Bo Di Muccio
How far the industry has come in the last 5-10 years! At the beginning of this transformation nearly a decade ago, virtually all technology professional services organizations were perfectly content to play a “Level 2” role. That is, they had capabilities and offers that were almost exclusively focused on getting customers up and running on the core technology product.
Of course, that’s still an important function of professional services (PS) for any tech company. But nowadays, we’re getting a lot more questions indicating that PS is rapidly being pulled and pushed into being more of a Level 3/Level 4 engine, that is to say, a capability that directly helps customer achieve business outcomes.
Here’s an example of a recent inquiry I got from a PS executive of a member firm:
Are PS firms all being challenged by the need or desire by the company to have increased ARR (annual recurring revenue)? What are PS firms doing to accomplish that? What are the levers companies are using?
Great question! And really, it’s just another way of asking how the PS function is changing and adapting to be more of a positive force across the entire customer journey, not just up to and including “go live.”
So what’s TSIA’s point of view? How are PS organizations staking out a broader role in the customer journey in an industry increasingly preoccupied with customer success, adoption, and renewal?
First of all, the truth is that most, but not all of our members are being challenged in this way. And most, but not all, of the action around this coincides with a consumption model for the core solutions. That is, everyone prefers predictable recurring revenue over lumpy transactional revenue. But, if your core technology is consumed exclusively as-a-service/via subscription, you have no choice but to fixate on ARR and to take the entire customer journey much more seriously.
In the tech industry today, you're either:
Nearly all of our members fall into either category #2 or #3, and are therefore forced to live either increasingly or fully in an ARR mode in terms of overall solution consumption model.
While that much is clear, the key question is about the role of PS in all of this. The short answer is that the PS function is in the crosshairs of this dynamic in a variety of ways.
PS organizations are being challenged by the need and desire for tech to drive ARR. In recent TSIA research, we've delved into the role of PS across the LAER model.
TSIA's LAER model consists of four steps: Land, Adopt, Expand, and Renew.
Tech-as-a-service companies rely on successful landing of the core solution as well as consumption, adoption, and stickiness of the core solution to drive renewal. As they land more logos, shifting from unprofitable to profitable technology-as-a-service (a challenge for most, to say the least), is increasingly about Expand and Renew, supported and fueled by Adopt.
The most natural way for the PS function to support ARR is through operational efficiency, agility and innovation in support of Land. The implementation/configuration/onboarding role of PS has to be able to scale with (typically) rapidly increasing land sales of the core solution and it normally has to become far more agile and prescriptive, helping the firm to construct, sell and deliver solutions that define and even prescribe customer outcomes.
In other words, if PS just adopted (in the case of born-in-the-cloud technology-as-a-service) or carried forward the processes (in the case of transforming traditional tech providers), methodologies, and offer portfolios of the legacy business, PS would simply fail to support ARR in the Land phase. And let's face it, there's a very practical dependency related to PS when the company is in subscription mode; you can't start recognizing subscription revenue until the customer is up and running on the solution. That's the main risk of carrying forward old school processes, methodologies, and offers. If you do that, PS can't effectively serve its role as a Land enabler.
So what are PSOs doing to play this role more effectively? For one thing, they are much more focused today than they were 5 or 10 years ago on outcome-prescriptive solution engineering. They also generally have more Agile methodology baked into the delivery, as well as project management methodologies to support Agile solution development and the increasing receptivity of Agile approaches of more and more customers.
What's not happening, however, is any major trend toward PS going ratable (i.e., baked into the initial subscription). That part of the Land phase is still mostly transactional. In fact, project-based revenues among XaaS players are rapidly increasing. This is because many are finding that they have to retrofit to provide complex project services in order to effectively support customer implementations that will get the ARR flowing and increase the chances of consumption, adoption, and renewal. In other words, customer success.
What's also increasing, however, is subscription revenue coming from the PS function itself in the form of consulting credit packs, check-ins, technical account/delivery manager (residency) contracts and the like.
To sum it up, in order to support ARR and pinpoint its role in the customer journey, professional services should:
I also encourage all professional services leaders to check out the free report, "2017 State of Professional Services," the Technology-as-a-Service Playbook, and above all, come to TSW Las Vegas 2017. We have a number of great PS breakout sessions that will focus primarily on the role of PS in the art and science of the customer journey. Most of our PS members are wrestling with this in one way or another, and TSW is a great place to share ideas and learn what works. Hope to see you there!
Read more posts in the "Art and Science of the Customer Journey" blog series:
Post Date: September 12, 2017
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.
The Technology Services Industry Association (TSIA) is dedicated to helping 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.