One significant difference is the length of the contract. Whereas rate-per-hour engagements are usually 12 weeks to 6 months, managed services contracts are often 3, 5 or 7 years, with a right to extend. This is understandable, because once you take over operations for a bank or a capital markets firm or an insurance company, and you deliver performance at a reasonable price, they are unlikely to ever want to repatriate the operations. Once these contracts are launched, they’re sticky. The switching costs are very challenging. It’s expensive for the client, because they would have to find another delivery agent , or re-hire to do the work. These aren’t small operations – typically there are 200+ people in each. As a result, these long-term contracts are becoming annuitized revenue streams. And from a financial reporting standpoint, everybody likes them, because you can build on these annuity streams.
Of course, things may change, especially as technology changes. KPMG firms will continue to work with clients to enhance their operations, to continue to deliver the outcomes that they’re looking for. We must maintain our competitive delivery. But compared to other consulting projects, where you deliver the report, or you go live with the project, and you are done, these managed services contracts deliver annuitized revenue.
When people think about managed services, they probably think, “it’s been around forever.” Long before cloud was a thing, managed services would run your data centers for you. There’s been technology outsourcing, and business process outsourcing. But that’s not what we’re doing. Rather than focusing on these kinds of commodity outsourcing, KPMG addresses client needs in more complex operations that leverage our domain expertise in risk and finance, our data and technology capabilities, and our operations delivery expertise in running global delivery centers.