Managing Support as a Business

1. Managing Support as a Business

2. Agenda • The Business of Support • What is S Business ? • Market Trends in the Service Business • What Every Service Manager Should Know • Support Strategies

3. The Business of Support

4. Support Investment Impact of Support Return on Support Investment The Business of SupportA Corporate View

5. 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

6. The Business of SupportBy 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* Billion World-wide support revenue earned in FY04 37.2% Average contribution of support revenue to total corporate revenue 65.3% Average support margin *Gartner

7. What is S Business ?

8. 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 WHY S-BUSINESS? (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

9. 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.

10. S-BUSINESSCUSTOMER 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

11. Market Trends in the Service Business

12. What happens in the market low • Services-led Business • Professional Services • Product-related Business • Maintenance Services dependencyon product • Product-led Business • Data Center • Mainframe Time ’90 to ‘00 ’00 to ‘10 ’70-’90

13. The IT Market shows attractive growth rates IT Services world market in billions of $$ CAGR 721 563 537 84% Professional Services 83% 82% Maintenance Services 18% 17% 16% 2003 2004 2008 Gartner:Dec.2004

14. S-BUSINESSTHE SERVICES CONTINUUM Pure Services • 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

15. Business Motivation

16. Support Funding Levels by Company Size

17. Support Sales Channels

18. Support Sales Effectiveness

19. What Every Service Manager Should Know

20. 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

21. Average Cost to Close by Tier Cost to Close

22. 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

23. Revenue Contribution Service Revenue

24. Support Programs Offered

25. Support Program Pricing

26. 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

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

28. Why “Loyalty”? Goal = Loyal Customers Loyal Customers = Profitable Growth • Customer Retention • Increase Customer Repurchase and “Wallet-share” • Acquire New Customers through References

29. 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 Making the Case to Management: 3 types of ROI for Customer Loyalty Customer Value • Premise: Track revenue & profitability of customers based on transactions Focus: Activity-based Value

30. Support Strategies

31. Support StrategyThe 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

32. Customer TrendsThe 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

33. 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

34. Scorecard

35. Quantify Support Value • Support contribution and success is most often measured in financial terms • The full impact of support is assumed, but seldom quantified

36. Thank YouAny Questions ?John HamiltonPresidentService Strategies Corp.