The LAER Effective Managed Services Organization

The theme for our upcoming fall Technology & Services World (TSW) conference, taking place October 15-17 in Las Vegas, is “The LAER Effective Company”. In the spirit of this theme, I wanted to help managed services organizations get the most out of their TSW experience by providing a primer on the LAER model and the LAER Efficient Journey, as well as give a preview of the “LAER Effective Managed Services Organization” conversations we will have at the conference.

The LAER Journey

As more companies begin to make the pivot to managing annual recurring revenue streams, there’s an industry-wide drive towards the creation of LAER initiatives that follow customer engagement plans within subscription-based business models.

Hopefully by now, readers of this blog are already familiar with TSIA’s LAER model framework, that breaks the supplier’s perspective of the traditional customer engagement journey into four distinct phases: Land, Adopt, Expand, and Renew.

• Land: All Sales and Marketing activities required to land the first sale of a solution to a new customer and the initial implementation of that solution. When you land the customer, you've successfully convinced the prospect to become a new customer of yours.
• Adopt: All activities involved in making sure the customer is successfully adopting and expanding their use of the solution. This is the step where you help the customer that just bought your technology successfully use it to achieve their business outcomes.
• Expand: All activities required to cost-effectively help current customers expand their spending as usage increases, including both cross-selling and upselling. As you become more invested in the customer’s outcomes, it becomes easier to tie your technology to other projects and initiatives, encouraging your customers to buy more products and services from you the supplier.
• Renew: All activities required to ensure the customer renews their contract(s). Convincing your customer to renew their relationship with you when it comes time to repurchase the technology.

It is important to recognize the functions in the LAER model as a journey, rather than simply discrete interactions between supplier and customer, as the post-Land motions continue throughout the life cycle of engagement with the customer. In more traditional technology asset sales models, once a customer makes the buying decision, the asset is theirs and they assume the responsibility to leverage it. If you are selling technology and/or services in a subscription model, the number of critical milestones on the revenue journey increases, and the trajectory changes shape. The spending level of the customer often starts off low and must build and build if the deal is to become profitable. If anywhere along the journey the customer does not like or use a service, they may cancel their contract, resulting in the revenue to stop flowing. To prevent that killer churn, new critical milestones must be achieved to ensure adoption, expansion, and renewals.

The Next Step in the Journey: Becoming LAER Efficient

Much like the LAER journey outlined above, technology and services organization are also engaged in a journey of maturity starting with experimentation, moving through building effective practices, and finally, developing efficient and complete LAER capabilities.

We recently published a research report titled, “The Four Phases to Becoming LAER Efficient,” that aims to help TSIA members assess where they are in their LAER Efficient journeys and to create optimal customer engagement capabilities in each of the four phases of LAER. While the paper is only for TSIA members, TSIA’s executive director, Thomas Lah, briefly summarized some key takeaways in a blog post of his.

To understand the distinct phases that companies experience on their journey to becoming LAER Efficient, we inspect the following capability-related markers:

1. KPIs: What are the key performance indicators the company measures during the phase?
2. Practices: What are the key practices (which includes processes) a company establishes and masters during the phase?
3. Compensation: How are key account roles compensated in this phase?
4. Organizational Structure Activities: What changes does the company make to the structure of Sales and Service roles in this phase?
5. Selling Culture: What are the distinct attributes of the customer engagement culture in this phase?

Using these five markers, we can identify 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. Here’s a quick look at those four phases that can help you start thinking about where your company is in this journey and where you need to be:

What it Means to Be a LAER Effective Organization

Now, we’ve seen that LAER itself is a journey that we take with our customers, while LAER Efficiency is a journey we take within our own organizations as we become more mature in our organizational capabilities.

So why focus on the third phase, LAER Effectiveness, right now? And why make that the theme of our conference?

At TSIA, we’ve seen more and more of our members starting to mature out of the second LAER Experiment phase and enter into the third LAER Effective phase. For example:

• Many have started XaaS subscription models for their technology offerings, now around 30% of MS revenue for our benchmarked Managed Services members. 
• Some have introduced or expanded their MS models beyond “paid to operate” models into optimization and transformation-based offerings.
• Some have implemented key LAER Effective practices and started tracking additional LAER effective KPIs to manage their business.
• We’ve even witnessed companies enter the LAER Experiment phase, and then exit by blowing up their Customer Success function, only to restart the function a year or two later.

And we know from these experiences that the journey from LAER Experiment to LAER Effective can take several years and it is not always a linear path. Far fewer of our members are even close to approaching the mature capabilities described in the fourth and final phase, LAER Efficient. So, bridging the gap into LAER Effectiveness is becoming a front-and-center challenge for many of our member companies today.

The LAER Effective Managed Services Organization

The good news is that MS organizations typically have a head start on the LAER Effective journey when compared to other technology services practices for a variety of reasons:

• MS contracts are already subscription-based and more highly interactive, over a longer period of time, than other services in a provider’s portfolio.
• Client Management (aka, Customer Success), with customer frequent touchpoints, is often included into the MS offer.
• Client Management already has an established partnering relationship with sales executives and has typically already worked through the “who owns the account”/rules of engagement minefield internally.
• Because of the highly interactive nature of MS, many MS organizations have already been gathering customer behavioral data and using analytics to model and predict customer behavior for some time or have access to data that can be leveraged.
• XaaS technology offerings are often built on the backs of MS structures.
  • Adoption, expansion, and renewal motions are often part of those XaaS offers.

One of the ways in which our Managed Services members have been moving towards a LAER Effective model is through the introduction of a Customer Success function for their MS business. This is often an in lieu of these responsibilities being owned by the general Sales function. Sometimes it is an expansion of a smaller scoped “Client Management” function, which would otherwise be focused on service management and ticketing escalation issues.

Professionals in Customer Success roles have trusted advisor relationships with the customer’s senior executives. They are ultimately responsible for understanding the temperament of the customer, the renewal, and any upsell and cross-sell opportunities. Think of them as nurturing farmers who care deeply about the health of their crops, ensuring they will yield a strong fall harvest.

And the Customer Success function is shown to drive better outcomes for MS providers. In the figure below, we can see the impact of different renewal ownership models have on recurring MS revenue retention. Members with no formal Customer Success model for MS have a 93% recurring MS revenue retention rate. General Sales ownership of the renewal function only retains 91% of the recurring revenue. Members with a dedicated Customer Success team come in with the highest recurring revenue retention rate at 96%.

The bad news is, of course, is that no transformation is easy. In the transition to the LAER Effective phase, companies have to learn (and have typically done so the hard way) what tactics are required to truly drive a customer through all four phases of LAER. Some of the key lessons the company must internalize include:

• Adoption is a data and process-driven effort, not an art form or a series of heroic events.
• Expansion is just as important as adoption and retention.
• If compensation models don’t change to prioritize all four phases of LAER, the company will not become LAER effective.
• The account executive must begin to partner with Customer Success. When the customer has any significant issue, they may contact the sales executive, or they may contact the customer success manager. This reality can cause tension between these two roles, as the question of “who owns the account” is now becoming less clear. This critical stage is when the company begins to learn that the process owns the customer, and not any one person inside of the company.
• Customer Success will not scale if it is funded exclusively from subscription COGS.

First 3 Steps Toward Getting on the Right Path Toward Becoming LAER Efficient

But finally, the other good news is that TSIA has resources to help you on your journey.

Step 1

Gain an understanding if your company is on the right path towards a LAER Efficient journey. Here are some ways to tell:

• Sales acknowledges that the current customer engagement model is not working.

• The executive team realizes that lack of adoption kills.
• The topic of account ownership comes up for debate.
• There is effective communication across account facing roles.
• There is a cultural shift from blame to continuous learning.

Step 2

Complete the LAER Required Capabilities survey in our research report “The Four Phases to Becoming LAER Efficient” (available only to current TSIA Managed Services members). As companies migrate through each phase, there are unique organizational capabilities that must be mastered. We provide a summary of key capabilities for each phase and identify which TSIA research area is responsible for helping companies optimize this capability. Gauge what stage you are in and prepare a gap analysis and prioritization of the capabilities required to move forward. If you’re not a TSIA member yet, reach out to us to learn more about the benefits of membership and how we can help your organization.

Step 3

Come prepared to examine your LAER Efficient journey with us at the TSW conference this fall. We will have some brand-new research on the Managed Services Customer Success/Client Management aspect of the LAER Effective journey to share with you, as well as sessions on lessons learned from your peers.

We hope to talk with you at the upcoming TSW conference in Las Vegas, October 15-17, and welcome any questions you have beforehand. Thank you for reading!

Read more posts in the LAER Effective Company series:

• "How to Retain Great Employees Within Your Support Organization"
• "Imagining A New Field Service Organization"
• "Should Channel Partners Renew Subscription Plans?"
• "5 Essentials of a LAER Efficient Customer Success Organization"
• "Landing LAER for the Professional Services Function"
• "Effective Customer Life Cycle Management for Hardware and Equipment Manufacturers"
• "The LAER Effective Managed Services Organization"
• "Do You Have a Plan to Grow Existing Customers?"
• "4 Markers of a LAER Effective Company"