It's now ten years since the Australian government, whipped into a frenzy by the fever of regime change, dived headlong into whole-of-government outsourcing. It's also around nine years since strong-armed government departments began to realise willy-nilly outsourcing wasn't, perhaps, the best idea. However, with contracts signed and staff already migrated, there was little to do but ride out the storm.

These days, the lessons of that fateful period, bolstered by significant technological improvements in the intervening years, have spawned major changes in the way outsourcing is handled. With service-based application architectures now commonplace and significantly improved telecommunications infrastructure linking sites at full speed, companies looking to outsource their IT these days are doing it in smaller, functional blocks that allow for tighter control and closer partnerships with service providers.

From hosted applications to managed networks, managed security, managed applications and more recently managed IP telephony, the managed services market has gradually expanded its scope to service an increasingly accepting clientele. Expanding horizontally from their roots in business process outsourcing (BPO), managed service providers (MSPs) are redefining their value proposition in terms that are relevant to today's low-cost, quick-return IT climate.

In an analysis of the market last year, IDC noted that 'discrete' managed services would grow 5.1 percent annually through 2010, outpacing traditional enterprise-wide outsourcing at just 3 percent.

This steady growth reflects growing user interest in MSPs' value proposition -- particularly as Windows Vista upgrades are likely in many companies over the next 18 months. Rolling out that desktop platform internally will be no small task for many organisations, and many will warm to letting a desktop MSP worry about the complexity.

Weighing the business case
Managed services contracts are particularly appropriate for smaller companies wanting the business value of particular technology but lacking the right expert staff -- and the financial resources to get and keep them. They're also appealing by allowing small IT organisations to keep up with the demands of large or distributed environments requiring 24x7 monitoring.

-We felt quite exposed in that we didn't have any kind of support services in our 94 remote sites," says Neil Dammerel, network manager with NSW Parliament, which recently outsourced its security management to MSP earthwave. -Now we're very much dependent on the centralised management we have with earthwave; it all just runs smoothly."

Many will remember the difficult early days of application service providers (ASPs), who struggled to achieve critical mass despite a seemingly viable managed applications strategy.

This time around, however, larger players are in the game too. Established content hosting providers like HostWorks and WebCentral have built on their rock-solid hosting infrastructure to offer relevant managed services. Also in the running are established integrators and services players, who have the experience and methodologies to deliver all-important predictability.

A wave of new entrants is also making its mark, spruiking untested models that fit particular needs. Many are finding new uses for virtualisation, which allows the easy commissioning of servers and desktops on an as-needed basis. Smartyhost spinoff Vigabyte, for example, uses VMWare virtualisation technologies to offer managed server services at prices ranging from $49 a month for a system with 40GB storage and 256MB RAM, to $99 per month for 40GB storage and 1GB of RAM.

While they can be a considerable boon, however, managed services are not without their challenges. When entering into such a contract, it's essential that provider and customer establish a mutually clear business vision -- and an understanding that arbitrarily rigid managed services contracts can compromise the whole point of the exercise. Variations are the stuff of everyday life, so make sure your MSP understands it may be necessary to resolve out of scope requests first, then worry about charging for them.

Conversations with customers that have embraced managed services also tend to bring out one more element: internal manpower. Outsourcing was all about trimming staff numbers by shifting technical staff to the outsourcer's payroll, but MSP customers typically find their adoption of managed services gives them more time to gather project management and long-term planning staff who, for once, have the luxury to think more strategically than ever.

In this special report, we look at the Victoria Police and the South West Alliance of Rural Hospitals' approach to managed services.

Managed apps prove arresting for Vic Police

It may have forced the long arm of the law to do some serious wrestling, but a major shift in application management strategy has reinvigorated the IT operations of Victoria Police and fostered a proactive partnership-based approach that has improved user satisfaction and reduced support call volumes by 50 percent.

Under the terms of a complete outsourcing contract signed years ago, more than 20 of the organisation's critical business systems were maintained by a third party, while individual business units were encouraged to choose, implement and manage their own relevant applications.

As a result, the outsourcer found itself focused more on firefighting and infrastructure maintenance than on proactive applications strategy. Over time, this approach had taken a toll on users' perception of the BITS (Business Information Technology Services) division, which was seen as far less efficient and effective than it needed to be.

Centralising management
Under the guidance of new CIO Valda Berzins, the organisation was looking for ways to improve IT's responsiveness. Ultimately, it was decided that the best approach was to change the single-provider approach to a multiple provider approach. This strategy would see applications responsibility split between an outsourced application management provider and a re-empowered BITS, which had lost most of its technical staff to the previous service provider in its big-bang outsourcing contract.

"We were seen to be sitting in our ivory tower and not being very responsive," concedes David Gung, group manager for applications management within BITS. -When we first did total outsourcing first, we transferred a lot of our expertise across to the service provider. But we figured that by centralising management of all applications and having multiple service providers, there could be economies of scale."

Victoria Police eventually contracted Fujitsu as its managed application services provider. Under the terms of the contract, Fujitsu would administer a broad range of applications on Victoria Police's behalf, working alongside the high-level managers in the revitalised BITS organisation to continually monitor and improve the overall applications environment.

To hold up its side of the deal, Victoria Police had to bulk out its technical team, since it only had around a dozen technically competent staff left inside the organisation. Providing more responsive service would require a bigger footprint of skills, so BITS went on a hiring spree that eventually brought on 38 new integration architects, applications architects, and similar strategic type roles.

Loosing the shackles
Victoria Police's new staff were charged with helping build a more responsive applications environment, but this wasn't the kind of thing that could happen overnight. Facing an organisation riddled with functional "towers" and their morass of applications, Gung needed to convince the managers of those towers to delegate applications control to the centralised BITS team. Ultimately, the promise of a leaner, more responsive operation helped this approach come to fruition.

"Recruiting an additional 38 people really let us beef up our IT governance," Gung explains, "but negotiating the transfer of resources across to the central IT department was a challenge in itself. There were existing agreements in place between the business units and third party suppliers, but I've transferred the responsibility for managing those third parties into the IT department."

Fujitsu took up the reins of Victoria Police's applications environment in early 2006. Over the next year, Gung says, the two organisations have built a new culture of proactive management that is delivering very real benefits both in terms of day-to-day operations and overall governance.

One of Fujitsu's first tasks was to review Victoria Police's application environment, earmarking ageing or inefficient systems that could do with replacing. This auditing process also involved an extensive documentation exercise that saw many applications clearly documented for the first time.

"This process highlighted a lot of areas where we were at risk," Gung explains. "Fujitsu helped us document business critical applications to a certain level that will enable any future party to support them. That's something that hasn't happened too well in the past, but we're improving all the time."

Fujitsu also introduced a more responsive process for receiving, cataloguing and -- most importantly -- acting upon user complaints and support requests. Proactive analysis of hundreds of such requests helped focus developers' efforts on particular problem areas, prioritising fixes so that outstanding problems can be fixed more quickly than was possible in the past.

A year after it went live, Fujitsu has expanded the scope of its operations from 20 applications to more than 300. Several key applications -- for example, Oracle Financials and the Victoria Police firearms registration system -- are still managed by other parties, but by and large the new situation has eliminated the mess that came from having many business units managing their own applications.

The new BITS has gathered momentum as previously separate "tower" managers warm to the new approach. "Now, all the business units are coming to us for assistance," Gung says. -A lot of them have learnt from their own experiences, where they may have developed 13 separate databases for their local needs, then found it's unworkable. We've integrated those and converted them into a single, more robust database for corporate use."

Locking up proactivity's benefits
A year later, the benefits of the new managed application services arrangement couldn't be clearer. Most significant, support calls from Victoria Police's 13,000 staff across the state have dropped more than 50 percent, largely because involving Fujitsu in both helpdesk and application strategy has let it proactively identify and stamp out problems before they become chronic issues.

"There has been a lot of change, and it has been noticed by our users," says Gung. -Under the new and proactive model, they will try and improve the environment and reduce the cause of the firefighting. They'll do their analysis and say to us 'if we can change this particular application it will reduce your calls by so and so'."

For example, Fujitsu recently identified several issues with Victoria Police's content management system that were causing regular crashes and a flood of calls from frustrated users. Fujitsu proactively noticed the spike in calls, identified the problem, proposed a remedy, and resolved the problem before the support burden got out of hand. Since then, the IT organisation has received exactly zero support calls from users related to that system.

That's the kind of benefit that comes, Gung says, from tying one's future to that of a managed application service provider that is not just working to meet arbitrary service level agreements, but as applications manager works to aggressively root out underlying application problems.

"These days, we get a lot of positive feedback from the users -- for example, that a certain process used to take so many minutes to run and now it takes just seconds," he laughs. "My regular [status] meetings with Fujitsu used to take two hours, but now we're usually done in half an hour because of the lack of issues there. And if they're spending less time solving day to day problems, that's more time we can spend on other developments and enhancements."

These aren't empty statements: since bringing Fujitsu on board, Victoria Police has also been able to embark on a major upgrade of its data centre facilities, with a new disaster recovery site -- expected to be completed next month -- adding much-needed predictability to the performance of the organisation's data infrastructure.

"Because of decreasing day to day firefighting, we're able to use baseline resources within the contract to do more productive and strategic work," Gung says. "The savings we got going from a single provider model enabled us to build this capability."

Managed network, VoIP makes innovation a SWARH thing

With 147 sites spread across 50,000 square kilometres, there was never anything normal about the challenges facing SWARH (South West Alliance of Rural Hospitals) when it began planning to network them together. Nearly a decade later, however, a commitment to managed services has turned the organisation's network -- and, more recently, its Voice over IP (VoIP) -- into a paradigm of co-operative service delivery.

Established in 1999, SWARH grew out of the recognition that Victoria's centrally funded but distributed management approach to healthcare was antithetical to the principles of sound network management. Based out of the coastal city of Warrnambool, SWARH became a centre of gravity for technological investment in the region, which bridges disparate healthcare services spanning the whole of south-western Victoria.

From its early days, the jointly funded SWARH called on networking expert Dimension Data to help install and configure a far-reaching Cisco Systems based wide area network (WAN) that would provide reliable connections between the sites. This task brought together a broad range of equipment, ranging from fibre-optic backbones to massive network switches and microwave trunks, that coalesced into a highly available, mission critical network over which Dimension Data maintains constant vigilance.

Ongoing management of such a large network obviously involves both considerable amounts of travel and the application of very smart network management technologies. This last fact, and the sheer size of the network SWARH is running, have long given it a certain priority in accessing new Cisco Systems technologies; CIO Garry Druitt still recalls how an early e-mail from Cisco head John Chambers -gave me confidence that our interests were in fact Cisco's interests".

More than firefighting
By 2003, however, Druitt had become concerned that the service, while effective, was focused more on day-to-day management than strategic, long-term improvement. This wasn't a shortcoming on Dimension Data's part, but rather a result of the results-focused agreement that was in place. Druitt soon began a period of negotiation that was to completely reinvent the notion of managed services.

-We had gotten to a situation where we would ring up [for support] and would be told the issue was outside of the agreement, and that they needed an order number before they could help," he recalls. -We needed an agreement where they would understand that if SWARH rings with an issue, they would solve the issue and not worry about payment. We had to say 'we don't care what the network looks like; we just want it end to end'."

The process of revisiting and renegotiating the arrangement with Dimension Data was a slow but steady one: it took 18 months of give and take before the organisations worked out an agreement that satisfied them both.

While the new arrangement is slightly more expensive than the old one, Druitt says it was still cheaper than the alternative. His calculations showed that SWARH would have faced a bill of up to 50 percent more -- including manning a three-shift roster, technical training, benefits and so on -- just to match the service levels provided under the managed service arrangement.

-We believe in selective outsourcing where it makes business sense, and in this case it makes sense," he explains.

A different voice
Revisiting the managed services arrangement was particularly important when it came to SWARH's VoIP environment, which from its early days was built around Cisco Systems VoIP technologies. In the early years, those technologies were completely proprietary to Cisco, but evolving standards and improved call management have gradually opened up the environment to facilitate addition of new types of end points.

In SWARH's configuration, VoIP is managed through a single cluster of Cisco CallManager servers, which service each remote site via existing WAN connections. More than 3000 VoIP handsets and 200 videoconference units are spread across the sites, which range in size from GP clinics to large regional hospitals.

Because reliable phone communication is absolutely critical in the healthcare environment, the collaborative problem solving philosophy behind the new managed services deal -- rather than trouble-ticket driven firefighting -- was particularly appropriate for the managed VoIP environment.

-It's a complex environment here, but if we can have a vendor manage that, it's quite effective," says Druitt. -Moving from a traditional support base to the new environment is a significant process, and was a significant improvement for Dimension Data too. [With voice] everything is a critical issue and has to be managed quite carefully, has to be service oriented, and has to be quite auditable."

To this end, a core team of Dimension Data staff keep a running watch on the status of SWARH's voice services by using SNMP to check the status of each networked device every three minutes. This doesn't just mean making sure everything is up and running, however: the managed service team also checks on call quality and service availability to ensure that the VoIP environment is performing from a service as well as a technical perspective.

Towards the future
Dividing strategy and execution is often held up as a major benefit of managed services, but without proper controls it can be easy for in-house staff to also get involved in day-to-day operations. To avoid this, SWARH has physically prevented its technical staff from being able to access any device on any part of the network.

-Nobody within SWARH who even pretends to have knowledge of networks can access the network devices," Druitt laughs. -We do that internally to manage stability: once you have internal staff starting to fix things, they will be fixing things all the time. Their role is not to fix the box, but to get it fixed."

This approach may be unconventional, but it has helped reinforce the point that the in-house technical staff are there not to keep the network running, but to make sure Dimension Data are quickly made aware of things that need to be fixed. It has also helped the technical team focus more on strategy, with several recent initiatives pointing the way forward for SWARH and its constituent organisations.

A recent disaster recovery upgrade, for example, has increased reliability and provided redundant links to increase service uptime. Making this happen has been considerably easier than it might have been, because the SWARH model has long been built around a centralised and clustered computing approach that requires only one target for the DR configuration. Improving reliability to satellite locations thus becomes an issue of maintaining communications links, not trying to mirror many clusters of servers scattered around the countryside.

The SWARH network has also recently been supporting a videoconferencing based telemedicine trial, which has linked healthcare providers in 29 remote towns so they can access specialists in Victoria's larger cities without having to travel to them.

With the flexible managed services agreement in place, Druitt has the confidence to pursue these and other business plans without worrying about whether SWARH's extensive and complex network infrastructure is up to the task.

-It's a long change management process to get people away from the technology into focusing on productivity using technology," he admits, -but our real role in organisations is to improve the service product within health. That's our real role and where we're targeting. And in the end, if I've got the confidence to go on holiday, that says something."