Standardize and package your services for client assurance and repeatability
by David Hofferberth and Jeanne Urich, SPI Research
Despite the downturn, the professional services market continues to hold its own. Service buyers are looking for greater consistency, predictability and accountability from professional services organizations (PSOs). Rather than open-ended, time- and expense-priced projects, the market has moved toward deliverables-based and fixed-price engagements, shifting more of the risk and responsibility for success to the service provider.
Delivering productized — or packaged — services allows PSOs to better meet these new expectations. Using standard methodologies results in dramatically improved revenues, solid pipelines and increases in revenue per employee and billable hours. But the move to productized services presents a number of challenges, including the need to package complex service offerings around what remains an intangible commodity: people skills.
Without the right level of governance, offering guarantees that projects will be completed on time and within budget can leave PSOs exposed to unacceptably high risks, and cause them to foot the bill for project overruns. Therefore, organizations need to create and implement productized services, such as blueprinting and setting up project management offices (PMOs).
What is service productization?
Productized services have a number of essential characteristics:
- Pre-defined and clear offering.
- Consistent service delivery methodology.
- Supporting tools and templates.
- Consistent knowledge and skills to deliver them.
- Quantifiable costs that provide demonstrable client value.
While clients may have different requirements, most services can be productized because the underlying components that make up the services are very similar.
Service productization takes its lead from the manufacturing sector, where many products have become increasingly complex and require a level of professional services expertise for their deployment. Services are also part of an increasingly important service and support feedback loop designed to improve product quality and functionality.
Productized services allow companies to deliver consistent service at a lower cost and higher quality; they also help with the training of service personnel as there are guidelines and templates for new recruits to follow.
By definition, productized services include clear delivery guidelines or blueprints that PSOs can refine and reuse from one project to the next.
The meter is on …
The challenge for PSOs is to deliver quality, consistency and repeatability when pricing is based on the hard-to-predict billable hours of consultants. When service engagements are time and materials priced, the odds are stacked in favor of the PSO; if consultants work extra hours, the client just has to pay more. There is little incentive for the service provider to reduce the time and cost of a project − and in many cases, clients have little insight into the true cost of the services.
However, clients are becoming more sophisticated buyers and are demanding greater accountability from their service providers. They’re starting to mandate fixed-time, fixed-fee and shared-risk engagements. In fact, these types of projects represent about half of all work performed according to Service Performance Insight’s 2011 benchmark report.
The client/supplier dynamic changes when the project has a fixed price and timeframe. People don’t operate as consistently as machinery, and no one delivers service in exactly the same way twice. Therefore, PSOs need to focus on developing “blueprints” with structured business processes and quality control procedures, so consultants have a roadmap or instruction manual to use as a guideline.
The project management office
PMOs are dedicated groups within organizations that create service delivery methodologies and maintain quality standards for project delivery. These departments support productized service offerings as they aim to standardize and implement project management policies designed to improve project governance and consistency.
The Project Management Institute (PMI) defines five levels of project management maturity — ranging from reactive, to repeatable, to proactive, to measured and innovative to optimized. According to SPI’s research, effective project management offices can have a significant impact on project quality, client satisfaction and margins.
Based on our benchmarking research across more than 600 organizations, we define best-in-class PSOs by a number of factors, including:
- Achieving client satisfaction ratings of either “satisfied” or “very satisfied.”
- Project completion on or before the planned completion date.
- Project margins in the top 40 percent of margin results for the sample.
- Project revenue at or above the planned level.
What it takes to productize services
PSOs looking to deliver productized services need to break services down into the fundamental building blocks of work items, tasks and process steps that make up the service delivery lifecycle. They can then repackage those blocks into repeatable service offerings that appeal to their client base.
Service productization requires consistent methodologies and implementation criteria. It requires structured deliverables with pre-defined scope, methods, skills, time and cost. But if that sounds too onerous, bear in mind productized services also help PSOs to scale more effectively as they expand by geography, industry and in the number of services they offer.
Benefits for service providers
Customers love the predictability and repeatability of a productized service. After all, no one likes getting in a taxi and being told the meter is running when they don’t know where they’re going.
For sales and marketing teams, productized services make services more tangible. Packaged services are easier to estimate, propose, price and sell because pricing and scoping parameters are based on clear assumptions and previous experience.
PSOs have more predictable employee costs and skills, and consultants can get up-to-speed in less time, resulting in better productivity. From a finance and operations perspective, service packaging improves forecasting accuracy and revenue recognition based on previous engagement costs and pre-defined service duration.
PSOs are already adopting some of the elements of productization. Based on SPI Research’s 2011 PS Maturity Benchmark survey of 214 PSOs, 48 percent already use a standardized service methodology and are experiencing significant benefits from it.
For example, PSOs that use a standard methodology on over 60 percent of their projects have experienced nearly four times the revenue growth compared to those with fewer than 60 percent standardization, with year-over-year revenue growth of 11 percent compared to 3 percent. They also have 13 percent higher revenue per billable employee, and 13 percent higher billable utilization.
Ultimately, though, the focus is on improving client satisfaction, which leads to referrals and repeat business. Customers like to buy products because they know what a product can do — They can see it, test it and compare it. Likewise, clients value predictable, tested and proven services that provide demonstrable, reference-able value.