Chapter Three: Business and Financial Planning
Chapter Objectives
Establish your managed service business plan and key financial objectives by modeling your anticipated financial performance and required investments.
Owner
Leadership Team
Prerequisites
Securing executive commitment as outlined in the previous section.
Key Questions to Evaluate Need
- Does your firm have a managed services’ business plan?
- How does this managed services initiative fit within your firm’s overall business strategy?
- What are your firm’s business goals and objectives?
- What investments are required for your firm to realize these business goals and objectives?
- What level of priority is the development of a managed services practice for your business?
- What competitive advantages will new managed services provide for your business?
- What unique value propositions will your new managed service capabilities offer your customers, your partners, and your internal business stakeholders?
Context
With executive commitment secured and your leadership team in place, you’ll next need to clearly define your managed services strategy by:
- Ensuring strategic alignment with your firm’s overarching business objectives
- Evaluating customer pain points and broadly determining likely areas of focus
- Identifying which managed services business models are appropriate
- Identifying your unique value propositions and competitive differentiation
- Modeling your anticipated financial performance
- Defining your financial goals and objectives
- Developing a business plan that will accelerate time to revenue and profitability
The first steps in achieving your managed services business goals are to have meaningful objectives defined, mutually committed throughout your organization, and then to execute a business plan that will deliver your desired results. A clearly defined managed services practice vision, mission, and set of unique value propositions, alongside your business and financial plan, will guide decision-making and provide goalposts for expected performance, as well as accountability for execution.
Strategic Alignment
The first steps in developing your managed service practice business plan are to identify and understand your target customers’ needs, plan how the new services will address these pain points, and to ensure their alignment with your firm’s overarching vision, mission, and strategic initiatives. With this in mind, you can forecast customer growth and interest, while also mapping how your managed services will differentiate your business - through addressing a gap in the market, solving for a particular problem, or adding new value.
To develop an effective vision, you should define a concise, powerful statement of your desired outcomes and long-term intentions. Your vision should be broad in nature but will be used to build excitement and energy as you approach your short-term objectives. It will direct and accelerate this practice development initiative forward, and it should build excitement and energy around your new managed service capabilities.
Your mission should be a statement that articulates why your organization will focus on managed services, how they will address specific customer needs, and how these new capabilities will help you realize your new vision.
When effective, your vision and mission will provide guiding principles and ensure the alignment of your resources, efforts, planning, decision-making, and overall execution. Your managed services team, their business objectives, initiatives, tasks, and activities, and all the downstream recommendations in this playbook should be aligned to your managed services vision and mission. Leverage Table 3 when creating your vision and mission statements.
Table 3: Practice Vision and Mission Statements Template
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Company Vision: |
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Managed Services Vision: |
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Company Mission: |
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Managed Services Mission: |
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Unique Value Propositions (UVP) and Competitive Advantages
Evaluate your installed base of customers to identify their broad requirements and pain points that you believe can be address by developing managed services. Envision the anticipated value propositions for your end-customers, business partners, and your own firm, internally. This helps to effectively identify the investments and activities required to attain the desired strategic and competitive advantages you seek to realize.
To formulate your desired value propositions and anticipated competitive advantages, it is recommended that you evaluate your target markets and competitive positioning, including overall strengths, weaknesses, opportunities, and threats (SWOT analysis) to identify the key customer care-abouts your managed services will need to address.
Figure 1 depicts an analysis framework that you can utilize to identify and leverage to define your realistic total addressable market (TAM), establish your longer-term managed services portfolio roadmap and the associated UVPs, and evaluate required investments. Begin by evaluating your existing installed base of customers:
- Which customer requirements can be addressed by new managed services?
- Are there new customer and industry best practices, relative to cloud and managed services?
- Where can you deliver unique value, based on existing industry knowledge, technical capabilities, or other factors?
- What are your barriers to entry?
- What competitive barriers can you establish?
- What investments will be required to deliver on your desired UVPs?
Figure 1 – Market and Competitive Analysis Framework
Based on the above analysis and framework, complete Table 4 to formulate your vision for the high-level UVPs you will offer. It is always recommended to develop UVPs from the perspective of the customer or target constituent. Work to establish at least three UVPs:
- Target end customers – identify the customer pain points and the high-level anticipated value that your new managed services will provide
- External vendor / business partners, such as Meraki – identify the unique value your new services will offer and how your new services will further accelerate your business relationship
- Internal stakeholders – identify how your new managed services will accelerate your business, perhaps by growth, differentiation, or profitability
Table 4: Managed Services Unique Value Proposition Template
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For: (Target Constituency) |
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Who: (Statement of Need or Opportunity) |
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The: (Partner Managed Services Practice) |
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That: (Capability Description) |
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Unlike: (Competitor / Alternative Offering) |
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Our managed service capabilities: (Statement of Primary Differentiation) |
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Business Models
Next, you’ll need to identify and determine the appropriate business model to pursue; e.g. the previously referenced proven Meraki models: business services and managed network services. Table 5 summarizes some considerations to keep in mind when choosing a business model which will best suit your needs.
Table 5 – Managed Service Business Model Considerations
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Managed Service Model |
Managed Network Services |
Business Services |
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Pros |
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Cons |
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If you are already providing managed network services, business services will provide opportunities to expand your portfolio into new business buying centers. This can also provide a way for your firm to differentiate from existing technology competition and commoditized offers.
For most VARs/SIs, managed network services will provide a simple transition from their current business model. It provides a natural portfolio extension into Cloud-based services and recurring consumption offerings that are increasingly in high demand.
Other factors to consider in determining which business model to pursue [and when] would be your ability to establish strategic differentiation, competitive advantages, and offer unique value to your customers.
Financial Modeling
Financial modeling will help determine your desired financial objectives and the levels of investment, resources, and sales constructs required to achieve them. It will also provide an opportunity for you and your team to identify and address the implications associated with transitioning from a capital expense (CapEx) consumption model to an operating expense (OpEx) consumption model.
Begin by identifying your realistic addressable market opportunity by drawing upon the analysis outlined in Figure 1, as well as drawing upon your knowledge of your customer needs, relevant industry trends, and historical propensity-to-buy data. Next, model your anticipated financial performance to determine what it will take to achieve your desired business outcomes, including revenues, profits, and return on your investments in a NOC, service desk, tools, and people. Using new revenue (and expense) recognition models, along with the levels of investment required to achieve your stated objectives, you should also evaluate any potential cash flow implications for the new managed services practice.
Effective financial modeling should consider your target customer profiles and the solution constructs they will likely purchase. It should factor in the implications of recurring consumption models on your business and the associated economics relative to revenue recognition, cash flow management, incremental pull-through, and professional services opportunities, as well as the implications of potentially different sales models and compensation structures.
Meraki has a financial Business Case Generator Tool that can assist you in modeling Meraki managed services based on target solution constructs, sales volumes, and anticipated service costs and margin. Contact your Meraki partner account team for assistance in using this tool, their details can be found in the Meraki Partner Portal.
The financial model will provide your projected one-, two-, and three-year proformas for anticipated recurring and non-recurring revenues, COGS, gross margins, OpEx, EBIT, and free cash flows. Table 6, below, can help guide this planning discussion. This information allows you to model different scenarios and evaluate the implications of new recurring consumption models, revenue recognition scenarios, and new service opportunities. On agreement of a proposed scenario, the leadership team will need to translate this information into a business or operational plan for execution.
Table 6: Managed Services Financial Objectives
* To be completed as applicable to your needs. (i.e. monthly vs. annually, gross vs. unique values, etc.).
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Key Financial Objective |
12-Month |
24-Month |
36-Month |
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Active Managed Services Customers |
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Managed Services Revenue Objective |
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Managed Services Gross Profit Objective |
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Managed Services Net Profit / EBIT Objective |
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Managed Services Renewal Objective |
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Average Sales Constructs: |
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Small |
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Medium |
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Large |
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Required Investments: |
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NOC |
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Service Desk |
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Platforms |
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Training and Enablement |
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Marketing |
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Other |
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Developing Your Managed Service Business Plan and Objectives
The managed services business plan should provide a financial roadmap, along with the aligned business activities and objectives necessary for accomplishing your relevant goals. Establishing management objectives (MBOs) or objectives and key results (OKRs) for your managed service practice and/or each leader, team, and individual contributor will help to drive clear organizational alignment and set clear expectations for performance and accountability. Aim to clearly define relevant performance metrics, such as the ones below, when developing your business plan and the MBOs/OKRs that will support it:
- Managed services practice objectives (12-, 24-, 36-months, possibly extending to 60-months)
- Revenues
- Gross margins
- Operating expenses (OpEx), including required investments (people, platforms, tools, marketing, 3rd party partnerships)
- Profits / losses
- Managed services offer development
- NOC and service desk development
- Leading priorities:
- Hiring
- Platform readiness
- NOC and service desk readiness
- Marketing and business development activities
- Sales enablement and activities
- Intermediate priorities
- Sales quotas
- Customer engagement
- Pipeline
- Lagging priorities
- Booking
- Revenue / profit recognition
- Gross margin objective attainment
- Break-even / profitability
- Return on Investment (ROI)
- Quote to Cash
- Contract to Cash
- SLA Attainment
- Renewals
- Individual business objectives
- Sales quotas
- Pipeline
- Utilization
- Realization
- Renewals
Cisco Capital
Cisco Capital® can help you make the transition to offering managed services by offering flexible financing solutions.
The Monetization of Managed Services (MMS) is one such offer that provides partners the ability to assign a portion of receivables due from end-customers to Cisco Capital while retaining direct relationships with the end-customer. This frees up cash flows while sharing the financial risks. MMS and other flexible and tailored payment solutions can help you implement cloud and other infrastructure solutions, accelerating migration to the latest technologies while conserving cash. For more information about MMS or other Cisco Capital solutions, please contact your Cisco Capital account manager.
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