Www.servicestrategies.com [email protected] Copyright © 2005 Service Strategies...

www.servicestrategies.com [email protected] © 2005 Service Strategies Corporation

Presented by

John Hamilton, President

Managing Support as a Managing Support as a BusinessBusiness

Copyright © 2004 Service Strategies Corporation

AgendaAgenda

The Business of SupportThe Business of Support What is S Business ? What is S Business ? Market Trends in the Service Market Trends in the Service

BusinessBusiness What Every Service Manager What Every Service Manager

Should KnowShould Know Support StrategiesSupport Strategies


The Business of SupportThe Business of Support


The Business of SupportThe Business of SupportA Corporate ViewA Corporate View

Support Support InvestmentInvestment

Support Support InvestmentInvestment

Impact of Impact of SupportSupport

Impact of Impact of SupportSupport

Return on Return on Support Support

InvestmentInvestment

Return on Return on Support Support

InvestmentInvestment


The Impact of SupportThe Impact of Support

Helps customers accelerate full product deployment and utilizationEarns and sustains customer loyaltyContributes to business profitabilityProvides a source of customer insight

Goal – Translate Impact into Business ValueGoal – Translate Impact into Business Value


The Business of SupportThe Business of SupportBy the NumbersBy the Numbers

9.1%9.1%

37.2%37.2%

$73$73BillionBillion

Average support funding as a percent of Average support funding as a percent of total revenuetotal revenue

Average contribution of support revenue Average contribution of support revenue to total corporate revenueto total corporate revenue

65.3%65.3% Average support marginAverage support margin

Amount spent fiscal year ’04 to fund Amount spent fiscal year ’04 to fund support operations world-widesupport operations world-wide

*Gartner

World-wide support revenue earned in World-wide support revenue earned in FY04FY04

$125*$125*BillionBillion


What is S Business ?What is S Business ?


WHY WHY SS-BUSINESS?-BUSINESS?

Services contribute 35% of the computer industry revenues and 60% of the profits.

Services deliver 61% gross profit margin and 30% growth rate to top-performing organizations.

Services have an average gross margins that are more than 50 percent higher than products.

“We have a pretty extensive services business. We have embedded services that go along

with the product. Then we have the discretionary services, the professional

consulting, SAN (storage area network) design and deployment, application development, managed services--it's about a $2.6 billion

business for us and growing at roughly double the rate of our product business.”Michael Dell, President and CEO,

Dell Computer

(1) Source: The State of S-Business. James A. Alexander, AFSMI. 2002.(2) How to Make After-Sales Services Pay Off. Bundschuh & Dezvane. McKinsey Quarterly 2003 Number 4.(3) DFBA Worldwide High-Tech Equipment Services Database


WHY WHY SS-BUSINESS?-BUSINESS?

The current annual growth rate of services is more than double that of products. Services possess the potential to expand revenue 4 to 5 times that of the product purchase. Global 2004 market forecast is $1.4 trillion.


SS-BUSINESS-BUSINESSCUSTOMER SERVICES AND SUPPORTCUSTOMER SERVICES AND SUPPORT

PRODUCT SUPPORT SERVICESContact Centers, Field Service/Maintenance, Depot Repair, Parts,

Logistics, Installation, Telephone and Internet-based Technical Support, Device Relations Management, Closed Loop Supply Chain

PRODUCT SUPPORT SERVICESContact Centers, Field Service/Maintenance, Depot Repair, Parts,

Logistics, Installation, Telephone and Internet-based Technical Support, Device Relations Management, Closed Loop Supply Chain

VALUE-ADDED SERVICESProject Management, Project Implementation, Systems Integration, Market

Research, Functional Outsourcing, Temporary staffing, Training, Asset Management, Design for Serviceability, Software Support, and Benchmarks

VALUE-ADDED SERVICESProject Management, Project Implementation, Systems Integration, Market

Research, Functional Outsourcing, Temporary staffing, Training, Asset Management, Design for Serviceability, Software Support, and Benchmarks

PROFESSIONAL/CONSULTING SERVICESNeeds Assessment, Process/Infrastructure Analysis,

Strategy Development, Technology Design, Project Planning, Solutions Evaluation and Recommendation

PROFESSIONAL/CONSULTING SERVICESNeeds Assessment, Process/Infrastructure Analysis,

Strategy Development, Technology Design, Project Planning, Solutions Evaluation and Recommendation


Market Trends in the Market Trends in the Service BusinessService Business


What happens in the marketWhat happens in the market

low

Time

dep

end

ency

on

pro

du

ct

Product-led Business•Data Center•Mainframe

Product-related Business•Maintenance Services

Services-led Business•Professional Services

’70-’90 ’90 to ‘00 ’00 to ‘10


The IT Market shows attractive growth ratesThe IT Market shows attractive growth rates

82%82%

18%18%

83%83%

17%17%

84%84%

16%16%

2003 2004 2008

537 563721CAGR

ProfessionalServices

Maintenance Services

IT Services worldmarket in billions of $$

Gartner:Dec.2004


SS-BUSINESS-BUSINESSTHE SERVICES CONTINUUMTHE SERVICES CONTINUUM

1. Pure Services: We provide product support services and/or professional services, but no products.

2. Services-Led: We are a services-driven business that also sells products.

3. Services is a Profit Center, But…Yes, we sell services and try to make some money on them, but our core business and our focus are products.

4. Services is a Cost Center: We aggressively sell products; however we also provide and charge for maintenance services.

5. Pure Product: We are a product company, period. (We outsource all service or we handle only warranty and product problems with our own people--usually at no charge.)

Pure Services

Pure Product


7.5%

62.5%

30.0%

4.8%

28.6%

66.7%

0%

20%

40%

60%

80%

100%

Profit & Loss Center Cost Center

Cost Recovery Revenue Generation Customer Satisfaction

Business MotivationBusiness Motivation


13.1%

7.4%6.5%

9.1%

0.0%

5.0%

10.0%

15.0%

20.0%

Small Medium Large All

Support Funding Levels by Company SizeSupport Funding Levels by Company Size


Support Sales ChannelsSupport Sales Channels


Support Sales EffectivenessSupport Sales Effectiveness

18.5%

85.4%90.5%

35.0%

83.5% 84.1%

0%

20%

40%

60%

80%

100%

Attach Rate Renewal Rate

Channel Partners

Corporate Sales

Dedicated Sales Group


What Every Service What Every Service Manager Should KnowManager Should Know


Unit Cost Financial MeasuresUnit Cost Financial Measures

Cost per CaseDetail Breakdown by productNew versus mature productPhone versus e-case

Cost per FTEDetail Breakdown by grade levelFully burden cost

Understand monthly fixed costExplain monthly variable cost


Average Cost to Close by TierAverage Cost to Close by Tier

$61.3

$155.6$167.6

$304.5

$0

$50

$100

$150

$200

$250

$300

Tier 1 Tier 2 Tier 3 Engineering

Co

st t

o C

lose

Co

st t

o C

lose


Service Revenue Service Revenue

Revenue per customerDetail Breakdown by contract type

Maintenance contracts Warranty service Value added services

Revenue per Channel (partners)Revenue per Employee

Support center Field ServiceProfessional Service

Service Contract renewal rates


Revenue ContributionRevenue Contribution

Service Service RevenueRevenue


Support Programs OfferedSupport Programs Offered


14.5%

18.5%

22.6%

25.9%

0%

10%

20%

30%

40%

Basic Standard Premium Mission Critical

Support Program PricingSupport Program Pricing


Profitability MeasuresProfitability Measures

Service profitabilitySupport CenterField ServiceProfessional Services

Margin analysisBy customer contract type

Profit margin per Service EmployeeService Contribution to company profitability


Return on InvestmentReturn on Investment

ROI to Justify:Service Tools

Knowledge managementSelf Help, etc

StaffingTrainingProduct enhancements and fixesCustomer Loyalty


Why “Loyalty”?Why “Loyalty”?

Goal = Loyal CustomersLoyal Customers = Profitable Growth

Customer Retention

Increase Customer Repurchase and “Wallet-share”

Acquire New Customers through References


Making the Case to Management: Making the Case to Management: 3 types of ROI for Customer Loyalty3 types of ROI for Customer Loyalty

CustomerAcquisitionPremise:

New customers are more expensive to Acquire

Focus: Retention

Future Purchasing Levels

Premise: Ask customers

about future purchases if satisfaction issues are fixed

Focus: Repurchase

Customer Value

Premise: Track revenue & profitability of customers based on transactions

Focus: Activity-based Value


Support StrategiesSupport Strategies


Support StrategySupport StrategyThe Future of SupportThe Future of Support

Transition from support of products to support of customer’s business

More emphasis on business critical services

Alignment and scrutiny of support performance goals with corporate business objectives

Shift in emphasis from operational to business metrics

Support spending justification shifts from cost reduction to ROI

Emphasis on revenue generating opportunities

Emphasis on optimizationSearch for latest silver bullet is replaced by emphasis on optimizing process and knowledge

A New Value PropositionNew ways to define, market and sell support products


Customer TrendsCustomer TrendsThe Future of SupportThe Future of Support

Value PropositionGreater demand for quantification of support value

SLAsEmphasis on service level commitments

End-of-LifeReluctance to adopt new technology forces review of support policies


Pursuit of World Class SupportPursuit of World Class Support

Support must be recognized as a strategic necessity to further the corporate missionThe support mission must be focused on maximizing the value of customer relationships not simply support financial performanceThe impact of support must be expressed as tangible business valueSupport funding decisions must be evaluated base on the return on the investmentManage Support as a business

Balanced Scorecard


ScorecardScorecard

Employee Satisfaction

CustomerSatisfaction

Accountability& Process

Financial Results


Quantify Support ValueQuantify Support Value

Support contribution and success is most often measured in financial termsThe full impact of support is assumed, but seldom quantified


Thank YouThank You

Any Questions ?Any Questions ?

John HamiltonJohn HamiltonPresidentPresident

Service Strategies Corp.Service Strategies Corp.

Www.servicestrategies.com [email protected] Copyright © 2005 Service Strategies...

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