A blend of factors is encouraging enterprises across sectors to incorporate managed services into their offerings. The term “managed services” refers to a strategic, outcome-focused collaboration delivering tailored, industry-specific expertise and proactive technology management. The managed services model is designed to help enterprises achieve their desired outcomes, emphasizing long-term value through deep insights and specialized capabilities. It fosters innovation, enhances efficiency, and secures a competitive advantage, marking a significant evolution from traditional IT support to an indispensable strategic partnership.
As part of HFS’ managed services market analysis, we conducted in-depth interviews with executives from Global 2000 companies about service delivery requirements and implementation. The executives included senior financial, operational, and business services leaders in the finance, health care, consumer goods and services, manufacturing, and retail industries in the UK and US. Leaders cited operational experience, costs to provide services, and inertia to switch to new providers as the major factors in choosing service providers.
The market is divided into two types of services: those supporting legacy applications and functions and those supporting new ones. Delivery often represents a combination of platforms and technology, and service types include expertise and process capabilities (see Exhibit 1).
Source: HFS Research, 2024
Managed services providers, including legacy business process outsourcing (BPO) and Big 4 firms, are moving aggressively into this market. Our findings indicate new applications and functions for platform-based or tech-enabled delivery and expertise- or process-focused delivery, a domain area of the Big 4 going forward. Addressing legacy application opportunities may be in play for the Big 4, but it may take out-of-the-box pricing frameworks and generative artificial intelligence (GenAI) solutions to be competitive with legacy providers, which are also building next-gen platform delivery capability.
An example of a Big 4 firm aggressively moving into managed services is KPMG, which offers an array of platform and expert-based services to address operations associated with risk, KYC (know your customer), cyber, IT infrastructure, and SaaS (software as a service), among other things.
According to Dave Brown, CEO of KPMG Delivery Network and Global Head of Managed Services, “Companies on average have three transformations running simultaneously, and to reduce their risk and speed the time to value, we see enterprises of all sizes using managed services to build agile operating models that can flex up or down to meet fast-shifting priorities. Leading providers combine advanced technology, scale, and expertise to deliver key processes while evolving at the speed of business.”
In general, our interviewees predicted less sustained demand for services related to finance and accounting (F&A), which are highly mature and have established service delivery arrangements and processes. However, the sentiment was that underlying processes must be mature to overlay managed services on top of them. Over half the enterprises we interviewed are still dealing with immature operating models and environments.
Interviewees place a high importance on service providers’ operational experience in delivering value. In some instances, this gives legacy service providers with deep client operating support expertise a competitive advantage.
There is potential for managed services to drive transformation in the operating model, particularly in areas such as risk, compliance, ESG, and artificial intelligence (AI).
Change management and service level coordination are still big issues when managed services are integrated with captive services delivery. Managed services initiatives can be considered transformative projects in their own right regarding process improvements, separate from bigger organizational transformation efforts.
Advisory around process and change management and the managed services delivery must be strongly linked. Clients want an end-to-end value proposition, and advisory begins to address the process transformation requirements. Having one partner manage the whole engagement—advisory and managed services—is critical. Clients complain that for legacy service delivery, BPO responsibilities are often split among people with no real ownership. Also, partners with service delivery experience are highly valued.
A strong technology and platform story is imperative. Enterprises want help upgrading their infrastructures as part of a managed services solution with the move away from labor arbitrage to tech arbitrage. Managed services that address new needs, like ESG and GenAI, may be just as important as addressing legacy issues around application management and risk. Enterprises may not have solutions and may not want to spend capital on implementing them themselves. As a result, technology-as-a-service solutions like process mining and GenAI are seen as valuable, especially for new technologies.
The long-term cost of delivering managed services is a top-of-mind issue. Emphasizing disruptive ways to deliver services that can lower these cost thresholds will be critical in generating interest in managed services, especially in legacy global business services (GBS) environments. Pricing flexibility will be critical.
In addition, organizations are waking up to the importance of value creation and looking for new ideas to drive business growth and support enterprise innovation beyond cost efficiency. Managed services must be part of an enterprise’s playbook for sustaining transformation and driving strategic priorities by accessing new technologies; therefore, it’s about going beyond cost efficiencies to find new sources of value.
Onshore resources are highly valued in terms of service delivery and differentiation, but there are issues with the price of these resources. Enterprises understand the challenge of striking the right balance between cost, expertise, and regulatory compliance. Effective communication and the need for onshore and nearshore resources were emphasized, particularly in managing day-to-day operations and fostering collaboration. There is a consensus that managed services can bring efficiencies and cost savings over in-house solutions.
Mid-sized companies may have opportunities to leverage managed services, but customization and size limitations may hinder scalability and repeatability. The healthcare industry may have challenges like other industries, such as mid-market retail and financial services, where highly customized solutions are common. There was general agreement that managed services should concentrate on new, complex areas where technology can be applied and clients are eager to begin.
Several specific managed services domains hold strong and immediate relevance for Global 2000 companies. These were identified in discussions with enterprise leaders as follows:
In our conversations with enterprise leaders, we discovered areas where platform technology and AI-focused approaches can be effectively integrated into managed services:
There was a consensus that AI and automation can add significant value to business operations, but companies don’t have the in-house expertise to deploy them. There is also the realization that AI and automation will be costly to implement. We have heard from enterprises that they have no real visibility on costs, and without fully understanding cost structures, it’s risky to deploy a commercially viable GenAI solution.
A potential managed service is to provide ongoing center-of-excellence (CoE) support for GenAI and automation deployment across the enterprise. This CoE could mitigate upfront capital costs and fill in the talent gaps that most companies have today.
There is a general feeling that many organizations are not mature from a process and data management standpoint. This lack of maturity makes it difficult to deploy GenAI at scale, either in a managed services context or in GBS environments. The point is that GenAI is not viewed as a panacea if the underlying process and architecture are problematic. In these environments, GenAI in a managed services context may have a marginal impact. Data modernization is a predicate for implementing GenAI; the two go hand in hand as foundations for managed services. This is especially true for back- and middle-office services.
GenAI may have a place in managed services at the sub-process level in service delivery, inferring a tactical deployment approach from an efficiency and possibly cost standpoint. An example is reconciliations offered as a managed service, using GenAI to start matching records. Another is using an AI collections agent and layering it on top of Salesforce.
At the end of the day, enterprises today still think tactically about GenAI as part of managed services and one more tool to drive efficiency and cost—not to refine entire processes or drive transformation.
Most enterprise leaders clearly understand the applications, functional deployment opportunities, and benefits of using managed services. They have a less clear view of the operating model transformation opportunities for managed services, but we expect this awareness to come with time.
Interestingly, in some instances, they can articulate the trade-offs and differences between managed services, outsourcing, and internal operations delivery as well as most service providers can. Continued improvements in data architecture, process execution, and expansion of services offered will allow managed services to be deployed at scale over the next two to three years.
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