Managing Support as a

Business

Presented by
John Hamilton, President

www.servicestrategies.com info@servicestrategies.com
Copyright © 2005 Service Strategies Corporation
Agenda

 The Business of Support

 What is S Business ?
 Market Trends in the Service
Business
 What Every Service Manager
Should Know
 Support Strategies

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The Business of Support

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The Business of Support
A Corporate View

Return on
Support Impact of
Support
Investment Support
Investment

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 The Impact of Support

Helps customers accelerate full product

deployment and utilization
Earns and sustains customer loyalty
Contributes to business profitability
Provides a source of customer insight

Goal – Translate Impact into Business Value

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The Business of Support
By the Numbers

$73 Amount spent fiscal year ’04 to fund

Billion support operations world-wide

Average support funding as a percent of

9.1%
total revenue

$125* World-wide support revenue earned in

Billion FY04

Average contribution of support revenue

37.2%
to total corporate revenue

65.3% Average support margin

*Gartner
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What is S Business ?

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 WHY S-BUSINESS?

“We have a pretty extensive services business.

We have embedded services that go along
Services contribute 35% of the with the product. Then we have the
computer industry revenues and discretionary services, the professional
consulting, SAN (storage area network) design
60% of the profits. and deployment, application development,
managed services--it's about a $2.6 billion
business for us and growing at roughly double
Services deliver 61% gross profit the rate of our product business.”
Michael Dell, President and CEO,
margin and 30% growth rate to Dell Computer
top-performing organizations.

Services have an average gross

margins that are more than 50
percent higher than products.
(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

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 WHY S-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.

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 S-BUSINESS
CUSTOMER SERVICES AND SUPPORT

PRODUCT SUPPORT SERVICES

Contact Centers, Field Service/Maintenance, Depot Repair, Parts,
Logistics, Installation, Telephone and Internet-based Technical Support, Device
Relations Management, Closed Loop Supply Chain

VALUE-ADDED SERVICES
Project Management, Project Implementation, Systems Integration, Market
Research, Functional Outsourcing, Temporary staffing, Training, Asset
Management, Design for Serviceability, Software Support, and Benchmarks

PROFESSIONAL/CONSULTING SERVICES
Needs Assessment, Process/Infrastructure Analysis,
Strategy Development, Technology Design, Project Planning,
Solutions Evaluation and Recommendation

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Market Trends in the Service
Business

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 What happens in the market
low
dependency on product

Services-led Business
•Professional Services
Product-related Business
•Maintenance Services
Product-led Business
•Data Center
•Mainframe
Time
’70-’90 ’90 to ‘00 ’00 to ‘10

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The IT Market shows attractive growth rates
IT Services world
market in billions of $$
CAGR 721
537 563

Professional
Services
84%
82% 83%

18% 17% 16%

Maintenance
Services
2003 2004 2008
Gartner:Dec.2004

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S-BUSINESS
THE SERVICES CONTINUUM

Pure Services
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 Product
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Business Motivation

100%
30.0%
80%
66.7%
60%

40% 62.5%

20% 28.6%

7.5% 4.8%
0%
Profit & Loss Center Cost Center

Cost Recovery Revenue Generation Customer Satisfaction

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Support Funding Levels by Company Size
20.0%

15.0%

13.1%
10.0%
9.1%
7.4%
5.0% 6.5%

0.0%
Small Medium Large All

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Support Sales Channels

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Support Sales Effectiveness

100%

80% 90.5%
85.4% 84.1%
83.5%

60%

40%
35.0%
20%
18.5%

0%
Attach Rate Renewal Rate

Channel Partners
Corporate Sales
Dedicated Sales Group

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What Every Service Manager
Should Know

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Unit Cost Financial Measures

Cost per Case

Detail Breakdown by product
New versus mature product
Phone versus e-case
Cost per FTE
Detail Breakdown by grade level
Fully burden cost
Understand monthly fixed cost
Explain monthly variable cost

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Average Cost to Close by Tier

$300
$304.5

$250

$200
Cost to Close

$150 $167.6
$155.6

$100

$50 $61.3

$0
Tier 1 Tier 2 Tier 3 Engineering

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Service Revenue

Revenue per customer

Detail Breakdown by contract type
 Maintenance contracts
 Warranty service
 Value added services

Revenue per Channel

(partners)
Revenue per Employee
Support center
Field Service
Professional Service
Service Contract renewal rates

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Revenue Contribution

Service
Revenue

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 Support Programs Offered

Mission Critical 36.4%

Premium 68.2%

81.8%
Standard

Basic 50.0%

0% 20% 40% 60% 80% 100%

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Support Program Pricing

40%

30%

25.9%
20% 22.6%

18.5%

14.5%
10%

0%
Basic Standard Premium Mission Critical

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Profitability Measures

Service profitability
Support Center
Field Service
Professional Services
Margin analysis
By customer contract type
Profit margin per Service Employee
Service Contribution to company profitability

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Return on Investment
ROI to Justify:
Service Tools
Knowledge management
Self Help, etc
Staffing
Training
Product enhancements and fixes
Customer Loyalty

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Why “Loyalty”?

Goal = Loyal Customers

Loyal Customers = Profitable Growth

Customer Retention

Increase Customer Repurchase and “Wallet-

share”

Acquire New Customers through References

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 Making the Case to Management:
3 types of ROI for Customer Loyalty
Future Purchasing Customer
Customer
Levels Value
Acquisition Premise: Premise:
Premise: Track revenue
Ask customers
New customers about future & profitability
are more purchases if of customers
expensive to satisfaction issues based on
Acquire are fixed transactions

Focus: Retention Focus: Repurchase Focus: Activity-

based Value

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Support Strategies

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Support Strategy
The 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 optimization
Search for latest silver bullet is replaced by emphasis on optimizing
process and knowledge
A New Value Proposition
New ways to define, market and sell support products

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Customer Trends
The Future of Support

Value Proposition
Greater demand for quantification
of support value
SLAs
Emphasis on service level
commitments
End-of-Life
Reluctance to adopt new
technology forces review of
support policies

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Pursuit of World Class Support

Support must be recognized as a strategic necessity to

further the corporate mission
The support mission must be focused on maximizing
the value of customer relationships not simply support
financial performance
The impact of support must be expressed as tangible
business value
Support funding decisions must be evaluated base on
the return on the investment
Manage Support as a business
Balanced Scorecard

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Scorecard

 
Employee Customer
Satisfaction Satisfaction

 Accountability
& Process  Financial
Results

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Quantify Support Value

Support contribution and

success is most often
measured in financial terms
The full impact of support is
assumed, but seldom
quantified

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 Thank You

Any Questions ?

John Hamilton
President
Service Strategies Corp.

Copyright © 2004 Service Strategies Corporation