Ensure Business Alignment in Managed Service Agreements

Prepare your organization to maximize value from your managed service providers.

Analyst perspective

Building a comprehensive, business-aligned managed service contract is not about reinventing the wheel but pursuing the right process rigorously.

Manish Jain

Principal Research Director, CIO Strategy
Info-Tech Research Group

When Emily Bennett, CIO of Acme Corporation, faced the task of outsourcing an IT service through a managed service contract, she recalled a painful lesson from her past. A previous contract, though flawless on paper, had failed to deliver value because it didn’t align with business goals.

Determined not to repeat the mistake, Emily approached the new agreement with a fresh perspective. She gathered her leadership team and their vendor, Zenith IT Solutions, for a five-day workshop with an outside contract management expert. Together, with a well-defined process, they reviewed and reframed the contract – not just as a list of services but as a strategic partnership.

Instead of focusing solely on technical service level agreements (SLAs), they defined metrics tied directly to business outcomes, like time to market and customer satisfaction. They outlined shared responsibilities, a governance model for accountability, and flexible terms to adapt to future needs.

Six months later, Acme’s outsourced platform was thriving, supported by a contract that didn’t just manage services but aligned with the company’s strategic objectives. Emily smiled, knowing this wasn’t just a contract – it was a foundation for trust and long-term success.

Although this is not a real story, the smile on Emily’s face can be real for you, the CIO, and your team.

This blueprint will walk you through the process of reviewing the draft of your managed service contract and ensuring that it defines a clear scope and role for the service provider and your team and embeds a governance structure that actively monitors service value and performance.

This methodology emphasizes a strategic approach – one that prioritizes measurable outcomes, aligns with organizational expectations, and adapts to an evolving IT landscape.

Is this the right research blueprint for you?

This Research Is Designed For:

• The CIOs and IT leaders who:
  • Have already released RFPs for IT service and received proposals from their managed services providers (MSPs).
  • Want to maximize value by aligning their managed service agreement with their organizational expectations.
• Directors or managers who:
  • Are part of IT procurement or the vendor management office (VMO) and are responsible for managing IT service providers.
  • Are responsible for writing the contract, negotiating with MSPs, and/or administering the contract.

This Research Will Help Them:

• Ensure business alignment in your managed service agreements by using the Managed Service Agreement Evaluation Tool and other tools alongside this storyboard to:
  • Provide options related to various clauses in the managed service agreement.
  • Clarify strategic objectives, define scope precisely, and validate vendor responsibilities.
  • Review commercial aspects of the contract and key terms and conditions (T&Cs).
  • Integrating performance and risk management in the contract.
  • Validating that exit and termination options align with your organizational realities and environment.

This Research Will Also Assist:

• IT service managers
• IT procurement teams
• Contract management teams
• Senior IT leadership

This Research Will Help Them:

• Understand various T&Cs written in managed service agreements.
• Understand the importance of agreed-upon contracts and conditions to extract more value from service providers.
• Understand internal and external obligations emerging from the managed service agreement.

Refer to Managed Service Contract Taxonomy for full taxonomy.

Executive summary

Info-Tech Insight

The key to creating a comprehensive managed service contract is thinking about what outcomes you are expecting, what terms are required to achieve those outcomes, and how you would negotiate and enforce each term, even before you share the first draft with the service provider.

What is managed service (and what isn’t it)?

Predictable Pricing

Price not necessarily fixed but highly predictable for a specific scope.

Provider Responsible for Operational Management

Client not responsible for day-to-day management of resources.

Scalability and Flexibility

Very specific scope but equipped with a defined change management process.

Better Capability or Not a Core Competency

Provider is more capable than the client to deliver on the service in scope, or the service is not client’s core competency.

Defined Service-Level Agreement

Define only what is expected, not how it should be done

Any service being delivered and expected to follow these five characteristics is a managed service. However, failing any of these characteristics means it is not a managed service.

Refer to Managed Service Agreement Taxonomy for full taxonomy.

The MSP market is growing, but not all providers are the same

Just because you are procuring an IT service from an MSP doesn’t mean you are procuring a managed service.

75% of their revenue from managed services and Hybrid MSPs provide managed services alongside other offerings." loading="lazy">

Info-Tech Insight

While IT services are expected to have a CAGR of 2% to 4% over the next 10 years, the IT managed service market is expected to grow 3x to about $400 billion by the end of 2024 and to about $1.2 trillion in the next 10 years. Much of the estimated growth in IT services is expected to come from adoption of the managed service model for IT services by the hybrid MSPs, and that’s why drafting business-aligned managed service agreements is extremely critical.

Managed service IT models are growing in popularity, but value expectations are not the same

Ensure that you have articulated your organization’s expectations before engaging in managed service.

According to CompTIA, of all organizations that engaged with an MSP:

• 4% reported to save nothing
• 50% saved 1% to 24% in annual IT costs
• 33% saved 25% to 49%
• 13% saved more than 50%

Source: CompTIA 2022

Understand the key challenges of engaging in managed services

When engaging in a managed service, you are working with an organization that is likely different from your organization in its culture, policies, and practices.

Balancing Strategic and Operational Needs

Trying to balance long-term strategic objectives (e.g. innovation) and operational requirements (e.g. immediate cost saving) can lead to conflicting priorities.

Managing Stakeholder Expectations

Aligning diverse expectations from different departments and executives, each with unique goals, can complicate contract requirements and agreement.

Ensuring Flexibility for Future Change

Designing a contract that supports evolving technologies and business needs without locking the organization into rigid terms is a complex task.

Managing Risk

Clearly defining responsibility for potential risks and service failures requires careful negotiation to prevent future misunderstandings.

Managing Value and Relationships

Building a collaborative relationship while maximizing value and avoiding overreliance on a single vendor can be tricky, especially with critical service dependencies.

Be aware of common obstacles when engaging in managed services

These barriers make engaging in managed services even more challenging:

At the time of drafting agreements:

• Vague scope of services
• Ambiguity in performance metrics and SLAs
• Poorly defined governance structure
• Unclear responsibilities and roles
• Insufficient risk management and compliance
• Lack of adaptability to future needs or technology changes

At the time of executing agreements:

• Misalignment between contract terms and operational realities
• Poorly defined communication hierarchy
• Ambiguous dispute resolution system
• Unclear criteria for change requests
• Lack of continuous performance monitoring
• Ambiguous RACI

Inefficient contracts and contract management practices cost millions.

Poor contract management continues to cost companies 9% of their bottom line.

Source: World Commerce and Contracting (April 2020)

As of 2024, the GDPR has levied noncompliance penalties nearing 5 billion euros. Many of these fines had their geneses in ambiguous agreements between multiple parties.

Source: Data Privacy Manager, 2024

Map out your key managed services risks…

Refer to Tab 6b, Risk Matrix, in the Managed Service Contract Review Workbook.

…And understand these risks in more detail

Ambiguous Scope of Work

Failing to clearly define the scope of services leads to misunderstandings and disputes.

Inappropriate Commercial Model

Being unable to assess the pros and cons of contracting models leads to unexpected bills and misalignment with organizational expectations.

Unclear SLAs

Vague or unrealistic SLAs lead to stakeholder dissatisfaction and conflicts. SLAs must be specific, measurable, achievable, relevant, and time-bound.

Inadequate Performance Metrics

Assessing the success of services without proper metrics is challenging. Contracts should include clear performance metrics and methods for measuring them.

Lack of Flexibility

Lack of flexibility may result in outdated or ineffective services. Contracts should account for changes in technology, business needs, and regulations. For Example, include built-in flexibility to scale service levels (additional resources and resource reduction) as demand fluctuates and pricing transparency when flexibility measures are exercised.

Poorly Ambiguous Responsibilities & Language

Ambiguity leads to finger-pointing and delays in issue resolution. All parties should have clearly defined roles and responsibilities including having communication/relationship mapping between provider and client stakeholders (steering as well as transactional), from the C-suite down to line-level staff.

Insufficient DRP and BCP

As disruptions are part of business, failure to plan for these scenarios can lead to significant delays. Contracts should address how the service provider will handle disasters and ensure business continuity.

Limited or Unclear Communication Protocols

Poor communication leads to misunderstandings and delays in addressing problems. Communication plans should clearly articulate role mapping, frequency and agenda of meetings, and reports such as BAM/QBR meetings, status reports, etc.

Inadequate Security Measures

Failure to address security concerns can result in breaches and data loss, major challenge for the organization. Security measures should be clearly outlined to protect sensitive data and systems.

Failure to Address Change Management

Contracts should include a process for managing changes to services, including how changes will be requested, evaluated, and implemented.

Neglecting Relationship Management

Neglecting this aspect leads to poor collaboration and contract dissatisfaction. Building a strong relationship between the service provider and the organizational leadership is essential.

Inadequate Data Processing Agreement

Not having adequate data processing measures in place may lead to major monetary penalties, especially if you are in a jurisdiction governed by the GDPR or similar regulations. So, ascertain data processing role and responsibility.

Refer to Tab 6b, Risk Matrix, in the Managed Service Contract Review Workbook.

A business-aligned contractual agreement is key to success in managed service engagement

Driving success through strategic alignment – a business-aligned contract transforms services into strategic assets.

Key elements for business alignment in managed service agreements:

• Clear Business Objectives: Outline precise goals the contract should support.
• Defined Scope and Requirements: Set clear parameters for services.
• Service Levels & KPIs: Ensure SLAs and KPIs are tied to business outcomes.
• Risk & Flexibility Provisions: Address adaptability for changing needs.
• Governance & Review Mechanisms: Establish oversight for continuous alignment.

And building trust into the vendor relationship drives flexibility within and beyond the contract

“It's a two-way street. As a client, we always asked, ‘What can we do better as a customer to make you, as a vendor, more successful?’ It needs to be a win-win.”
– Sarah Pletcher

“The relationship matters; when contracts are treated as separate from the relationship, they risk becoming outdated or ineffective in the face of changing business needs.”
– Kate Vitasek

Build trust through…

• Transparent Communication: Emphasize regular, open updates.
• Shared Goals: Align on long-term objectives.
• Mutual Respect: Value each party’s expertise and input.
• Genuine, Honest Feedback: Provide and receive honest performance insights.

Flexibility results in…

• Adaptability to Change: Much easier adjustments to contract terms, if needed.
• Innovation Potential: Encourages joint exploration of new solutions.
• Reduced Risk: Trust leads to smoother issue resolution.
• Relationship Maturity: Paves the way for shared outcomes and risks

Case study – brief

Contractual flexibility is the litmus test of the longevity of a managed service contract.

Industry

Payments

Source

Info-Tech Research Group

Situation

In a significant project for a payment solutions organization*, an IT executive was tasked with replacing an existing contact center solution, a decision involving a hefty commitment of $2 million to $3 million over three years.

This initiative was crucial, as the contact center was essential for supporting external clients.

The executive recognized the need for an approach that would ensure that the new solution would meet current requirements and align with the organization’s future goals.

Approach

The executive embarked on the project with a detailed RFP process that allowed her to articulate the organization’s current and future needs.

She leveraged various aspects of contract management and negotiation to achieve success. Key aspects around which she structured the whole service provider engagement were:

• Detailed RFP development
• Service provider engagement
• Contract negotiation
• Identifying gaps and mitigating risks
• Continuous connect with business
• Contractual flexibility

Result

The transition to the new contact center solution was successfully executed, with the organization achieving substantial cost savings and aligning the new service with both current and future operational needs.

The executive's proactive contract management approach not only facilitated a smoother service provider relationship but also equipped her team to avoid common pitfalls associated with contract negotiations.

This experience underscored the importance of thorough preparation, clear communication, and flexibility in contract management, ultimately leading to a successful implementation that enhanced the overall client support experience.

*Anonymous large Canadian payment solution company

Case approach – contractual flexibility gives the negotiation power

Flexibility in contract terms leads to long-term contract sustainability. Review contract terms, especially for long-term (more than a year) contracts, to highlight instances that are extremely specific to current business scenarios and may not be flexible enough to accommodate small variations due to changes in the business environment.

Detailed RFP

The RFP was meticulously crafted to include all business requirements and future objectives. This proactive approach helped the executive gather comprehensive service provider responses that addressed both immediate and strategic needs.

Identifying Gaps and Mitigating Risks

Throughout the implementation phase, the executive remained engaged with the service provider to clarify and address potential issues. Despite the thorough RFP process, unforeseen "gotchas" surfaced, particularly regarding the migration of call recordings. The organization initially overlooked the necessity of this requirement, leading to additional costs.

Service Provider Engagement

The selection process involved extensive service provider reviews, including months of discussions and product demonstrations. This allowed for a thorough understanding of each service provider’s capabilities, as well as their roadmaps, ensuring that they aligned with the organization's long-term vision.

Continuous Connection With Business

By recognizing the business's priorities, the executive effectively navigated the situation. After consulting with the legal team, it was determined that the migration of older call recordings was unnecessary for legal purposes. This insight helped the business avoid unnecessary expenditures and focus on more relevant training resources.

Contract Negotiation

With a negotiation period lasting two and a half months, the executive showcased her negotiation skills, ultimately saving the organization nearly $1 million on the contract. During negotiations, she emphasized critical contract aspects such as data residency, data privacy, and PCI compliance. This focus was vital, especially since the new solution was cloud-based.

Contractual Flexibility

She ensured that the contract included language that allowed for negotiation and problem-solving with the service provider. This foresight was crucial in addressing unexpected challenges, enabling a collaborative approach to resolving issues.

Info-Tech’s methodology for assuring business alignment in managed service agreements

Ensure Business Alignment in Managed Service Agreements

Building a comprehensive contract is not about reinventing the wheel but about pursuing the right process rigorously.

Blueprint deliverables

Each step of this blueprint is accompanied by supporting deliverables to help you accomplish your goals:

Managed Service Contract Review Workbook

This Excel workbook contains a set of tools and templates – including model validation, a vendor selection rubric, service scoping, a traceability matrix, roles and mandates, an OCI responsibility matrix, a staffing plan, and a risk register & risk matrix – that will help you bridge any gaps found during the contract review process.

Sample Managed Service Agreement

This Word template contains key sections like Overall Scope of Work and Solution Proposal that you may be able to use to draft a managed service contract.

Managed Service Agreement Taxonomy

This taxonomy file comprises terms, definitions, examples, and case studies related to the managed service procurement model and IT vendor management disciplines. Many of them are directly referred to in this blueprint, and others are required to understand the context.

Key deliverable:

Managed Service Agreement Evaluation Tool

Use this tool to review the draft of a managed service agreement before it is signed and to identify and prioritize the terms, conditions, and SLAs that are critical to your organization.

If you are drafting a contract from scratch and not provided one by the service provider, you may use this tool along with the Sample Managed Service Agreement as a checklist to ensure it is fully aligned with your business expectations.

Your organization should aim for a "fair deal" set of clauses that will provide the required protection for the buyer and remain fair to the vendor.

Blueprint benefits

IT Benefits

• Effort and Cost Saved: Provides a structured approach that reduces ambiguity and ensures all critical elements are addressed, saving effort and cost in creating a comprehensive managed service contract.
• Better Risk Management: Preempt potential risks early and respond with relevant clauses in the contract for better risk management and contract stability.
• Improved Vendor Relationships: Align the organization’s IT team and vendor stakeholders for more effective service delivery and collaboration.

Business Benefits

• Cost Efficiency: Improve cost control and visibility by defining clear terms and avoiding unnecessary and unforeseen expenses.
• Reduced Legal and Compliance Risks: Minimize legal disputes and increase adherence to regulatory requirements to preserve management bandwidth and protect the business.
• Enhanced Agility: Strengthen the vendor relationship for more flexibility in contract execution, enabling the organization to adapt to evolving technology and business needs quickly.

Measure the value of this blueprint

Figure: an illustration containing sample data