Donner Party or Gold Rush? Part 1

An analysis of the service packaging equation
by Dave Hofferberth, Jeanne Urich and Carey Bettencourt, SPI Research

9812 gold

In this first of a two-part series, we cover the results from our 2012 Service Packaging Benchmark. This article examines both sides of the service packaging equation: root causes of high failure rates and ingredients for success.

For us, two big events permeate Northern California history — the unlucky Donner party of 1846 and the lucky discovery of gold at Sutter’s Mill in 1848.

The Donner party consisted of 87 American pioneers from Illinois and Missouri who set out in a wagon train headed west for California, only to end up trapped by snow in the Sierra Nevada mountains. The subsequent casualties resulting from starvation, exposure, disease and trauma were extremely high, with many of the survivors resorting to cannibalism.

The California Gold Rush and its gold seekers, often called “49ers,” flocked to California from all corners of the globe, swelling the population of San Francisco from less than 200 in 1846 to more than 36,000 by 1852. Thanks in large part to the promise of riches, “gold fever” forever changed the political and economic landscape of California — leading it to become the state it is today, with the eighth-largest economy ($1.9 trillion) and 38 million inhabitants.

So what does California history have to do with service productization? Based on 100 responses to our 2012 Service Packaging Benchmark, the enthusiasm for and the allure of developing high-value service packages feels like the beginning of a gold rush, yet the apparent success rate looks more like the Donner party mortality rate of 50 percent.

So why were thousands able to navigate the perilous seas, high mountains and fierce Indian tribes to strike it rich panning for gold while only 46 of the 87 Donner party made it to the promised land? The answer lies in better planning, following a previously charted course, and a large measure of luck and timing. The same success factors apply to the relatively few services firms that successfully package, sell and deliver a comprehensive service portfolio.

Pressures leading to service packaging

According to the survey results, as Table 1 shows, the pressures leading to the stampede to service packaging primarily revolve around improving sales effectiveness and accelerating client time to value. Fewer firms see service packaging as an effective antidote to rapidly commoditizing markets or pressures to move to the cloud. The prevailing view according to the benchmark is service packaging provides more sales and client benefit than service delivery advantage. However, well-researched and well-developed service packages can improve service delivery quality and provide a solid framework to quickly ramp new hires.

Table 1: Primary challenges driving the need to package services

0812 table 1

Source: Service Performance Insight, August 2012

High cost of failure

The Donner party’s demise was the result of a series of bad decisions made based on not having a guide, no prior experience, a lack of understanding of the perils of the journey and poor advice. A charlatan by the name of Lansford Hastings enticed them to follow an unproven course with the promise of “short-cutting” 350 miles from their journey to California. In fact, heading across the deserts of Utah and Nevada and attempting to scale the mighty Sierra Nevada mountain range in winter not only added 150 miles to the journey, but also led to unwarranted tragedy and suffering.

Our Service Packaging Benchmark and consulting experience depict the same poor results and needless suffering from the scores of firms that pursue service packaging without a clear road map and understanding of service life-cycle management. Inexperience, coupled with a lack of executive sponsorship, resource investment and empowerment, leads to lackluster results and outright failure more often than not.

A key finding from the benchmark is that a clear role, function and charter for service packaging do not exist in many organizations. 60 percent of the survey respondents say their organization do not have a clearly defined service packaging strategy or focus. Only 34 percent report the service packaging investment and resource plan is approved and funded.

Fifty-three percent recount the person(s) responsible for service packaging does not have a clear mandate or clearly defined management reporting structure. Another 38 percent of service packaging leaders answer to the service line of business executive. The remainder report to marketing or sales.

Eighteen percent of the personnel assigned to develop service packages have no prior experience, while only 5 percent of the teams are described as high performing and visionary. Seventy-seven percent have no dedicated service packaging team; they rely on borrowed resources, while only 16 percent have invested in permanent roles. A mere 6 percent believe their service packaging function is high-impact and strategic.

A whopping 74 percent report their organizations don’t have an incentive or compensation plan in place to promote packaged services. Yet average spending on service packaging accounts for almost 2 percent of total revenue a number that’s higher than average spending on training or information applications.

Something is clearly wrong with this picture! With the low level of executive sponsorship, funding, team dedication and empowerment, it is no wonder only 39 percent of all services are sold and delivered with standard methods and tools.

Table 2: Signs of Failure

0812 table 2

Source: Service Performance Insight, August 2012

Impact of service productization done right

The excitement regarding services packaging is significant. Other than our annual Professional Services Maturity Benchmark, we haven’t seen any topic garner more attention and interest in six years. Table 3 from the 2012 survey highlights some of the expected benefits services organizations hope to attain as they increase their emphasis on productizing services.

Table 3: Expected Benefits of Service Productization

0812 table 3

Source: Service Performance Insight, August 2012

Bottom line: Most executives are interested in productized services as a driver of incremental sales. This perceived benefit is understandable, as professional services organizations can grow much faster if they are able to reduce the sales cycle and make it easier to position and sell services.

However, increased sales and shortened sales cycles are only part of the promise of service productization. As services are productized, the entire organization can get behind efforts to improve quality and profitability, much the same way new products are launched, sold and enhanced.

In Part 2, we’ll examine what it takes for professional services organizations to successfully initiate and sustain service productization efforts. As you will see, an organizational focus on service packaging coupled with strong leadership and adequate funding is just one of the necessary ingredients required to successfully navigate the mighty service packaging desert to reach the promised land of riches that can result from increased service sales and profit.