Managing Support as a
Business
Presented by
John Hamilton, President
www.servicestrategies.com
info@servicestrategies.com
Copyright © 2005 Service Strategies Corporation
Agenda
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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
Support
Investment
Impact of
Support
Return on
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
Billion
Amount spent fiscal year ’04 to fund
support operations world-wide
9.1%
Average support funding as a percent of
total revenue
$125*
World-wide support revenue earned in
FY04
Billion
37.2%
Average contribution of support revenue
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?
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.
“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
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
dependency on product
low
Services-led Business
•Professional Services
Product-related Business
•Maintenance Services
Product-led Business
•Data Center
•Mainframe
’70-’90
’90 to ‘00
’00 to ‘10
Time
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The IT Market shows attractive growth rates
IT Services world
market in billions of $$
537
CAGR
721
563
Professional
Services
82%
83%
18%
17%
2003
2004
84%
16%
Maintenance
Services
2008
Gartner:Dec.2004
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S-BUSINESS
THE SERVICES CONTINUUM
Pure Services
1.
2.
3.
4.
5.
Pure Services: We provide product support services and/or
professional services, but no products.
Services-Led: We are a services-driven business that also sells
products.
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.
Services is a Cost Center: We aggressively sell products;
however we also provide and charge for maintenance
services.
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%
62.5%
40%
28.6%
20%
7.5%
4.8%
0%
Profit & Loss Center
Cost Recovery
Cost Center
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%
85.4%
90.5%
83.5%
84.1%
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
Cost to Close
$250
$200
$150
$155.6
$167.6
$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
36.4%
Mission Critical
68.2%
Premium
81.8%
Standard
50.0%
Basic
0%
20%
40%
60%
80%
100%
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Support Program Pricing
40%
30%
25.9%
22.6%
20%
18.5%
10%
14.5%
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 “Walletshare”
Acquire New Customers through References
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Making the Case to Management:
3 types of ROI for Customer Loyalty
Customer
Acquisition
Premise:
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: Activitybased 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
Satisfaction
Accountability
& Process

Customer
Satisfaction

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