Can you outsource innovation? Have you thought about an MSP?

A managed service provider, in essence a way to more efficiently “lease” access to economies of scale that the main business cannot attend to reach. But, let’s peel this onion further. An MSP, really can only aggregate and create scale of things that could be done in a standard way and be presentable in a similar form to many parties.

MSP’s don’t really innovate, or are not the source of innovation in an industry, they just prey on the possibility of something becoming less of an interesting novel and unique thing, by virtue of acceptance and widespread use that creates an industry standard, which they can use at scale and do more efficiently outside firms that inside them.

What are the many perils when innovation activities and MSP’s are mixed, for the clients and the MSP itself?

If we look at the client, MSP’s were used traditionally in settings that were somewhat stable and predictable, clearly related but outside the firm core margin making activities, and where it would have never been able to attain the economies of scale. Nowadays, these activities are becoming less predictable and more changing; in a digital era one would argue a firm needs to have control of certain activities that while not key to its current business are key to its renewal as a firm, and to the possibilities of innovating. Innovation, born in house, then produce an ahead of the pack effect, which redefines industry standards again, creating another cycle for the MSP’s to chase and try to transform into a standard that could be commoditized.

So, then the argument for wannabe industry leaders or innovation generators of not looking at MSP’s for its digital transformations seems defendable, as by definition the solution MSP’s can provide will be standard and commoditized making a partnership with them an inhibitor for the creation of a unique innovation. However, can we really ascertain that a firm will be able to do everything well? The answers is still no, even in the digital era, so what is the place for MSP’s and when to use them?

Let’s look at the MSP side of things, and particularly one trying to commoditize digital activities so firms can run on top of their services. For an MSP, when you get outside the realm of a traditional outsourcing business, and enter new less commoditized realms, aka Digital, the biggest risks is that it never attains the economies of scale that sustain its business model. Without these, margins might not be enough, to sustainably commit, to large investments, overheads and software licenses that are typical of an MSP’s setup, with the subsequent risk of under servicing, and never attaining the efficiencies that should be characteristic of these firms. So, can the MSP’s really translate its current business model to the new digital era? Is it just the same (MSP business) or done in a different way?

For the first question, wether you should use an MSP as an innovator, you should and shouldn’t. It should because if you pick the right activities it might provide you with a reduction of costs enough to help you innovate on other sides of the business. It shouldn’t since introducing it in the wrong side of the business just kill the capacity to innovate silently suffocating the firm unaware of it.

For the second question, wether the MSP should try at translating its business model into digital, it’s an even more complicated one. The activities have to be clearly commoditized, and if they are not the MSP should be wise enough to call the time when business by itself needs to be created, separating it into an independent unit that will compete in the market with its former clients. The killing dance is between being stuck in the middle, of be or not to be an MSP, or be clear that sometimes they are just incubating a new way of doing things.

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