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Next-Generation Managed Services: A New Approach to IT Modernization

The Road to Reshaping Business is a series of articles exploring industry trends, strategic imperatives and practical steps for enterprise leaders who are looking to embed continuous advantage into their operations. In this article, we explore the obstacles many organizations face when modernizing their IT function and examine the role of next-generation managed service providers in helping steer critical initiatives.

Technology estates are becoming increasingly complex and inflexible for many organizations. Between mergers and acquisitions, the need to prioritize core versus emerging operations, business cycle-driven investments, and a history of getting by with aging technology—the IT function has often tolerated these challenges. Rather than modernizing their technology, they’ve held onto the status quo, continuing to maintain their systems—or worse, having to continuously triage legacy systems to keep up with changing conditions.

But rapid market shifts are making the previously tolerable, intolerable. Customer and business user experience expectations are rising. Regulations are mounting. Sustainable technology and security are increasing priorities. And emerging technologies like cloud, data, AI, and more recently Gen AI have spawned a new era of modernized IT.

Put simply: modernizing today’s IT function can be more than just updating technology. It’s about shifting the orientation of the function from a business service provider to a business value driver. In this article, we explore barriers to making that crucial shift and highlight tips for helping successfully drive modernization programs.

Rethinking IT incentivization and success measurement

An effective method for changing the way we approach IT modernization is to reconsider the incentives that drive day-to-day operations and deep-seated perspectives of what success looks like. Historically, there have been three ways the IT function has been inadvertently incentivized into being inflexible and unable to keep up with the pace of change:

  1. Myopic focus on performance metrics. When you measure IT service performance based on static Key Performance Indicators (KPIs) like uptime, response time, and resolution time, the main goal of the team becomes fixing issues. Instead, if you incentivize more proactive problem-solving, incremental value generation, automated issue resolution, user enablement, or self-help, your team will have less busy work and more time to adapt to higher priorities. Rather than focusing on metrics around satisfaction, more value can be generated by metrics that focus on broader business impact.
  2. Weighing near-term vs. long-term views of success. When you orient your IT operations around reactive solutions to short-term problems, it can be difficult to maintain a clear focus on bigger strategic outcomes and planning for long-term operational success. An example of a more future-thinking mindset is the willingness to accept some near-term imperfection—think “MVP,” or minimally viable product initiatives. This can feel experimental and require additional time and investment upfront but ultimately has the goal of creating a faster path to greater long-term value.

Although it may sound obvious to some, the key is to think beyond the walls of your IT function and to measure and deliver what is most important to your business.

Inviting the outside in. Next-generation managed services

Like legacy IT, conventional outsourcing and managed service providers (MSPs) have traditionally delivered reactive, short-term wins. Through next-generation managed services—or what Deloitte calls Operate services—we are seeing organizations repositioning IT as a reliable business value driver. This is materializing in a variety of ways for Deloitte clients, but here are three big wins we see repeatedly:

  1. Proactive issue resolution and elimination of low-value tasks and processes. It’s one thing for a MSP to fix problems that arise with existing systems. But it’s far more valuable to prevent the problems before they happen. In our opinion, predictive and proactive maintenance should always trump response and resolution time. And using MSPs whose capabilities are not just enabled but underpinned by automation can dramatically increase long-term gains by freeing up time and resources to optimize and innovate.
  2. Reducing technical debt. Simplifying complex IT programs and limiting unnecessary system customizations can significantly support the scaling and futureproofing of your ever-evolving technology environment. By helping you govern change, simplify integration architecture, retire low-value applications, and cleanse data, the right service provider can help limit unnecessary complexity so you can unlock more value from emerging applications and technologies like SAP S/4HANA or Gen AI.
  3. Reorienting operational focus from narrow metrics to strategic business outcomes. Instead of prioritizing traditional IT metrics mentioned earlier in this article, Operate services favor metrics that are aligned with strategic business and IT objectives. For example, if an enterprise has a goal of reducing Sales, General & Administrative (SG&A) costs, measuring the incremental improvements of supply chain processes could be of greater value. Even modest shifts in IT metrics and culture can drive meaningful value for an organization. With a combination of industry and domain experience alongside change management capabilities, the right service provider should help IT “walk in the shoes” of both their customers and fellow employees and develop KPIs that prioritize business value.

In the face of new regulatory challenges and market complications due to commodity price fluctuation, a large process manufacturing organization was looking for innovative ways to improve its financial and logistics processes. Its legacy SAP enterprise resource planning application MSP offered basic support capabilities but was unable to generate the insights required to truly modernize its business-critical IT operation. Through Deloitte Operate Application Management Services, the manufacturer has introduced advanced automations across its entire SAP estate, resulting in more efficient finance and supply chain processes while also delivering analytics that allowed enterprise leaders to adapt to new challenges and improve business outcomes. The solution ranges from the incremental deployment of robotic process automation to reduce manual steps in finance processes and the cleansing of the organization’s material master (central master record for logistics) to help optimize inventory.

Setting yourself up for success

In today's fast-paced business environment, modernizing the IT function is no longer just about upgrading technology, but shifting the orientation of the function from a business enabler to a value creator. Providers of next-generation managed services, or Operate services, are emerging as important players in helping organizations achieve this shift. These third parties can help businesses unlock more value from emerging applications and technology by helping eliminate low-value tasks and processes, reducing technical debt, reorienting operational focus towards strategic business outcomes, and rethinking outdated approaches to incentivization and success measurement.

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