Chris Carolan
• 59 min
Avoiding The Managed Services Trap with Erin Wiggers
A Value-First Podcast
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When control fights against customer success, everyone loses
The Consultant Irony
You know that the best consultants make themselves unnecessary. This isn't rocket science—it's common sense. When you hire expertise to solve complex challenges, you want to build your internal capability, understand the solutions deeply, and eventually handle similar challenges independently. The goal is transformation, not permanent dependency.
But here's the irony playing out across thousands of B2B organizations in 2025: Those same leaders who would never accept permanent dependency in their personal lives go to work and build entire business models around keeping clients dependent. They create sophisticated service offerings designed to maintain ongoing reliance rather than building customer capability.
You're engineering client success metrics while systematically preventing the independence that would demonstrate genuine transformation.
The managed services revolution promised to help organizations handle complex technical requirements through specialized expertise. Instead, it created the Managed Services Trap—a pattern where rational service purchases fragment the strategic coherence and internal capability that organizations need to thrive independently. You ended up with impressive external capabilities that collectively destroy the self-sufficiency your business requires for sustainable growth.
How the Managed Services Trap Blocks Customer Success Every Day
The Customer Success Handoff Reality
Maria runs customer success for a marketing automation platform. She knows that successful onboarding requires understanding the complete customer context—what business challenges drove the purchase, what success looks like, what obstacles the customer anticipated, and how this solution fits their broader strategy.
But when new customers get handed off from sales, Maria's reality looks like this:
- CRM notes: Basic qualification details focused on closing the deal, not understanding transformation goals
- Implementation specs: Technical requirements without strategic context about why these features matter
- Contract terms: Legal and financial details without success metrics or outcome expectations
- Usage tracking: System activity data without understanding of what customer achievement looks like
- Support history: Problem tickets without context about customer journey or relationship development
By the time Maria reconstructs the strategic context her team needs, the customer is frustrated by having to re-explain their situation, and Maria's team is stressed by starting relationships without foundation. The common sense solution—preserving customer context throughout the relationship—gets blocked by the industrial reality of departmental handoffs and system-focused metrics.
The Renewal Conversation Trap
David handles renewals for an enterprise software company. He knows that successful renewals happen naturally when customers achieve genuine value from their partnership. It's obvious that satisfied customers who get measurable results don't need to be "sold" on continuing relationships that work.
But when renewal time approaches, David's system-driven reality forces artificial conversations:
- Renewal timeline: Contact customers 90 days before renewal regardless of their satisfaction level or success indicators
- Discount pressure: Assume customers will leave unless offered financial incentives, rather than ensuring value delivery
- Feature upselling: Push additional products rather than ensuring current solution drives business results
- Contract negotiations: Focus on terms, conditions, and pricing rather than value realization and outcome achievement
- Utilization metrics: Track system usage without connecting to actual business impact or transformation success
The common sense approach—ensuring customers achieve ongoing value that makes renewal natural—gets blocked by renewal processes that treat long-term partnerships like transactional negotiations and relationship development like contract management.
The Implementation Complexity Web
Sarah leads implementation for a business intelligence platform. She knows that successful software adoption requires simplicity, clear value demonstration, and building customer confidence through early wins that prove the solution works.
But when customers begin implementation, Sarah's process-driven system creates mounting complexity:
- Technical requirements: Extensive discovery sessions that focus on system capabilities rather than business outcomes
- Integration mapping: Complex technical architecture discussions before establishing value priorities
- Training schedules: Comprehensive feature education before customers understand which capabilities matter most
- Customization options: Extensive configuration possibilities that overwhelm rather than clarify optimal approaches
- Success metrics: Technical implementation milestones rather than business outcome achievement indicators
By the time customers complete the implementation process, they're overwhelmed by feature complexity and uncertain about business value, while Sarah's team measures success by technical deployment rather than customer transformation. The common sense solution—starting with simple value demonstration and building complexity gradually—gets blocked by implementation processes designed around system capabilities rather than human learning patterns.
The Knowledge Hoarding Paradox
Marcus runs a consulting practice that helps companies optimize their supply chain operations. He knows that the most valuable client relationships develop when both sides learn from each other, when client teams build internal expertise, and when knowledge sharing creates lasting partnerships based on mutual respect.
But when clients engage his firm, Marcus's business model reality creates knowledge protection patterns:
- Methodology protection: Keeping proprietary processes confidential rather than teaching underlying principles that enable client capability
- Tool dependency: Implementing software solutions that require ongoing vendor management rather than building client competence
- Analysis hoarding: Providing recommendations without sharing analytical frameworks that would enable independent decision-making
- Documentation control: Creating deliverables that document what to do without explaining how to think about similar challenges
- Success attribution: Claiming credit for improvements without acknowledging client team contributions or capability development
The common sense approach—building client capability while deepening strategic partnership—gets blocked by business models that profit from knowledge scarcity rather than intelligence multiplication and competence development.
The Hidden Cost: Strategic Capability Destruction
The Managed Services Trap doesn't just create inefficient service delivery—it systematically destroys the strategic capabilities that organizations need to adapt, innovate, and thrive in rapidly changing markets. When service models optimize for provider utilization rather than customer empowerment, they create organizational learned helplessness that compounds over time.
Innovation Velocity Reduction
Organizations caught in the Managed Services Trap lose the ability to respond quickly to market opportunities because every adaptation requires external consultation and approval. Strategic initiatives that should take weeks stretch into months as internal teams wait for service providers to analyze requirements, develop proposals, and implement solutions.
Meanwhile, more agile competitors who built internal capabilities can experiment rapidly, fail fast, and adapt their approaches based on real-time market feedback. The innovation advantage doesn't come from having better external resources—it comes from having internal capability that enables immediate response to emerging opportunities.
Knowledge Network Fragmentation
The most damaging hidden cost is how managed services fragment the knowledge networks that drive breakthrough insights. When critical understanding remains concentrated with external providers rather than flowing into customer organizations, strategic intelligence never develops the cross-functional connections that create competitive advantage.
Customer service insights don't inform product development because both functions rely on separate external providers. Sales pattern recognition doesn't influence operational optimization because different consulting firms handle each domain. Strategic intelligence that should emerge from connecting insights across multiple business functions gets trapped in vendor silos that optimize for billable hours rather than organizational learning.
Adaptive Capacity Atrophy
Perhaps most destructively, the Managed Services Trap creates organizational muscle atrophy where teams lose the confidence and capability to tackle complex challenges independently. Like physical muscles that weaken when external machines do the work, organizational problem-solving abilities deteriorate when external providers handle all sophisticated analysis and implementation.
This creates a vicious cycle where increasing complexity makes internal teams feel more dependent on external expertise, while external dependency prevents internal teams from developing the capability needed to handle complexity independently. Organizations become progressively less capable of self-sufficiency even as they invest more heavily in external resources.
Why It Happened: The Expertise Efficiency Trap
The Managed Services Trap emerged from entirely rational responses to legitimate business challenges. As technology became more complex and markets more competitive, organizations needed access to specialized expertise that would be too expensive to develop internally. Each service engagement solved real problems and delivered measurable value within specific domains.
The Specialization Promise
The managed services revolution began with a compelling value proposition: access world-class expertise without the overhead of building internal capabilities. Why struggle to develop internal data science competence when you could hire firms that already mastered advanced analytics? Why invest in building cybersecurity teams when specialized providers could deliver superior protection more efficiently?
Early managed service engagements genuinely created value. Organizations gained access to sophisticated capabilities, solved immediate problems, and achieved results that would have been impossible with internal resources alone. The promise seemed validated—external expertise could deliver better outcomes more efficiently than internal capability development.
The Scale Economics Illusion
As managed service providers grew, they promised additional efficiency through economies of scale. Specialized teams serving multiple clients could develop deeper expertise and more sophisticated tools than any single organization could justify internally. The specialization would benefit everyone—providers could invest in capabilities that individual clients couldn't afford, while clients could access best-in-class resources without infrastructure investment.
This logic made perfect sense in stable environments where challenges remained consistent and solutions could be standardized across multiple implementations. But it ignored the reality that competitive advantage increasingly comes from adaptive capability rather than optimized efficiency in specific domains.
The Integration Complexity Multiplication
What service providers didn't anticipate was how specialization would fragment organizational intelligence rather than enhancing it. Each specialized service solved problems within its domain while creating new integration challenges across domain boundaries. Organizations ended up managing relationships with multiple providers who excelled individually but couldn't create the cross-functional insights that drive breakthrough innovation.
The complexity of coordinating multiple specialized providers often exceeded the complexity of developing internal capabilities, but this coordination overhead was hidden in relationship management rather than appearing in direct service costs. Organizations found themselves spending as much energy managing provider relationships as they would have spent building internal competence.
The False Escapes: What People Try
Organizations caught in the Managed Services Trap typically attempt solutions that maintain the dependency relationship while trying to extract more value from external providers.
Improved Service Level Agreements
The most common response is negotiating more detailed SLAs that attempt to force service providers to deliver outcomes rather than just activities. Organizations spend months crafting contracts that specify response times, quality metrics, and performance penalties, hoping that better agreements will solve the fundamental misalignment between provider incentives and customer success.
These elaborate contracts often create adversarial relationships where both sides focus more on compliance than collaboration. Service providers optimize for meeting contractual requirements rather than driving customer success, while customers spend increasing energy monitoring compliance rather than building internal capability.
Vendor Consolidation Strategies
Some organizations respond by reducing the number of service providers, hoping that fewer, larger relationships will create better coordination and accountability. This approach attempts to solve fragmentation through consolidation rather than addressing the underlying capability dependency that creates fragmentation.
Vendor consolidation often reduces service quality by forcing providers to serve domains outside their core competence, while still maintaining the fundamental dependency that prevents internal capability development. Organizations end up with fewer relationships that are individually more critical and therefore more difficult to change when performance disappoints.
Knowledge Transfer Requirements
Many organizations attempt to solve the capability problem by requiring service providers to transfer knowledge through training programs, documentation, and consulting engagements. This approach treats knowledge transfer as an add-on service rather than recognizing that service models based on dependency fundamentally conflict with capability building.
Most knowledge transfer initiatives fail because they occur separate from actual problem-solving contexts where learning naturally happens. Reading documentation or attending training sessions doesn't build the practical competence that develops through hands-on experience with real challenges and authentic responsibility for outcomes.
Hybrid Service Models
The latest approach involves creating hybrid arrangements where service providers work alongside internal teams, promising to build capability while delivering results. While this sounds appealing, most hybrid models still optimize for provider efficiency rather than customer empowerment, treating capability building as secondary to service delivery.
Hybrid models often create the worst of both worlds—internal teams become dependent on external guidance without developing genuine independence, while service providers focus on maintaining relationships rather than building customer self-sufficiency.
The Reframe: From Dependency Creation to Capability Multiplication
Breaking free from the Managed Services Trap requires a fundamental shift in how organizations think about external expertise—from purchasing outcomes to building collaborative capability that enables sustainable competitive advantage.
Recognize Internal Intelligence Assets
The breakthrough insight is recognizing that organizations already possess significant domain intelligence that external providers cannot replicate. Customer service teams understand customer patterns, sales teams recognize market dynamics, and operational teams identify efficiency opportunities that external providers must spend months learning.
The goal isn't to replace external expertise but to create partnerships where external knowledge enhances internal intelligence rather than substituting for it. This means starting with internal capability assessment rather than external provider evaluation, and designing engagements that multiply internal intelligence rather than bypass it.
Design for Capability Transfer
Instead of optimizing for service delivery efficiency, focus on how external expertise can most effectively transfer to internal teams through collaborative engagement. The goal is building sustainable internal capability that strengthens with external partnership rather than weakens through external dependency.
Capability transfer means structuring engagements so internal teams do the work with expert guidance rather than having experts do the work while internal teams observe. It means measuring success by internal competence development rather than just outcome achievement, and designing relationships that naturally reduce external dependency over time.
Build Strategic Learning Partnerships
Rather than purchasing solutions to specific problems, create learning partnerships where external expertise helps internal teams develop the analytical frameworks, problem-solving approaches, and domain knowledge needed to handle similar challenges independently.
Strategic learning partnerships mean working with external experts who celebrate customer independence rather than fearing it, who measure success by capability building rather than utilization hours, and who design engagements to naturally evolve toward advisory relationships rather than implementation dependencies.
Enable Natural Intelligence Synthesis
The most powerful reframe is recognizing that sustainable competitive advantage comes from internal teams who understand both their specific business context and advanced solution approaches. External providers can supply methodology and technical knowledge, but only internal teams can create the contextual intelligence that drives strategic advantage.
This means designing service relationships that enhance internal pattern recognition rather than replacing it, that build internal confidence rather than dependency, and that create strategic advantages through unique combinations of external expertise and internal intelligence rather than generic best practices implementation.
The Path Forward: Practical Starting Points
Escaping the Managed Services Trap doesn't require eliminating external expertise or attempting to build all capabilities internally. It starts with restructuring specific service relationships to prioritize capability building alongside outcome achievement.
Audit Current Service Dependencies
Begin by mapping where external services create capability gaps rather than filling them. Ask your teams:
- Where do we have external providers doing work that our teams should learn to handle independently?
- Which service relationships make us more capable over time versus more dependent?
- What critical knowledge stays with external providers rather than transferring to our teams?
- Where do we pay for outcomes we could achieve internally with better frameworks and guidance?
This dependency audit reveals where service relationships block rather than build internal capability, showing you exactly where to focus transformation efforts for maximum strategic impact.
Restructure High-Impact Service Relationships
Rather than attempting comprehensive provider relationship overhauls, identify specific engagements where shifting from delivery dependency to capability building would create immediate strategic value. Focus on:
- Services that handle recurring challenges your teams encounter regularly
- Engagements where internal capability would enable faster response to market opportunities
- Relationships where knowledge transfer would multiply internal team effectiveness significantly
- Providers whose expertise could enhance internal decision-making rather than replacing it
These targeted restructuring efforts often require minimal contract changes while creating significant capability improvements that build momentum for broader transformation.
Create Collaborative Learning Frameworks
Systematically design service engagements to build internal capability while achieving immediate outcomes. This includes:
- Structuring projects so internal teams do the work with expert guidance rather than expert delivery with internal observation
- Requiring methodology transfer alongside solution implementation so teams understand the thinking behind recommendations
- Creating internal coaching relationships where external expertise develops internal capability rather than maintaining dependency
- Measuring engagement success through capability development rather than just outcome achievement
These collaborative frameworks transform service relationships from dependency creation to capability multiplication, enabling sustainable competitive advantages that pure service delivery cannot provide.
Build Capability-Focused Provider Partnerships
Identify and develop relationships with service providers who genuinely prioritize customer capability building over utilization maximization. Focus on providers who:
- Celebrate when customers become capable of handling challenges independently rather than requiring ongoing service
- Measure success through customer empowerment rather than contract renewal and expansion
- Share methodologies and frameworks rather than protecting proprietary approaches for competitive advantage
- Design engagements to naturally evolve toward advisory relationships rather than implementation dependencies
These capability-focused partnerships create sustainable competitive advantages through strategic learning rather than purchased outcomes, enabling innovation velocity that dependency-based relationships cannot match.
The Choice: Strategic Independence or Sophisticated Dependency
The Managed Services Trap represents a fundamental choice between building strategic capability and purchasing sophisticated dependency. Organizations that choose capability building will create competitive advantages through internal intelligence that external providers cannot replicate or replace.
Your teams already possess domain knowledge and contextual intelligence that external providers must spend months learning. The strategic advantage comes from combining this internal intelligence with external expertise through collaborative capability building rather than substituting external outcomes for internal development.
The transformation starts with recognizing that sustainable competitive advantage requires internal capability enhanced by external expertise, not internal dependency managed through external relationships.
The choice is yours. The internal intelligence is already there. The only question is whether you'll build on it through collaborative capability development or bypass it through sophisticated service dependency.
