6 Lessons Learned for Packaging Service Offerings

Ensure that your organization sees success in service productization
by Carey Bettencourt, Service Performance Insight

TimetoLearnOver the last year, my team at Service Performance Insight (SPI) has worked with dozens of companies and trained hundreds of professionals to implement sustainable service productization, or packaging, programs.

Lesson 1: “No market, no money, no mission.”

First and foremost, many services should not be packaged.

Service packaging investment requires an overall business plan and a business case that outline the target market, competition and your differentiation. Service packages must be services that can be successfully sold and delivered for tens, if not hundreds, of clients. If the problem is not urgent, not pervasive and clients are not willing to pay to solve it — don’t package it!

You must have a compelling answer to the question “Why should we package this service?” Too often firms begin packaging services to correct internal problems. Instead, focus should be on the market and the
pervasive business problem the service solves.

Companies would never dream of developing a product without an understanding of the market. So the same standard must be applied to services.

Lesson 2: “Walk before you run.”

Product management has come into its own as a specific function and discipline to ensure that products are developed with the client in mind and based on sound market and competitive analysis. That said, service productization must attain the same level of focus and specialization to be successful. A key finding is that service productization relies on and requires sound fundamentals to be in place in product management, marketing and solution selling — all disciplines which typically sit outside the professional services organization and its core service delivery competency.

At the same time, the PSO must have attained at least Level 3 (Project Excellence) PS Maturity in the Service Execution Pillar with fully deployed systems and processes for service delivery methodology development and enforcement. Professional services automation and knowledge management systems must exist to provide the service productizing team with insight into project artifacts and best practices. Further, the PSA solution is required to measure compliance and productivity improvements.

Lesson 3: “Implement a structured service packaging method.”

Based on our research and consulting experience, more than 80 percent of initial service productization attempts fail to achieve hoped-for objectives. Key root causes include ad hoc approach, lack of executive commitment, no dedicated roles, and no program vision or clarity.

To improve the success rate and shorten the time to value of service product development, my team developed the SLM3 framework, as shown in Figure 1, a methodology and tool kit that enables the service product team to implement a holistic and sustaining service productization program.

Implementing this framework compels the service product team to pursue a disciplined approach to establish the following:

  • Articulated and well-understood services strategy.
  • Service productization program vision.
  • Active executive sponsorship.
  • Market-driven focus.
  • Global company adoption of program.
  • Dedicated resource commitment.
  • Cross-functional participation.
  • Common sales and delivery methods, tools and templates.

Figure 1: SLM3 Framework

SLM3

Source: Service Performance Insight, 2013

The contents of SLM3 include:

  1. Critical success factors. The required conditions for service productization success.
  2. Organizational structure. The teams, hierarchy, roles and responsibilities leading and supporting the program.
  3. Program foundation. The critical service productization program capabilities and activities — project management, change management and portfolio management — that are required for startup and ongoing program operations.
  4. Service productization methodology. The five-phase lifecycle process that compels the team to develop a strategically aligned, market-driven and high-quality service product focus.

Lesson 4: “Incorporate change management.”

Based on my team’s years of service packaging experience and research, I believe that organizations should approach service packaging as a transformational change to the traditional way companies currently sell and deliver services. Service packaging requires cross-functional disciplines to work together to define a consistent approach to selling and delivering in-demand services.

I suggest organizations think of service packaging as a new and better way to develop solution value capture, which requires behavioral changes. In order to gain organizational buy-in and support, it is important to launch the program with clear communication, incorporating answers to the following questions:

  • Why are we doing this?
  • Why are we doing this now?
  • How will we work together?
  • How will this impact me?
  • What do I need to do to be prepared?

Effectively communicating the program’s important purpose and stakeholder’s role will not only create a positive perception, but it will also accelerate service packaging program support and participation.

Lesson 5: “Name that team!”

Successful service packaging requires a long-term view with dedicated, empowered and experienced team members; executive and cross-functional support; and consistent long-term funding.

Committing the required resources and placing the right people in the right roles is a critical success factor for this programIn fact, inadequate resource commitment will lead to frustration with the service packaging effort and results. And not assigning and aligning qualified people to program roles will lead to individual and team anxiety and, most likely, lack of productivity.

Expectations that service packaging will provide a quick fix for effective solution selling or service delivery consistency are false, but the effort is worth it if organizations go into it with eyes wide open.

The only way to guarantee success is to follow a service lifecycle management methodology that clearly outlines the program charter and governance structure for decision-making and funding. Clearly defined and empowered teams should be assigned. Appropriate measurements, metrics and compensation are needed to cement the program into ongoing operations and measure progress.

Lesson 6: “The proof is in the numbers.”                                                             

Following the development of the Service Lifecycle Management Maturity Model, my team scored 102 survey participants in the 2012 benchmark. The most mature firms follow a disciplined, methodical, market-driven approach to packaging services and deliver excellent financial results.

As presented in Table 1, the revenue and profit key performance indicators for the most mature firms show material differences between the lowest two levels of maturity and those that are at Level 5. The numbers in the colored boxes represent the percentage of companies that are at each maturity level.

Table 1: Service Lifecycle Management Maturity Model Metrics by Maturity Level

slm3numbers

This table should remove all doubt about the efficacy of service lifecycle management, as the most mature are able to achieve superlative net margins while exceeding their annual revenue and margin targets.

The value of productization

Productizing services is difficult. But more than likely it is necessary in an era of greater service complexity, global competition, economic indecision and a more enlightened client base. Properly managed, investments in service productization can pay off handsomely — with significant improvement in margin, revenue per person and ability to manage larger projects.

I hope that sharing these lessons learned helps your organization better prepare to launch — or improve — your service packaging programs.

Donner Party or Gold Rush? Part 2

Where to start in service productization
by Jeanne Urich, Dave Hofferberth and Carey Bettencourt, SPI Research

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In the first of a two-part series, we covered the movement to productize services and its similarity to the Donner party and gold rush, based on the early results of our 2012 service packaging benchmark study available in September 2012. Here we discuss where to start because taking the first steps in the right direction is critical to establishing a successful service productization program.

It makes sense to build service products in the same way that companies develop, sell and manage manufactured products throughout their life cycle. Unfortunately, many organizations have initiated service productization efforts with limited market data or very poor information. Your organization must start with the client’s pain and answer the following questions to assess the opportunity and validate the market for your proposed service product.

  • Will this service product eliminate a significant problem or pain for my clients?
  • How urgently do my clients want to resolve the problem?
  • Where are our products and our proposed service product in the life cycle of the market (growth, mature, decline)?
  • Do we provide unique, differentiable capabilities to resolve the problem?

In many cases, great ideas have no immediate market. Therefore, the creation of service products makes little sense and moves the organization away from serving more pressing client needs.

Because of this, a professional services organization (PSO) should look at the types of work it currently provides and evaluate its importance to the client base. While no two clients are the same, many of their pains are sluggish sales, reduced profits, no coherent strategy, organizational inefficiency, poor quality, regulatory scrutiny and many others mandating the need for your organization’s expertise.

Establish executive sponsorship

Many of the organizations that we’ve surveyed and interviewed have started establishing service productization initiatives. Some initiatives launched in the service delivery arm of the organization, while sales or marketing established others. The need for service productizing made sense to these organizations, and many invested a large amount of time and effort in its development.

Unfortunately, most of these same organizations failed to gain active executive sponsorship within professional services and other key departments. This executive support is a critical success factor, as it drives resource development commitment and participation, sales promotion, and delivery adoption of the service product.

Senior executives who understand the benefits and the process required to initiate service productization are in a stronger position to sell and implement the program across the entire organization. Without this support and leadership, it doesn’t matter how well-structured; the service packages are. Those will never receive critical acceptance from the entire organization and will fail.

Involve all relevant parties

Following the establishment of a senior leader to oversee the service packaging effort, PSOs must build a team with representation from the various departments within the organization that can affect the service’s success. These departments include marketing, sales, service delivery, partner management, human resources, finance and accounting, legal, procurement, and potentially others.

While every department might not have the same level of involvement and responsibility, each should be consulted to ensure service products are well constructed, have the necessary assets (people, material and equipment), financial backing and value; and will be delivered with the highest levels of quality. Creating service packages heightens the understanding and awareness of the importance of services by others, unlike one-off services. Hence, every individual on the team must have a seat at the table to make sure the service product is conceived and implemented well.

Clarity helps drive the optimal outcome

Once the professional services organization has the right people on the team, it’s critical that the team has a clearly defined process for the development and implementation of service products. We have developed and implemented a service life cycle management methodology in many organizations. Your organization may have its own method and processes. Regardless, the processes involved must provide clarity in service product development and help the organization understand the role and responsibilities in the service productization process and contribution to its ultimate success.

The leader of the team should have a documented process complete with steps required to build service products and specific evaluation criteria for every step. The clarity of this process provides every department with an analytical framework to evaluate and determine whether the service productization process should continue. It’s critical the process have several evaluation checkpoints to make go or no-go decisions. These ensure that the service product has quality built-in and is positioned for financial success.

How to increase your organization’s success rate with service productization

Service productization isn’t a new concept. For the past decade, many service organizations have considered it and many have successfully implemented it. However, going from idea to implementation takes a significant dedication and resources to achieve success. Our research has shown it will become an increasingly important component of your organization, as technologies, regulations, globalization and services become more complex.

Service packaging begins after identifying a client’s pain, attaining executive sponsorship and establishing the service packaging team. Many others within your organization will become active participants during the process. The potential for success depends on the buy-in coming from across the organization.

“Thar’s gold in them thar hills!” But there are also many traps that could ultimately doom your organization as it moves toward service packaging. Let your organization’s efforts lead to riches, not ruin! As with prospecting for gold, luck and timing come into play. However, preparation, organization and leadership will improve your organization’s chances for success.

 

Donner Party or Gold Rush? Part 1

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

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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

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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

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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.

 

The Next Generation of Professional Services: Service Productization – Part 2

The what, why and how of productizing services

by Dave Hofferberth, Jeanne Urich and Carey Bettencourt, SPI Research

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In the first of this two-part series, we explored the services productization trend. In Part 2, we share our new Service Lifecycle Management Maturity Model™ (SLM3™) to help professional services organizations (PSOs) to start reaping the benefits of service productization. 

The service industry is buzzing about a new way to create, sell and deliver repeatable service products. It’s called “service productization.” Productized services present the allure 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.

Introducing SPI’s Service Lifecycle Management Maturity Model™ (SLM3™)

0612 2We’ve learned that no single process instantly creates high-quality service packages. Many service product development teams don’t follow a service product development roadmap or approach service productization with the same level of discipline as product managers do. To fill this void, we’ve developed a five-phase, closed-loop Service Lifecycle Management Maturity Model™ to help manage the service productization process. See Figure 1 for the model.

We find that service productization is more successful when an organization uses a framework to choreograph roles and responsibilities and define clear outcomes by phase. This approach leverages knowledge and existing project artifacts. Speed and quality of service productization improve with experience. Each step outlines key decision points and deliverables that break the service productization effort into measurable and actionable components.

The five phases of service productization are:

  1. Innovate. Identify service product candidates, conduct research, analyze the market and fund the effort.
  2. Define. Plan the overall effort; define requirements and content; design service productization methods, tools and processes. Take an inventory of current assets to productize.
  3. Develop. Build service products based on best practices, consistent methodology, tools and templates. Test assumptions.
  4. Launch. Conduct beta test; assemble sales, marketing and delivery materials; train sales and service professionals; execute sales and marketing campaigns; and deliver with quality.
  5. Optimize. Develop measurements and rewards; collect feedback from sales, PSO and clients; identify areas for improvement. Propose significant changes and add-on services back through the Innovate phase.

Table 1 lists the deliverables and benefits of each phase of the Service Lifecycle Management Maturity Model™.

Table 1: SPI’s Service Lifecycle Management Maturity Model™ — Deliverables and Benefits

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Source: Service Performance Insight, June 2012

SPI’s Service Lifecycle Management Maturity Model™ success measures

To be successful, align your organization to ensure that each relevant function understands its role and obligations. When service organizations get serious about service productization, the initiative becomes the catalyst for an overall transformation. Effective service productization leads to a better way of doing business for the entire organization.

Service productization creates a business model centered on delivering maximum client value in the least amount of time. The process can be supported by a system including financial and project management, knowledge management and collaboration tools. Refer to Table 2 for each team’s roles and measurements.

Table 2: Service Product Teams and Measurements

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Source: Service Performance Insight, June 2012

Example of Service Lifecycle Management

Figure 2 represents a five-phase service solution delivery method. The chart illustrates how a company has productized defined service packages. First, the entire service lifecycle method was established then repeatable components were productized and tested in the field through many client projects.

A good rule of thumb is to start with service productization training. Then package client workshops and assessments. Develop and integrate repeatable workshops and assessments throughout the service delivery lifecycle. This approach facilitates ramping less-experienced PSO resources under the quality assurance guidance of senior PSO resources. These packaged services incorporate all core attributes, including contract templates to execute a legal agreement. A fast start package assumes that only out-of-the-box deliverables can be completed within a shorter timeframe than a typical full solution delivery.

Figure 2: Service Product Example

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Source: Service Performance Insight, June 2012

Common failure points

To reap the benefits of productized services, a PSO should spend plenty of time in the Innovate and Define stages of the process. Too often, service packaging teams jump into service development without developing a business plan or garnering cross-functional support for the initiative. The risks of failure are high without critical support, tools and cross-functional participation.

Without proper planning, executive sponsorship and funding, the risk of lackluster field and client acceptance or complete failure of a service productization initiative is high. The most common pitfalls we have observed include:

  • Inadequate executive sponsorship
  • Insufficient market analysis
  • Underdeveloped business case
  • Lack of competitive differentiation
  • No sales, marketing, training or launch plan
  • Unrealistic scope, time and budget
  • Insufficient resources or inadequate competencies
  • No beta or reference customers
  • No feedback or measurement systems or quality controls
  • No repeatable methods, tools, IP or plan for re-use
  • No understanding and appreciation for required organizational change

Properly executed, a successful productization initiative can deliver improved service performance, harvest knowledge to make it more profitable and improve overall operations all while delivering more client value faster.

Benefits of service productization

Global competition, a more sophisticated client base and a rapidly changing technology environment are increasing the pressure on professional services revenue and margin. A good way to respond to these external forces is by productizing services. Additional benefits include sales differentiation, repeatable quality service delivery, improved financial and operational predictability and greater value to your firm and clients. Predictable quality and results improve your reputation and increase the probability that your firm will be selected for future work.

By productizing services, the PSO can better prioritize the creation, management and improvement of its services portfolio. Marketing can build the appropriate materials to do a better job of defining and advertising the service portfolio. Contracts can be tightened and service level agreements considered. Accounting and finance can better forecast cash flow, revenue and profits. The consulting organization can better plan and schedule the workload to deliver high utilization, high quality and repeatable business.

The Next Generation of Professional Services: Service Productization – Part 1

The what, why and how of productizing services
by Dave Hofferberth and Jeanne Urich, SPI Research

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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:

  1. Global competition.
  2. Clients’ increasing procurement sophistication.
  3. A rapidly changing technology environment.

Figure 1: Forces Driving Service Productization

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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.

Managed services

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.

Why productize?

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

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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. 

The Innovation Generation

The secret to client and services expansion
by David Hofferberth and Jeanne Urich, SPI Research

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The pressure is on to perform in professional services. The industry overflows with highly competitive, “alpha males,” who continue to plan, sell, execute and collect as efficiently as possible. The problem is competition always lurks right around the corner. Leading firms dedicate departments to look for the “next big services thing”. As such, services innovation becomes a critical driver of future performance.

Is service innovation really needed?

In manufacturing, innovation is core to the development of new technologies and products. The past five years have seen innovations such as iPods, iPads and other “smart” devices, which have revolutionized how people communicate and collaborate in both business and socially.

In services, innovation is not quite as noticeable, yet it’s critical to the growth of all markets. Even in times when the economy slows, professional services (PS) executives must spend the necessary effort and capital to innovate and develop new service offerings.

Did you know?

The fastest talkers and typists can only talk or type 150 words per minute. Visual perception is 10 times faster than verbal. Every minute, 35 hours of video appear on Youtube. This amount of video equals over 176,000 full-length Hollywood releases every week.

So, what can happen in 35 hours?

  • A team can set the record for the longest soccer match in history.
  • Someone can drive non-stop from YouTube’s headquarters in San Bruno, CA to Chicago, IL.
  • You could fly over half-way around the world in a balloon.
  • If each member of your PS team delivers and bills 35 hours a week, every week, they will bill 1,820 hours per year and produce over $365K per person.

For cloud computing and web access, the 2011 view says:

  • 90 percent of applications will be services.
  • 90 percent of servers will be in the cloud.
  • 90 percent of accesses will be from mobile devices.
  • 2 billion people will be on the web in 2011.
  • One in every three people in the world will have Internet access.

What all of this means is that the world is moving faster and we have become an information-obsessed society. Information is flowing faster and faster with less and less control over who produces it, sees it or uses it.

If your products and services are being developed at the speed of speech, your organization is falling behind. Winners are learning how to harness the power of the internet, the cloud and social networks to drive innovation.

Where does innovation come from?

Ideas come from employees, partners and customers. What matters is the process of translating ideas into insanely great new services and products. Bringing ideas to reality requires discovery, design and delivery. Most service organizations don’t spend enough on discovery and spend too much on design and delivery.

What is the secret for growth?

SPI Research’s 2011 Professional Services Maturity™ Benchmark showed the fastest growing firms did so by expanding. They added new clients and new services. SPI segmented the benchmark of 214 service organizations surveyed into two groups: 1) those with year over year revenue growth, versus 2) those with shrinking or flat year over year revenue.

The analysis shows that growing firms derived more revenue from new clients (38 percent of total revenue) and new services (40 percent of total revenue) than the organizations that weren’t growing. The no-growth organizations — on average — derived 31 percent of their revenue from new clients and only 28 percent of their revenue from new services.

A key takeaway is that both growing firms and not growing firms develop new clients and new services, but growing firms have a much higher percentage of new services and new clients. Obviously, new services open the market to a broader base of potential clients, and lead to market expansion. Adding new service lines each year allows firms to gain a larger share of wallet from existing clients as well.

How does your organization innovate?

Services innovation comes in many forms. Sometimes new services begin on the proverbial napkin, sometimes ideas begin in the shower, and sometimes harvesting and incubating new service ideas is part of an organization’s DNA.

It is important to discover reliable sources of ideas (clients, partners and employees) and quickly develop the most promising ones to the point of testing. If they make it through the test phase, they then must be refined into a repeatable service that solves a pervasive business problem and is profitable.

Sometimes innovation occurs in existing offerings, as clients continue to demand enhanced services that deliver value faster, cheaper and with higher quality. Other times, the service is considered breakthrough because it offers new insights or is packaged in a novel way that makes it easier to buy, sell and consume. With either service extensions or new services, a key ingredient is getting the word out so the client base can expand rapidly as organizations seek the benefits of the new service.

Regardless of how the new service came to be, SPI Research sees that many PS organizations share common characteristics for new service innovation and introduction, and take the following steps.

Develop a consistent innovation methodology

Services innovation is so critical to the market that many PS organizations have developed methodologies to bring new services to market efficiently and effectively. Many of these methodologies came from the manufacturing sector, where innovation and new product development has become more science than the art it is in professional services. The point is to create a process where firms can measure, monitor and evaluate new innovation on a regular basis, to harvest, package and promote the best ideas.

Develop a collaborative framework

A consistent methodology for services development makes up half of the game. The best ideas are always augmented when smart people collaboratively build on them. Very few individuals can think it all out in advance. The key to rapid and successful service development is collaboration and knowledge sharing for improvement and expansion.

Remember that tools don’t hurt

Replacing the days of “innovation by napkin” are web-based knowledge sharing, virtual white-boarding and chattering. People generate great ideas during thinking time, a time free of urgent task lists. But today’s innovators must quickly translate interesting concepts into practical applications so they can gain interest and momentum.

PS executives demand detailed service development plans with supporting information in the form of financials, schedules and visuals. For this reason, Microsoft Office coupled with SharePoint Server has emerged as a leading innovation platform combined with individual productivity tools such as Word, Excel, PowerPoint, Project and Visio.

But many other tools also help PS organizations create an infrastructure for more efficient innovation. Their importance lies in their ability to assimilate information in a way that fosters collaboration, ease of access and knowledge sharing.

Innovation in PS organizations

In the knowledge-based business of professional services, every employee has a responsibility to drive innovation. This exercise requires a great amount of brainstorming and collaboration, on both a local and global basis. This must be done to harvest and develop new ideas to drive a broader service portfolio and support a larger, global client base.

Innovation takes teamwork, which extends beyond the PS organization’s employees. Innovation comes from translating both the stated and unspoken voice of the customer into unique new business models and service offers.

It is important for the PS organization to institutionalize its innovative processes with an understanding that innovation does not always fit perfectly inside today’s frameworks. However, at a certain point, new innovations will only come to market when decision-makers have the tools and information necessary to evaluate these new services, and determine their relative value compared to other innovations in the service portfolio.

At Their Service

Standardize and package your services for client assurance and repeatability
by David Hofferberth and Jeanne Urich, SPI Research

0411 1

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.