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MPS: The 30% Catastrophe vs. The Reality

30 Jun, 2010 By: Tom Callinan, Strategy Development

MPS: The 30% Catastrophe vs. The Reality

Many commentators in the MPS space like to talk about the 30% savings companies receive through an MPS agreement. I guess it helps them sell research, advance the theory of displacing printers with departmental MFDs, or helps the weak sales person generate some commission and retain his (her) job for a period.

But I have to ask a simple question, what is the rational to deliberately taking 30% of the revenue out of our industry? Overcapacity and technological improvements are already creating year on year decreases in hardware and aftermarket pricing and A4 is replacing A3 at a lower unit selling price. Those environmental changes should easily drive 10% of revenue per year out of our industry. Over the last two years units sales have decrease by more than 30%; they are gone and probably will never come back. Now we are all going to join in a concerted effort to drive an additional 30% of revenue out of the imaging space? Let’s all go to the jungle and drink some Jim Jones juice!

MPS is not new revenue, simply a revenue shift from transactional to contractual. We are not generating new industry revenue with MPS; different players are capturing the revenue, which is good for those MPS providers in the short term.

As the industry leading MPS consulting firm we have been advocating for companies to adopt an MPS strategy for nearly the past five years. Nevertheless, when you do launch your MPS strategy there is no reason to lead with a value proposition of saving a company 30%. Managing copiers, printers, scanners, and fax units is not a core competency for most companies; it is a nuisance area. Tying up valuable IT employees to remove misfeeds, install maintenance kits, or replace feed tires irritates CIO’s and IT directors who do not have enough resources to devote to their more mission critical projects like business intelligence, security, virtualization, and unified communications. Therein lies the value proposition—you build a business case for outsourcing.

I led a $225 million outsourcing business and that was simply the services revenue; there was an additional $60 million or so in equipment sold into the facilities management (FM) accounts. A portion of that $225 M was “fleet management” agreements. There are industry commentators who want to tell you MPS is not FM, but curiously those commentators have no FM background so how could they possibly make that statement? We didn’t sell outsourcing by telling companies we would save them money. At times it cost more money to outsource but the customer outsourced because we took away areas of their business that were not core competencies: Areas that distracted them from their business. Nuisance areas like imaging and printer fleets to most companies.

There were many FM agreements that included “gain share,” where working with the customer we drove efficiencies that resulted in lower cost that we shared with the customer. But the key there is the phrase “working with the customer.” You can do the same with an MPS agreement. Strategy Development’s three phases of MPS are manage, optimize and improve. Manage comes first followed by optimize and improve. Working with the customer—after you are generating revenue from an MPS agreement (manage)—you can help your customer make a decision on the lowest TCO device for each location that will provide the required functionality. This is where the cost savings come from, although reaching 30% is a stretch.

The most successful MPS companies in the country are not saving their customers 30% to get them to sign a contract. They are building business cases that support an outsourced agreement with their customers.

Get into MPS but make certain you truly understand the MPS space so that you maximize revenue and margins, it can be a significant revenue driver. But the opportunity to capture significant new revenue combined with the 30% decline in MFD unit sales, which is really hurting the core copier business, has brought out every snake oil salesman in the land with the latest “elixir” for an MPS program. Choose wisely as any further delay in launching a successful program will be critical. Once those prospects are another company’s customers they will be locked into contracts that will be difficult to change.

Tom Callinan is the founding principal of Strategy Development, a management consulting firm for the technology and outsourcing space specializing in business planning, sales effectiveness, advanced sales training, and operational and service improvement (www.strategydevelopment.org). From 1998 – 2005, Callinan was an executive with IKON Office Solutions, most recently vice president and general manager of IKON’s largest business unit with revenue of  $1.4 billion. Prior to IKON, Callinan was the founder and CEO of Copifax, Inc, a copier dealership that was recognized with numerous awards including inclusion on the INC 500 list of fastest growing private US companies. Copifax was acquired by IKON in 1997. Callinan graduated with high honors from The Wharton School, University of Pennsylvania. Tom can be reached at callinan@strategydevelopment.org or 610.527.3317.

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