CompTIA: Operational Efficiency Key to Profitability
As channel companies grapple with increasing complexity and digital transformation, it’s important to focus on operational efficiency to ensure survival in the increasingly competitive channel.
That’s according to CompTIA’s new report, “Operational Efficiency in the Channel,” based on a December online survey of 400 U.S. IT firms. Nearly half said that operating their business has become more complex than it was two years ago.
Among the factors that have made business operations more complex, 53 percent said they have more streams of data to manage and analyze, while about half cite expansions into new business lines and models, the introduction of emerging technologies into their portfolios, and customer engagement that’s become more challenging and complicated.
Carolyn April, CompTIA’s senior director of industry analysis and a member of the Channel Partners Editorial Advisory Board, tells us channel firms continue to move the needle on business transformation, which is encouraging.
“Firms that position themselves as having experienced a high degree of business transformation (new business model/new verticals/digitization) nearly doubled between 2013 and 2017 to 22 percent of all respondents,” she said. “That’s still a far cry from a majority, but most respondents at least say they have undergone a moderate degree of change.”
And many firms are wising up to the fact that best practices and process efficiencies are enormously important to any business, April said. This is especially true for companies transforming an underlying business model, she said.
“There’s a distance to go here,” she said. “Consider that just two in 10 respondents assessed their current state of operations as very efficient, with another 39 percent deeming themselves mostly efficient at present. Thirty-six percent ranked in the middle of the pack in terms of efficiency, with some areas in good standing, others not. Six percent admitted being inefficient to varying degrees.”
The top two best practices that respondents believe are critical to improvement are: calculating return on investment/time to profitability before embarking on new projects, and creating repeatable processes across the company, April said. In terms of specific business areas, respondents say they are most efficient at inventory management, and least efficient at the sales process, she said.
“The other key thing to note is that profit-margin leaks and commoditization are issues that can also be mitigated in part by running an efficient organization,” she said. “Companies can be killing it with top-line revenue generation, but if they are leaking all manner of what they bring in, they are not maximizing profit at all.”
Companies are reinventing themselves because customers are pushing them in new directions. More than half of respondents said customer demand is the No. 1 reason they are making changes.
Cloud computing’s ascendance was cited by 53 percent of firms as the reason they’re changing their business model in some fashion. Another 49 percent cite emerging tech.
Automation is a key tool that channel firms can use to make their businesses run more efficiently, April said. According to IDC, investment in digital-transformation technologies (hardware, software, and services) will cumulatively reach nearly $6.3 trillion by 2020 and will result in $18 trillion of economic value add across the global economy.
“MSPs today deploy commercial software platforms such as PSA and RMM tools that automate internal and external processes from CRM to billing,” she said. “Emerging technologies such as artificial intelligence (AI) hold a tremendous opportunity to boost process efficiency, speed to market and customer satisfaction. Channel firms today are still in the nascent stages of incorporating some of these new capabilities into their environments.”
And while the report doesn’t specifically address M&A, any potential buyer that’s pursuing due diligence is going to examine how well and efficient its target company is running before making an offer, April said.
“It’s not optimal to buy a business and then discover it’s an operational mess that will need an overhaul before reaping any benefits from the acquisition,” she said.