What is the difference between managed services and outsourcing?

What is the difference between managed services and outsourcing?

In the 20 or so years since the 'outsourcing' industry really hit its stride, the term has become an umbrella description for anything that is farmed-out to be managed externally to an organisation.

However, in that time, the IT and wider technology industry have evolved to include a range of more sophisticated services where shared responsibility, more in-depth understanding of the business, direct consultation, and transparency are the key value propositions.

Chief among them is what we now understand as 'managed services'. It might sound like outsourcing, but the reality is that Managed Service Providers (MSPs) perform a function that is quite distinct, and depending on who you talk to, superior to outsourcing in many important ways.

What is outsourcing?

For starters, 'outsourcing' is typically associated with larger organisations: think about call centres and help desk teams running out of Asia, or big HR/payroll functions being outsourced by government and other large organisations. Such contracts are often expensive, mainly because they involve ceding complete responsibility to the outsourcing provider – set and forget.

This is great if that's what an organisation wants, however with managed services, it's often the case that a company seeks to handover most of the responsibility for one or more functions, but retain some control and visibility of the way things are operating all at the same time.

Onshoring, nearshoring, and offshoring are forms of outsourcing. Onshoring is the practice of relocating business services to another site within national borders. Nearshoring is when services are relocated to a site outside of national borders but within the region of the outsourcer (e.g., along the border of neighbouring countries). Offshoring is also done across national borders, but the service provider is typically far away.

In each case, outsourcing information technology systems and services are typically pursued to save money and/or receive IT capabilities not available in-house. Many companies choose onshoring because they want to support their home economy, and because they feel a homeland IT provider offers better service due to its understanding of native IT culture.

You thought that Managed Services is exactly the same as outsourcing? Well, it isn't, even though the two terms are often used interchangeably.

It's fine to use the term "outsourcing" colloquially to refer to IT services received from a third-party provider. But when it comes down to signing a service contract, it's important to observe the technical difference of managed services vs. outsourcing.

Frequently Asked Questions

A managed service provider (MSP) delivers services, such as network, application, infrastructure and security, via ongoing and regular support and active administration on customers' premises, in their MSP's data center (hosting), or in a third-party data center.

A managed service provider (MSP) is a third-party company that remotely manages a customer's information technology (IT) infrastructure and end-user systems. ... Managed print service providers maintain printers and supply consumables. Often, MSPs perform their tasks remotely over the internet.

 5 major Benefits of a Managed Service Provider
  1. Cost saving and easier Budgeting. Most small and medium businesses are finding it very expensive to employ competent IT personnel to run their IT operations. ...
  2. Access to the Experts. ...
  3. Proactive Support and Quick Response time. ...
  4. Ready infrastructure. ...
  5. Better Business Focus.
 
 

When has the term outsourcing been known?

The term 'outsourcing' has been around since the 1980s and includes just about everything you can outsource to an external party, especially to cut costs. So this could involve, for example, parts of the production process, IT outsourcing or back-office activities such as call centres. With outsourcing, the outsourcer often takes over some of your own staff and the services are often purchased on demand. By its most simple definition, outsourcing refers to the purchasing of services or expertise from an outside company. 

Why to consider outsourcing?

The main reasons to consider outsourcing are to gain capability in a way that is better, faster or less expensive than doing the same thing internally. You can purchase outsourced IT services as ingredients for your total IT solution if that's what you want – data storage, firewalls, backup, cloud applications, and even infrastructure (IaaS) can be bought off the shelf. What you need to have in-house is that recipe and method that is going to turn the ingredients into the end result that you desire.

Outsourcing can be defined as the delegation of planned or existing business activities to an outside organisation. The work that you delegate could theoretically be performed in-house but, as Investopedia points out, enlisting the help of a third-party can lower equipment, technology, rent and labour costs, and allow you to focus on core activities.

Crucially, outsourcing is associated with narrowly defined activities and processes, rather than broader strategies. You ask the third-party organisation to perform the business activities you need from them, and they do those activities. You pay them for their services, but what you pay can be much less than the costs of doing those activities yourself.

In simple terms, you ask them to do the work, they do the work, and they bill you for that work.

What does outsourcing provide in your businesses?

Outsourcing gives businesses access to specialist IT advise, planning and implementation, often used for ad hoc IT tasks or short to medium term projects. With outsourcing, there is generally no ongoing support once the project is complete.

Outsourcing is sometimes a four-letter word in business. It can mean many things but is generally connoted with shipping jobs overseas, offshoring, foreign call centres, and, for better or worse, the cheapening of products and services.

Outsourcing implies, mainly, short term contracting of services or certain jobs to another company. At first glance, the difference seems subtle. But, when you take a closer look, you will see that with outsourcing, you are not letting a third party (MSP) manage any kind of in-house services. Actually, they are assigned just a portion of a certain job or a project to finish offsite.

Ever since the dot com boom, information technologies have become widely available and popular. Nowadays, countries like India, China, Eastern European and several other countries which have highly educated IT experts, but low-income averages, are considered to be outsourcing havens. Workers from those countries are able to do any job as good as it can be done for only the portion of the price you would have to pay "back at home".

How does outsourcing work?

Outsourcing involves similar functions as an MSP but transfers every possible IT-related need to that specific company. Outsourcing companies then will provide your business with one of their staff members who will then be a messenger for both ends of the relationship, relaying communications between the outsourcing company and your business.

Outsourcing has become an overarching umbrella term for virtually any service you hire a third-party to complete. Typically, outsourcing companies provide short-term contracted services. These outsourced providers provide only a portion of a certain job that the hiring company is not equipped to handle in-house. 

What is managed services?

Managed Services, on the other hand, is specifically about the outsourcing of (parts of) the IT, based on the business needs. The Managed Service Provider (MSP) is a company that remotely manages a customer's IT environment and/or end-user systems on a proactive basis, according to contractually agreed SLAs and for a fixed monthly charge. In this case, the customer draws on the expertise of the employees of the MSP. This means your own staff can be better deployed for the core activity of the company.

If you want to be really literal when defining managed services, you could say that they are a form of outsourced IT. When you work with an IT managed service provider, you are bringing in services that you cannot or do not want to provide internally so that you can have improved or increased IT capability. A managed service company is going to take off your hands the decisions about the ingredients that make up the whole IT solution, but that solution is still going to be made up of components that you could go out and outsource on your own.

How does managed services work?

Managed services refer to the hiring of an external organisation for much more comprehensive support. With this approach, rather than delegating quite narrow and specific tasks or operations to the third-party, they will instead adopt a much more holistic approach, and payment occurs on a subscription-type basis.

With IT services providers, for example, you might outsource a specific IT task to another organisation, whereas a managed service provider will assist you more strategically, taking over the management of your IT infrastructure, offering advice on improvements you could make, and taking a vested interest in your long-term success.

"It's important to note that a core difference between outsourcing and managed services is the degree of foresight they exhibit," an article for Visionet explains. "A managed service provider genuinely wants to see your business succeed. They will propose solutions that are effective and long-lasting, not provisional measures that are merely desirable."

Put simply, and a managed service provider will be a specialist in a certain area, such as small business IT support, and will then be able to use their expertise to manage that aspect of your business more effectively.

Managed IT Services refers to the hiring of a team of dedicated IT professionals who will run your IT department on your behalf. Providing ongoing support and maintenance, for a fixed monthly fee, its aim is to take the pressure off businesses by managing their day-to-day IT needs, ensuring systems are always operating at peak efficiency.

This is to say that a managed service provider (MSP) is a specialist that can work in any environment and has the right tools to manage some aspect of your business better than you can yourself. Regardless of what industry you work in, the vendor can integrate into your business. Traditional outsourcing, on the other hand, carries out a specific business function more cheaply or efficiently but doesn't offer the same consultative function or expertise that a managed service provider generally provides.

What does managed services provide?

Going into the specifics, managed services range from transportation, power and water, to information and communication services. However, they are mostly cloud-based and related services. When you pass a specific job to another company, most often offshore, people refer to it as outsourcing. Nevertheless, the term outsource has been used so much that it's meaning is being almost diluted.

A managed service provider is a little more specialised. Companies hire a managed service provider to take care of certain IT operations the business cannot handle independently. They then work hand-in-hand with the business's existing IT expert to keep the company's tech system running smoothly. This service can be carried out either through telecommunication between the provider and client, by sending out workers on request or by keeping a staff member from the managed service provider at the business to lend assistance as needed.

Managed service, since managed services is technically a model of outsourcing. Instead of looking at the differences between managed services vs. outsourcing, it's better to discuss when one becomes the other.

How to differentiate managed services from outsourcing?

Many who are uninformed might not be able to distinguish outsourcing from managed services, but the difference is more than subtle and noticeable. For example, you have managed print services which are a group of services provided by printer manufacturers. From maintenance of hardware, supplementation of paper, toner cartridges, printer ink and other consumables, to help & support, mailing, distribution and printing volume tracking. Currently, around 51 percent of organisations are using or are planning to use managed print services in the near future. That fact only goes to show the effectiveness of managed services.

Most value-added managed services vendors make an extreme effort at visibility, accountability, and reporting. No, the vendors don't work out of your office, but they are an extension of your team in every other sense.

In order to understand the differences between "outsourcing" and "managed services", it is first necessary to define the two terms and highlight some of the advantages that are typically associated with each.

Managed Services vs Outsourcing

Comparing managed services vs outsourcing is unnecessary because they're the same thing, right? Yes and no. The terms are often used interchangeably, but they refer to different models on which outsourcing information technology systems and services occur.

Outsourcing is receiving services from a third party without having the service provider manage the services. For example, a company may implement a service cloud on a Software as a Service (SaaS) model but manage the functionality of the cloud in-house. If the company implemented the cloud on a managed service model, the service provider would manage the functionality of the cloud remotely.

They are comparing managed services and outsourcing isn't a debate about which one is better; some companies need the third party IT services managed, and some don't. Rather, considering managed services as opposed to outsourcing is a discussion that clarifies the terminologies. In onshoring, managed services vs. outsourcing is an important comparison to make, as the concepts refer to different types of third-party IT service. The differentiation also applies to nearshoring and offshoring.

Who can be the designers of long-term success?

It's important to note that a core difference between outsourcing and managed services is the degree of foresight they exhibit. An outsourcing provider will mechanically churn out as many invoices, transcripts, or shipping manifests you ask them to, but will never tell you if there's a more efficient way to run your business. That isn't what you're paying them for, so it simply isn't in their best interest.

On the other hand, a managed service provider genuinely wants to see your business succeed. They will propose solutions that are effective and long-lasting, not provisional measures that are merely desirable.

Sometimes the changes proposed are profoundly transformative. They might suggest that you use AI to optimise your supply chain or use web APIs to establish entirely new revenue streams. Managed services go far beyond simple break-fix support. In the hands of a competent managed service provider, your IT operations will go from being your biggest cash sinkhole to saving your business millions each year.

Outsourcing tends to be done on a short-term basis when you need help for a specific issue, whereas businesses that rely on managed services tend to view it as a permanent solution. Managed IT services in the Twin Cities are able to work with your existing infrastructure and become a part of your team. At the same time, outsourcing means you are bringing in someone to handle a specific issue on a temporary basis.

How to find the right provider?

Not all companies that bear the "managed services" moniker are equally competent. They range from top-notch outfits that can literally manage every aspect of each technology deployed in your global organisation to outsourcing firms trying to portray themselves as something more.

There are several features that can help you tell the difference between a mediocre managed service provider and a truly great one. Asking for referrals and customer success stories is a great first step. Look for a provider with long-standing partnerships with clients that resemble your own organisation. Make sure that they're intimately familiar with your industry and the digital technologies you use.

Your managed service provider should be an IT army that always has your back. They should have multiple in-house specialists in a wide range of technologies and skillsets, various onsite, near-site, and offsite support models, and the flexibility and scalability that your enterprise needs. 

How managed services are more specialised than outsourcing?

When you outsource your IT services, all possible IT-related needs are handed over to a specific company that provides your business with an onsite staff person who serves as the messenger for both sides. Essentially, this person is a liaison between the outsourcing company and your business. The managed IT services in the Twin Cities model gives you something that is more specialised. If you hire a managed services provider, it takes care of certain IT operations you're unable to handle on your own. They work hand-in-hand with your existing IT team and work to keep things operating smoothly. The services they provide are customised to your needs.

Why managed IT security is the hands of experts?

Outsourcing your IT security gives you more certainty about the continuity of your IT environment. IT Security is more complex than ever, partly because of the Modern Workplace, where mobile and flexible working is becoming the norm. A Managed Service Provider has all the expertise in-house to optimally secure and then proactively manage your IT environment on a permanent basis. This way, all loopholes are closed, and problems are solved remotely even before you experience any disruption.

What enables you to work with a Managed Services Provider?

Enables You to Be Aware of the Costs Upfront

Perhaps the biggest difference between managed services and outsourcing is how you pay for the services. With managed services, you are aware of the total cost upfront, even if you are purchasing ongoing service. In most cases, there's a monthly fee, and you'll know exactly what you'll be paying from month to month. With outsourcing, what you pay depends on the deal you make with other companies and individuals and performance pay is typically in question. It's unpredictable and can make it challenging to budget properly.

Managed Services are Focused on Management of Appointed Tasks Using the Right People, Processes, and Tools

Managed IT services in the Twin Cities focuses on a holistic approach, while outsourcing focuses on the most efficient deployment of work. For instance, if a company is able to get higher quality services or something less expensive, they'll choose to outsource it.

Fear of loss of control

People often think that outsourcing involves distant countries, cheaper working conditions and loss of control. This is also the main reason why outsourcing has acquired negative connotations. Belgian companies in the 1990s and 2000s largely outsourced their full IT services to Asian and Eastern European countries. Still, companies today are increasingly realising that IT is a crucial link in creating competitive advantages.

When you opt for a Belgian Managed Service Provider with local data centres and crystal-clear SLAs, there is no question of loss of control. Moreover, you can be absolutely certain that your data are stored and managed securely within the borders of the European Union and in accordance with the European GDPR regulations. Such an IT partner is always reachable and effectively forms an integral part of your own team. Do you need an expert in a specific area for a large internal project on a temporary basis? This can also be taken care of.

Is Managed Services Better than Outsourcing? Not necessarily. Both have a place in the modern business world, but managed IT services in the Twin Cities gives you more options, is cost-efficient, and allows you to work with experienced technicians. Both can provide protection and reduce your risk, but one might work better for your specific circumstances.

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