Information technology can drive efficiency and provide competitive advantage -- and can be a royal pain to run. Hiring and managing an IT staff is often cost and time prohibitive for small and mid-sized businesses. Yet, if you rely on technology, you need to do something.

Hence the popularity of the managed service provider (MSP) model, in which specialist firms operate and maintain networks, or even specific systems such as backup or e-mail, for clients. However, a service is only as good as the provider. According to Charles Weaver, president of the trade organization MSP Alliance, just 5 percent of MSPs are really good at running their businesses. Choosing an MSP requires a small business to  understand the potential pitfalls and ask the right questions.

When MSPs are useful

An MSP must fill a difficult bill: complete system monitoring, maintenance, and management every moment you do business, with guaranteed results. Providing sophisticated and reliable service requires the personnel, technical expertise, financial resources, business savvy, and ethics necessary to keep the client happy.

Some MSP clients find that outsourcing certain services helps them focus on their main business. Schoolwires, of State College, Penn., provides website management for K-12 school districts. The fast-growing company used to outsource to an unmanaged service provider, but that meant they still had to manage their own servers. “We could never keep up with the patch schedules,” says manager of network and IT services Rick Stivers. “I was pulling 16-, 17-hour days once or twice a week.”

So the company outsourced its infrastructure management to a sophisticated service provider called Expedient. The price was even about the same as it was costing Schoolwires to run their own facilities.

Operations are now are highly reliable. But many other MSPs are not ready for prime time. “The problem is that they’re not MSPs,” says David Stelzl, author of The House & the Cloud, Building a Compelling Value Proposition Using Risk Awareness to Sell Technology (BookSurge Publishing 2007). “They’re PC resellers. They really don’t have the expertise and tools [they need].”

Some MSPs move beyond ill-prepared and enter the area of questionable actions and associations. In the fall of 2006, the CEO of MSP Compulinx was arrested on charges of stealing the identities of his own employees to fraudulently get credit cards, lines of credit, and loans.

How to pick an MSP

No matter what the source of trouble, an MSP that falls down on the job hurts the client -- you. Businesses must pick MSPs with impeccable professionalism. Such a vendor has the resources and business smarts to keep everything at peak operating condition. Ask the MSP about the vendors it uses, and then ask that vendor for its top customers in your area, because “it’s nice to have someone who can show up if there’s a problem,” says Joseph Panettieri, editorial director of MSPmentor. Checking word of mouth, whether personal or through an organization like a local Better Business Bureau, is important. Also, perform a credit check on the MSP to be sure that it has the financial staying power to keep in business, and keep you up and running.

SIDEBAR: Questions to ask a prospective MSP

When considering an MSP, experts advise that you ask the following questions. Evasiveness or an unwillingness to provide documentation to back up answers is a good reason to move on to another prospect.

  • Do you push products you represent, or are you an agnostic representative for my interests?
  • How long in business under this name and at this location?
  • What services do you and do you not provide?
  • Who are your key platform providers and how can I get in touch with them?
  • Who are five customer references that I can speak with? Are they related to or investing in the MSP?
  • What is your turnover in staff?
  • If things don’t work out well, what is your policy for my getting out of the contract and getting my money back?
  • If you go out of business, who takes over providing the services?
  • What are your rates and are they all inclusive, or are there other fees?
  • Can I see your facilities?
  • What physical and data security measures have you taken?
  • What is your financial status and stability? Can I see a current balance sheet if I sign a non-disclosure agreement? Does any one client represent more than 20 percent of your business?
  • May I see your service level agreement (SLA)? Can you explain in plain English your obligations?
  • Are your business processes documented?