The what, why and how of productizing services
by Dave Hofferberth and Jeanne Urich, SPI Research
In this first of a two part series, we explore the services productization trend. In part two, we share our new Service Lifecycle Management Maturity™ Model to help PSOs to start reaping the benefits of service productizing.
The service industry is buzzing about a new way to create, sell and deliver repeatable service products. It’s called “service productization.” Many find productized services alluring because of the promise of bigger sales pipelines, rapid deal closure, faster client time-to-value and improved project delivery quality. Based on our research, no other recent business topic has generated the same level of curiosity – and confusion. Why?
Professional services organizations (PSOs) of all sizes and types want to embark on this new path to greater sales differentiation and improved performance. Yet, few have succeeded. And for many, the reality falls short of expectations.
Historically, product manufacturers have been productizing support and training services for decades. Tiered customer support levels have been the standard since the 1990s. But the “service-in-a-box” concept is only now being widely applied to professional services, often with lackluster results.
Productizing high-value cloud, strategic or management consulting services proves to be more challenging because few client business problems are the same. And, unique consulting knowledge and its application are hard to define and replicate.
Productizing services offers pre-defined scope, pricing, duration, deliverables and results – providing PSOs with predictable outcomes that were previously inconsistent. But why is it done? How is it done? What are its benefits?
Defining service productization
Most professional services organizations already have some type of service packaging initiative. Typically, when PSOs define service packages they limit the scope and therefore the impact of a comprehensive productized service portfolio.
For the purposes of this article, service productization is:
“The process of delineating, building, deploying and improving a clearly defined service lifecycle framework to achieve operational improvements in support of an organization’s strategic objectives.”
A productized service has the following core attributes:
- Defined service offering with supporting marketing material detailing client value and benefits.
- Comprehensive sales playbook with supporting sales collateral and materials.
- Clearly defined and bounded scope, assumptions, delivery process, tasks, roles, staffing requirements, duration, pricing structure and outcomes.
- Standardized delivery methods and tools.
- Estimation and service delivery tools that support the initiative.
- Pre-defined deliverable templates.
- Embedded quality controls and project governance.
- Enforced feedback and continuous improvement.
Productized services can be stand-alone, “fast start” offerings or they can be components of an overall service lifecycle portfolio. An organization can offer productized services in one or hundreds of locations. Regardless of its reach, the service must possess the core attributes that make the training, sales and delivery processes clear, consistent and repeatable.
Moreover, a productized service demonstrates that the PSO has a consistent knowledge base and unique intellectual property. This approach shows that the PSO has the skills to deliver the service within a pre-defined time and cost. Without productization, professional services are less tangible and the benefits harder to define.
The service productization trend
As Figure 1 shows, we have identified three major forces driving PSOs toward service productization:
- Global competition.
- Clients’ increasing procurement sophistication.
- A rapidly changing technology environment.
Figure 1: Forces Driving Service Productization
Source: Service Performance Insight, May 2012
First, globalization and increased competition exert price pressure by commoditizing “cash cow” services like enterprise software implementation. Service providers are responding both offensively and defensively by productizing their most frequently delivered services.
Successful productization not only protects revenue and margins, but also provides the differentiation to increase them. Furthermore, productizing services improves resource management. It provides a framework for new consultants to come up to speed quickly while freeing experienced consultants for more complex, unique client problems.
Second, increased adoption of strategic sourcing and sophisticated procurement practices means that clients demand more value from their suppliers. Specifically, today’s professional services clients require clearly defined service descriptions, delivery process transparency and confirmed project costs before they approve a consulting engagement.
Third, the rapidly changing technology environment introduces increased complexity for PSOs and their clients. Clients have to justify both quantitative business enhancement metrics and promised qualitative improvements. Simultaneously, they must operate with leaner staff levels. Project durations are shorter — despite increased technological complexity — to accelerate business value capture.
Shorter, faster, more iterative projects mean that professional services organizations must engage in more sales cycles and win more projects to achieve targeted revenues and required margins. Successful projects today require PSOs to provide greater project governance with supporting tools to ensure quality while remaining within scope and budget.
Overall, PSOs face tremendous pressure to expedite and streamline their market approach with packaged service offers containing well-defined sales and service delivery guidelines. Done right, productized services create lucrative new revenue and profit streams.
More professional services organizations are taking productized services to the next level by providing clients with managed service contracts. Managed service agreements are powerful tools for deepening client relationships while improving customer retention. These contracts can create a reliable, recurring revenue stream for the firm and improve its competitive position.
In the IT consulting sector, a firm can augment its project-based business with support agreements for hosting, software support, regular maintenance work and upgrades with technology refresh options.
At the heart of the managed service agreement, is a contract specifying service terms, service level agreements, billing schedules and any service inclusions or exclusions.
Work associated with delivery of managed service contracts incurs costs, and requires infrastructure, resource scheduling, management of escalations and delivery. Monitoring these variables to stay within the terms of the agreement ensures accurate and timely billing and collection. This careful monitoring also provides a clear understanding of the cost structure, risk exposure and profit potential.
By developing standardized managed service offerings, the PSO develops a unique market competency and annuity revenues. It generates long-term benefits by selling these repeatable services to multiple clients.
To achieve the many benefits of managed services, a PSO depends on its internal systems. Without these systems in place, managed services cannot be performed effectively. The reason PSOs implement an integrated business management system is to handle the entire operation from sales and project management to service delivery, accounting and billing.
PSOs consider service productization as they face increased global competition, strategic sourcing adoption and technological complexity. Embedded PSOs face constant pressure to reduce the cost and complexity of implementation as the parent product organization sees professional services primarily as a means for rapidly installing products to secure product revenue. Independent PSOs view service productization as a means of branding, protecting valuable intellectual property and highlighting their differentiation.
Service productization provides these benefits:
- Increased proposal to sales conversion ratios.
- Improved accuracy of estimates.
- More measurable and consistent service delivery performance from repeatable services.
- Accelerated recruiting, hiring and ramping.
- Ability to staff with less experienced resources.
- Improved intellectual property value around methods, tools, and processes.
- Superior project governance.
- Predictable costs, resources, time and deliverables.
- Reduced risk and improved consistency and quality.
- Enhanced forecasting accuracy.
- Faster revenue recognition conforming to accounting standards.
Figure 2 shows benefits of using a standard service delivery methodology. The data comes from our analysis of 235 independent PSOs with 10 to 700 employees.
Figure 2: Benefits of Using a Standard Service Delivery Methodology
Source: Service Performance Insight, May 2012
Firms adopting a well-coordinated service productizing initiative gain a clearer understanding of how their skills and business processes support their service business strategy. By necessity, the process of service productization clarifies the firm’s objectives and exposes existing competencies and skill gaps.
Service productization forces the firm to identify best reusable methods, tools, templates and practices. This change helps propel consistent service execution while protecting reputation and quality. As PSOs expand internationally, service productization provides a valuable method to standardize country and regional processes for similar projects.
In Part 2, we will introduce the Service Lifecycle Management Maturity Model™ framework that helps organizations productize their portfolio.