The business of being an IT solution provider has evolved significantly over the past 10 years, affecting everything from what technology is sold to the structure of channel businesses. What once fuelled profitability and revenue is changing as businesses shift from transactional product sales to IT services, according to CompTIA's Moheb Moses, ANZ community director and director of Channel Dynamics
“Customers have more options than ever when it comes to fulfilling their technology needs, establishing a clear imperative for solution providers to find a way to stand out from the crowd on value," says Moses.
“These factors add up to one reality for the channel: business transformation. As channel companies begin to think about new ways of doing business, they need to take a look at what they are doing right now. Stopping margin decline requires a handle on operational and process efficiencies. However, trying to implement new ways of doing business aren’t likely to be successful if a company is not operating effectively in the first place.”
Four steps to better operational efficiency
1. Control the controllable factors in operations. Some business operations are inherently complex and expensive, and no amount of management effort will eliminate the cost or associated effort. Rather than wishing for dramatic cost savings, focus on the elements of operating processes that are directly controllable. Identify the exact activities that employees are doing, why they’re doing them, and consider whether those actions could be improved, consolidated, automated, or eliminated.
2. Target principal margin leaks. Beyond measurements of your financial results, pay attention to the specific actions that can impact those results and develop official policies and procedures for managing the most important and impactful actions. Once effective policies have been designed, communicate the standards to all employees and track compliance with the policies to ensure consistent application of best practices. Consider, when creating the policy, the primary financial leaks including price control; solution urgency; rebate programs; marketing and sales operations; and financial management.
3. Keep score on real performance. Tracking key financial metrics is critical to success, as are frequent measurements and attention to the detail of data tracked. Solution providers are often focused too much on revenue numbers and absolute cost factors measured in dollars vs. as a percentage of related revenue. While cutting costs is a important, it’s not enough to simply spend fewer dollars. The key is to establish acceptable benchmarks for each metric, then track performance based on those financial calculations.
4. Take a diagnostic approach / apply metrics. The practical application of the best practices above will produce varying levels of margin retention improvement based on the current condition of the business as well as boost the effectiveness of management to address inefficiencies. To determine how much improvement can be realistically achieved, carefully examine the current effectiveness of the business in detail, and compare capabilities with the performance of peers.