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As technology companies retool their businesses to be effective in the current economic environment, there are new organizational capabilities that need to be established. TSIA has curated an inventory of capabilities that are not yet common in the industry, but TSIA researchers believe are critical to the next generation of technology business models. Services Convergence is one of those capabilities.
TSIA firmly believes that the traditional structure of service organizations will not serve technology companies well in a world where a majority of technology solutions are consumed “as a service.” For many technology providers, the global downturn of 2020 is accelerating the transformation from transactional to recurring revenue streams. Now, management teams must transform their organizational structure to support this reality.
In the paper Primer on Services Convergence, TSIA provided the following definition:
Services Convergence: The merging of previously independent service lines into organizational structures that improve the customer experience and reduce the cost to deliver.
Historically, technology companies established distinct service lines to address specific customer challenges. The most common service lines include:
As TSIA benchmarking substantiates, it has been the common industry practice to establish independent P&Ls for each of these service lines. This approach forces each service line to optimize their cost structure within the revenue and profit objectives set by the company.
However, TSIA has previously identified several drivers for modifying this model:
Managed services is one of the fastest growing service lines in the industry (compared to professional services, support services, and education services). That is the good news for technology companies establishing this service line. The challenge is that managed services contracts often require service capabilities from across multiple service organizations.
In TSIA’s 2020 Organizational Structure survey, 69% of responding companies reported they have established a distinct Customer Success organization. Just like managed services, customer success may require capabilities from other service line P&Ls to drive adoption, retention, and expansion.
The TSIA T&S 50 index clearly documents the tepid growth of traditional product revenues being faced by many incumbent technology companies. This has created immense pressure on service line P&Ls to create new offers to help drive revenue growth. Support organizations are creating new premium offers that look very much like managed service offers. Professional services organizations are creating annuity offers that could be interpreted as premium account services. Turf wars are quickly emerging between service lines.
Then there is the confused customer. All these independent service lines are vying for the customer’s attention. All these service lines are advocating their service offerings will have the greatest impact on success. In essence, technology companies are arguing in front of the customer—and it is not very becoming or helpful.
These drivers have only become stronger over the past three years.
Now, in the current economic environment, there are two additional drivers for services convergence:
Technology companies, like all companies, are pursuing cost reductions to offset the global downturn. There is clearly an opportunity to leverage common infrastructure and shared services across service lines to reduce operating costs.
More than ever, customers only want to pay for business value that is actually realized. To deliver business value, technology providers must design and deploy “complete offers.” Complete offers have been designed to include all of the technology, telemetry, and services required to unlock business value for the customer. Designing and deploying complete offers requires a high degree of coordination between service lines.
For these reasons, an organizational structure of stove piped service lines is not optimal in today’s technology marketplace. Services convergence is an initiative whose time has come.
To gain visibility into what percentage of companies are exploring services convergence activities, complete the TSIA Rapid Research Response poll: The State of Services Convergence.
For more information on how to navigate a services convergence initiative, TSIA members can refer to our recent paper, The Case for Services Convergence and Big “C” Customer Success.
We understand that our member companies, the technology industry, and the world at large have been impacted by COVID-19. Whether you are prepared for Revving or Retooling, now, more than ever, we need to work together to get through these challenging times. TSIA is committed to providing visibility as quickly as possible into the changing industry trends and practices that come as a result of COVID-19. Visit our Rapid Research Response Initiative resource page for more information.
If you have any questions related to how COVID-19 is impacting your organization, we’re here to help.
Post Date: June 17, 2020
Thomas Lah is executive director and executive vice president of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world’s largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.