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Building Upon Our Heritage: A Business Model For Managed Services

8 Apr, 2013 By: Chris Ryne, Growth Achievement Partners, Mitch Morgan, Growth Achievement Partners imageSource

If you have been in the industry for awhile, the next paragraph or two will be a trip down memory lane.  If you are new to the industry, consider it a crash course in a core competency that makes our industry tick.  In either case, it will provide background to the spirited foundation upon which the copier industry’s new Managed Services Business Model is being developed – followed by where it is going.

Looking Back
In the early 90’s an industry business model, complete with benchmarks, metrics, and a Chart of Accounts, was developed at a time when the industry was headed for a major transition.  This model was developed as a way to guide dealerships toward a successful future.  The model brought a commitment to continuous improvement and a standardized definition of what looks good in terms of operating performance.  This model has allowed many businesses in the BTA channel to maintain strong operating performance in the midst of industry change.  Adherence to a time-tested and consistently updated business model template has provided many companies the necessary roadmap to build healthy businesses, or to recognize and make adjustments when appropriate to get back on track.

We can ask three questions of a BTA dealer and, assuming they follow the model, obtain a pretty clear understanding of the company’s size, profitability, growth, revenue mix, and overall financial condition.

The Business Model has served as a compass through the many changes that have occurred in the industry; a bit of a North Star, if you will, to lead and direct.  As an example, the “copies per tech” metric has increased by nearly 4x since we came into the industry. By maintaining a focus on the metrics and committing to continuous improvement, the industry has been able to thrive when and where many other channels did not fare so well. Companies have been able to effectively adjust business structure and financial targets (as well as non-financial) to continue prospering.

We, personally, have spent time in a number of different industries, and with only one exception, have never seen an industry like ours with such a well defined set of business model characteristics. However, as the channel continues moving toward newer “non-traditional” products and services, and as those items increasingly contribute to more and more of our strategy, revenue, headcount, and profitability, the importance of having a Managed Services Business Model specifically for our industry is now more important than ever.

A few weeks ago, we (Growth Achievement Partners) addressed a group of executives within our industry at a Leadership School sponsored by the PROS Elite Group.  We were brought in as a guest lecturer on Managed Services and Business Process Optimization.  Several participants in the audience described their desire for a Managed Services Business Model that would be expressed in a similar format to the traditional version.  As you read further, that model is being developed.

Managed Services Business Model Evolved
The Managed Services business has migrated from a historical model characterized by projects, time and materials support offerings, and cash sales for hardware. Under this model, Revenue Per Engineer and Billing Utilization Percentage carried the day.  But these are no longer the key metrics in the Managed Services Model.

As the Managed Services business has evolved to a recurring, annuity-based revenue model, the Key Metrics have changed along with it. Today, the most important financial measure for high performance companies in Managed Services is Gross Profit on core Managed Network Services. That number should be approaching, if not exceeding, 60% in order to achieve appropriate profitability levels.  Just as the traditional office equipment service contribution has been pegged at 52% - “the number” for Managed Services gross profit is 60%.  As Michael George, CEO of Continuum, the leading Managed Services platform provider, accurately states, “A key is finding a true technology and service delivery partner with the right combination of experience, scalability and support to drive rapid adoption and profitability.”

This Managed Services Business Model has been optimized for our industry.  Starting with a consistent chart of accounts, recording inputs in a consistent manner and analyzing ongoing trends that impact performance, a Managed Services Business Model is being developed to guide dealers just as the traditional model has in the past - but focused on this strategic industry opportunity.  Additionally, the model answers key questions, including:

Revenue. The appropriate targets, mixes, and types; and how should those change over time to include items like Hardware-as-a-Service (HaaS) and Cloud Services Brokerage.

Contracts & Account Expansion. Seats under management, revenue per seat, and growth expectations via additional products and services over time.

Activity & Pipeline. Sales cycle duration, pipeline metrics, and activity targets to achieve Business Model Revenue targets.

Headcount. Productivity measures for sales and vCIO personnel, target headcount levels based on seats managed and customers under contract, and personnel mix between sales and operations.

Compensation. Who to pay, how to pay, and when to pay as well as target compensation levels as they relate to Gross Profit and Revenue.

Profitability. Target contribution level, and operational levers to enhance performance.

Going Forward
The industry is moving quickly toward the Managed Services business. The channel is primed to make a significant impact into this adjacent space that offers a unique opportunity for profitable growth. The existence of a Managed Services Business Model can help accelerate successful entry into the market.  For dealerships that have been in the Managed Services business, the opportunity to utilize historical data and ongoing model enhancements will provide a continually refined roadmap for future success, much like the model for the traditional business has guided success in the past.

The upcoming announcement and release of this Managed Services Business Model at ITEX 2013 will represent a “difference-maker” for dealer success in the Managed Services space.

Brand New in Managed Services:  ITEX 2013
At the upcoming ITEX Conference and Expo, you’ll learn of the latest tools and methodologies from the office industry’s leading experts, including Continuum’s CEO Michael George, who will be presenting: (MS2) Catapult Your Profits With Unified Managed IT and Cloud Services (April 18, 8:30 AM - 9:20 AM) within the expo’s Managed Services Strategy Forum.  This presentation provides the crucial steps on expanding your services portfolio in order to broaden the scope of your business.  Significant to the evolution transpiring in the channel today is that you must fully understand the diverse and transformative technologies and services that can profitably impact your business.

Strategic focus points will include how to redefine your business model in order to prosper today, as Continuum, an ITEX Diamond Sponsor, premiers a newly released Managed Services Business Model (for the BTA channel). Notably, Todd Johnson of Strategic Business Associates, provided the ability to record and measure P&L and non-P&L elements as is consistent with the way channel dealers are used to working. Continuum, who provides a Managed Services platform that manages more than 500,000 endpoints, collected significant amounts of data for statistical analysis and validity of the new business model, intended for faster time to market, and profitability, for dealers looking to capitalize on the Managed IT Services opportunity that is a fast growing segment of the $118 billion SMB IT market.

Next Step Strategies: ITEX 2013
ITEX has powerful full-day preconference workshops held April 16, the day prior the general show. Workshop 1: A New Portfolio & Enhanced Business Model: Next Step Actions in IT, Cloud, Mobility, Unified Communications is led by Growth Achievement Partners, Principals Mitch Morgan and Chris Ryne. As the convergence of the imaging channel continues to move at rapid speed, office technology and solution providers must implement new methodologies that will sustain and grow their business. This is an interactive workshop to teach you how to develop a business technology plan, and a path, to your future business profits. Think sales and implementation in a “steps workshop” for a deep dive to identify the best processes to move your business forward. Experienced leaders and scheduled co-presenters will provide the best techniques and strategies available, sending you back to your organization with an intelligent, actionable plan to immediately execute for optimal results.

For those looking for a good “power hour” of information to get the outline and key steps needed for expanding your portfolio opt for (P28): The Next Business Model: ONE Sales Process for All You Sell.  Led by Growth Achievement Partners, April 18, 1:00 PM - 1:50 PM, the evolving strategy in terms of products and services is addressed, including how to defend and grow the base with core equipment sales; expand the footprint with MPS. You’ll learn how to differentiate with software solutions – and drive the next, best business model...Managed Services.  One challenge, and opportunity, is to change the way your reps sell and how you manage. You don’t need to change what you do - but rather how you do it. You can learn how to develop a consistent “ONE process” that is repeatable; maintain an ongoing sales engagement model for expanding opportunities between lease expiration cycles; adhere to a management and inspection cadence with the appropriate balance between Activity and Results.

Notably, Growth Achievement Partners (GAP) has a history in the IT Services business that goes back to the early 90’s.  The firm has significant practical experience with Managed Services both inside and outside of BTA dealerships. GAP has been working with independent dealers in Managed Services since 2007, and has been the instructor for the BTA Managed Services Class since 2009.  GAP will continually incorporate its expertise into the model to include items such as Revenue Targets and Mix, Contract Types and Account Expansion, Activity and Pipeline Metrics, Margin Expectations, Headcount, Compensation, and Profitability.  

About the Author: Mitch Morgan

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