April 10, 2018
TSIA’s LAER model is a framework that breaks the supplier’s perspective of the traditional customer engagement journey into four distinct phases: Land, Adopt, Expand, and Renew. As more companies begin to make the pivot to managing annual recurring revenue streams, there’s an industry-wide increase in the creation of LAER initiatives in order to follow a customer engagement plan that works with a subscription-based business model. I recently wrote an upcoming paper for TSIA members called, “4 Phases of Becoming LAER Efficient” that aims to help them assess where they are in efforts to creating a customer engagement model that cost-effectively works with customers in each of the four phases of LAER. Here’s a quick look at those four phases that can help you start thinking about where your company is in this process and where you need to be.
Before we get into the four stages of LAER efficiency, we need to quickly review a different framework. For every inquiry, we capture what business challenge the company is trying to address. Over the years, TSIA has codified and created relevant content for almost six-hundred distinct business challenges facing today’s technology companies. We map these business challenges to the organizational capabilities a company will need in place to successfully address that business challenge. These capabilities refer to people, processes, and technology that must be in place to address a specific challenge.
To understand the distinct phases that companies experience on their journey to becoming LAER Efficient, we inspect the following capability-related markers:
Using these five markers, we can identify at least four distinct phases companies experience as they transition from a traditional technology customer engagement model that is very transactional-oriented to a customer engagement model that is LAER Efficient. This chart provides a high-level summary of these four phases and their attributes on these five markers.
(Click image to enlarge.)
Now that we know more about what we’re measuring, let’s talk about what each of these four phases of being LAER Efficient mean.
Traditionally, technology companies are optimized to have a very transactional relationship with customers. The customer is embarking on a massive technology refresh, and Sales engages to secure that transaction. When the customer has technical issues, they engage in Support transactions. It’s hard to argue that technology business models are not optimized to be transactional when the KPIs for these transactional relationships are measured in product bookings, total company revenues and profits, and support resolution times (the total time it took to solve a customer’s issue from start to finish), just to name a few. For anyone that has been part of the technology industry for more than a decade, this phase of LAER efficiency should be very familiar and most traditional technology suppliers find themselves in this phase.
This is where the real journey begins: A technology provider begins selling “as-a-service” offers, such as SaaS or multi-year managed service contracts. It then becomes painfully clear that the current customer engagement models are not optimized for these new offers. Customers that don’t use the technology don’t renew or expand their spending. In order for Sales and Product teams to continue doing their job, there needs to be a driver of customer adoption, which is why more executive teams are investing in some type of Customer Success capability.
TSIA observes these early-stage Customer Success capabilities as possessing the following traits:
Currently, the majority of incumbent technology providers that are pivoting toward XaaS offers are squarely in the LAER Experiment phase.
The journey from LAER Experiment to LAER Effective can take several years, and it’s not always a linear path. Already, TSIA has witnessed companies enter the LAER Experiment phase and then exit by scrapping their Customer Success function, only to restart the function a year or two later.
In this phase, companies have learned (typically the hard way) which tactics are required to truly drive a customer through all four phases of LAER. Some of these key lessons include:
There are companies in the technology industry that have successfully reached the LAER Effective phase, and there are few companies that have entered the LAER Efficient phase. How do we know? Because LAER Efficient companies are stabilizing or driving down their total cost of sales and marketing, while LAER Effective companies have demonstrated they can cost-effectively expand and renew existing customers.
In this phase, companies finally crack the code in the following areas:
The journey from a transactional customer engagement model to a LAER Efficient model is not always a linear experience. There will be starts and stops and diversions along the way. However, there are a few road signs that confirm your company is on the right path:
The full explanation of each of these four phases, including a detailed step-by-step overview that examines the capabilities needed at each stage is included in my paper, “4 Phases of Becoming LAER Efficient,” which will be available to all current TSIA members in May, so stay tuned. If you’re not a member yet, please reach out to us today to learn how TSIA can help you create a data-driven plan of action for business optimization that can lead to new levels of success and profitability for your organization.
Organizational capabilities that technology services businesses must master
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world’s largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).
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