friendly than everyone owning and operating their own gear.
Looking at the Real Numbers
I always find it important to look past the hype and take a look at a business application. Forrester evaluated the ROI numbers for a specific managed service offering—Microsoft Office 365. The financial benefits of doing so turned out to be significant.
Altogether, businesses earned an ROI that was 162% higher by subscribing to Microsoft Office 365 rather than investing in on-premise Microsoft Office software.
On top of ROI, there were other benefits as well, including:
- Enhanced security, with a 73% reduction in the number of data breaches.
- Employee productivity rose 10%.
- 11% decrease in IT support costs for older technology systems.
I recently saw a new survey by BetterCloud that showed how half of SMBs expect to access 100% (in other words, all) of their IT computing services via the cloud by 2020.
What does that mean? That in addition to the cloud-based email, data backup, and conferencing services that many small businesses depend on today, they’ll also get their office applications (think Microsoft 365), their security (think security-as-a-service—and yes, it does exist), and other applications they depend on to run their business from the cloud.
I firmly believe that the SMBs that are moving to cloud-based managed services gain an edge. They’ll reduce total cost of ownership and get a faster ROI on their technology investments.
CenturyLink offers a broad range of managed services as well as private and public cloud solutions.