By Prytek’s Co-Founder and CEO, Andrey Yashunsky
One of the biggest challenges facing entrepreneurs and corporate leaders is to focus on doing the things that they are good at, rather than the numerous administrative and operational tasks that take up most of their time. The reality is that this rarely happens, with decision makers habitually bogged down in the daily running of the business. As a result, their organizations often become bureaucratic, leaving them exposed to the slicker offerings of smaller, more nimble peers.
One area notorious for its ability to suck up huge amounts of time and budget, often with disappointing results, is technology programs. Amid soaring consumer demand for digital, alongside rising regulatory and stakeholder obligations, almost every company in the world is implementing some kind of digital transformation. However, as software is developed or acquired, the complexity it creates is often more of a headache than the problems it is designed to resolve. And the cost is significant. At many companies, the budget for integrating software is often 20 times the cost of the software itself.
Faced with these challenges, leading companies are now starting to take a different approach. In a new take on outsourcing, they are turning to managed services to run generic aspects of their operations, many of which are non-value creating in any event. From administration to HR and client interfaces, business operating platform-as-a-service (BOPaaS) provides an elegant solution to the problem by taking it out the company’s hands altogether
“Tech spending is a major component of most companies’ costs,” says Andrey Yashunsky, CEO of managed services provider Prytek. “For example, at major investment banks, it ranges from 14% to 39% of total operating costs. Naturally, a CEO would rather adopt a technology solution that covers multiple bases than add yet another piece of software.”
Across business activities, there are examples of how third-party services can help companies create operational efficiencies. In banking, the trend has been to build or buy tech solutions for activities from customer onboarding, to risk management and post-trade processes. As a result, banks are engaged in sometimes hundreds of vendor relationships, often to the detriment of client servicing. Furthermore, technology budgets have ballooned – one reason that banking cost-to-income ratios have remained stubbornly high over recent years.
Equally, in activities such as recruitment, companies spend a lot of time sourcing information about possible recruits – with social media platforms playing a vital role. Through managed services, driven by advanced analytics and dedicated experts, the whole process is lifted out. In education meanwhile, some leading US universities, are using managed services to white-label online learning modules. This is particularly useful in fast-evolving subject areas such as cyber security. Where knowledge quickly goes out of date and expertise is hard to come by (there are an estimated 2.7 million open cyber security positions in the US), managed services ensure both consistency of provision and that curriculums are in line with the latest innovations.
“Where managed services have an edge is that they can leverage economies of scale and dedicated technologies to minimize costs, as well as get the job done,” says Yashunsky. “Through technologies such as machine learning, providers are able to hoover up huge amounts of data, leading to much more accurate decision making.”
While managed services are a step forward in tackling business problems, not all versions of the proposition are the same. Traditional managed services are often little more than labour-intensive offerings, in which efficiencies are created by locating operations in low-cost geographies. While this approach can make economic sense, many companies have found there is a trade off with levels of service. Leading managed services companies, therefore, have started to take a different approach, combining technology with on-shore talent, and thereby raising the bar on levels of service. At the cutting edge, companies are creating vertically integrated ecosystems of technology under the BOPaas model. Prytek has combined that approach with a dedicated investment strategy to bring technology providers into its ambit.
“A principle of private equity investment is that it can generate value through specialization,” says Yashunsky. “We have taken the same concept to managed services, acquiring a portfolio of technology companies that both ensures we can serve our clients through the value chain and creates synergies that enhance our overall offering.”
Prytek has grown rapidly since it was founded in 2017—a fact that reflects a secular trend playing out in the business services sector. Until recently, software-as-a-service was the buzzword that dominated C-Suite conversations around technology transformation. As a result, SaaS valuation multiples grew exponentially during the pandemic, reaching 16.6% for public companies by the beginning of 2021. Now, however, that narrative is starting to change, with many SaaS companies remaining unprofitable, amid high sales and marketing costs, as well as heavy R&D budgets.
Leading providers, meanwhile, are realizing that the real money is made not from software but from the services that support them
“Tech companies entering their growth phase will quickly realise that they won’t make much profit from selling one-off software licenses,” says Yashunsky. “In fact, the cost of selling licenses is greater than their income. Instead, we have seen companies making a lot money from services that are upsold with products.”
The new era of managed solutions will be defined by platforms that offer a full menu of managed services, Yashunsky says. The payoff for companies will be continuous access to cutting-edge solutions, lower costs, and the freeing up of creative spirits that will enable them to serve customers better and add value to the bottom line.