Financial Viability Comes From Visibility

During the great growth years, the IT industry garnered product margins of 30 percent regardless of one's ability to manage a business well. Resellers cannot survive on product margin alone. In this environment, there are two basic fixes: Accept low returns or transition to a stronger services model.

Resellers that default to the first fix become dependent on manufacturers to prop up margins. Unfortunately, their competitors get the same benefit, thereby neutralizing any advantage or driving discounts to the streets.

As the market matures, companies must evolve to leaner, more efficient operations. This becomes even more important in the transition to increased services revenue.

If your services revenue (sales outside of hardware, software or reselling manufacturer maintenance paper) falls below 15 percent gross revenue, then, like it or not, you fall into the product reseller category. If you've hit 40 percent, well done, you've moved to integrator status. If your services revenue is over 50 percent, congratulations, you've achieved services company status.

What can be done to advance to a profitable services model? If that's your goal, then start now. It takes six to 18 months to implement the right systems, change technical and sales staff attitudes and transition old paradigm practices to new ones.

A profitable services business moves beyond spreadsheets and accounting systems as the prime source of business intelligence. You must incorporate activity-based key indicators that accurately and easily predict labor forecasts and track results. Your motto should be: "If you can't measure it, you can't manage it." Adopting a good project and services software tracking system is necessary to achieve optimum utilization. If your field services automation (FSA) software integrates labor details into a quoting engine, then you also can predict future utilization, a critical part of labor optimization.

Think of labor as inventory. You control access to it, account for every box, and sell off excess before you have to throw it away. So if labor is inventory, you need an inventory control coordinator and an inventory control system that tracks all the hours in a day. By tracking these details, you can see where labor is consumed. This leads to better decision- making and improved resource optimization.

We use a complete business management (e-CRM/ERP/FSA) product called Promys by Genuit to automate this process. It took us one month to implement, three months to condition the technical staff to use it faithfully and four months to ensure salespeople consistently used the tool to forecast accurately. Friendly persuasion techniques, such as decreased bonuses or commissions, encouraged staff to change old work habits and enthusiastically adopt the new system.

For our company, the transition to predominantly services-based revenue was a critical step in securing our future and producing better financial rewards. But it took a commitment to the goal, an improvement in the way we tracked results, a search to find the best software tool and a change in how employees respected labor services.

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