Low vs. High Operational Maturity: Can You Spot the Difference?Low vs. High Operational Maturity: Can You Spot the Difference?
Drive value and growth by focusing on specific policies, practices and habits within the business.
November 17, 2021
By Paul Dippell
We’ve all heard some tried and true business aphorisms:
“In order to grow your business quickly, you have to sacrifice profit.”
“Say ‘yes’ to any sale that comes your way, even if it’s a lower monthly recurring revenue than you’d like. You can upgrade them later.”
“High profit comes at the expense of customer experience.”
The Operational Maturity Level model quantifiably disproves these common misconceptions. Solution providers don’t need to sacrifice profit for growth — quite the opposite. No matter the size or business model (managed service provider, value-added reseller, etc.), any solution provider can operate at a high operational maturity level and thus drive best-in-class profit and growth by focusing on and perfecting specific policies, practices and habits within their business.
In a nutshell, Operational Maturity Level (OML) measures a company’s ability to most efficiently and effectively build and execute a high-performing business plan. Higher profit, stock value, market differentiation, team accountability and retention and customer experience are all fruits of being at higher operational maturity. Your OML score indicates the degree to which your decisions, processes and actions are similar to those of the companies in your specific business model, who are in the highest profit and growth quartile.
Attaining higher operational maturity is possible for any solution provider. The benefits are clear. According to the Service Leadership Index, between 2008 and now, MSPs at OML 3.9 or higher (on the 1-5 OML scale) had, on average, 2.6 times higher bottom-line profit percent, than MSPs at OML 3.1. When marketing, sales, service, strategy and incentive compensation are properly aligned, growth, profit and scalability are – not easy but easier – to achieve. Teams are easier to manage and there is a clearer unique value proposition for clients.
We don’t need to elaborate much more on the benefits of getting to higher operational maturity, but we do know that it can be challenging for a solution provider to, first, identify where they land on the operational maturity scale, and also determine a strategy that will drive up their OML so they can start reaping the financial and operational benefits of the top performers.
The 5 Levels of Operational Maturity
The OML is determined by a solution provider’s ability to execute on an offset of traits that all high-performing solution providers master across strategy, sales, service, finance and incentive compensation. Each OML trait has a different ROI based on various factors, including the cost to implement, difficulty in implementing, risk if not implemented, speed of impact, impact on profit, the impact of quality and speed of implementation.
These are the five levels of operational maturity for solution providers from lowest to highest
OML 1: Beginning – Low to negative financial performance and inconsistent service quality. They don’t know what they don’t know. Operations are largely trial and error. Little differentiation in the market.
OML 2: Emerging – Improving financial performance and service quality, and starting to understand the basics of profit levers. Starting to realize what they don’t know. Few controls and little forward planning. Incentive compensation isn’t meaningful and/or is poorly aligned. Poor market differentiation.
OML 3: Scaling – Median financial performance and service quality. Basic controls. Some forward budget planning, little attainment tracking. Incentive compensation is meaningful in scope but not tied to budget attainment. Beginning to stand out in terms of service quality and unique value.
OML 4: Optimizing – High financial and service quality performance. Robust controls. Detailed forward budgeting and attainment tracking. Incentive compensation is meaningful in scope and tied to budget attainment. Strong market differentiation: market leader.
OML 5: Innovating – Highest financial performance and highest value and quality services. The characteristics are similar to OML 4, but they also now extend capabilities to lines of business adjacent to IT. Very strong market differentiation.
The 5 Most Impactful Operational Maturity Traits
In my experience, there are also five traits that MSPs and VARs can focus on that provide the most leverage toward reaching greater performance. To demonstrate the differences between a low and high OML solution provider, let’s dig through each of these traits and analyze how …
… each reveals areas of growth and opportunities for maturity.
Driving Technology Standards: The key to high quality, growth and profitability is minimizing technical complexity. This also enables better customer and employee experiences, higher retention and referrals and higher sales confidence. Higher-performing MSPs and VARs get standards in place right away, whereas lower-performing solution providers decide not to or haven’t figured out how.
* High-maturity view: “Every customer buys the same technology and my fullest offer.”
* Low-maturity view: “It seems at least counterintuitive to require our clients to be standardized, and possibly suicidal. We use ‘point solutions’ tools that we integrate.”
Cross-Selling Execution: Service goals should be high simplicity and low service cost; goals in sales should be to maximize revenue per sales cycle. The top performers attain these by getting every customer to look the same and invest the most in IT by selling 100% of offers to 100% of customers.
* High-maturity view: “100% of my customers buy 100% of my offerings (most of them, from the start of the relationship).” The actual figure, as of Q2 2021, is that 71% of their customers buy their fullest offer.
* Low-maturity view: “We sell whatever we can of our offerings to whoever will buy them. We’ll get there somehow.” The actual figure is that 48% of their customers buy their fullest offer.
Vendor Management: High profit, high growth solution providers partner with fewer vendors. They also partner more deeply with those chosen few. They have business plans vetted by the leaders of the company for each new solution or service they add to their portfolio. These behaviors give them increased scale, efficiency and flexibility.
* High-maturity view: “We have fewer vendors, with each providing the most unified management within their segment of the stack with deeper relationships. We choose them based on how their products contribute to our operating efficiencies.”
* Low-maturity view: “We have multiple vendors for each segment of the tech stack, and we choose our solutions based primarily on market ‘buzz’ and margin incentives.”
Price Increase Management: The most durable customer/provider relationships are the ones that create a win/win value trade for both parties throughout the relationship. The Service Leadership Index shows that most profitable MSPs and VARs are the fastest-growing ones, and that they also exhibit the best customer and employee retention. Charging too little may help close the deal, but ultimately, it’s an unsatisfactory relationship: the MSP has too few resources to utilize in performing well and the client doesn’t get solid support. Too many of these deals end before their time.
* High-maturity view: “Our services fees have annual increases for all existing customers, which keep us in our target gross margin range. At the same time, prices offered to new customers are also increased.”
* Low-maturity view: “I haven’t increased my prices for existing customers in years, even though my overheads have increased. If I ever roll out a price increase, it’s usually just to new clients, and not many existing ones.”
Charging for Pre-Contract Assessments: Doing a paid, full technical and business alignment assessment before quoting managed services enables the highest differentiation, close rate of desirable customers, revenue per account and profitability. Higher-performing MSPs do this on 90%-plus of opportunities, whereas lower-performing MSPs either view this as optional, counterproductive or hard to sell.
* High-maturity view: “We do paid technical and business alignment assessments on more than 90% of our opportunities before quoting managed services. Our primary goal is to ensure the best possible start-up and long-term mutual experience and value.”
* Low-maturity view: “No need to charge for that. We do a quick, but good, technical assessment at no cost and quote successfully from there. Our primary goal is to close quickly to start billing MRR as soon as possible.”
It’s wise for solution providers to benchmark themselves honestly on the OML scale to determine their strengths, where they can improve and what the journey should be for their business.
Achieving the status of trusted adviser, growing their business, attracting higher-paying clients and planning for the future is never easy, but it’s easier when there is greater operational maturity. While this doesn’t happen overnight, the benefits to the solution provider are substantial, lasting and critical to future success.
Read more about:MSPs
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