'Culture has changed and it's never going back' - MSP bosses come together to discuss hiring challenges, IR35 changes and cloud becoming commoditised

MSP bosses have raised their concerns over holding onto skilled staff, changes to IR35 and the commoditisation of cloud during a discussion on the biggest challenges facing their business for the remainder of this year and going into 2023.

Industry bosses gathered at Searcys at the Gherkin in London last night to discuss the challenges facing their business as we enter 2023.

Sponsored by Hitachi Vantara, the dinner event was attended by C-level and director-level representatives from MSPs including ANS Group, XMA, EACS, Transputec and others.

Pictures from the event can be viewed here

MSP bosses flagged holding onto skilled staff and attracting new talent as the most pressing issues facing their business.

Many delegates pointed to a shift in the balance of power towards employees who are demanding higher pay and more benefits from their employers.

For ANS Group CEO Paul Shannon, the changing dynamic should be seen as a "rebalancing" in the job market.

"If you've been underpaying your people for a long time even if they've been loyal to you, then it will hurt you at some point," he said.

"Covid has just brought to the surface that some employers haven't been taking care of their employees for a long time. And if that's what you've been doing, then - frankly - you're now getting what you deserve."

MSPs must prioritise existing staff, added Core Technology Systems' CEO Conor Callanan. He said a challenge for many businesses across the UK is that flexible working has led to many London-based companies offering higher salaries to workers in Glasgow or Edinburgh for example, putting a strain on local businesses to compete.

"Even with 10 per cent salary increases in the industry, you've got to keep your existing staff. Which means you've got to be better at what you do and make sure you're in the right business. You've got to make sure you've got the values that the staff aspire to have in their vision for the business.

"You've got to keep your existing staff because losing them will cost you way more."

Conversation turned to changes to IR35 as an upcoming threat to managed services providers.

During Chancellor Kwasi Kwarteng's "mini" budget last month the government announced it will back-track on its off-payroll working rules.

The change will mean that businesses will no longer be responsible for determining a contractors' tax status and if IR35 rules applies to them, with this obligation now falling onto the contractors themselves.

This will remove a great deal of the administrative burden for organisations in hiring contractors, which could in turn affect demand for managed services when it comes into effect in April 2023.

Jo Feldman, chief commercial officer at UBDS, said that many larger public sectors customers in central government are now building their own IT teams and leveraging contractors which could pose a new competitive threat to MSPs.

"I've actually seen a reduction in demand for managed services," he said.

"Organisations, particularly in central government, are looking to implement teams, especially contractors, to deliver outcomes. The repeal of IR35 does play into that.

"What do we do as MSPs about that competitive threat? And how do we offset that and create a service that provides a better outcome than our customers can supply themselves?"

Callanan agreed that IR35 will have an effect, but countered that the SMB and mid-market space tells a different story.

"There's no doubt IR35 will have an impact, but the trend towards outsourcing IT is growing and growing," he said.

"It's too difficult to do yourself; your bigger public sector customers can afford to do it, but in SME and in the mid-size? It's just going to continue. They cannot hire staff, keep staff, or present them with the opportunities that we can."

Several MSPs commented on how quickly the industry is changing. The rise of as-a-service models from vendors, a shift from selling products to selling outcomes and the commoditisation of selling cloud services were all highlighted as encroaching trends in the managed services market.

Celerity's COO, Craig Aston said he's sceptical about as-a-service models and if they offer anything new to the industry.

"The vendor as-a-service model is just a commercial model and one that's been around for years and now is just being repackaged as something else," he said.

"Some say it's about changing capex to opex, but if you read the contracts, the vendor models aren't doing that because it doesn't work.

"If you're buying outcomes, then it's different. Buying outcomes is different to buying a piece of tin under a financial model."

Meanwhile, Shannon from ANS said that his company has started moving away from cloud migration projects and selling Azure as he believes those services have already become commoditised.

"Even for us now, the Azure platform stuff is commoditised. There are too many people even in this room that can do it just as well as we can," he said.

"We're still doing the Azure platform stuff, but we're doing it as more of a by-product. We don't talk about it and we don't go to market with it anymore. Because it's easy.

"It's easy to do migrations - it's not fun, its not sexy, it's not complex. Customers can do it themselves, so we've already moved away from it.

"It was different two or three years ago, but it has got a lower multiple already and we're not interested in the lower multiple or easy stuff. If a customer can't possibly do it themselves - things like data, AI, machine learning, power platforms, power BI - then it's high multiple and that's what we're interested in."

See a full attendee list below:

Paul Shannon, CEO, ANS Group

Craig Aston, COO, Celerity

Conor Callanan, CEO, Core

Rickie Sehgal, Chairman, Transputec

Stuart Dickinson, Espria

Steve Patterson, General Manager, Creative IT

Rob Quickenden, CTO, Cisilion

Jo Feldman, Chief Commercial Officer, UBDS

Mark Tomlinson, Sales Director, Novatech

Nicola Moss, Head of Marketing, Wanstor

Ian Cunningham, Director of Sales and Marketing, XMA