Toshiba Puts Rumors to Rest

In a memo to “All Toshiba Copier Dealers,” Mark Mathews, TABS President and COO, put to rest the rumor that has been gaining momentum over the last three weeks: That Canon was buying TBS, TABS direct organization.

Quoting Mark’s memo, “As valued Toshiba dealer partners, I felt it was important to address any TABS-related rumors directly and immediately. Toshiba Corp. is not currently, nor has it previously been in discussions with any manufacturer regarding the potential purchase of its MFP business, TABS or Toshiba Business Solutions (TBS), nor does it have any future plans in this area. Please be assured, and feel confident in assuring your customers, prospects and employees, on these points. Any related rumors to the contrary are completely unfounded and without merit.”

Strategy Development did not participate in permeating this rumor. When first contacted by industry players asking us if there was any validity we did what research we could within our network and determined that the rumor probably did not have validity. That was our message to whoever asked over the last few weeks.

I provide that retrospect because of this next statement. We do believe that consolidation will occur in the hardware manufacturing space. Unit sales continue to decline and it appears as if that decline will continue; I will talk about this in my next post. So in a less public, because of foreign stock listings and manufacturing plants, and less dramatic fashion the copier industry seems to be mirroring the auto industry: Same level of manufacturing with lower unit sales.

We are not a research company so we offer no opinion on how quickly that consolidation will occur or who might merge with or buy whom. We simply use the information we get to help our clients prepare for a prosperous future in the space. It will be those that don’t plan that will be in trouble; those that do will still thrive.

Maximize Service Return

Our current economy serves up many challenges; however, there’s never been a better time to take stock of your situation and get your service house in order. If you recognize the need to achieve a service return of 50%+ the best place to focus on is service productivity and staffing: labor is the largest and the most controllable service cost component you have.

There never seems to be the right time to “right-size” the service organization. When overstaffed there is always the tendency to say – “we will just grow into it” or “we will reduce staffing through normal attrition.” The problem with the first approach is if growth does occur, everyone is so comfortable with the current workload and pace that they will push for additional staffing rather than work harder and productivity will actually suffer. If the position taken is to reduce staffing through normal attrition you lose the opportunity for a planned cost reduction, and believe me, in today’s economy, turnover is at an all time low, so you may never get to where you need to be, and you will suffer a “lost opportunity”.

Here is a common observation relative to service staffing: When analysis concludes there is excess technician staffing the most frequently expressed justification is the need to maintain current service call response time levels. Response time tends to become the cloud cover for productivity issues associated with technical proficiency, resource planning, and time utilization. Obviously, when overstaffed, there are multiple productivity related processes that must be reviewed and changed to enable staffing reductions and still deliver quality service.

This year you have the perfect opportunity to right-size your service organization. Correct staffing levels are essential to controlling your costs, improving your productivity, and delivering the bottom line results you need. The key is determining how many resources you really need to support the customer base that you have while delivering quality service. If you have questions about how I can help you plan and optimize your staffing resources please contact me at woodard@strategydevelopment.org.

Control your G&A expenses

Controlling your G&A expenses is one of the most important requirements not only now, in a difficult economy, but long as the imaging business gets more and more competitive.
For years, it has been business as usual in the back office operations; if processing fell behind, the natural reaction was to add more employees to handle what was perceived as additional workload. Pretty soon, actual headcount grew to levels that could not be supported by the organization. Because employee expenses are the largest controllable expense area, G&A expenses were out of control. Orders were getting processed, but at a cost that could not be supported.
It is time to take a step back and re-assess how your back office is structured and determine if it still makes sense with the current and/or available technology. Understanding each person’s daily activities and tasks and how they measure up against what you need is a starting point. Beyond that, it would be time to reassess all of your current processes and you will most likely find that there are too many redundancies, unnecessary processes and inefficient use of available technology.
Periodic process inspection and, if necessary, re-design should be a regular part of business practices to make sure that you are as “lean and mean” as you can be. The ultimate goal being to continually drive down those G&A expenses that are leading to a degradation of your bottom line.
If you are setting a long-term target I suggest you need to have G&A expenses to 10% or less five years out. If you look at many of the companies that are entering the imaging space, VARs as an example, their G&A is below 10%. Competition is one consideration but changes in the industry are another driver. A4 will replace A3 at an accelerated rate as more copier companies introduce full A4 product lines. These new units will drive down average unit selling price, resulting in lower revenue for your company. You will need to be lean and mean to thrive so get focused on your G&A expense.
If I can help please contact me at boulden@strategydevelopment.org

Four Marketing Strategies For VARs In A Down Economy

Sure, it's a tough economic climate these days, but it's still possible to keep clients and win over prospects.

At a meeting Thursday of The International Association of Microsoft Certified Partners (IAMCP) led by Howard Cohen, NYC IAMCP chapter president and U.S. IAMCP communications chair, marketing experts discussed effective methods that VARs can use to reach, penetrate and win business in the channel.

http://www.crn.com/it-channel/214501984

Don't Cut Your Prices!

I realize that we are in a poor economy and that revenue is one measurement you always want to focus on, but cutting your prices is a death spiral. And don’t give me the cash flow reason either: the cash flow statement starts with the entry for net income. Lower prices results in lower margin, which results in lower net income—all else equal.

There are a lot of reasons for the death spiral comment. One is the cultural change you will instill in your sales force. If you have spent the last decade developing the team to sell value and fight for profit using enablers such as advanced capture, document routing, or variable data , and then send the message “get the deal at all cost,” your decade of work has evaporated in six words.

Once you get your sales force accustomed to selling on price how hard will it be to switch them back to value when we exit this economic trough? I would tell you it is next to impossible.

At the company I worked at prior to Strategy Development the CEO rolled out a new pricing and compensation structure for the sales force. Since I ran the largest business unit, and the only one gaining market share, I had my finance team run some Monte Carlo Modeling on the plan to see how it was going to affect our revenue and profit. The modeling demonstrated that GP would decline by 300 to 400 basis points and, depending on the mix of business, could actually increase compensation: Lower GP with higher compensation, about the ugliest of scenarios.

The CEO and I had what I’ll term as, robust discussion on the program (I always took delivering my results seriously). After this robust discussion we came to the conclusion that we had two distinct philosophies on strategy, and I left. Since it was a public company I could follow the results. The next quarter equipment GP decreased year over year by 430 basis points and the Wall Street Analyst annihilated the CEO on the earnings call. Even though it was a topic of discussion every quarter thereafter, the GP never recovered. That company spun out until it was ultimately acquired at what looked like a bargain, a significant discount, relative to other public companies acquired in the space.

The point is not that the modeling my team produced was accurate—who cares because I failed in delivering the message so that it would be heard—but that even with extreme focus and three years of opportunity that company could never get their margins back up. Don’t cut your prices!

So what actions should you take? Make well planned and strategic investments in sales and fund those investments by optimizing your service operations and your back office operations. Exiting the current economic trough in a position of strength is one big reason to focus on these two areas but another looming issue is that your new competitors—the VARs and print management companies stealthily entering your space—have G&A in the mid to high single digits. Most BTA channel companies have G&A in the high teens to low twenty percent area. Set your five year plan now to get G&A to less than 10% and to maximize service returns.

The next couple of entries will focus on how to accomplish these goals.

Gartner pushes managed print services

Printer, copier and MFP sales are in a tailspin, but Gartner says end users should be investing in deployment alternatives

Read the article in CRN: http://www.channelweb.co.uk/crn/news/2236608/gartner-pushes-managed-print#Szene_1

Lexmark: Barclays Downgrades As Printer Biz Weakens

Lexmark (LXK) shares are trading lower this morning after Barclays Capital analyst Ben Reitzes cut the firm’s rating on the stock to Underweight from Equal Weight. He chopped his price target to $17 from $26.

“While Lexmark is restructuring and could see some temporary benefits from supplies priceincreases,” he writes in a research note, “we remain concerned about business trends in both inkjet and laser supplies and do not see a strong near-term catalyst for hardware sales.” Reitzes adds that he sees risk from the company’s exposure to Dell (DELL) and from competition from Hewlett-Packard (HPQ), which spends about 4x more on R&D. “We prefer HP in printing as a consolidator and share gainer.”

For the March quarter, he sees EPS of 60 cents, two cents below the consensus; he expects the company to post a 12% decline in supplies, and a 25% drop in hardware. For 2009, he sees $2.05 a share, well below the Street at $2.36, on a 15% revenue decline. He sees 2010 EPS of $1.85 a share, below the consensus at $2.11.

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KMBS announces new direct organization

In furtherance of their one company, one vision, one voice theme, Rick Taylor, KMBS COO, today announced the formation of a new direct organization named Konica Minolta Imaging (KMI). KMI will consist of Konica Minolta’s direct branches and some subsidiaries as well as the former Danka operations.

KMI will consist of approximately 150 sales locations covering 30 strategic market areas. Each market area will be managed by a Market Vice President, reporting to one of four Regional Presidents who will report to the President of KMI.

Stating that KMI has been designed to bring decision-making closer to the customer and allow quick response to changes in local market conditions, the Regional Presidents will have full operational and P&L responsibility for the region.

The leaders of this new organization are as follows:

President, Konica Minolta Imaging: Bill Troxil, who will report directly to Rick Taylor. Bill most recently served as President and COO of Konica Minolta Danka Imaging and Danka Office Imaging before last year’s acquisition.

President, Eastern Region: Mark Bradford has been with Konica Minolta for 25 years in numerous executive positions in both the field and home office. Since last September, Mark has served as Senior Vice President & General Manager of Konica Minota’s Direct Sales Operations.

President, South Region: Brent Colston joins KMI from Toshiba Business Solutions (TBS) where he spent the last eight years as President of TBS Florida/Georgia.

President, Western Region: Bill Michas joined KMI from Toshiba Business Solutions where he served as President of TBS California/Nevada.

The President or the Midwest Region is to be announced.

Rick went on to highlight how well positioned KMBS will be with their powerful dealer network and a profit focused branch network.

KMBS’ mantra of one company, one vision, one theme is clearly more than just words. Rick and the other executives at KMBS are focused to building a quality direct organization that will function harmoniously with their dealer channel.

It is a great time for the independent dealer

But just what are you doing to “Shine” in this recession? Here are some tips to help you exit this economic downturn in a better position than when you entered.

Your customers are in a different situation, so offer them new solutions:

For years the copier industry has thrived with a combination of low and consistent lease rates, decreasing aftermarket costs, and equipment with more features for the same price. These three variables have produced an environment where the industry could offer “bigger, better, faster” for basically the same monthly investment. Today, these variables are changing as lease rates increase and the Japanese manufacturers pass on their FX challenges, at the same time that your customers are looking to downsize, and possibly reduce the quantity of printing assets and reduce their equipment expense.

Become the solution provider for your customers. The definition of solution is a resolution to a problem, and the clear problem today for many companies is lower revenue and profit; so help them reduce their cost of printing. This may include recommending A4 products to replace A3, reducing the number of overall assets, or finding ways to move outside printing to internal assets. All of these solutions require a change of attitude and additional training for your sales reps. This 30,000 foot assessment doesn’t provide you with the details you need to really change so spend some time with your senior team to put together a plan on how you will help your customers survive the economic downturn: If you do, you will have long term loyalty.

Don’t be too quick to cut prices:

Let’s assume you are at the Strategy Development Financial Model of 36% gross profit on your equipment. We’ll further assume that you produce $5,000,000 in annual equipment revenue, generating $1,800,000 in GP. You decide to become “more aggressive” to grow your market share and lower your prices by 5%. This year, in a recession, you generate $5,200,000 in revenue at 31% gross profit. You have lowered your gross profit from $1,800,000 to $1,612,000; is that what you expected? You would actually have to increase your equipment revenue by 16% to generate the same gross profit—and that probably won’t happen.
There are growth strategies that will work in today’s environment, but cutting price is probably not one of them. Maintain your gross profit even if it means a slight decrease in revenue.

Evaluate your compensation:

In the sales arena nothing drives behavior more than compensation. If you truly want to achieve the first two goals make certain your compensation matches the goals and training. If your goal is to help companies reduce their overall spend on print assets while adding profitable aftermarket revenue and your compensation plan pays strictly on equipment placement you will not get what you desire.

Watch your capital:

For years anybody could get a loan for virtually any amount. This has led many companies to leverage up to the point where one bad month could cause a catastrophe. In today’s economic environment that bad month is inevitable. It is key to manage your company for capital efficiency: Monitor your return on capital. You should also understand you debt agreements, including all covenants. Expect the unexpected and develop options should your lender have a sudden change of direction.

You should also focus on large uses of cash such as inventory:

Monitor your inventory turns and ensure they are at or above the Strategy Development Financial Model.

Evaluate your people:

When business is thriving most employees look like geniuses: Companies don’t employee a robust employee evaluation process. In today’s economy it is quite possible that you will be put in a position where you have to lay off employees. Nothing will help you make the correct decision like a good evaluation process. The other side of this coin is that you will know which employees to reward during the downturn. It is critical that your star employees are recognized and rewarded.

Believe it or not, this is also a great time to be recruiting stars from other companies. Many companies will lack the planning to make good decisions; they will treat all of their employees as equal, both performers and under performers, and alienate the stars. This will create opportunities to add quality to your team.

Cut your expenses for the long term:

Don’t panic, but the current economic environment is the perfect stimulus for you to look at reducing your expenses over the next one to five years. Want one key to reducing expenses: Drive productivity. The Strategy Development Financial Scorecard focuses on productivity and you should certainly have these metrics at the top of your company’s scorecard. Some quick looks are revenue per employee, equipment revenue per sales rep, CPP revenue per print management rep, revenue per administrative employee, and service revenue per service employee.

Think about acquisitions:

It is ironic that most acquisitions are completed when the prices are the highest. This isn’t an imaging company phenomena but rather business as usual. Just like companies seem to always conduct share repurchases at the peak of the market. Many of the industry acquirers have shut-down or significantly curtailed acquisitions. Yet there are principals out there that probably were thinking of retiring before the economic meltdown and are now in a situation where they do not want to fight through the current economic downturn. These companies can be bought at bargain prices relative to just two years back. Look to grow your market share with a strategic acquisition.

Toshiba to raise prices April 1, 2009

Citing the dramatic drop in the yen relative to the dollar, from 107 to 89, Toshiba announced a price increase on their copiers effective April 1.

Historically, manufacturers have hedged currency for six month periods. In August of 2008, six months back, the Yen was at approximately 110/ dollar. For the six months leading into August the Yen averaged 105 / dollar. Today, the exchange rate is 90 / dollar.

Although this announcement was from Toshiba, if the Yen remains at current exchange rate levels you can expect all Japanese manufacturers to raise prices. The price increase is a double edged sword in that it has the potential to reduce a dealerships gross margin if the primary sales strategy is on matching the current monthly payment of the end user. The price increase also has the potential to increase revenue and profit (same profit ratio on a higher average unit selling price results in more profit dollars) if the price increase can be passed onto the end user. There are a lot of strategies and tactics that will enable you to raise prices, so make certain you do some planning as you get these price increase notices.

Print Management

Read the first in a series of articles on implementing a successful print management program in the February issue of ENX Magazine: http://enxmag.com/2007/new%20site%202007/website/2009_MONTHS/feb2009/aRoadmapToSuccessfulImplementation_TCallinan_feb09.htm