An Ode to Vijay Neelakantan and Guus’ Presentation(Day 1)

Guus provided an interesting article about how the Microsoft Partners should strategize on their employee capacity in a better manner.  He talks about, "LICENSE MULTIPLIER", effect and how this can be utilized by companies providing services relating to Microsoft Dynamics Solutions.

I have written down the most interesting part of his writing below.  In case you are interested in reading the whole thing, you can download it from my eSnips account here.

An example. Suppose we take an MBS partner with a workforce of 20 divided between 16 direct and 4 indirect employees. In terms of strategy, this company has 3 options to make money, i.e.:

a) seconding all direct employees and refraining from any in-house projects;

b) doing projects itself;

c) doing as many projects as possible itself.

In scenario a) all 16 direct employees are seconded to third parties in the market. This results in a fairly dependent position vis-à-vis the needs of third parties. A significant discount must be allowed for long-term assignments and there is also a certain outflow. The annual turnover amounts to € 1.9 million.

There are no projects, so the licence revenue per employee is € 0.

In scenario b) the company sells and delivers 4 MBS projects with an average licence revenue of € 50,000 annually. The market focus is fairly diffuse, which means that the company incurs high pre-sales expenses and a relatively low score for tenders issued. For the same reason, the company needs to allocate a fair amount of money for marketing purposes. The developers’ billable hours are under pressure because the company significantly underestimated the complexity of two projects, while these contracts had been accepted at a fixed price. Of course, this can happen when operating in unknown territory! Moreover, one senior developer in particular proved rather less senior in actual practice than promised in his CV, resulting in a significant amount of unpaid repair work. All in all, the annual revenue amounts to € 200,000 from licences.

The budgeted revenue from worked hours developed a lot of holes due to the problems described above. In the end, this amounts to € 1.2 million annually, bringing the total annual turnover to € 1.4 million. Would secondment have been a better choice, after all?

The licence revenue per employee is € 10,000 (€ 200,000 for 20 employees).

Finally, in scenario c) the board of the company realizes that, in addition to a high level of billability for its people, it is best to opt for a maximum licence multiplier. So it focuses all its operations on the most efficient and effective performance of just those activities that are necessary to sell and deliver the most projects possible on an annual basis. Where at all possible, business processes are standardized. The company focuses on two specific industries, which are then consistently and continuously targeted with all marketing efforts. A sophisticated implementation method is developed from which all superfluous ballast is eliminated.

And the development efforts – and therefore the risks – are limited to a minimum quantity of customer-focused modifications because the industry-targeted add-ons of an independent MBS developer (known as ISV) are used.

The result: the same group of people acquires and completes as many as 10 projects. At a (higher) average licence value of € 75,000, the licence revenue amounts to € 750,000. This is not a problem capacity-wise, because little time is invested in pre-sales and very little in-house development is required.

The 16 direct employees are fully billable at very attractive rates because the development department has fewer disasters and the consultants, due to the industry focus, become true sparring partners for their customers. The score ratio for sales processes grows significantly because the complete industry solution is available and, after all, seeing is believing. A sizeable bonus from licence revenues is then added to this turnover from worked hours.

In this scenario, the licence revenue per employee is € 37,500 (€ 750,000 for 20 employees).

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