Bo Di Muccio
June 18, 2015
The way customers are consuming technology is rapidly changing, and more attention is being paid to how suppliers are able to provide outcomes, rather than just products and services. While this industry-wide transformation is impacting everybody, not everyone will be impacted at the same rate. Professional services organizations still receive the majority of their revenues from Level 2 offers, but there is a way to ease into Level 3 and Level 4 outcome-based models by focusing on customer adoption.
In the tech industry, we’re seeing that commodity models are being put under pressure in favor of big data, cloud, and XaaS (anything-as-a-service) models. In TSIA’s most recent book, B4B, we talk about this extensively, but in a nutshell, customers are changing the way they consume technology. Rather than buying products and solutions, they are increasingly wanting to buy outcomes, and are willing to invest in the ongoing services that will help them achieve those outcomes.
This has led to the emergence of more level 3 and level 4 suppliers, who have moved away from a pure-product, classic business model, toward one that focuses more on providing outcomes. This is being fueled by the general industry transformations in technology consumption and the growth of XaaS, which is so different from traditional models that it can’t help but impact how the industry is responding. Consumption models are equally changing, and leading to different services business models.
Absolutely they are, but not at the rate you might expect. Classic professional services mostly consist of Level 2 services, which focus on getting customers up and running on technology solutions. Now, we are seeing growth in Level 3 and Level 4 services, which are the services that PSOs are rapidly building, moreso than Level 2 services. This is a big change, but Level 2 won’t be going away any time soon, as they’re still the primary bread and butter of professional services organizations (PSOs).
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Even though PS isn’t making the shift toward level 3 and level 4 offers as rapidly as many assume, last year we saw that revenues, market rates, and overall financials were up, and we saw a highest recorded average project margin at 39% for embedded professional services. This is likely due to a “defend and protect” energy surrounding money-making level 2 offers.
For most PSO’s, defending and protecting your core business will always remain important. However, there are significant opportunities to grow revenues by adapting and transforming your business to play a bigger role in facilitating customer outcomes. This industry is moving, and though PS is doing well by providing Level 2 offers, sooner or later your organization is going to need to make the change. The best place to start the shift toward providing customer outcomes is making sure your customers are actually adopting and using your solution effectively. Once you’ve enabled better adoption, opportunities for expansion and renewal, as seen in TSIA’s LAER customer engagement framework, will increasingly present themselves.
PS can and should play a huge role in adoption, which is becoming increasingly important as tech solutions become more complex. If your customers are using your solution as intended, they will be much more likely to receive the business outcomes they desire, but many might need some help getting there. By ensuring that your customers are using your technology better and more efficiently, you’re enabling them to receive the full value of their investment, which is ultimately their desired outcome.
Your PSO can continue to defend and protect your Level 2 offers, but by taking a more hands-on approach to ensure customers are using your offers to the fullest potential and adopting your solution, the transition to Level 3 and Level 4 outcome-based offers will not be so drastic.
For more on this topic, and a more detailed view on how to get started with increasing customer adoption and how PS fits into the LAER model, be sure to check out my on-demand webinar, “Get on the Train: The PSO Journey to Customer Adoption”.
Organizational capabilities that technology services businesses must master
Bo Di Muccio, Ph.D., is the distinguished vice president of research, Professional Services, for TSIA. He is also the chairperson of the TSIA Professional Services Advisory Board. Using his nearly 15 years of experience in technology industry research, analysis, and consulting, Di Muccio develops and delivers research and advisory programs that help some of the world’s leading technology companies build and optimize their professional services business.
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