How Professional Services Organizations Can Increase Revenues

By Dave Hofferberth

The role of marketing and sales in an organization’s success
Cultivating new and repeat clients is the lifeblood of the services industry. Professional services organizations (PSOs) are in business to provide knowledge, expertise and guidance. Their sales and marketing organizations must define target markets and clients by understanding their key challenges. They are responsible for generating awareness and identifying and closing opportunities. The intangibility of services makes it more difficult to create concrete proof of the firm’s knowledge, experience and differentiation.    CRM

The effectiveness of the PSO’s sales and marketing efforts determines the quality and size of the pipeline, bid-to-win ratios, discounts, client satisfaction and the length of the sales cycle. Effective sales and marketing organizations consistently uncover new opportunities while ensuring existing customers continue to buy and refer. Today’s successful PSO, whether embedded or independent, is increasingly taking charge of its own destiny by investing in sales, marketing and services packaging.

Professional services executives know that, in good times or bad, they must optimize marketing and sales to improve financial performance. They use different marketing and sales approaches to increase revenue while holding down costs. A look at the results of the 2015 Professional Services Maturity Benchmark shows how PS executives can develop strategies to align sales and marketing to achieve superior results.

Develop strategies to optimize growth and margins
With visibility into the right information, PSO executives can develop strategies and tactics that will help their organizations grow profitably. Understanding the needs of their current client base provides insight into additional services that could be initiated and offered.
Services portfolio expansion helps the PSO maintain a consistent presence within its clients’ organizations. It also minimizes the potential for competing PSOs to come in and take business away. This understanding helps the PSO more effectively price services to existing clients, where it has a more intimate understanding of risk, requirements and acceptable price levels.

Focus on adding new clients
The secret to enduring success is to build marquee clients for life while continually adding new clients. This requires adding complementary services for existing customers and new services offerings to drive market expansion while ensuring the PSO remains current with emerging markets and technologies.

Table 1 highlights the impact of new client acquisition. The table shows that nearly 30 percent of the respondents derive between 20 and 30 percent of total revenue from new clients. There is clearly a direct correlation between overall revenue growth and new client penetration.

Firms that derive more than 40 percent of their revenue from new clients grew overall year-over-year revenue more than 14 percent. Smaller organizations tend to show higher growth rates as they are building new client revenue from a much smaller base.

Table 1: Percent of Revenue from New Clients
Table 1
Source: Service Performance Insight, May 2015

Faster growth means more employees. The table shows that organizations with less than 20 percent of their revenue coming from new clients grew the employee base faster than actual revenue. This means the cost structure expanded more rapidly than revenue. It may indicate that the organization is hiring in advance of expected revenue or catching up with current demand.

But in those organizations achieving more than 20 percent of their revenue from new client penetration, employee headcount growth is lower than revenue growth. In this case, the organization is more efficient at resource management, despite the high level of new client growth. The size of the sales pipeline compared to the quarterly bookings forecast increases, leading to more revenue from new clients.

Unfortunately, there is a cost associated with seeking new clients. The slowest-growing organizations reported the highest levels of profitability as they did not incur high costs for recruiting and ramping loads of new clients and consultants. Concentrating too intently on high profit from existing accounts in the short term may signify the organization is foregoing market expansion that would ensure long-term prosperity and success.

Develop a winning pricing strategy
Some PSOs build pricing proposals from costs up by applying approximate cost factors plus risk multipliers. This pricing strategy does not contemplate or take advantage of business impact. Cost plus pricing usually results in low margins as the organization is not able to command a price premium for proprietary tools, techniques and intellectual property, which drive faster, more successful client outcomes.

With the right information, PS executives have the ability to create pricing models that optimize profits along with client benefit. These models balance the probability of winning bids with cost, revenue and expected client benefit as Figure 1 shows. Pricing a proposal too high virtually assures the bid will be rejected.
Figure 1: Pricing Strategy
Figure 1
Source: Service Performance Insight, May 2015

Pricing the proposal too low offers two negative potential consequences: 1) the bid will be accepted but the profit margins will be so low that it will negatively impact overall profits, or 2) the client organization will feel that the PSO does not understand the nature of the work, and therefore, the project will face serious consequences later in its lifecycle.

Leading PSOs have pricing down to a science. They understand their clients’ price tolerance, their competitor’s pricing strategy, their own capabilities and the value those capabilities provide to clients. Understanding cost, the competition, risk and client value all go into successful proposals that exceed margin requirements. Premium pricing comes with quality, repetition and reputation.

Discount at your own risk
Research has shown that discounting can create more problems than it is worth. Discounting diminishes value and may cause negative client perception. The client wonders whether the initial price was too high, or the firm is desperate or it doesn’t truly understand the nature and scope of the work. Any of these circumstances may lead to long-term dissatisfaction.

PSOs need to limit discounting, and only use it in the rarest of situations. Minor discounting may be appropriate for significant additional business or to demonstrate the value of the relationship. Unlike products, there are few economies of scale in the services business. An hour of effort is an hour of effort. The cost of an hour of labor is only reduced if less time is needed, less costly consultants can be used, or fewer non-billable hours are spent in developing client requirements or deliverables. The benefit of additional business with the same client primarily shows up in reduced sales cost and reduced risk but not necessarily in delivery cost reductions.

Table 2 shows approximately 75 percent of the organizations discount less than 10 percent. The comparison between those organizations discounting less than 10 percent with those that discount more is significant. Limiting discounting results in larger projects, shorter sales cycles and more wining proposals.

The major difference is in the average revenue per project, which is considerably higher for those organizations that shy away from discounting. Although counterintuitive, the negative impact of discounting shows up in longer sales cycles and fewer winning proposals. The only positive impact of discounting is in larger sales pipelines, but there is no guarantee that more deals will close as the result of a larger pipeline.

Service organizations must be wary of client demands for price concessions because they are an indication that the service is becoming commoditized, sales are not positioned at the right decision-maker level, or the value of service impact has not been quantified. In services, the lowest-priced provider is almost never the highest-quality vendor with the best reputation.
Table 2: Effects of Discounting on Sales
Table 2
Table 3 highlights some of the impacts of discounting on performance. Both project margins and attrition are improved with lower levels of discounting.
Table 3: Effects of Discounting on Organizational Performance
Table 3
Source: Service Performance Insight, May 2015

What PSOs must do to increase their chances of greater success
While delivering excellent services will always be an important objective of PSOs, increasing sales and maintaining a solid, stable revenue stream greatly contribute to organizational success. There has been a growing emphasis on sales and marketing activities that increase both the breadth and depth of relationships, while expanding markets through existing and new services offerings.

To succeed in the marketplace, PSO executives must align marketing and sales activities to increase both revenue and market margin targets. An initial dive into the bid-to-win ratio as well as the PSO’s pricing strategy will go a long way in helping the organization reach its goals.

Profitability analysis across clients, practices, geographies and service offers assures that each PSO is operating at its highest capability. Understanding revenues and costs helps marketing, sales and service delivery collaborate to improve the types, pricing and quality of the services offered. Through this alignment, the PSO will be in much better position to succeed.

The Truth About Services Selling

How to pick the right ones out of hundreds of possibilities
by Jeanne Urich, Service Performance Insight

The race is on to outsell, outmarket and outpackage the competition with profitable growth as the prize. The professional services industry has switched from “controlling costs” to “growth” due to the economic recovery. Around the globe, services providers are re-examining their approaches to the market. They’re looking at the most effective sales, marketing and packaging techniques to determine the optimum investment formula with the greatest payback.

Truth Green ArrowsSPI’s 2013 PS Sales and Marketing Maturity Model Benchmark report analyzes professional services industry spending on sales, marketing and packaging. A total of 187 global professional services organizations participated in the study conducted in July 2013.

Prior to starting the research

When we began this research, we knew that most professional services organizations were dissatisfied with their sales effectiveness. For the past eight years, more than 1,500 PS organizations that have completed our benchmark surveys have consistently given their sales efforts failing marks.

The benchmark seeks to answer the following questions:

  • What are professional services organizations spending on sales, marketing and packaging?
  • What results are they achieving?
  • Which investments yield the most benefit?
  • Which investments are not worth the effort?

The benchmark report attempts to answer these questions while providing insights and guidance into the best practices used by the most mature professional services organizations to enhance their sales, marketing and packaging efforts.

The current facts:

  • The discipline of professional services selling is still in its infancy. Very few firms have well-established solution selling methods or trained and dedicated services sales teams.
  • Current expenditures on PS sales are significant. As a percentage of total PS revenue, the average investment in selling is 8.6 percent.
  • The results for the very few firms that have successfully implemented a PS sales discipline are extraordinary, with 47 percent of all services sold as packaged solutions, 29 percent net profit and $255,000 annual revenue yield per consultant.
  • The majority of firms have a dedicated solution selling team with an average annual PS sales quota of $1.6 million per person. Only 67 percent of PS sales representatives achieve their annual quota — yet this figure improves to 75 percent for the best organizations that significantly invest in sales training, systems and tools.

Market challenges

Based on the survey, the results revealed that the pressures facing PS executives primarily revolve around accentuating services differentiation and improving sales effectiveness. Accelerating client project time to value is also a principal concern. We looked at the differences between embedded services organizations and independent services organizations. ESOs are services organizations within product companies, and INDs are firms whose primary charter is to provide profitable consulting services.

Table 1 compares the survey responses of ESOs and INDs on a scale of 1 to 5, with 5 being the most challenging.

Novt1

With the return to a healthy economy, firms have started to focus on new market penetration and expansion of their services portfolios. Fewer firms fear commoditization of their services. PS organizations make investments in sales and marketing as they face increased global competition, strategic sourcing adoption, technological complexity and pressure to accelerate time to value.

Firms adopting a well-coordinated plan to amplify their sales and marketing investments are reaping significant rewards. This report shows that although there is wide disparity in the amounts spent on sales and marketing, these investments pay for themselves in larger sales pipelines and better bid-to-win ratios. Ultimately, this translates into achievement of PS revenue and margin targets and higher levels of net profit.

PS sales effectiveness

In “The New Solution Selling,” Keith M. Eades provides the definition of a solution: “So what is the definition of the word solution? The typical response is, ‘An answer to a problem.’ I agree with this response but feel it’s important to expand the definition. Not only does the problem need to be acknowledged by the buyer, but both the buyer and salesperson must also agree on the answer.

So a solution is a mutually agreed-upon answer to a recognized problem. In addition, a solution must also provide some measurable improvement. By measurable improvement, I mean there is a before and might be an after. Now we have a more complete definition of a solution; it is a mutually shared answer to a recognized problem, and the answer provides measurable improvement.”

Common signs of services selling failure:

  • Client “pain” is not adequately identified or pervasive. The services portfolio does not resonate with the sales force or prospective clients, resulting in a weak sales pipeline and limited market penetration.
  • Wrong assumptions about product to services mix. Product companies want to increase product revenues and reduce services revenues, which mean they want to move solutions to partners to reduce the cost of services delivery. Without proper planning and solution testing, partners are ill-equipped to deliver new solutions.
  • Unreliable sales forecasts. Consistent misses in sales forecasting accuracy ripple through the PS organization, showing up in consultant over- or underutilization or poor resource scheduling and planning combined with the inability to achieve planned revenue and margin targets.
  • Poor sales effectiveness. Inability to generate enough interest and qualified leads to fill the sales pipeline. Poorly articulated services value proposition resulting in not enough qualified opportunities to support the sales forecast, along with poor win-to-bid ratios.
  • Lackluster sales results. Fewer than 60 percent of the services sales representatives surveyed achieve quota, resulting in failure to achieve revenue and profit objectives.
  • Poor estimating. Underscoping and underbudgeting projects results in project delays, overruns, poor project margins and dissatisfied clients.
  • Few reference clients. The PS organization is unable to convert clients into references and evangelists, resulting in lackluster repeat sales and referrals.

PS sales effectiveness metrics

Many firms want to know how to define sales effectiveness and what metrics they should use to measure the effectiveness of the services sales force.

The benchmark focuses on the following sales effectiveness areas:

Services sales quotas.

  •  Services sales quotas by person, by PS vertical market and by size of organization.
  • Percentage of services salespeople who achieve quota.

Spending on services sales.

  •  Total cost of the services sales organization as a percentage of total services revenue.
  •  Total number of services salespeople.

Sales effectiveness.

  • The size of the sales pipeline as compared to the quarterly sales booking forecast.
  • Win-to-bid ratio.
  • Average closed deal size.
  • Average services revenue by account.
  • Percentage of revenue from new clients.
  • Sales forecasting accuracy.
  • Services pricing accuracy — proposed price compared to actual delivery cost.
  • Length of the sales cycle from qualified lead to contract signing.
  • The number of qualified leads that are closed.
  • Percentage of reference clients.
  • Percentage of annual services revenue target achieved.
  • Percentage of annual services margin target achieved.

Sales enablement.

  • Sales methodology followed.
  • Days of sales training taken per rep per year.
  • Percentage spent on sales enablement, training and support.
  • Marketing mix and expenditure on supporting the sales effort.

Sales organization structure.

  • Charter of the services organization.
  • Sales reporting structure.
  • Sales focus: geography, industry, major accounts or competency.

Table 2 provides an overview of sales effectiveness metrics and shows the differences between embedded services organizations and independent services organizations. Embedded PS organizations reported lower sales quotas but a higher percentage of salespeople who achieve them. ESOs reported better forecasting and pricing accuracy than their independent counterparts.

ESOs have shorter sales cycles, but their average closed services deals and revenue by account are significantly lower than for independents. ESOs generate more business from new accounts and have higher win-to-bid ratios than independents, yet they posted lower sales effectiveness scores and have significantly fewer referenceable clients.

novt2

The nonexistent sales and marketing silver bullet

Almost every PSO surveyed or interviewed in the past seven years has committed to the importance of the sales and marketing of professional services. However, the role of professional services within each company is different. Services can be used for profit, product enrichment, client intimacy or some combination of each.

Regardless, very few sophisticated product organizations can survive without a strong emphasis on professional services. For independent firms, PS sales and marketing are the lifeblood of the firm, for without them, new business cannot be developed nor can the firm expand its presence within its existing client base.

Unfortunately, both embedded and independent PS organizations often think of effective sales and marketing as a magic bullet. They believe all their problems will be solved if they can just find an amazing rainmaker. Not so! Finding rainmakers is not easy. Even if it were, business development efforts would fail without a compelling services go-to-market strategy and clear differentiation.

A couple of surprises

Our study focuses on PS sales, marketing and packaging to gain insights into the best practices and realities of how PS organizations are approaching the market. The biggest surprise was how many organizations are not adequately investing in sales and marketing. Many don’t have a cogent plan or dedicated resources or funding to support business development. Without an effective front office — no matter how compelling an organization’s services delivery and experience are — the firm simply cannot properly address the market and will be doomed over the long term to lackluster growth and ultimately failure.

The other surprise is the poor levels of services sales quota achievement. Classically, fewer than 60 percent of salespeople achieve quota. The figure is a bit better in services industries, with 67 percent average quota attainment. However, underlying this figure, the reality is stark.

Fully 25 percent of the organizations surveyed reported fewer than 50 percent of their services salespeople achieve quota, while fewer than 20 percent of services salespeople attain more than 90 percent of their annual quota. The other surprising fact is that 30 percent of the firms surveyed offer no formal sales training. The fallout from inadequate sales enablement shows in their poor results!

A final word about effective services selling

According to the 2013 PS Sales and Marketing Maturity Model Benchmark report, effective services selling is very difficult to achieve. Few traditional product salespeople successfully transition to solution selling without significant consulting and domain-specific background and experience. However, investments in building charter clarity, differentiation, marketing and packaging pay off handsomely in terms of sales effectiveness. Sales enablement activities are well worth the effort and provide measurable impact.

Bottom line, the services market is in a major growth phase. Revenues and juicy margins are there for the taking. However, they require a consistent, well-organized approach to the market and emphasis on improving all aspects of sales effectiveness.

Awesome Services Marketing – Part 2

Five steps to become the professional services firm of choice
by Jeanne Urich, Service Performance Insight

qualityLast month we began a two-part series designed to provide five practical steps to create a winning services marketing approach, by outlining the first two steps. This article provides the last three steps to help turn your organization into a premium professional services firm.

This is part two of a two-part series designed to provide five practical steps to create a winning services marketing approach. Part one outlines the first two steps. This article provides the last three steps to help turn your organization into a premium professional services firm.

Here are the five steps for designing an awesome marketing approach:

  1. Understand the business development value chain.
  2. Focus on high-impact business development activities.
  3. Know and reinforce the qualities that are most important in selecting a PS firm.
  4. Create memorable positioning and messaging that tells a story.
  5. Bring your go-to-market strategy to life with sales tools.

With this “cookbook,” you’ll energize your professional services marketing efforts.

What qualities are most important in selecting a PS firm?

Companies today have more professional services choices than ever before. And they have better tools to research and evaluate potential providers. If this is their first experience with a new technology provider, they’re likely to seriously consider the technology vendor’s services or a large system integrator.

The playing field becomes broader and more competitive for companies considering an upgrade or migration to a new release. After using current technologies for a while, buyers now have internal knowledge and competency. They must evaluate risk against flexibility, geographic coverage and price.

They want their services providers to provide specialized knowledge and expertise. They want straight talk about competitive technologies and alternatives to help them make the right decisions for their business.

So how do prospects select a PS provider?

As Figure 1 shows, research suggests that today’s professional services buyers make decisions based on specialized knowledge, experience, techniques and reputation. Loyalty to the technology provider’s PS firm can be undermined if clients feel they don’t have strong relationships with senior firm managers, they believe the future of their technology provider is in doubt or they think they overpaid.

The more tech-savvy marketplace increasingly expects unique business processes and vertical industry knowledge from their professional services providers. They also increasingly demand fixed-price or value-priced alternatives to transfer more technology and process risk to their professional services providers.

With more research tools at their disposal, they’re willing to search for and select new specialized providers with the deep expertise they require. Although a one-throat-to-choke buying strategy still provides leverage, clients are more willing to try new providers if their vendor investigation uncovers some with a quality reputation, deep technical knowledge, business process expertise, local coverage or better value for the price.

Figure 1: What Qualities Are Most Important When Selecting a PS Firm?

SelectingPSFirm

Source: Economist Intelligence Unit.

Positioning made easy

Selling and marketing professional services means creating a tangible and differentiated point of view (what your brand stands for — why you are different). Your point of view — based on your specialized qualifications — makes your firm unique and compelling.

To be effective, your market position must tap into your prospect’s critical business issues, such as time to market, cost reduction, risk reduction, improved business visibility and business consolidation or expansion. And do this all while showcasing your competitive strengths and past successes.

You reflect this through a positioning statement and messaging. A positioning statement, sometimes called an elevator pitch, should reflect your competitive position in the market. Messaging involves creating a consistent storyline. There is a theme, a plot and a set of key ideas.

To succeed, your positioning and messaging must:

  • Be accurate.
  • Be succinct.
  • Be differentiating.
  • And most important … be relevant!

Distill your positioning into a memorable, simple two-sentence story:

For [target customer] who [statement of need or opportunity] we provide [service name], which is a [service category] that [statement of key benefit; compelling reason to buy]. Unlike [primary competitive alternative], our solution [statement of primary differentiation].

Positioning has four core components:

  1. What are your target customers’ unmet needs? What problem do you solve?
  2. Will your target customers recognize they have this problem? What triggers a need for your services?
  3. How will you satisfy those needs in a unique way (differentiated value proposition)?
  4. How can you prove it?

Positioning and strategy are two sides of the same coin. You should be able to write positioning statements for every market you pursue and every solution in your strategic plan. Statement of positioning is not the tag line. Tag lines and press releases reflect your positioning.

Why PS firms must care about positioning

Positioning focuses on customer value and ensures you don’t get lost in the details. It also helps you think about the critical reason the customer wants to buy and how you will be different. Your statement keeps you in line when describing the solution you’re going to build. Furthermore, your team will stay on track with the customers’ — not your company’s — critical elements.

When the company understands the positioning statement, they’ll be on the same page and consistent in all communications. Positioning should be done before designing solutions. And it will contribute in the development of selling tools that demonstrate customer value.

Figure 2: Positioning Made Easy

Positioning

Source: Service Performance Insight, July 2013.

Make your go-to-market strategy stick with sales tools

Too often great marketing programs fall short of expectations because they don’t empower the sales force. In addition to capturing prospects’ attention and unmet needs, your marketing programs will come to life only if you build a comprehensive set of sales tools to engage and ignite your sales force.

Start with an understanding of your sales methodology and design sales tools that reinforce your go-to-market approach. For example, translate your market positioning statement into a sales qualifying questionnaire and train your sales force to recognize the target buyer’s business issues and buying triggers.

To effectively launch your new marketing program, create a series of focused internal sales training events to roll out your new sales tools. These could include qualifying questionnaire, customer presentation, customer references, sales success stories, solution datasheets, estimating guides, solution project delivery plans and so on. Refer to Table 1 for an example of sales tools and when you’d use them.

Your services sales management should certify the sales force on the new go-to-market program. They need to verify that the sales force clearly understands target buyer’s business issues and your positioning. Prime your selling efforts by creating a targeted prospect list and calling campaign. Reinforce your launch with monthly prospect webinars, white papers and case studies.

Once you’ve launched your new marketing program, follow up with initial clients to get feedback and suggestions for improvement. With your initial clients, do whatever it takes to turn them into delighted references and possible sources of follow-on work.

Table 1: Selling Stages and Sales Tools

SellingStages

Source: Service Performance Insight, July 2013.

Final advice before building your awesome marketing program

Awesome services marketing takes the same amount of energy, focus and planning as creating your delivery methodology and tools. You wouldn’t dream of assigning junior consultants who lack an understanding of project delivery to create your methodology, right? So why relegate your services marketing efforts to a junior team that doesn’t understand your customers’ business issues and how your firm is different and unique? Bring together your strongest business developers along with experienced solution architects to design your go-to-market program.

Run your awesome marketing projects the same way you run your client projects: Create a project charter and project plan with a dedicated project manager. Also, ensure all members of the services marketing project team have the time and knowledge to develop awesome sales and marketing materials.

After you’ve created the initial program, develop multiple waves of sales training and cement the program with high-quality sales tools. Pilot the program with an initial set of target prospects and continue to refine and improve it. Make sure your clients are delighted with the engagement and will provide great references.

Awesome marketing programs galvanize and cement your business value and market positioning while energizing your sales and delivery team!

Awesome Services Marketing – Part 1

Five steps to become the professional services firm of choice
by Jeanne Urich, Service Performance Insight

Target MarketThis is the first article in a two-part series that provides five practical steps for developing an awesome services marketing approach.

The goal of any good “Go To Market” strategy is to tap into your prospect’s compelling reasons to buy and to simplify and differentiate your services offers. Too often, professional services marketing programs start with “how we do it” rather than “Who are our target buyers? What business problems do we solve for them? What business issues trigger a need for our services? What makes us different?”

Awesome services marketing programs start by focusing on clients and their business issues. Positioning answers to “What do you do?” in a way that communicates value and the benefits clients get from buying from you. After properly positioning your services to provide value, create effective sales tools to ignite your selling efforts and bring your marketing programs to life.

These are the five steps for designing an awesome marketing approach:

  1. Understand the business development value chain.
  2. Focus on high-impact business development activities.
  3. Know and reinforce the qualities that are most important in selecting a PS firm.
  4. Create memorable positioning and messaging that tells a story.
  5. Reinforce your go-to-market strategy with sales tools.

Understanding the business development value chain

The key to winning business in professional services is based on properly positioning your firm to be the most known, respected and valued in your market. Effective services marketing starts with your strategy — understanding who your target buyers are, what business problems you uniquely solve for them and why you’re better than your competitors.

Once you’re clear on your strategy, these steps will ensure you’re the premium firm as represented in Figure 1:

  1. Generate a reputation. Develop a unique and differentiating point of view. This may be based on past client success, research, or special tools and competencies you have developed. Show how your point of view drives client success.Demonstrate your deep understanding of your clients’ business issues and the value you provide. Market your differentiating point of view as widely as possible to your target client base. Collaborate with complementary partners to create more comprehensive solutions.Ensure every client engagement is a success — even if you have to provide more than you originally planned. Constantly improve your knowledge and skills so your firm is the best in its field. Word of mouth travels fast — if you establish a great reputation, new prospects will beat a path to your door.
  2. Generate clients. Here’s where marketing and selling come in. Spread the word, get known and be unique. This will help with referrals, one of the most effective ways to generate new clients and repeat business. Demonstrating thought leadership through speaking, writing, serving on boards and participating in conferences are all effective strategies to land new clients.Prematurely creating a proposal reduces the scope of your engagement and the value to your client. Instead, take time to understand your client’s challenges and jointly design the expected outcome. If possible, quantify the business outcome in measurable terms. When the solution to the client’s problem produces significant value, pricing will never be an issue.
  3. Generate client impact. The impact you produce for your current clients is crucial to enhancing your reputation, getting referrals and securing new client engagements. Investments in training, methodology, skill improvement, knowledge management and repeatable frameworks increase your chances of producing superior client outcomes.Strive to understand and measure the value you produce for your clients and communicate that value. Client value should be the basis of your pricing. Meet and exceed expectations on every project and every client will become a reference and source of referrals.

Figure 1: Professional Services Business Development Value Chain

SPI PS BD Value Chain

Exceptional client outcomes come with repetition and experience. Superior engagement results and client value will improve as you continue to deliver similar projects. Trying to be a jack-of-all-trades is a good way to ensure that you are a master of none.

Focus on high-impact business development activities

Unfortunately, all business development activities don’t have the same impact, as Figure 2 shows. Most of the time, more tactical activities — like cold-calling, email blasts, social marketing, tradeshows and advertising — have a short-term effect and do little to enhance your brand or build long-term awareness. These tactical activities yield the best results when they are targeted and demonstrate your firm’s deep understanding of the prospect’s business issues.

Figure 2: The Impact of Business Development Activities

SPI PS BD Impact ValueIf prospects show interest by downloading a white paper, coming to your booth or listening to a webinar, encourage a senior member of your firm to make the follow-up call, not a junior telemarketer reading a script. Assuming you’ve done your homework by thoroughly researching the target prospect’s business and solution fit, assigning a qualified suspect to a senior business developer enhances your reputation and lays the foundation for a valuable long-term relationship.

Today’s professional services buyers need to be assured they’re working with a high-quality, reputable firm. That’s why referrals work so well in generating new business. High-impact business development activities involve giving a taste of what prospects can expect if they engage with your firm.

Let prospects self-qualify that you’re the right provider by experiencing samples of your work — through your website, demonstrations, presentations, client testimonials and white papers. Clients buy professional services from firms they trust and that have shown they’re the right fit for the way they want to do business.

To enhance your referral base, help your firm be prominent in the associations and networks to which your target buyers belong. Do more than just show up at a conference. Target prospects in advance by letting them know your firm will be presenting and senior consultants will be available to discuss business needs. If a good prospect attends your session, gauge the level of interest with a follow-up call and a copy of the presentation.

Your website is a primary vehicle for market awareness and visibility. Thus, it must reflect your unique positioning. The design needs to be clean and the copy needs to speak to prospects in their language. Hire a professional website development firm to design a website that reflects how good you are.  This article shares the first two steps for designing an answer marketing approach.  Read part two for the final three steps to help your PS firm become the provider of choice.

Sales and Services Alignment

How to eliminate gulfs and fix dysfunctions
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, Service Performance Insight

In a highly competitive environment, a company must successfully differentiate itself and effectively orchestrate the sales cycle. Unfortunately, many times schisms between the sales and services delivery organizations surface during the sales process. This results in deal closure delays or, worse yet, losing the deal.

qualityThe winning formula for sales and services delivery collaboration is based on a combination of aligned business processes and measurements reinforced by a supporting technology platform like customer relationship management and professional services automation. This article examines the root causes underlying dysfunctional sales and services delivery relationships and identifies common business process breakdowns, as well as the path to alignment.

Background

Most organizations struggle with a lack of cooperation between the sales and services delivery functions. Based on six years of professional services industry benchmarking with responses from more than 1,500 professional services organizations, we have discovered that few professional services organizations are satisfied with the relationship between sales and services delivery. According to the 2013 PS Maturity Model Benchmark report, sales effectiveness received a poor score of 6.4 out of 10; marketing effectiveness was worse at 5.2 out of 10.

A lack of alignment and trust between sales and services delivery leads to lost opportunities, miss-set client expectations, underscoped projects and poor resource utilization. Best-in-class organizations have found a way to bridge the sales and services divide to reap rewards in terms of larger pipelines, higher win-to-bid ratios, higher levels of consultant utilization and more satisfied clients.

The complexities of identifying professional services opportunities and developing them into successful client engagements demand a more structured approach to business development and a seamless information flow between sales and services delivery. This ensures opportunities are properly prioritized, scoped and staffed.

While the consulting market currently experiences healthy growth, both up and down markets accentuate breakdowns between sales and services. When fewer deals are available and sales cycles are longer, heightened pressure and a sense of urgency to close deals may exacerbate an already dysfunctional sales and services relationship. On the other hand, when opportunities are plentiful, resource imbalances and heightened risk aversion may also strain sales and services liaisons.

Sources of sales and services dysfunction

Gulfs between sales and services typically emerge in the choppy waters between functions where the overly optimistic sales tide meets the risk-averse services shore. Who, and which function is in charge of piloting client opportunities through these brackish seas?

Typical sales and services breakdowns occur in the following areas:

  • Proposals. PSOs often demonstrate a lack of clarity around which opportunities to pursue, how to create a winning proposal or who is ultimately in charge. Ambiguity can lead to procrastination; excessive bid costs; acceptance of egregious terms; and not enough time, tools or resources to bring all the pieces together into a compelling value-based proposal.
  • Pricing and scoping. In many cases, it’s unclear who has authority for discounting and contract terms. Poorly defined or unknown requirements, weak estimating tools, vague discounting limits, and inadequate or no pricing or contractual reviews contribute to mediocre financial results and unacceptable levels of risk.
  • Forecasting and staffing. Many PSOs are deficient in what it takes to move a suspect to a high-probability deal or how the sales forecast is translated into the resource plan. A lack of alignment and trust are exacerbated by noncongruent sales booking and services margin goals. Unreliable sales forecasts lead to disconnected sales and resource planning processes and insufficient functional interlock regarding opportunities and required staffing. The outcome is the absence of integration between sales, staffing and recruiting, resulting in not enough or too much services delivery capacity.
  • Services execution. Inconsistent communication between services delivery and sales regarding project status often occurs. No project dashboards, improper planning, and poor execution of scope changes and change orders lead to project overruns, nasty surprises and unhappy clients.

Business process requirements for sales and services alignment

A lack of agreement around key business processes that cross organizational or functional boundaries is at the core of dysfunctional sales and services delivery relationships. Issues are typically the result of differing views of the processes, unknown or misused levels of authority, and ambiguity around decision-making and measurements.

The foundation for all high-performing organizations comes from clear business process understanding and ownership tied to congruent goals and measurements. Table 1 illustrates how a simple method of assigning ownership and measurement of cross-functional business processes provides clarity and enhances performance.

t1

The impact of sales and services alignment

Effective sales and services delivery teamwork is at the heart of performance in the services industry. The integration of sales and services delivery business processes and systems is paramount to success.

In our 2013 PS Maturity Model Benchmark report, the “best of the best” embrace sales and services delivery alignment, and their results as shown in Table 2 speak for themselves.

t2

CRM and PSA integration drive performance

As Table 2 shows, integrated customer relationship management and professional services automation applications are key to breaking down the barriers between sales and services by providing accurate client and project information throughout the client life cycle. Running a knowledge and skill-intensive business like professional services with disconnected applications, spreadsheets and email is no longer a competitive option. Efficient execution across core business processes demands visibility, transparency and control.

Ideally, information flow mirrors and illuminates core business processes, beginning with prospecting and extending through the client life cycle. Time, cost, engagement progress and quality are critical elements that must be tracked throughout. Integrated applications provide visibility, alerts and work flow to ensure following of proper steps, securing of approvals and flagging of variances.

Executives and other involved personnel should be able to track information from the initial bid through project completion and invoicing. With this information, both management and consultants can monitor deals to ensure high levels of client satisfaction with acceptable revenue and profit margins.

The integration of PSA and CRM helps the sales organization to better understand the entire client relationship and discover opportunities to sell additional products and services. Sales and services cooperate to decide whether work should be bid, and at what price to win the opportunity and meet margin requirements. Both organizations can share information to be included in the proposal with the appropriate staffing plan and financial forecast as backup.

Accurate information enables the services delivery team to proactively plan and staff projects with the right resources while supporting the sales team in closing opportunities. The executive team is armed with real-time visibility into revenue and costs to support effective decision-making.

The 2013 PS Maturity Model Benchmark report demonstrates the power of CRM and PSA integration as an important foundation for improving sales and services delivery alignment. The benefits of sales and services delivery collaboration speak volumes.

Social Media Professional Services Marketing

Embrace social media for professional services marketing
by Carey Bettencourt, Dave Hofferberth and Jeanne Urich, SPI Research

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Social media — the seemingly infinite universe of web-based and mobile technologies through which users interact — is a pressing topic. It’s so pervasive with hype so ubiquitous that it’s easy to be overwhelmed when considering how to best incorporate this channel into your marketing strategy. In fact, some may question social media’s business value or even its permanence. However, the explosive and unprecedented growth of this global communication channel, supported by staggering statistics, isn’t debatable.

According to Pew’s 2010 annual “State of the Media” report, more people now get their news from the Internet than from newspapers. Facebook has over 800 million active users. LinkedIn has 100 million users with a new user added every second. YouTube gets over 3 billion views every single day. Twitter processes 230 million tweets a day, a 110 percent increase since the start of the year. Over half of all people in the U.S. over the age of 12 have set up a social media profile.

Although this channel is in its infancy, businesses are investing in social media and achieving significant quantitative and qualitative returns. If your organization is part of the majority that has not fully incorporated social media into an overall marketing strategy, have no fear. Best practices have emerged to help your firm successfully begin using social media for marketing.

Recognizing the benefits of social media for professional services

In professional services, where talented, highly skilled people are the product, effective use of social media can become a competitive advantage. For the first phase of social media marketing, it is important to establish a realistic set of objectives, scope and target use of specific technologies, or social media sites.

Following are key social media benefits:

  • Build company brand and reputation.
  • Broadcast thought leadership.
  • Lower marketing costs.
  • Increase marketing campaign efficiency and effectiveness.
  • Provide real-time insight to industry trends and client preferences.
  • Gather intelligence.
  • Do prospecting.
  • Create another channel to manage client relationships.
  • Expand recruiting sources.

The most popular social media for businesses are:

  • Social networks such as LinkedIn and Facebook have become powerful marketing vehicles for providing visibility into relationships, news, events and jobs.
  • Twitter as a service channel.
  • A company blog.
  • YouTube for presentations and product demonstrations.

In particular, LinkedIn helps individuals promote their experience and skills, and highlights the diversity and range of their contacts and references. This network has become a primary source for referrals, relationships and jobs. Few business meetings occur without all parties researching the background and relationships of the people invited to the meeting.

Creating a social media marketing plan

The most important element of the social media marketing plan is to establish a clear set of business goals and objectives. A recommended goal of social media marketing for professional services is to share unique thought leadership, brand values and market differentiation.

Consistent with other business plans, objectives should measurable. Be conservative with these measurable, yet attainable objectives when beginning. Following are some sample objectives that would require a specific quantitative measure for a plan:

  • Building awareness.
  • Strengthening relationships with clients, prospects and influencers.
  • Increasing referrals and references.
  • Targeting buyers.
  • Increasing website traffic.
  • Improving search engine rankings.
  • Driving traffic to webcasts and events.
  • Generating leads.
  • Generating sales.
  • Sharing thought leadership and knowledge.

Determine which sites, networks and technologies to use for this phase. Prior to deciding, research target client social media preferences to ensure you reach this audience.

Use social media to publish white papers, presentations and case studies, to showcase knowledge of and approach to solving client business problems. Pick topics that create market differentiation and build buzz. For those who do not currently publish, create an editorial calendar of thought leadership topics and line up content experts. Once core content is developed, it’s easy to polish it to make it industry-leading and newsworthy.

Plan a trial period to test results and line up high-value content providers. Content must be fresh with a unique point of view that provides value to the reader. The more value provided, the more people will read it. When companies search specific topics, they may find your work, which might help them solve a pressing problem.

With time and attention, company awareness and audience will grow, doors opening up around the world.

Monitoring social media

If you do nothing else with social media, the very least you need to do is monitor social media for mentions of your company, competitors and industry. People will talk about you and your business regardless of whether or not you’re involved in social media. Companies that have shunned social media have gotten in trouble for not responding to complaints. By the time they did, the damage to the company’s reputation was done.

Domino’s responded well to a complaint from a customer with a disappointing experience. Because the company monitored and listened to online activities, they saved face by responding with a genuine apology video.

The way to monitor is to create automated searches for your
organization’s name, key executives’ names, your brand names, competitors
and their brand names, and other industry keywords. Some search services send
you an email as soon as the mention happens, daily, weekly or some other
timeframe.

Accepting that not everything you hear will be positive will help you prepare the right response for when it does happen. A good way to manage this is to have a (informal most likely) team in place to monitor and manage any chatter, both good and bad. The most important thing is to acknowledge quickly even if you don’t have answers yet, and follow-up with updates.

Moving ahead with social media marketing

Many leading professional service organizations have a reputation, or cachet, that goes with their names. Based on their premium brand, they are able to win first-class projects, hire elite employees and charge top rates. If your organization isn’t one of those, you must explore ways to bolster your reputation and to highlight past work so new clients with a similar business problem will knock on your door.

Social media marketing is an exciting new realm that will have a sweeping impact on your business. There are hundreds of networks and sites available with a few like LinkedIn and Twitter dominating the professional services landscape today. However, with the pace of this technology, professional service organizations must stay abreast of new social media technologies and sites that will eclipse the way they work to realize greater market opportunity while enhancing their brand. The most successful firms we track demonstrate a deep knowledge of their areas of focus. Social media can reveal the depth of your knowledge to a broad audience.

When social media first appeared, many thought it would be a fad, as most could not figure out how to monetize the work they were doing, unless they received payment for blogging. It turns out social media might be one of the most efficient marketing tools ever. It provides an inexpensive way to market expertise and respond quickly to changing market conditions and preferences.

Before starting, consider these quick points about social media. First, you must watch out. Like letters, voicemail and other types of media, what you type, write or say can come back to haunt you. Strong opinions or blatantly incorrect statements can damage you and your company’s reputations. Do your research and try to balance your opinions showing others that you can see both sides of an issue.

Also, watch the people in your social media circle, because guilt by association is a natural human emotion. You probably have requests from many individuals who you don’t know very well, if at all. Check them out before you accept them into your circle of peers.

Social media has the power to extend marketing reach, to extend relationship management. This is only the beginning and the professional service organizations that harness its power now will be ahead of the pack.

 

At Their Service

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

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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.

Navigating the Choppy Waters between Sales and Service Delivery

A smooth-sailing organization values both equally
by Jeanne Urich and Dave Hofferberth, SPI Research

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Over the past several months, SPI Research has explored the subject of improving sales and service delivery collaboration. With the advent of new integrated business applications and enthusiasm for software as a service, we initially thought classic breakdowns between sales and service delivery were relics. It turns out age-old schisms between sales and service delivery remain rampant, along with disconnects in business processes that cross functional boundaries.

Gulfs between sales and service typically emerge in the choppy waters between functions — where the overly optimistic sales tide meets the risk-averse services shore. Who, and which function, is in charge of piloting client opportunities through these brackish seas?

A lack of understanding of key business processes that cross organizational or functional boundaries is at the heart of dysfunctional sales and service delivery relationships. Issues are typically the result of differing views of the processes themselves, unknown or misused levels of authority and ambiguity around who is the ultimate process owner and decision-maker.

Common breakdowns occur in the following areas:

  • Which opportunities to pursue? What resources will be required?
  • Who owns the proposal process?
  • How should deals be priced? Who makes pricing decisions?
  • Is the forecast real? What staff are required and when?
  • Communication:  Who needs to know what, when and how?

Clear business process ownership cemented by congruent goals and measurements is the basis of all high performing organizations. Synergy and alignment between the two critical areas of sales and service delivery enable each to perform more efficiently and effectively.

One way to better align sales and service is through use of the Professional Service Sales Maturity Model. By taking a more systemic approach to sales and service delivery, professional services organizations (PSOs) can optimize staff levels and initiate and complete work on schedule.

Greater clarity around roles, goals and measurements manifests in higher levels of performance and a more satisfied workforce. Maturity improvements result in superior client satisfaction and improved profitability.

The professional service sales maturity model

PSOs are in the business of providing knowledge and expertise. Their sales and marketing organizations must define target clients and the business problems the firm can uniquely solve. Their task is to generate awareness so potential buyers will consider the firm when the need arises.

Because services are intangible, clients must experience the service before value is created. So, sales and marketing have an added challenge in creating tangible proof of knowledge and experience to establish the service firm as a trusted business advisor.

The following table highlights the five stages of maturity in SPI Research’s Client Relationship Pillar, which is part of the Professional Service Maturity Model. The client relationship maturity model depicts maturity progression in solution development, sales methodology and training, partnering and pricing as the PSO moves from selling anything and everything to anyone, to a more careful and selective approach to client selection and business development.

Table 1: Client relationship pillar mapped against service maturity0710 2Source: Service Performance Insight, June 2010

Service sales and service delivery points of integration

Solution selling maturity involves discussion and agreement between sales and service delivery around team roles and the types of clients to pursue. As the organization grows up, greater clarity and consistency evolves in pricing and estimating, proposal development and contract negotiation.

Mature organizations exhibit a disciplined approach to business development with clearly defined discounting, pricing and contract terms and authority levels. The business measures both the sales and service delivery organization on revenue and margin. Integrated business applications define and reinforce hand-offs.

Examples of integration points between sales and service delivery include:

  • Agreement on target clients and solutions.
  • Agreement on the lead types to pursue.
  • Shared understanding and reinforcement of sales methodology, stages and probabilities.
  • Defined territories and primary business development roles for both sales and service delivery.
  • Shared development of major account plans.
  • Finance and legal-sponsored deal, pricing and contract reviews.
  • Defined roles for proposal development.
  • Clearly defined and mutually supportive roles, goals, measurement and compensation.
  • Customer relationship management (CRM) sales pipeline and forecast integrated with professional services automation (PSA) for resource management.
  • Dashboards providing 360-degree view of client relationships and status.

Service sales maturity improvement

Sales and marketing executives must develop effective lead generation and sales campaigns to identify new prospects and provide targeted solutions to alleviate their most-pressing business challenges. The effectiveness of the organization’s sales and marketing efforts determines the quality and size of the pipeline; win-to-bid ratios; level of discounting; and the length of the sales cycle.

Effective sales and marketing organizations continually uncover new opportunities while ensuring existing customers continue to buy and refer. Today’s successful PSO, whether embedded or independent, increasingly takes charge of its own destiny by investing in dedicated sales and marketing roles.

Solution selling maturity involves defining roles, responsibilities, hand-offs and measurements for the following business processes:

  • Lead generation.
  • Sales methodology, sales stages and probabilities.
  • Territory plans.
  • Major account plans.
  • Deal, pricing and contract reviews.
  • Proposal development.
  • Pipeline management and forecasting.

Integrated information solutions bridge the sales and service gap

Given the complexity of both sales and service delivery roles and the remoteness of employees, it is easy to understand why communication and collaboration suffer. Internet-enabled business applications can create an environment to bring people closer together. The following table highlights common business applications and provides insight into how the organization deploys them as maturity improves.

Table 2: Business applications in the client relationship pillar 0710 3Source: Service Performance Insight, June 2010

Early stage sales and service organizations use spreadsheets or stand-alone business applications to run their operations. For instance, sales might use a CRM application to track potential clients, proposals and pipeline, whereas the service organization might use a PSA solution to manage resources and projects.

Unfortunately, when the departments do not share information, both sales and service delivery may have entirely different assumptions around the desired work, deadlines, required resources and overall cost and profitability. SPI Research believes the integration level of core business applications is key to defining and improving overall organizational maturity. Properly used, business applications help illuminate and clarify core business process relationships, ownership and measurements.

It takes a village of people, tools and processes to succeed

Improving organizational maturity has nothing to do with the temperament of individuals. Organizational maturity focuses on greater awareness and actions that raise client satisfaction and profitability. In professional services, both sales and service delivery organizations must continually strive to improve communication and collaboration.

The use of information solutions provides an excellent foundation to initiate these improvements. But information systems alone will not provide the necessary levels of teamwork required to succeed. Sales and service delivery must participate in greater information sharing, as well as be flexible and agile. Only when these two organizations commit to work together will the overall PSO succeed.

The Best Service Firms Invest in Sales and Marketing

The proof is in the margins
by Jeanne Urich and Dave Hofferberth, SPI Research

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At this year’s Oracle OpenWorld, the shift from a product-driven to a service-driven world was evident. Each year over 60,000 aficionados flock to San Francisco to hear about the latest Oracle developments. In the central exhibit areas, the product-oriented tech titans of the past — Sun, PeopleSoft, JD Edwards, Retek, Siebel, Agile, Hyperion and Primavera —have been gobbled up by Oracle’s voracious acquisitiveness. In their place, the new tech titans — Tata, Infosys, Wipro, Deloitte, CSC, Accenture, Cap Gemini, Cognizant, PWC and KPMG — have raised their banners. The numbers of product-oriented platinum sponsors, including HP, Dell, NetApp, Cisco, EMC, Fujitsu, Motorola and Brocade, have diminished year over year and the remaining product-oriented firms are scrambling to add services and solution selling capabilities.

Companies move from products to services

Due to shrinking profit margins and product commoditization, product-focused firms are emphasizing services and starting to acquire their way to solution-provider status. HP and Dell are recent examples of product-oriented organizations grasping for some of that tantalizing service gold with their acquisitions of EDS and Perot. According to the September 22nd Wall Street Journal, “The deal is Dell’s biggest ever and the most striking move beyond its core personal-computer business, where profits have dwindled. Combining Perot with Dell’s existing services would bring Dell an $8 billion a year tech-services business and a shot at competing better with IBM, Hewlett-Packard Co. and others in selling services …”

As service has emerged as a differentiator and predictable source of revenue and margin, product and service-oriented firms alike have been forced to invest in solution selling and service marketing.  They have found that marketing and selling services is far more difficult than selling products.  Buyers “experience” services and buy based on reputation and relationships.  Product buyers buy based on features, functionality and direct price comparisons.  The product buying relationship ends with acquisition of the product while the service buying relationship really only begins once the sale has been made.  The bottom-line business impact of services is measured after the service has been consumed or the project has ended.

Oracle’s dominance underscores the power of sales, marketing and service. Arguably the ever-vanishing list of tech titans had as good if not better products than Oracle’s, yet they are gone while Oracle thrives. Oracle’s never-ending focus on sales and marketing coupled with over 50 acquisitions has been a constant differentiator. Years ago Oracle made the decision to become a market-maker and forced industry consolidation leaving SAP, its closest rival, in the dust. Oracle invests 20 percent of every revenue dollar in sales and marketing and derives 80 percent of its revenues from support and professional services.  Although Oracle still emphasizes horizontal products it is increasingly going to market by vertical industry and leading with industry-specific business process domain knowledge.

Dedicated solution sales

In the 2009 Professional Services Maturity Model benchmark, out of 170 participating organizations, seven firms significantly outperformed the benchmark average by scoring 4’s and 5’s (on a scale of 1 to 5 with 5 being the most mature) in most service performance pillar dimensions.

The most dramatic difference between the “best” and the “rest” is the focus on a dedicated solution-selling force. The top firms reinvest almost 20 percent of their professional service revenue in sales and marketing. Embedded service organizations (the service arm of product companies) use the product sales force for lead generation, and invest in dedicated professional service (PS) business development experts, arming them with pricing, estimating, proposal generation and contract management tools. The significant investment in sales and marketing pays off with an almost 40 percent better bid-to-win ratio (7.43 wins per 10 bids) compared to the average.

The “best” lead with paid pre-sales engagements – assessments, site surveys, proof of concepts and conference room pilots which reduce their cost of sale while enhancing their understanding of client requirements.

The “best” invest in marketing to establish their thought leadership and domain knowledge and expertise.  They also understand the value of direct marketing and use events, webcasts,  white papers and tele-sales to generate qualified leads.

Benefits of integrated customer relationship management

As we dug deeper into the effect of sales and marketing on professional service organization (PSO) performance, we found 92 percent of the organizations in the study invested in client relationship management (CRM) ) applications. CRM is second only to core financial applications, such as enterprise resource planning (ERP) as a primary IT focus for PSOs. Although most firms recognize the importance of CRM to gauge sales and marketing effectiveness, they predominantly deploy their CRM applications as stand-alone applications, with only 24 percent reporting integration between their CRM application and their core financial applications. For those few firms that have integrated CRM with their core financial system, the performance rewards have been significant.

The effect of a focus on sales and marketing becomes even more apparent as we examine the differences between the firms that have not deployed CRM compared to those that have. The statistics show both the benefits of purchasing and deploying CRM, and more importantly highlight the increased benefits of integrating it with the core financial solution. For example, firms that do not use CRM showed a respectable bid-to-win ratio (number of winning bids out of 10 submitted) of 5. This figure increased to 5.3 when firms deployed CRM, and when they integrated it with their core financial solution, this figure jumped to 5.5.

Priming the pipeline

The performance improvements become even more profound when examining the impact of CRM on pipeline-to-booking percentage. (This is a measure of the size of the qualified deal pipeline to the current quarter bookings forecast.) The recession has caused the pipeline-to-booking benchmark to steadily decline over the past three years, from 240 percent in 2008, to 190 percent in 2009, to 170 percent in our current survey.

PSOs that don’t use a CRM showed the lowest pipeline-to-booking percentage of 100 percent. This figure means the PSO must close and deliver every engagement in the pipeline to hit the current quarter booking forecast. A poor sales pipeline leaves the firm no cushion for error — the organization must win and deliver every single deal in the forecast.

Based on a poor sales pipeline, desperation to achieve the revenue forecast causes firms to commit unnatural acts to win every deal including excessive discounts, concessions and acceptance of unfavorable terms. If the firm is unable to close enough deals, the PSO won’t have enough work to fully engage the staff, which leads to utilization reductions and causes layoffs, poor morale and reduced profits. Firms that purchased CRM showed significant improvement in pipeline-to-booking percentage, with an increase in the size of the pipeline from 100 percent up to 193 percent. This figure climbs to over 200 percent for PSOs that integrate CRM with core financials.

The effect of CRM on margins

Another net effect of purchasing and integrating CRM with core financials is an improvement in overall margins. Research shows that both project gross margins (from 23 to 30 to 37 percent) and contribution margins (from 15 to 22 to 25 percent) appreciate substantially as PSOs purchase and integrate CRM. Integrated CRM and PS applications facilitate the overall business planning process, ensuring opportunities don’t slip through the cracks, and the “right” resources are ready to start the project so firms can generate revenue as soon as possible.

These applications are invaluable for codifying a consistent approach to business development and provide visibility into sales and marketing effectiveness. Enhanced visibility to the number and nature of deals provides a powerful planning tool for service execution. By providing “one source of the truth” about client demand (the types of leads and clients and type of work in the pipeline), the service supply (execution) side of the organization can plan for skills, and engagement location and duration.

Moving beyond seat-of-the-pants selling

The days of solo ‘partner or ‘rainmaker’ seat-of-the-pants selling for complex projects are over. A team approach and well-defined sales methodology are now of paramount importance. Firms consistently report their number-one priority is improving sales and marketing effectiveness to enhance revenue. While cutting costs will never go out of style, the best firms continually expand their service portfolio and constantly add new clients.

The Darwinian pressures of technology consolidation favor PSOs that embrace solution selling. The only survival option for PS firms is to invest in sales and marketing. If one doubts the power of sales and marketing, just look at Oracle’s climb to the top.

There is no time like the present to begin building the pipeline of the future.  Our research shows investments in sales, marketing and CRM provide handsome returns and are a necessary foundation for professional service firm growth and prosperity.