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.

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.

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.

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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.

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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.

Backlog: The Fuel for Growth

Taking the PSO’s pulse
by Jeanne Urich and Dave Hofferberth, SPI Research

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Sell, bid, win, deliver and collect. It sounds easy, doesn’t it? Unfortunately, things can go awry quickly with professional service sales, execution and delivery. Before work can begin, there must be a sale. While no one takes this for granted, professional services organizations (PSOs) must optimize sales processes and pipelines so they can sell profitable work that leads to successful projects and happy, referenceable, bill-paying clients.

Many PS executives look at the win-to-bid ratio and use it as a barometer of sales success. Indeed, this figure is important, but it only tells part of the story. PSOs can have high win-to-bid ratios that do little good when inflated at the expense of margins.

One area executives must concentrate on is beginning of the quarter backlog. This project backlog is an excellent predictor of future success, as it enables the PSO to put a strategy in place to optimize both delivery and future sales.

How backlog affects billing and margins

SPI Research defines project backlog as the total value of unexecuted contracted orders or projects. Quarterly project backlog includes executed or closed contracts that have not yet been billed. Quarter beginning backlog comprises clean sales orders that the PSO has booked (closed) and can deliver and bill within the current quarter.

Sales planning 101: The number of bids with an estimated price, close date, delivery date and billing date provides the underpinning of revenue and margin forecasts. If everything goes according to plan, the PSO meets its revenue and margin targets. Unfortunately, especially in today’s economy, not everything goes according to plan.

An excellent way to meet both revenue and margin targets is to have a well-constructed backlog of work in the queue. Thus, if actual delivered revenue and margin are in poor health, adding more staff, working additional billable hours and delivering work early may be the cure.

SPI Research realizes every PS executive knows building up service backlog improves their potential of delivering higher profit. However, many PS executives might not realize how inter-related backlog is to other key performance indicators (KPIs).

Backlog research results

SPI Research has examined the 26 largest PSOs with over 300 employees in the most recent benchmark survey and verified the importance of increasing project backlog. The table below highlights the direct correlation between backlog and the following areas:

  1. Revenue per billable employee.
  2. Margin target achievement.
  3. Billable utilization.

Table 1: The Impact of Project Backlog

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This table shows that as backlog increases so do these three critical KPIs. Higher backlog allows employees to complete more work, as more work is available to them. This increase in work shows up in higher utilization levels, which means that employees bill more hours. It also generally leads to higher bill rates, given the PSO has the luxury of only bidding on desirable, lucrative engagements. And more hours at a higher bill rate yields both higher revenue and profit.

SPI Research has tracked backlog in billable PSOs for the past three years. In 2009, the average quarterly revenue backlog reported was 42.8 percent (49.1 percent in 2007 and 42.7 percent in 2008). Although average backlog remained the same in 2008 and 2009, many firms reported suspended or cancelled projects and longer sales cycles and deferred purchase decisions. This translates into less billable work.

Backlog is one of the most powerful predictors of future performance. In better times, best-in-class backlog ranged from 70 to 100 percent of the current quarter revenue forecast. Backlog is the fuel for growth. An anemic backlog forces firms to close and try to convert bookings to revenue all within the same quarter.

Fuel in the tank

A larger backlog represents “fuel in the tank” and improves an organization’s ability to grow while increasing the accuracy of financial forecasts. Firms with light backlogs rely heavily on discounting and scramble to “make” their quarterly revenue commitments. SPI Research believes this causes a firm to spiral into a compromised economic position.

PSOs that report less than 40 percent of their quarterly revenue target in backlog showed lower revenue per person, lower project margins and poorer attainment of financial targets. Unpredictable revenue and “feast or famine” work cycles combined with unnatural “Hail Mary” sales deals are symptoms of a light backlog.

Build up your pipeline

For smaller firms, keeping a balance between marketing, sales and delivery is problematic. Smaller firms also contend with more hybrid roles that drive down billable utilization and cause sub-optimization of both selling and delivery roles.

As early as possible, small firms benefit from investments in dedicated sales and marketing. This allows sales to sell, marketing to market and delivery personnel to focus on delivering excellent work. The most effective way to grow backlog is to improve sales and marketing effectiveness. If this fails, it forces the PSO to cut staff or accept lower profit based on lower revenue projections.

Watch out!

Managing your backlog is like managing your pulse. It typically doesn’t receive enough attention until things deteriorate. If backlog gets too low (similar to a low pulse), PSOs begin to discount heavily. This may improve the backlog, but it reduces long-term growth and profitability. If backlog is too high, PSOs face the problem of insufficient or overworked staff, which can quickly deteriorate client and employee satisfaction rates, and again, long-term growth and profitability.

Your organization can use many key performance indicators to track overall performance. Quarterly backlog is one of the more important ones, and sales and PS executives should regularly analyze and discuss it. Slight fluctuations in backlog are no cause for concern. Yet keeping an eye on backlog can prevent significant fluctuations from becoming the norm, leading to a reactive organization with frequent “boom and bust” cycles. Looking ahead can help ensure long-term health and predictable growth for your PS organization.

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.

Sales and Service: Separated by More than Just Culture

Boosting sales, profits and performance with automation
by Jeanne Urich and Dave Hofferberth, SPI Research

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In many professional services organizations (PSOs), the sales force appears to operate on an island, with a go-go-go attitude and minimal communication as to what each salesperson is selling, to whom and at what price.

During times of economic uncertainty, many professional services executives focus on two core areas of business:

  1. Increasing revenue generation by adding more sales personnel and bidding on more work.
  2. Reducing headcount in non-billable overhead to meet future margin requirements.

SPI Research’s 2102 Professional Services Maturity Model Benchmark shows that most executives spend more time on the former — working to increase sales.

Service tends to react to sales, but unfortunately cannot optimally staff and execute because it doesn’t fully understand the personnel requirements, time commitments and costs until sales officially sells the work.

While there tends to be executive-level communication between sales and service delivery, the sales force is just so busy, and with so much uncertainty, continual communication generally suffers.

To improve communication and sales visibility, many professional services (PS) executives invest in client relationship management (CRM) solutions to provide some level of visibility to executives. However, SPI Research found that very few of these organizations actually integrate the CRM solution with core financials, or the professional services automation (PSA) solution. This lack of integration creates inefficiency within the PSO, as resource managers and consultants alike do not have the visibility into future work in the skills required to assure they can deliver quality services on a timely basis.

For PSOs that do integrate both CRM and PSA with the core financial solution, the benefits are both quantifiable and lucrative. Taking an integrated strategic approach to core information systems within professional services organizations benefits both the PSOs and their clients.

Client generation takes center stage

During economic uncertainty, PS executives increase their emphasis on client retention and new client generation. They typically expand their services offerings to expand billing opportunities. Even when times are good, these executives spend a good deal of time wining and dining existing and potential clients.

New client generation — and its overall importance to organizational growth — is a main driver of client relationship management becoming widespread in the professional services sector. CRM is the second-most popular business application behind core financial accounting in PSOs.

Client generation is just the beginning of the professional services lifecycle. As a PSO finds new prospects and subsequently generates new bids for work, the PSO must plan for potential project execution if the client accepts the bid. Staff with the specific skill sets necessary to complete the work must be available and ready to go. If resource unavailability delays project initiation, the work might go to another firm, or go away.

A smooth transition between winning a bid and beginning the work is paramount in the development of long-term client relations. Ideally, the PS sales force works closely with the service organization. The communication between the two organizations must involve sharing client information that will help improve the odds of a successful engagement.

As the PSO initiates work and begins invoicing, the project scope must be well-defined and approved by both the client and the PSO. This communication increases the assurance that the client will pay invoices in a timely manner.

Lack of communication creates a cycle of inefficiency

Informal lines of communication have existed within the professional services market for decades. In smaller firms, this communication usually does not cause any major issues. However, as a firm grows, SPI Research sees “cracks in the armor” of communication as the PSO bids with greater numbers of people on more projects.

At a certain point in time, inevitably the PSO makes a mistake, and with too few or too many resources available, projects start off on the “wrong foot” and never seem to get on track. This scenario creates unnecessary tension between the PSO and clients. Unfortunately, having projects not run efficiently usually shows up in reduced future business opportunities with the client.

Ideally, both the sales organization and the service delivery organization see the same information and, therefore, understand the resource requirements and timelines for new service projects. If not, the potential for under-staffing, confusion and ultimately frustration tends to lead to employee attrition.

Apply a holistic approach to the information infrastructure

Professional services executives continue to look at their information infrastructure to determine if their application strategy meets the needs of the organization in terms of improving the core business processes, and offering greater visibility and transparency across the organization, along with information that will hold up under the scrutiny of regulatory audits.

Ideally, information flow mirrors that of the organization’s business processes, beginning with client prospecting and going through the subsequent business processes from bid through sale, resources, execution, invoicing and project close. It is critical during each of these project lifecycle phases that the PSO tracks information associated with costs, time and quality, and flags and moves any projects with issues to a higher level of visibility.

CRM and PSA integration drives performance

Over half the PSOs surveyed by SPI Research use both CRM and PSA solutions. However, fewer than 10 percent actually integrate both with their core financial solution. To better understand how the integration of CRM and PSA increases organizational performance, SPI Research analyzed 118 billable service organizations with between 30 and 700 employees. These PSOs are large enough to need CRM and PSA technology, but not so large as to deploy it selectively across different regions and practices.

When comparing those organizations that had both CRM and PSA but did not integrate them, versus those that did, SPI Research found significant improvements in overall performance, including:

  • Annual revenue from new clients: 49 percent with integrated CRM and PSA, 41 percent without integration — meaning the firm sells to a larger client base.
  • Bid-to-win ratio: 6.19 (integrated CRM and PSA) vs. 5.25 (no integration) — meaning a greater win ratio.
  • Billable utilization: 81.4 percent (integrated CRM and PSA) vs. 70.2 percent (no integration) — meaning more hours billed and subsequently greater revenue.
  • Earnings before income taxes, depreciation and amortization (EBITDA): 28.2 percent (integrated CRM and PSA) vs. 26.9 percent (no integration) — meaning increased profitability.

These results, and many others, show the integration of both CRM and PSA makes a dramatic impact to bottom-line operational and financial results.

Add CRM and PSA to your repertoire

Connecting sales and service makes sense, but unfortunately rarely happens due to cultural and incentive clashes. While direct communication is desirable, in many cases, PSOs have little time to provide sufficient information to accurately convey potential project needs and personnel.

At a high level, PS executives should answer important questions associated with sales and service, some of which include:

  • What is the expected of margin of the work?
  • How long will it take to complete the work, and at what points will the firm generate invoices?
  • Is the work on time, and is the client happy with its progress?

Executives and other relevant personnel should track the information from the initial bid through the project completion and invoicing. With this information, both management and consultants can monitor the projects to assure high levels of client satisfaction with acceptable profit margins.

The integration of CRM and PSA has created a channel of communication where both entities can stay informed and up-to-date on potential and current work. This direct communication not only yields higher productivity, but also shows up in higher profits, a more satisfied workforce and content clients

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.