Greece’s fiscal crisis is a clear indication that the global economy is not totally out of the woods. The “Great Recession” came in with a roar after Lehman Brothers filed for bankruptcy in September, 2008, and by most economists and Government accounts ended in the second half of 2009. Today, the US appears to be experiencing some level of recovery in almost all sectors, albeit against week comparables from last year.
Strategy Development’s copier company clients are experiencing year on year equipment growth and year on year click growth, although against weak comparables from last year in the copier segment. The big question is sustainability—does the short-term growth result in a sustained growth run.
Unfortunately, many companies react based on what is occurring today rather than on sound planning. If business is down—throw some bodies at the problem and when that doesn’t work, and you’ve needlessly drained cash—take an ax to expenses. If business is going well don’t take the time to understand “why” simply enjoy the ride. Yet history demonstrates that without planning and innovation the good times end and the bad times usually get even uglier.
I would suggest that now is not the time to be euphoric about your growth against weak comparables. Enjoy the additional revenue, operating income, and cash flow, but take the time with your senior team to understand where the industry is headed and how your business can properly invest today to be a leader tomorrow. Moreover, don’t assume that “better” is “best,” look for areas to increase revenue, improve gross profit, and reduce general and administrative expense (G&A).
Those of you that have heard me speak on business planning know that I use a concept of “air cover,” where I look for short-term gains in high leverage areas to provide me the investment dollars to grow the business. Service and back office operations were always two of the areas I looked to leverage. Both back office operations and service are quasi production environments. Without deep understanding of these areas of the business it is difficult to maximize gross profit and minimize G&A; yet they usually provide the greatest opportunity to provide the “air cover” you need to invest in growth.
MPS adds complexity to back office operations and service because many aspects of the MPS agreement are foreign to employees of a copier company. E.g., there were 100 devices on the initial assessment, 104 at the first quarterly read—plus three totally different from the initial assessment—then on the second quarterly read there are 103 devices, two reappeared from the initial assessment, and two others are different from the prior reads. And oh yea, the rep added four devices, changed the minimum and CPP rate, and extended the lease out six more months! Service has to deal with five different vendors and 18 different models.
Let’s say service represents 40% of your revenue and with the correct processes you can improve margins by 5%: That added 2% to your bottom line. Let’s assume you are in the 19% - 22% G&A range of most dealers and with the correct back office processes you can reduce that by 2%. You now have 4% operating income improvement to invest in sales. Isn’t that a lot more logical than hoping the new sales employees can outrun their expense? After all that expense coverage from sales never happens but by taking the “air cover model” you now you have money to invest in growth without feeling the severe pinch of cash flow.
Unless you have a team of analyst to run off and research back office operations and service—or you want to go down the trial and error route—you’ll need help. Fortunately for you Mike Woodard, service consultant and Jim Boulden operations consultant from Strategy Development have the experience to help you get your air cover. Every dealer engagement Mike and Jim have entered has had a three to four month payback period with ongoing savings that could be invested in growth. These two guys provide you the air cover!
If you are nervous about entering a consulting engagement enroll your team members in one of the classes they put on through BTA: MPS Operations and Service or Service Management University (SMU). Jim also instructs, along with Ed Carroll and me, BTA’s business planning workshop.
What about MPS? Where do you think you’re going to make those investments! Our MPS clients also experienced year on year click decreases on a comparable basis (same customers) during the recession (keep in perspective we’ve been consulting in MPS since early 2006); but they experience substantial overall growth because they were continuously adding new customers. How is your MPS program going—honestly? I add that qualifier realizing that it is hard to be honest when everybody you speak to says they have an MPS program, and at least in public, tell you it is going “GREAT.”
Strategy Development consults for the most successful MPS providers in the country so we know what great looks like. You want the first indication that “GREAT” may not be that good? When you are quoted a quantity of prints they manage (our start-up MPS clients did that until the figure was bigger than McDonald’s hamburgers sold). Let’s be realistic here: That “3,000,000 print” contract actually means 50,000 prints per month or $750 per month (most companies use 5 years as the multiplier even if the contract is for 3). And “we’re managing 60,000,000 prints” means they manage (maybe) 1,000,000 prints per month or $20,000 per month: Decent revenue for one rep 12 months into the MPS business.
What is good? Hyper growth to simplify the answer but here’s a quick financial look. After 12 months—from dead start—a good MPS specialist will be managing $24,500 in monthly recurring aftermarket revenue. After two years that same single rep will be managing $64,500 in monthly recurring revenue and will have sold $360,000 in equipment the second year; in other words your single rep will be a $1 million plus business by the end of year two. Use these figures to really get successful in the space! If you want to realize these results attend BTA’s Managed Print Services Workshop or download licenses from InfoTrends MPS Sales eLearning workshop through the BTA website (at a discount to members) or directly from InfoTrends.
What about copiers? According to the research firms you will continue to see year on year unit decreases. That doesn’t mean you cannot grow; you will need to increase your market share with better programs or processes than your competitors. Attend our BTA Sales Management program, or if you are a KMBS dealer the KMBS Sales Management Workshop, subsidized by KMBS and instructed by Strategy Development.
Finally, to tie it all together BTA has the Business Planning Workshop.
You probably see a theme here in that Strategy Development and the BTA have a training program for every ailment. Believe me SD didn’t invent the ailments we simply developed training programs to help dealers/resellers overcome the issue they face. We are in the business of helping you achieve success. Primarily, Strategy Development accomplishes that through our consulting engagements but the seven of us cannot possibly think we can touch all 2,500+ dealers with our consulting. BTA is also focused on helping the dealer community achieve success and we choose each other as partners to help dealers thrive.
Things are good now because most companies have very easy comparables from last year but don’t take long-term success for granted. Whether or not you work with Strategy Development, take the time to put together a business plan and take into consideration the environmental issues affecting the industry.
Showing posts with label Konica Minolta Business Solutions. Show all posts
Showing posts with label Konica Minolta Business Solutions. Show all posts
Wednesday, May 26, 2010
Thursday, September 10, 2009
MPS: Growth Strategy or Harbinger of a Smaller Pie
My opinion is both, depending on your current position and how well you leverage the MPS opportunity. To understand my feelings I will share my thoughts.
Fewer printers and copiers are being sold year on year. Gartner recently reported that worldwide combined printer, copier and MFP shipments totaled 51.3 million units, a 20.2 percent decline in shipments from the first half of 2008. Office printing devices drove the overall decline in the global print market, with a 24.5 percent decrease in the first half of the year compared to the first half of 2008.
Add to this year on year unit decline the facts that A4 units are replacing A3 units, at a lower average unit selling price and, like all maturing technology, average unit selling price across all segments is declining and you wonder where the growth is. The simple answer is that there is no growth; in fact, the overall market is shrinking.
Keep in perspective that there is nothing new in an MPS sale, which includes toner, parts and service (together “aftermarket”), equipment, and software. Moreover, one of the long-term goals of MPS is to reduce the quantity of devices used by a company. What does this mean? It means that the industry players—those that depend on an already shrinking revenue pool—are going to deliberately accelerate that revenue decline.
So far it sounds like death by a thousand cuts so why would anybody want to jump into MPS? Because for the short term, it is a growth strategy for those that properly deploy a strategy.
Printer Manufacturer Perspective
Every printer manufacturer is touting an MPS strategy. Why would you push a strategy that is going to result in fewer devices sold when you are a manufacturer? Simple, because you expect to take market share from the other printer companies—you intend on gaining share. So in short, the device loss is going to come out of your competitors’ backside.
MPS is clearly an inflection point in how devices, parts, and toner get sold and we’ll get to that shortly. The real question is will a printer manufacturer with low market share—when laser printers have been in the market for over 20 years—suddenly be able to leverage MPS to transform themselves into an industry player or is it simply a drowning man grasping for a thin read? Time will tell….but history usually repeats itself.
Let’s use HP as an example, who by all accounts has a 50%+ market share. I don’t care what industry you are in 50% market share is a dominating position. HP used their technical expertise—manufacturing super reliable printers that easily connected to the network—along with a “razor / razor blade” strategy to earn this dominance. One way to grow market share is to change the definition of the market so you motivate your team to penetrate adjacencies, and HP has accomplished this with their MFD products—directly targeting the copier space as a growth strategy.
But HP, in my opinion, has a bigger issue than pure market share and that issue relates to their razor blade strategy. Low priced, highly reliable, easily connected products provided HP with the ability to distribute through mass market players like CDW and PC Mall, as well as value added resellers (VAR) and dealers. The end user then purchased their HP cartridges through distribution points like their office supply company or HP direct. Sure, rechargers have approximately 30% of the mono market and 7% of the color market, but this seems to have been an acceptable level to HP, who constantly introduced new models; it took the rechargers a year or so to get enough empty cartridges to manufacturer in quantity.
Two sea changes are occurring today. First, and the point of this article, copier dealers, VARs, and other players are selling MPS agreements. Just four years ago HP, as well as the other printer manufacturers, but HP is the 800 pound gorilla, only had to deal with cartridge resellers and some private label products in super stores. Selling HP or compatible (remanufactured) cartridges was not a focus for the vast majority of copier dealers and the MPS VAR did not exist. Today, hundreds—rapidly headed toward thousands—of MPS providers are selling contracts that primarily use remanufactured cartridges in their contracts. Second, end users are holding onto their printers for a longer period of time so remanufactured cartridges are available for most products.
HP has a strong drive for market share; they are aggressive and smart and that is why they are so dominant. The other printer vendors sense there is an opportunity with the sea change of MPS. We will see if other printer manufacturers are able to take advantage of this inflection point or if HP will respond and retain their dominance.
Copier Manufacturer Perspective
No difference here—all copier manufacturers are pushing MPS. I think they have more to gain than the print manufacturer in that they have the opportunity to capture highly profitable new services revenue. So while HP is defending their turf—and the likes of Lexmark, Muratec, OKI, and Samsung are trying to take that market share—the copier manufacturer, through either their direct branch or dealer channel, can gain profitable aftermarket revenue. And they need it because year on year equipment placements are dropping rapidly!
So here is the short term gain: HP’s and the likes of CDW’s loss is the MPS delivering company’s gain. There are other winners too, like cartridge remanufacturers and distributors who supply MPS companies. We’ll cover the deliverable growth aspect in the next section but copier companies believe that they can replace that fleet of HP, Lexmark and other brand printers over the long term with their own products, while developing profitable service revenue over the short term.
I don’t think you are going to see any magic occur with this strategy: Copier manufacturers with low market share aren’t going to displace the top tier players with an MPS strategy. The channel is fairly set at this late stage of maturity so all the manufacturers can do is execute well through their branches and provide the consulting and training their dealer channel will need. They also need to provide them with a solid A4 product line of MFDs and printers.
The provider—MPS companies
Here is where the tremendous growth is near and medium term; the actual company that is on the street selling and delivering on MPS. The growth is coming out of other channels—it is not industry growth. Let’s just take an example:
ABC Imaging, a Sharp, Konica Minolta (KMBS), and HP dealer convinces Smith and Fried, a law firm, to place their 160 HP printers on an MPS agreement. Previously, Smith and Fried bought their printers from CDW with care packs and bought their cartridges and maintenance kits through Staples with their office supplies. ABC gets a contract for $15,000 to supply and service the 160 printers. So far Staples has lost the toner and maintenance kit business. ABC is going to use compatible cartridges so HP also lost some business with cartridges immediately and care packs over the near term. Time will tell if the printers are replaced with HP, Konica Minolta, or Sharp; the dealer will probably select the best product for the application. At that point CDW will have lost the business, and possibly additional HP loss.
Let’s assume Smith and Fried was spending $15,000 per month through Staples before they signed the agreement with ABC. MPS “grew” by $15,000 but other players lost the same $15,000. As ABC optimizes the fleet the revenue will continue to be reduced; there will be less capital expenditure on devices. As more players enter MPS the high early adapter margins available today will fall, as will revenue.
There could be others that gain revenue. KMBS offers revenue credit toward quota and rebates if their dealers buy their compatible cartridges through KMBS. If the dealer decides to take advantage of this program KMBS is able to recognize revenue and a small GP on the cartridges they buy at a lower price from a remanufacturing company (KMBS is simply an example…..other copier manufacturers have similar programs). KMBS also gains market intelligence. The OEMs’ direct organization also have the opportunity to grow revenue with an MPS strategy since servicing and supplying competitors’ printers is all net new business for the directs, at a loss to others.
The only absolute growth in MPS is at the provider level. Four years ago I used to tell audiences to get into MPS now because in two years everybody will be doing it. Well, it is four years later and I gave up saying that…..I guess I was more enthusiastic than the average dealer or reseller. What I would tell you is that if you get into MPS today—really get into it with a business plan and focus—you are still an early adapter. The revenue and profit opportunities are great. But in the long term we will all be fighting over a smaller pie so don’t hesitate…..get your outsized slice today!
Strategy Development is a consulting and training firm that can help you get more than your share of the MPS space. Whether you are a manufacturer, distributor, or reseller we’ll help you achieve success (http://www.strategydevelopment.org)
Add yourself as a follower to this blog and join the Linked In Group, “Print Management”
Fewer printers and copiers are being sold year on year. Gartner recently reported that worldwide combined printer, copier and MFP shipments totaled 51.3 million units, a 20.2 percent decline in shipments from the first half of 2008. Office printing devices drove the overall decline in the global print market, with a 24.5 percent decrease in the first half of the year compared to the first half of 2008.
Add to this year on year unit decline the facts that A4 units are replacing A3 units, at a lower average unit selling price and, like all maturing technology, average unit selling price across all segments is declining and you wonder where the growth is. The simple answer is that there is no growth; in fact, the overall market is shrinking.
Keep in perspective that there is nothing new in an MPS sale, which includes toner, parts and service (together “aftermarket”), equipment, and software. Moreover, one of the long-term goals of MPS is to reduce the quantity of devices used by a company. What does this mean? It means that the industry players—those that depend on an already shrinking revenue pool—are going to deliberately accelerate that revenue decline.
So far it sounds like death by a thousand cuts so why would anybody want to jump into MPS? Because for the short term, it is a growth strategy for those that properly deploy a strategy.
Printer Manufacturer Perspective
Every printer manufacturer is touting an MPS strategy. Why would you push a strategy that is going to result in fewer devices sold when you are a manufacturer? Simple, because you expect to take market share from the other printer companies—you intend on gaining share. So in short, the device loss is going to come out of your competitors’ backside.
MPS is clearly an inflection point in how devices, parts, and toner get sold and we’ll get to that shortly. The real question is will a printer manufacturer with low market share—when laser printers have been in the market for over 20 years—suddenly be able to leverage MPS to transform themselves into an industry player or is it simply a drowning man grasping for a thin read? Time will tell….but history usually repeats itself.
Let’s use HP as an example, who by all accounts has a 50%+ market share. I don’t care what industry you are in 50% market share is a dominating position. HP used their technical expertise—manufacturing super reliable printers that easily connected to the network—along with a “razor / razor blade” strategy to earn this dominance. One way to grow market share is to change the definition of the market so you motivate your team to penetrate adjacencies, and HP has accomplished this with their MFD products—directly targeting the copier space as a growth strategy.
But HP, in my opinion, has a bigger issue than pure market share and that issue relates to their razor blade strategy. Low priced, highly reliable, easily connected products provided HP with the ability to distribute through mass market players like CDW and PC Mall, as well as value added resellers (VAR) and dealers. The end user then purchased their HP cartridges through distribution points like their office supply company or HP direct. Sure, rechargers have approximately 30% of the mono market and 7% of the color market, but this seems to have been an acceptable level to HP, who constantly introduced new models; it took the rechargers a year or so to get enough empty cartridges to manufacturer in quantity.
Two sea changes are occurring today. First, and the point of this article, copier dealers, VARs, and other players are selling MPS agreements. Just four years ago HP, as well as the other printer manufacturers, but HP is the 800 pound gorilla, only had to deal with cartridge resellers and some private label products in super stores. Selling HP or compatible (remanufactured) cartridges was not a focus for the vast majority of copier dealers and the MPS VAR did not exist. Today, hundreds—rapidly headed toward thousands—of MPS providers are selling contracts that primarily use remanufactured cartridges in their contracts. Second, end users are holding onto their printers for a longer period of time so remanufactured cartridges are available for most products.
HP has a strong drive for market share; they are aggressive and smart and that is why they are so dominant. The other printer vendors sense there is an opportunity with the sea change of MPS. We will see if other printer manufacturers are able to take advantage of this inflection point or if HP will respond and retain their dominance.
Copier Manufacturer Perspective
No difference here—all copier manufacturers are pushing MPS. I think they have more to gain than the print manufacturer in that they have the opportunity to capture highly profitable new services revenue. So while HP is defending their turf—and the likes of Lexmark, Muratec, OKI, and Samsung are trying to take that market share—the copier manufacturer, through either their direct branch or dealer channel, can gain profitable aftermarket revenue. And they need it because year on year equipment placements are dropping rapidly!
So here is the short term gain: HP’s and the likes of CDW’s loss is the MPS delivering company’s gain. There are other winners too, like cartridge remanufacturers and distributors who supply MPS companies. We’ll cover the deliverable growth aspect in the next section but copier companies believe that they can replace that fleet of HP, Lexmark and other brand printers over the long term with their own products, while developing profitable service revenue over the short term.
I don’t think you are going to see any magic occur with this strategy: Copier manufacturers with low market share aren’t going to displace the top tier players with an MPS strategy. The channel is fairly set at this late stage of maturity so all the manufacturers can do is execute well through their branches and provide the consulting and training their dealer channel will need. They also need to provide them with a solid A4 product line of MFDs and printers.
The provider—MPS companies
Here is where the tremendous growth is near and medium term; the actual company that is on the street selling and delivering on MPS. The growth is coming out of other channels—it is not industry growth. Let’s just take an example:
ABC Imaging, a Sharp, Konica Minolta (KMBS), and HP dealer convinces Smith and Fried, a law firm, to place their 160 HP printers on an MPS agreement. Previously, Smith and Fried bought their printers from CDW with care packs and bought their cartridges and maintenance kits through Staples with their office supplies. ABC gets a contract for $15,000 to supply and service the 160 printers. So far Staples has lost the toner and maintenance kit business. ABC is going to use compatible cartridges so HP also lost some business with cartridges immediately and care packs over the near term. Time will tell if the printers are replaced with HP, Konica Minolta, or Sharp; the dealer will probably select the best product for the application. At that point CDW will have lost the business, and possibly additional HP loss.
Let’s assume Smith and Fried was spending $15,000 per month through Staples before they signed the agreement with ABC. MPS “grew” by $15,000 but other players lost the same $15,000. As ABC optimizes the fleet the revenue will continue to be reduced; there will be less capital expenditure on devices. As more players enter MPS the high early adapter margins available today will fall, as will revenue.
There could be others that gain revenue. KMBS offers revenue credit toward quota and rebates if their dealers buy their compatible cartridges through KMBS. If the dealer decides to take advantage of this program KMBS is able to recognize revenue and a small GP on the cartridges they buy at a lower price from a remanufacturing company (KMBS is simply an example…..other copier manufacturers have similar programs). KMBS also gains market intelligence. The OEMs’ direct organization also have the opportunity to grow revenue with an MPS strategy since servicing and supplying competitors’ printers is all net new business for the directs, at a loss to others.
The only absolute growth in MPS is at the provider level. Four years ago I used to tell audiences to get into MPS now because in two years everybody will be doing it. Well, it is four years later and I gave up saying that…..I guess I was more enthusiastic than the average dealer or reseller. What I would tell you is that if you get into MPS today—really get into it with a business plan and focus—you are still an early adapter. The revenue and profit opportunities are great. But in the long term we will all be fighting over a smaller pie so don’t hesitate…..get your outsized slice today!
Strategy Development is a consulting and training firm that can help you get more than your share of the MPS space. Whether you are a manufacturer, distributor, or reseller we’ll help you achieve success (http://www.strategydevelopment.org)
Add yourself as a follower to this blog and join the Linked In Group, “Print Management”
Thursday, February 19, 2009
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.
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.
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