With the rise in adoption of cloud and subscription-based solutions, many professional services organizations are feeling increased pressure to move away from products and product-attach services in favor of providing customer outcomes. However, for many PSOs, it actually makes more sense to continue improving their Level 2 offers before seeking out new Level 3 and Level 4 opportunities.
4 Types of Solution Providers
In TSIA’s recent book B4B, we define four distinct levels of technology solution providers and what they offer:
- Level 1: Sells products.
- Level 2: Sells products plus classic product-attach services to implement and support those products.
- Level 3: Sells product, product-attach services, plus services designed to help customers operate and optimize the usage of technology solutions.
- Level 4: Sells business outcomes to customers that are enabled by technology capabilities.
Companies that have historically only offered products and traditional product-attach services (Level 2 offers) are now expanding their services portfolios in order to help their customers achieve specific business outcomes with their technology. Customers are no longer satisfied with products alone, but now prefer to purchase solutions that will enable them to achieve specific outcomes. Many businesses are responding to this desire by adding even more subscription-based offers to encourage quicker adoption of their technology (Level 3 offers) and some are even completely focused on guiding customers toward achieving specific business objectives (Level 4 offers). This shift in the service portfolio is causing a massive change in the economic engines of product companies, but what does this mean for professional services?
Professional Services in 2015
Based on various benchmark studies conducted by TSIA in 2013 and 2014, we have observed an industry-wide trend: while some technology solutions providers are making the shift to offer more Level 3 and Level 4 offers, many PSOs continue to remain at Level 2.
We’re still in the process of collecting data from 2015, but we’ve received a considerable amount of anecdotal information that supports the notion that this still remains true as we continue through the New Year. Many PSOs are still heavily focused on products and product-attach services, and are only very tentatively moving beyond Level 2. The revenue stream of an average PSO is 85% to 90% Level 2 offers, and only 10% to 15% Level 3-Level 4 offers.
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Professional services continues to be more product-focused.
Despite the increased pressure on Level 2 PSOs to begin providing more outcome-based services, their primary revenue stream is still deeply entrenched in products and product-attach services. Though progress is slowly being made in developing more complex services offers, PSOs continue to focus on services related to their hardware, focusing on education, maintenance, and support. While it might seem counterintuitive given industry trends, it’s this continued development of Level 2 offers that is actually helping PSOs successfully pave the way to eventually offering more outcome-based services.
A Strong Foundation in Level 2
It might seem that PSOs are merely playing it safe by only making gradual, incremental changes to their processes, and only adapting, transforming, and making wholesale changes when necessary. While it is always important to be mindful of trends and stay ahead of the curve, the priorities of the average professional services organization tend to focus on servicing their customers, improving their existing processes, and making their numbers.
At this point in time, it is not necessarily reasonable for PSOs to abandon what works for them if their current business model remains profitable. For many, it is actually better to find and take advantage of every opportunity to become Level 2 suppliers, continually developing these services and building a solid foundation based on products and product support. By keeping this solid revenue stream running smoothly, this will in turn help them fund and fuel experimental efforts to discover opportunities to develop more outcome-based services and add new revenue streams.
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Your Level 2 offers can be the support your company needs to begin developing its Level 3 and Level 4 offers.
It’s worth mentioning that while some businesses have the right idea of offering more product-attach professional services to supplement hardware sales, they end up getting stuck by only providing the same offerings year after year. In further developing your Level 2 offers, it’s important to keep it fresh and consistently explore new ways to innovate the PS business model to keep customers interested and coming back for more.
Adapt & Transform
When sales of products and product-attach services make up the majority of your revenue, the thought of taking any focus off of the “sure thing” to develop new offerings can seem like a scary idea, and for good reason. By developing solid Level 2 offers, professional services organizations have no need to abandon one business model for another in order to explore new revenue streams. With products and product-based services keeping the business going, PSOs will have the freedom, at a much lower risk, to develop a services portfolio that includes more Level 3 and Level 4 offers.
While there will be a period of time where these companies will be supporting a full-time product-based business as well as a full-time service-based business, eventually the pressure will level off and the time invested in developing your services portfolio will pay off.
It’s worth repeating that while it is important to strategize and build Level 3 and Level 4 offers, you don’t necessarily have to abandon your existing model. Yes, the time to start developing those capabilities is now, however, improving and growing your Level 2 capabilities while you move forward will not be a wasted motion, but will help fuel your transformation.
To learn more about how you can bring more value to your customers through various levels of service offers, be sure to check out TSIA’s upcoming webinar co-hosted by ANCILE, “User Adoption to Drive Retention…Whose Responsibility Is It?”. Even if you don’t have time in your schedule to watch it live, by registering you will receive a recording of this session, which will hopefully inspire your own ideas for developing a plan of action to build value and increase adoption of your technology.