As part of this month’s state of the industry report on managed print services (MPS), we’ll take a look at what factors are preventing dealers from delivering on a true MPS proposition. Honestly, we’re positive, glass-half-full editors by nature, and we don’t like to dwell on the negative. But we’ve got a blue-ribbon panel of experts from three major manufacturers—Toshiba America Business Solutions, Xerox Corp. and Lexmark International—to provide insight to their office technology dealer compadres and perhaps lure back a few providers who may have dabbled in MPS, only to exit amid red ink and frustration.
This OEM roundtable consists of Melanie Hudson, vice president, Global Services Operations for Lexmark; Bill Melo, chief marketing executive for Toshiba America Business Solutions; and Jim Joyce, vice president MPS/Innovation, U.S. Channels Unit, Xerox Corp. This how-to look at reinventing a process that is far too often relegated to break/fix and toner replenishment is meant to drive dealers toward crafting a truly differentiated platform that emphasizes management, solutions and—this can’t be over-emphasized—profits.
Why do we, as dealers, fail to deliver on a true managed print services platform? What finer points of an effective offering are often overlooked?
Hudson: An effective offering considers more than just the basics of asset management, consumables management and break/fix services. While these basic tenets of a managed services environment are widespread, it is the execution that is often lacking. An effective offering considers the right placement of devices, how the customer is using those devices, implementing and training on a consolidated fleet, ensuring you are providing more features and capabilities than the customer had with their prior environment and executing flawlessly.
This requires more due diligence in assessing the environment up-front to set the engagement up for success. Basic asset management, consumables management and maintenance services must be delivered in a way that adds value to the customer. Consider what reporting you are providing them or how you are making their lives easier, so they can spend more time with their customers. If your program just creates work for them, they’re likely to move on to another provider or simply go back to an unmanaged state. When the basics are not executed well, there is very little opportunity to have a relationship with the customer such that you can continue with the contract and sell additional services, particularly software solutions that may provide higher margins and more value for the customer.
Melo: Probably the biggest issue in terms of resellers delivering a pure managed service offering to the client is if, for whatever reason, you’re following an OEM’s program, or, through your own inclination, you approach MPS as an idea of taking out whatever the customer currently has implemented and replacing it with all your manufacturer’s products. That approach is essentially serving your needs instead of the customer’s, and that’s where a lot of dealers go astray.
A true MPS offering is going to focus on providing the customer the greatest benefit—financially and from a productivity standpoint—with the least amount of turmoil and disruption. In our view, that is utilizing the in-place assets as much as you can, and augmenting those with products that are going to provide additional cost savings. More often than not, when a manufacturer is offering a program or training dealers on how to offer a program, it’s a rip-and-replace approach, where they take out all of a particular company’s printers and put in their own machines. That serves the OEM well, but it doesn’t necessarily serve the customer well.
Joyce: For far too many resellers, their definition of MPS remains cost-per-print. There’s a huge difference between CPC and MPS. With CPC, they are using a data collector to provide some alerts and auto replenishment, yet this amounts to a modified traditional sale of a device, toner and basic service. For some, this is all they need, and it fits their business model for small, entry-level business. Yet many are seeing their clients who are in these models demand more.
MPS requires different skills and the knowledge of proven best practices. Not one MPS deal is ever the same from customer to customer. There are different motivators, drivers and dynamics, and they’re different by industry. So you’re rationalization model will be different. That drives all the economics differently as it relates to cost, savings and impact. Your security algorithms, profiles and requirements can, and should, be different. The environmental impact requirements will be different, as will the operating requirements. When you are doing a CPC, none of that science really comes into play, so you are missing many of the best practices that lead to outcomes that are more tangible for the customer and partner.
Often times, dealers won’t do an assessment focused on multiple levels of value that align with the prospect or customers enterprise. They can say, ‘here’s how much color and black and white that you do,’ and ‘here’s your impression volume,’ but it ends there. If you’re really going to do MPS, you have to think about balancing the load. That way, you can govern and push things that should be printed in the light production area over to another space for economics, or you can move print around based on content and security requirements, or even based on economics and convenience.
In some cases, we will trap certain print schemes and push them to devices that are the most secure, simply based on the content embedded in the documents. Above those layers, there is the opportunity to automatically translate documents into multiple languages, drive real-time user analytics for security and economics, and drive workflow analytics that shift MPS more toward managed content services. In addition, multiple layers that are vertical in nature—specific to the needs of an industry segment—with examples that include IEP management in the K-12 space, plagiarism detection, standardized test scoring.
We know that ideally, the most cost-effective print or the most secure print is the one that’s never made. As we begin to capture impressions and look where they travel throughout an organization, it provides a greater opportunity to repurpose printed content into actual digital workflow scenarios. It’s not complicated, full-enterprise content management, but simple workflows that are highly repetitive. We offer analytics tools that track all of that as part of our MPS strategy.
When you can reduce a client’s total impression volume by 50 percent over time, while not negatively affect their business, you are managing print at another level.
What issues are causing dealers to lose out on profits, and how can they devise an MPS platform that is competitively priced, yet profitable?
Melo: Unfortunately, a lot of dealers have taken shortcuts and commoditized the whole offering. They’re only offering CPCs (cost per clicks) for services they don’t always understand. When we built our Encompass app in 2004, our focus was on being able to identify and accurately portray the customer’s current scenario and provide them a mix of currently owned and new products that’re going to provide cost and productivity benefits. There are literally thousands of product types in the marketplace that a customer might own, and each of them has a different cost profile. We’ve seen CPC just on toner that might range 5x from top to bottom within a customer’s site. So being able to identify the ones that are not cost effective, and being able to replace those while keeping the ones that are, is a really key starting point.
A true MPS offering is going to focus on providing the customer the greatest benefit—financially and from a productivity standpoint—with the least amount of turmoil and disruption.
Bill Melo, Toshiba
Being able to price out an offering that, on the one hand, provides a customer with benefit by the way of cost savings, and is profitable for you, is a very complex issue. Especially when you’re dealing with the heterogeneous fleet of existing products, some of which you’re going to take over and manage, and a mix of your own OEM products that you have to continue sourcing. Also, it’s a very dynamic environment. When you’re in the printer realm, unlike MFPs, unless a customer grows substantially, their MFP fleet is fairly fixed over time. But printers come and go, whether it’s desktop or networked printers, they’re constantly moved in to, out of and around the environment.
One of the daunting tasks of MPS is the move/add/change component of it. Being able to understand why those products are being put in, capturing the usage if they’re part of the MPS contract or not, being able to work with the customer on a mutually agreed upon set of products that are routed to the network, and which are not. Under our contract, we collaborate on which products will fit into the contract, whether they’re third party or Toshiba. The customer got into a mess, and the idea of the MPS is ‘I’m going to manage this for you, clean up your mess and save you costs…but it’s going to be under a mutually agreed upon, tighter set of regulations.’ The customer, on their own, will tend to gravitate back to their original mess. So you need to keep a handle on this. I think sometimes dealers, because they’re so used to it on the MFP side, they think it’s a static environment and don’t make the investment in learning a tool set like Encompass, or having a customer service manager whose job it is to not do break/fix, but manage the customer’s environment and work with them to adhere to the mutually agreed-upon standards.
Joyce: It’s the biggest fear point that dealers have. If you still play in the CPC world only, you’re down groveling with everybody who can compete against you with similar, traditional offers. However, with the managed aspects I alluded to earlier, it’s difficult for someone to come and unseat me because of the unique and focused value I am able to bring to the segments I serve.
There’s an old adage: where there’s mystery, there’s margin. Let’s look at this from a vertical standpoint, such as education. For example, if I can solve your plagiarism issue, or solve the fact that you can’t test your third graders due to funding challenges, or solve your language translations due to an influx of refugees and non-English speaking students into your school district, it has nothing to do with how fast the copier prints.
Our partners who drive MPS typically experience 40-plus percent gross margin and extremely high retention in excess of 90 percent.
Jim Joyce, Xerox
In some cases, it has nothing to do with my cost per impression, per se. All that pales in comparison when you begin to satisfy and solve problems that are impeding the fundamental purpose of the organization, which is to educate children from all walks of life. This is where MPS is different and brings far greater value, increased profitability and increased retention.
Our partners who drive MPS typically experience 40-plus percent gross margin and extremely high retention in excess of 90 percent. We have one partner in the health care space that closes two or three deals a year and has 100 percent retention of its client base. It goes into hospitals (many large systems) and use these devices as an on-ramp to several highly vertical value points.
Take patient discharge—all of these activities are automated through devices. The customer sees these tools as a part of the fabric of their company. Our partner is a good network citizen, tied to the health care provider’s entire active directory services and network infrastructure. So information travels securely, both digitally and in printed form. The last thing that customer wants to do is shift to CPC to save money on a copier and replace all the glue that our partner put behind that infrastructure.
Many of our partners are primary with another major competitor. They work on a commission-only basis. If you define MPS that way, you are in a finite profit model. So you are selling predominantly cost per copy. The partner or vendor you’re working with is paying you a commission. You really have no direct ownership or control of that opportunity to drive economies that will increase your margin, to add value that will increase revenue and profit.
Hudson: Dealers need to understand the key variables in whether a specific sale is profitable, and that tracking and measuring those throughout the contract lifecycle is critical to success. You may need to adjust along the way if a particular client is highly unprofitable, but you cannot make those adjustments without understanding the drivers of the loss.
Hardware, consumables and maintenance services are all areas one should focus on at a detailed level to understand what the cost drivers are and how to mitigate losses. By consistently monitoring each element, you can then make adjustments on the front end for new accounts.
The value really starts to come to life when you can solve other business problems that make them more productive, lower their costs and improve the satisfaction of their customers.
Melanie Hudson, Lexmark
As an example, for proactive consumables, the logistics cost required to send discrete toner shipments proactively, the consumption of the toner and understanding what is driving the imbalance (waste, coverage, or theft) and then looking at those dynamics by industry to determine any patterns that will allow you to price accordingly from the start of the contract in order to avoid heavy losses can help drive costs out immediately. Consistent monitoring is also critical to understanding where losses are occurring and allow you to make adjustments along the way (density settings, reducing manual orders, etc.).
For maintenance, it is all about service-action rates and how to avoid the dispatch from ever occurring in the first place. This is more difficult in a managed services engagement due to customer expectations, but it is the key to lowering costs. Implementing a predictive service model greatly improves the ability to lower costs and improve the client experience.
Finally, continuing to build on your relationship with your customer is critical. Do you really understand their business needs, how they interact with their customers and where you might intervene to make the interaction more seamless with a software solution? The value really starts to come to life when you can solve other business problems that make them more productive, lower their costs and improve the satisfaction of their customers.
For dealers who may have not found success with basic toner replenishment and break/fix programs, how can they reinvent their process to become a true MPS provider?
Joyce: The transformation involves an inversion of the selling process instead of a conversation about speeds and feeds. It’s not highly transactional; it’s highly strategic and intelligent. It requires one to do their homework and to work with people or organizations who can provide tools and best practices to assist in the transition.
Using the right tools and best practices allows the partner to be more prescriptive and confident. You want to be able to tell the end user you can save them $700,000 over the next three years and deliver it. It’s being able to say that over the last 90 days, I have authenticated 36 different security incidents against your devices that you know nothing about, and here’s how we can prevent this from happening again. It is all about the program itself and it has nothing to do with the pieces.
One of the challenges resellers face is the lack of experienced, on-board MPS talent. The market is ripe with individuals who profess to be MPS experts, and it can often be difficult for a reseller to determine whether the individual is credible and experienced or not. It only takes getting burned once for that pain to remain close at hand. Unless you have been in the arena, it’s often difficult to determine if somebody in front of you has that expertise or not, and many poor providers can tell a convincing story.
We are actually vetting a number of candidates for our partners to help them, because some get gun shy after they pay for a so-called “MPS program” and find out the provider or individual cannot deliver. We are also working extensively with our partners to support their need to develop that talent.
Hudson: First, it is important to dive into why the success isn’t there with basic toner replenishment and break/fix programs. If it is an execution issue, these are fundamentals of any MPS program that must be resolved before you have the right to sell a customer other services. Customers expect proactive toner replenishment, and vendors perform this in a variety of ways—some execute it manually and others, like Lexmark, execute it 100 percent automated. The systems being used to drive toner replenishment are critical to ensuring a smooth experience for the client.
It seems basic, but many vendors do not have a robust platform to perform consumables replenishment without manual intervention, and this is just one aspect of a solid process. For maintenance, it is important to look at the entire process from the time a call is received to the device repair.
It’s also important to start with a print assessment to understand what a customer truly needs for their environment. Placing the wrong device into an environment can create profit challenges in terms of additional hardware and maintenance services losses—all due to inadequate device selection based on functionality and utilization needs.
Melo: One thing is to understand that printers aren’t small MFPs. They’re constructed differently, they are designed to be customer-replaceable units. They have shorter, less-complicated paper paths. I’ve heard dealers say they can’t make money on service. Well yeah, the issue is they don’t need to make money on service, the issue is the need to make money, period. For an MFP, the parts and labor component of service is the majority of it. On printers, the supplies portion is probably 90 percent of the consumables part, including drums. It’s a different model and you don’t need to visit printers with the same regularity as you do with MFPs, and that’s all OK. Where people tend to get tripped up, especially on the service side, is that they want to service from a break/fix perspective with the printer fleet in the same way they do the MFP fleet. It’s just a different animal altogether.