While the technology services industry is moving toward outcome-based services, most professional services organizations have to be able to adapt and transform even as they defend, protect, and improve their Level 2 capabilities. In other words, they have to walk and chew gum at the same time!
In this blog, I’ll provide tips covering the three main capabilities successful professional services executives are developing today in order to meet these emerging challenges head on. These capabilities can help you and your organization avoid common pitfalls and capitalize on the new opportunities presented by the current state of the technology industry.
How Technology Industry Changes Are Impacting Professional Services Organizations
The demands of today’s technology customers are causing a huge shake-up for professional services organizations (PSOs). Technology hardware companies are no longer achieving the same margins they once did, and this trend is rapidly expanding to software, as low-priced SaaS offers reset customer expectations. Now that customers are pursuing new consumption models that no longer require a large up-front purchase, it’s forcing tech firms to develop offers where the customer pays as they consume. So, what are PSOs doing to keep up with these trends?
While these changes in the industry will inevitably have a significant impact on the operating and financial models for professional services, in the short term, professional services executives should focus on establishing or improving the following capabilities to stay ahead:
- New Offer Development
- Adoption Playbook
- Business Domain Expertise
Tip #1: Focus on New Offer Development
Let’s face it, professional services organizations were born and raised inside of product-focused entities, with, more or less, their entire purpose being to get the product up and running in the customer environment.
The services engineering functions within a professional services organization have been no exception, as they focus primarily on product-attached and product deployment-oriented services. The PSOs who are doing it right are the ones who have a formal link into product engineering, which enables them to stay out in front of new products that require implementation services and bug fixes.
When done well, the service development life cycle uses tools and templates to offer estimations, pricing, risk assessment, and potential sales materials. However, as professional services organizations are being driven to offer more non-attached services, these organizations that were previously 100% born-and-bred to be product-oriented face difficulties. They will need to develop a more formal approach to conceive, price, pilot, package, and market those newly developed non-attached services.
In short, deciding to offer more non-attached services doesn’t decrease the need for services engineering excellence, but instead, increases the need for it. To retool their services engineering functions to give their processes the support they need to move to the right in their offers include:
- Dedicated Staff: Many PSOs have dedicated services engineering functions that are aligned almost exclusively in developing product-attached service offerings.
- Upgraded Skills: There is an increasing need for service engineering organizations to not only learn how to build non-product-attached offers, but to also develop vertical expertise, consulting skills, analytical skills, and success science.
- Better Offer Qualification: Make sure your staff understands the services opportunity around the product and the business market for any newly developed offer.
- Offer Piloting: Formal, documented piloting programs are currently a very rare thing to see in a current typical service engineering function, but they are a must for the development of non-attached offers.
These steps might seem simple, but far too many PSOs lag behind on services engineering/offer development, which is a gap that will be costlier as they move toward being more outcome-focused.
Tip #2: Design Your Adoption Playbook
In order to move from being a Level 2 to a Level 3 supplier, technology companies are finding themselves partnering with their customers in new ways. Specifically, they are now playing a more active role in monitoring the consumption of their technology and ensuring their customers receive the desired value from the solutions they purchase.
Making sure customers are effectively using the technology solutions they have bought is known as “adoption services.” Every tech firm will need to provide them in one form or another if they’re to successfully adapt to this shift in the customer-supplier relationship.
The first step to developing the right adoption services starts with outlining an “adoption playbook.” This is a set of concepts, tools, skills, metrics, processes, and offers that help customers consume technology solutions in a way that allows them to successfully achieve their desired goals. Unfortunately, few professional services organizations currently have a formal methodology in place to ensure product adoption.
While today’s technology suppliers and their accompanying PS organizations are full of technical experts who have deep knowledge of products, they may have far less understanding about how to get specific business outcomes out of those products. In short, developing a true, deliverable adoption playbook is easier said than done.
Here’s a short overview of the kinds of adoption services you can offer:
Consumption Monitoring
Consumption monitoring is an annuity service offered by the customer support organization designed to report to the customer on current adoption or utilization levels. This service should report on end-user adoption (EUA) levels, feature or capability adoption, and volumes. Ideally, this reporting should trend actual results rather than the intended results of the adoption plan.
Consumption Optimization
This is an annuity service offered by the customer support organization (both central support and field services) designed to intervene with end-users, or even with the technology itself, in order to optimize a customer’s business outcomes through widespread use of its capabilities.
Adoption Planning
A project-based service offering by professional services designed to plan the optimal adoption of a new technology deployment. This plan will direct the adoption activities of both the supplier and the customer.
Are Adoption Services Product-Attached?
Something to keep in mind as you develop adoption services is that while in some ways, adoption planning could be considered a typical product-attached offer, but the reality is a little more complicated. On one hand, it’s recommended that product companies “attach” adoption planning engagements to as many platform or product deployment deals as possible.
However, “product-attached” typically refers to services that not only are related to the product but are specifically aimed at its operational deployment. In other words, your customers can deploy your product without engaging you in an adoption planning exercise. The platform will be just as operational either way, but implementation services is a Level 2 play, while engaging with the customer to direct the adoption activities of both the supplier and the customer is at Level 3. It’s my recommendation that your current professional services organization should probably house the adoption planning offer – and certainly the ones that are project-based, but also continue adding new capabilities to ensure future success.
Tip #3: Leverage Industry and Domain Experts
When your customers are able to realize the value that your solution can bring to their operation, they’re more inclined to stay loyal and renew their contract. While adoption services can help them achieve their outcomes, what typically prevents a customer from receiving the best value from their suppliers ultimately comes down to communication.
Suppliers know their own products inside and out, but often won’t know the best way to apply them to the customer’s operating environment. Conversely, the customer has an intimate knowledge of their own jobs, but may not be familiar with how to map the product’s features to it in an optimal way. In short, in order to ensure successful adoption of their products, suppliers have to have a much better business domain expertise.
At TSIA, we will periodically conduct a comprehensive Professional Services (PS) Compensation Study, which also doubles as a benchmark for how PS businesses are staffed with various skill sets and levels. With regards to business domain or industry expertise, we’ve found some PSOs have a position called “industry expert”, sometimes called “subject-matter expert” or “business domain expert.” This role is defined as follows:
“The industry expert provides the specific industry expertise required to assist customers and partners to create and implement successful and innovative solutions. This role also provides support and feedback to product marketing and service marketing on the specific needs of customers within a specific target industry.”
Typically, individuals in this role must have at least 5 years of experience in a target industry, such as manufacturing, finance, real estate, health care, or whatever the relevant business domain may be. Essentially, this role is intended to bridge the gap in communication between a PSO and their customers within specific industries to ensure a solution is appropriately, and effectively, implemented to yield the best results. Seems like a role that pretty much every PSO should have, right?
How Many Professional Services Organizations Have Business Domain Expertise?
Unfortunately, according to the results of our recent study, only about 25% of companies have employees who fit this job description, and even then, it may be only a handful of people. In the case of one of the larger companies in the study with a multi-billion-dollar professional services business, they had zero industry experts in their organization, while 25% of the delivery staff of another PSO of the same size were industry experts. While it seems like practices are, on average, all over the map, industry experts still only constitute only about 2% of PS delivery staff.
As professional services organizations begin transitioning from product-oriented to outcome-oriented, it’s imperative to have business domain expertise. PS businesses already tend to handicap their ability to offer specific Level 3 services with weak or non-existent domain expertise, but they are also leaving money on the table by not taking the initiative to understand the operating environment of their customers.
According to the results of TSIA’s most recent PS Market Rates Study, the compensation rates for industry experts are typically on the high end, while discounting is typically on the low end, even for product-oriented, classic professional services. This is primarily because technical and business domain expertise is obviously a value combination for which customers are more than willing to pay a premium if it means it will help them achieve their ROI.
To bridge this gap, suppliers must stop spending their budget hiring PS employees from other tech suppliers and start hiring more experts from the industries they serve. While suppliers generally have plenty of existing training material on their products, they don’t often have adequate training materials on the business processes that are unique to the industries they serve. It is recommended that suppliers hire for that specific industry experience and train for the product knowledge to better serve their customer base.