Techaisle Blog

In a word, the most significant potential disruption factor for the managed services market and channel partners is still cloud. Techaisle data shows that 68% of VARs are offering managed services to their SMB customers but only 46%, that is, less than one-third (31%) of all SMB-focused VARs have been very successful in achieving consistent growth and profitability within managed services. On the flip-side, 83% SMB-focused MSPs have become very successful in their managed services business model. But the MSPs have not achieved the same success in cloud. Only 63% of MSPs are currently offering cloud and although 72% of them have achieved cloud success, it is still, only 45% of all SMB-focused MSPs, slightly less than half of the managed services success. In fact, when extended, data shows that VARs are still caught in a spaghetti junction, they are neither achieving great success in cloud nor in managed services. In the case of MSPs, the overwhelming vendor forces are proverbially narrowing the banks of the river with over capacity.

The success in SMB mobility-focused business model is even lower than cloud and managed services.

Inability to balance product resale and services revenue, inability to adjust to a customer-centric approach and inability to align recurring and non-recurring revenues are severely holding back the MSPs. Since 2008 Techaisle has been conducting managed services studies, both demand side within SMB & Midmarket segments and supply-side within the VARs, MSPs, SIs, SPs, Consultants offering managed services. Each year Techaisle (latest report deliverables are here) has been quantifying what separates the successful and unsuccessful managed services channel partners. And there are several data-evinced barriers to entry and success factors. To understand barriers to entry, it is important to first define the characteristics that are important to success as an MSP. There are many but let us discuss three that always percolate to the top:

1. The ability to sell services independently from product sales (while maintaining the ability to sell products to customers as well).
2. The ability to package and efficiently deliver standardized services to multiple customers, growing by expanding portfolios of discrete services rather than by simply agreeing to address sprawling customer requirements on a ‘one-off’ basis.
3. The ability to align internal processes and costs/cash flow with a recurring revenue (rather than transactional) approach to the business.

Techaisle research substantiates the importance of each of these key characteristics.

Midmarket firms that adopt a holistic organization-wide digital transformation strategy are growing at 2.2X vs. Siloed digital transformation strategy. They are also experiencing 2.1X business process cost reduction, 1.9X better customer intimacy and 1.4X improved employee productivity vs. Siloed adopters. Techaisle’s US midmarket digital transformation trends study shows that it pays to have an organization-wide, holistic digital transformation strategy. Survey of 876 US midmarket firms reveals that Holistic adopters are experiencing better business outcomes than Siloed adopters of digital transformation.

We are all responsible for the pace of change – and to ensuring that it benefits rather than threatens our success. Nowhere is this clearer than with digital transformation – the adoption of digital infrastructure as the foundation for digital business processes, which enhance operational efficiency, employee empowerment, product innovation, customer intimacy, competitiveness and profitability throughout the organization. Businesses that embrace digitalization are more agile, more adept at using technology to accelerate cycle time and expand reach, better able to respond to market opportunities and requirements – while those that are left behind face an uncertain future in which one wrong step can lead to diminished business viability.

Holistic, Inclusive, Siloed and In-the-Shadows are the four midmarket segments by digital transformation strategy as revealed in Techaisle’s US midmarket digital transformation trends survey & segmentation data. The segmentation reveals that overall, 41% of the US midmarket firms (100-999 employee size) are firm believers in digital transformation. They are leading digital transformation initiatives. These firms belong to the “Holistic” segment of the four different digital transformation segments. They believe that digital technologies impact every aspect of the business and are a core part of organizational strategy. Interestingly though, within the firms belonging to the holistic segment, digitization of process automation is far from complete. They still have a huge runway in front of them.

For 59% of the midmarket firms, digital transformation initiatives are sporadic and ad hoc or not critical across the entire business. These are the firms that belong to the Inclusive, Siloed and In-the-Shadows segments. They are the laggards in digital transformation journey.

Clearly there is vast untapped potential for firms offering digital transformation services to the midmarket businesses.