Managed Services: They're Baaack

It happened. Just when I thought I had successfully avoided any mention of managed services for an entire month--unheard of given the amount of hype the topic's gotten over the past year or two--Lockheed Martin comes along and bops me over the head with it.

Sure, the recent announcement that the systems integrator has combined its two technology divisions--the Integrated Systems and Solutions (IS&S) and Information Technology and Global Services (IT&GS) businesses--may appear to be little more than a corporate cost-savings maneuver.

Lockheed's realignment of the two groups, each of which reported more than $4 billion in 2006, eliminates some overhead and better uses company resources. There was, after all, a degree of overlap, particularly since federal agencies started to demand more integration of infrastructures and enterprise solutions. The Information Systems and Global Services (IS&GS) group, as it will be called moving forward, brings 52,000 employees under one umbrella, led by former executive vice president of IT&GS Linda Gooden. Stan Sloane, vice president of IS&S, has stepped down.

But let's give Lockheed's move a little more thought. This has managed services written all over it.

First of all, the decision goes beyond a merging of businesses, moving all aspects of IT enablement, management and support under one roof, and off-loading whatever doesn't apply. Specifically, the Aircraft and Logistics Centers, which handles aircraft repairs and maintenance, as well as the management of Sandia National Laboratories, is no longer under the IT&GS umbrella, and the Lockheed Martin Advanced Concepts Center, formerly part of IS&S, is now under the jurisdiction of the CTO's office.

At the same time, Transportation and Security Solutions (T&SS) was shifted from the Electronic Systems group to the newly formed IS&GS. (Why T&SS wasn't under the IT division in the first place is somewhat curious, given its specialization in mission-critical IT solutions. But that's beside the point.)

So now, after the shuffle, IS&GS holds purview over everything related to managed services: IT planning, development, implementation, management and support. That's not to say Lockheed couldn't fulfill such requirements before--quite the contrary. The integrator currently provides a bundled set of IT services under the Outsourcing Desktop Initiative for the NASA (ODIN) contract, meeting guaranteed service levels for a fixed monthly price per system. That's just one of many such initiatives. And in 2003, Lockheed acquired the federal IT business of Affiliated Computer Services (ACS), selling its own commercial IT business to ACS in return and citing plans to increase its capabilities in business-process outsourcing and managed services as a key reason.

Combining IS&S and IT&GS appears to be a logical next step, a way to structure the company to best support an enhanced managed-service strategy just as the federal government increases its demand for those services--and for outsourcing in general.

Spending on outsourcing by the federal government is expected to increase from about $13 billionin 2006to $17.7 billion by 2011, according to Input, with 37 percent going to application services and 25 percent to infrastructure services. In state and local government, which Lockheed has targeted far more lately, outsourcing is expected to grow to $20 billion in the same time frame. Lockheed undoubtedly recognizes the growing opportunity and figures that it should streamline processes and consolidate resources to accommodate that need. We might see focus areas created to meet specific requirements. We'll see.

Lockheed's move is most likely a bellwether that the IT market is moving away from the sale of point products and solutions, and toward a services-based model. Another sign: Northrop's decision a year ago to sell off its reseller business.

That's nothing terribly new, but when the largest systems integrators go so far as to restructure their businesses to accommodate a federal trend, others in the market should probably take a careful look at themselves and figure out whether they have the systems, back-office support, resources and skills to handle the next big transition.