As organisations explore how best to source managed services, suppliers are responding with new models of service delivery centred on two areas: reducing cost and increasing flexibility.

On the cost side, providers are now in a position to fulfil the larger parts of their customer commitments through remote services. Aside from the near-universal availability of high-speed communications between central servers and desktop devices, suppliers are leveraging the increasingly sophisticated and increasingly automated tools that enable technicians to track assets, patch and upgrade software, manage the local PC environment and make other adjustments without ever entering the customers' premises.

That is even more emphasised in the case of helpdesk facilities, which many vendors are placing offshore in an effort to reduce costs. But possibly the most radical shake up that is designed to remove cost from the equation comes in the form of supplier partnering. While companies have frequently subcontracted in order to fulfil parts of outsourcing contracts that were outside of their skills base, several companies – and Dell in particular – are taking that to new heights of sophistication.

The company had always offered low-level, commoditised services, such as break-fix, but larger customers began asking the company to do more for them, says Rod Arnot, Dell's director of services in the UK. "They wanted helpdesk, software distribution, asset management."

And Dell wanted to figure out how it could apply some of the lessons learned in its systems manufacturing and supply chain operations to deliver better, cheaper, more flexible services.

The company believes it has spotted weakness. "There are a lot of inefficiencies in the traditional services model," says Arnot. "And we wanted to apply some of the efficiencies we have brought to our supply chain to services," he says.

The approach that it settled on also leveraged the company's traditional direct sales model. It felt it was in a strong position compared to rivals. By dealing directly with customers, it had intimate knowledge of the technical issues they encountered.

"PC vendors dealing through the distribution channel don't get that feedback," says Arnot.

Two other factors played to its strengths. The company has always been a volume vendor of standardised systems, and it thought that it could apply those aspects to managed services. "Many services can now be delivered through a standard set of tools and applications. The timing is right. Managed services have begun to become standardised and that plays to Dell's strengths" says Arnot.

There may be nothing radical about that. The radical part is how Dell delivers those services. Drawing on its classic supply chain model, the company subcontracts services requirements to select third-parties – two large, global services organisations, Unisys and Getronics, and around 25 smaller, local providers.

In doing so it is taking advantage of low-cost surplus supply. Such companies' services divisions often run at 60% to 70% staff utilisation rates, so Dell, having seen the potential of winning a managed services contract (often as a pull-through from a customer hardware purchase), utilises their spare capacity to deliver.

"Traditional services organisations are in a position to sell that resource," says Craig Routledge, head of managed services for Dell in Europe. But despite handing over much of the execution of the service, he emphasises that it is still Dell's service. "We own the service solution – we design it, we are the single point of accountability and monitor all levels on a daily basis.

"Our intention was not to build out 50,000 people across the globe – others have built that kind of services infrastructure. So we use the services of partners to fulfil the 'feet on the street' service." Even though it is buying those 'feet' at an incremental cost, by soaking up the spare capacity of its partners, it gets them at a cheaper price.

The upshot is that Dell can come in 25% lower than the traditional model in terms of total cost of ownership over the length of the contract. That stems from three areas: labour utilisation (Dell says it can get partners' utilisation rates into the 90% range); lower profit requirements (as a result of the volumes); and lower operation expenses (less than 10% compared to typical competitors 20%).

That does not mean that Dell has few services staff; it employs 8,500 people in services worldwide. It is just that it has access to over 30,000 or 40,000 field technicians through its partners.

Also true to its traditional business model, Dell is very focused on the areas of IT services which it feels are standardised – asset discovery and tracking, support, deployment and managed services. "We don't do systems integration and we don't do application development," says Bill Rodrigues, UK general manager.

Neither does the model mean the company will deal only with Dell kit. "If it is 90% HP, we'll still say yes," says Rodrigues. "We've even gone for deals where we have no presence whatsoever."

Having introduced the managed services business in the US three years ago, Dell now has over a million seats under management. The UK service launched in 2003 and is growing at a rate of 90% a year. "It is the fastest growing part of our business," says Rodrigues.

Different strokes

In contrast, IBM is evolving its model to include hardware purchase in with its managed service. Its Desktop Management Service, launched in April 2004, enables small and medium-sized companies, as well as departments within large enterprises, to lower their total cost of PC ownership with no up-front capital investment. Customers sign up for the service and choose from a catalogue of PCs and low-end servers, paying a fixed price per user starting at $40.

One early adopter is Randstad Employment Bureau in the UK. It has replaced its existing 500-seat IT infrastructure with hardware and software managed on a monthly price-per-seat basis, through the IBM DMS programme. The three-year agreement, worth $1.6 million, will make IBM responsible (through its IBM Express service) for the deployment of 450 desktops, 50 laptops, 120 prints and 90 servers, and for the handling of system management, helpdesk support, asset reporting and anti-virus protection.

"In recent years, offering effective IT support to our smaller offices in the UK has been difficult," says Patrick Green, director of business services at Randstad. "IBM's capacity to reach every one of our 100 UK locations and 400 staff means that we can expect to reduce our yearly IT spend and management costs by approximately 40% [or £650,000]. We also hope to be able to open new offices much more quickly, since we can now leave all the associated IT installation issues to IBM."