Managed services: A simplified guide to the options

The reliance on managed services has increased significantly in recent years. A 2022 LinkedIn poll of financial professionals found more than half (58%) already leverage third-party support for at least 25% of their operations workflow processes.

As the need for operational speed and flexibility grows more urgent, financial institutions of all types are re-evaluating their outsourcing options. However, adoption rates are still far lower among small and mid-sized service providers than among their tier-one peers.

One reason for the hesitation is the lack of clarity around managed service options and how they integrate with and support internal operations. While a raft of definitions and labels have been applied to managed services, including "operational due diligence," "operational support," "outsourcing," and "team augmentation," the proliferation of specialized terms has only served to create more confusion.

However, there is a much simpler way to understand and navigate the options.

The fundamentals of managed services

While the myriad definitions for outsourcing can help you navigate important service details, such as location strategy, technology usage, and commercial and governance frameworks, these considerations are secondary to an understanding of the delivery models themselves.

In simple terms, managed services can be divided into two models: capacity creation and managed process.

Capacity creation is a "people-based" service in which team augmentation focuses on providing the headcount needed to perform specific roles and tasks. Managed process is an "output-based" service in which human resources are blended with process improvements and technology enablement to achieve specific service levels or deliverables.

Both are viable options for financial institutions that seek to enhance efficiency and manage growth, but the choice of model will depend on the organizational culture, short- and long-term objectives, technology ecosystem, and other factors.

Capacity creation: Building on the status quo

Capacity creation supports an expansion of the status quo and assigns ultimate responsibility for managing and delivering outcomes to the organization rather than the vendor.

This service model tends to fit the needs of organizations that prefer to add capacity by augmenting their team with on-site or remote workers whose efforts are integrated into their existing processes and technologies.

While the vendor finds and places the required talent, the client remains responsible for ensuring that adequate resources are allocated and service goals are met.

If your organization fits this profile, capacity creation may be the right choice.

• You want to retain responsibility for managing the organization's resource requirements.
• You are not seeking to change or optimize existing processes and technologies, and you prefer not to disrupt BAU.
• You have predictable workload requirements or are comfortable with pricing that varies based on fluctuating people-hours and market rates.
• You are more comfortable measuring value in terms of available capacity rather than on pure delivery outcomes.
• You are reluctant or unable to share data with external service partners.

Managed process: Transforming the outcomes

A managed process supports growth and helps the organization establish new service levels that increase revenue and create market differentiation.

A managed process supports organizations that need to increase capacity while enhancing their service's speed, efficiency, and agility, and the experience they deliver to customers and investors. The vendor is responsible for orchestrating all resources required to meet service goals, including processes, technologies, and a global pool of workers. The vendor is also fully accountable for agreed-upon deliverables and is incentivized to maximize efficiency.

If your organization fits this profile, capacity creation may be the right choice.

• You prefer a predictable, fixed, transparent pricing model based on measurable output.
• You need a service capable of accommodating unexpected capacity surges or labor volatility.
• You are motivated to improve efficiency, profitability, and competitive position through proven, proprietary vendor technologies and processes.
• You are comfortable with cloud technology and are willing to share data with the vendor.
• You prefer to measure ROI in terms of measurable output and performance improvement.

Understand your options

Learn more. Read "Demystifying Managed Services for Financial Institutions", a white paper that dispels key misperceptions and explores the new service models that are supporting financial institutions of every size.

Download your copy here.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.