By Al Hahn
If you are considering a major push into professional services, this article might give you an idea of what to expect and what it takes to be successful over the long haul.
Changing Call Dynamics
Over the past decade, hardware repair calls have been trending down due to increased product reliability. Software support calls are increasing, but in a different direction. Instead of calling to report bugs and ask for fixes, customers are increasingly asking for advice in using their applications. A few years ago, we held a focus group of support center managers from major West Coast companies. Their greatest challenge was customers calling to ask, "How do I get it to do what I want it to do, the way I want it to do it?" For most companies, bug fixes represent less than 5 percent of their calls today.
In another series of focus groups for a major software company, we noticed customers placed more calls over time. It seems many of them were intimidated and afraid they would be made to feel stupid when they called the first time. After finally calling out of desperation, they learned it was OK to call, then called more frequently when they had questions.
These changes in service and support call dynamics illustrate many things, but the most significant is the migration of value. Reliable hardware and software doesn't generate a perceived need for service and support; complex applications do. We need to understand this about our future and be prepared for it. We need to staff and train our service & support organizations to provide what people need and will pay for. Of course, we also must design service offerings that address these changing needs.
The next step in this progression for many companies is into professional services. Some of those calls into support centers enter this domain, when they are consulting questions beyond the scope of normal applications. There are no precise definitions or boundaries for professional services. Each service provider selects and defines them differently. Training and education are good examples. Some companies treat these as traditional services, and others as professional services.
A fully populated professional services program can cover a lot of territory. A representative sampling is shown below.
A Sampling of Professional Services
This is only a partial list. There is no limit to the variety of these services that can be developed, as long as they serve a definable customer need. There has never been a better time for professional services, particularly in this country. Cloud computing and Software as a Service (SaaS) have dramatically impacted many IT organizations. Most large companies have been downsized, rightsized and inside-out-sized. No one has any staff for projects. Many people are doing the work several used to handle. While this has been good for productivity statistics, it has gone too far in many cases. Businesses are barely able to function at current staffing levels and are very open to outsourcing work that will enable their people to focus on their core competencies. This is one reason professional services growth is strong - it responds to real needs that are felt acutely by businesses.
Margins Are Not Quite There Yet
Surveys indicate customers have less sensitivity to professional services prices. Isn't that a breath of fresh air? The same studies, by the way, indicate the pressure on traditional service & support costs are continuing to mount. So, if you are looking for a better place to market your services, this is a way to go. Every new trend has to have at least one flaw, however. So far, most companies are finding their margins from professional services to be less than their traditional offerings. Wait a minute. Didn't I just say there was less price sensitivity. What's the story? It boils down to two issues.
The first is the learning curve. Many professional services are custom quoted for each customer and project. This is not easy. It requires a lot of experience to gauge the complexity of the tasks, and the time and resources required. Let's say your customer wants you to integrate a database with three different application programs. You have to estimate what kind of people will be required to perform the work and how long it will take them. Then you work up a price around those estimates. By the way, you also need a (bullet-proof) contract that determines how the work will be done and details schedules, milestones, payments and deliverables, called a Statement of Work (SOW). Most importantly, you need to spell out how you and the customer will determine when the project is done. No one wants a project that takes forever to be completed because the specs were too loose. It can be a career-affecting experience. The learning curve affects those selling, preparing proposals and delivering professional services. It is an individual as well as an organizational issue. Experienced professional service people are in great demand and short supply. Until businesses are up to speed in the new disciplines, mistakes are made and this lowers margins. Over time, they will improve as lessons are learned and processes improved. In fact, those really serious about professional services have a bid desk to handle the quoting and invest in developing repeatable processes to deliver them.
The second reason for lower-than-anticipated margins comes from competitive pressure. Most larger service providers are aiming at the same group of major accounts. For them, this is where the big opportunities are. When a Fortune 500 company senses vendors are not prepared to lose their business, they can be skillful in playing them against each other. Too often this turns into an auction, with the lowest bidder winning the dubious prize. It is extremely difficult for companies and salespeople to walk away from business, even at low margins, if they know a competitor will gain increased presence in a large account.
The moral of this story is that it is better not to play in heavy traffic. Our research shows there are just as many opportunities with midsized and smaller prospects, and they tend to be more profitable. If possible, target accounts that are not getting much attention. They will be appreciative and probably less formidable in negotiations.
Standardized Professional Services
This is almost an oxymoron, but it is possible to offer standard professional services that are not custom quoted. These are tasks your company has a lot of experience in delivering, where the processes can be standardized. Some companies, such as IBM, have developed extensive portfolios of professional services that are listed in their standard price lists. Each is well-defined and bounded in some way, either by time that will be expended or by process iterations. In some cases, these companies have developed proprietary software tools used for performance tuning, security checking and capacity measurement.
Start with the Customer
In the marketing of services, you should always start with the customer. Professional services are no exception. There are two primary elements you need to discover. First, what do your customers need that you are not already supplying? Getting this information is not always as easy as it sounds. Professional services can be creative. They are rooted in solving customers' problems. A customer may not intuitively know what you could do for them. Ideally, you would get to know their business problems and challenges, then suggest possible ways to help them.
Focus groups are good ways to explore professional service opportunities. User group meetings are another avenue. Of course telephone and email surveys will also work, but I prefer direct customer dialog for such complex issues, so email surveys are not my particular preference. The industrywide studies published by market research firms are not specific enough to launch programs. They are useful as idea generators, but your research needs to be with your particular customers. The second thing you must test with your customers is what services they believe you are capable of supplying. Many companies trip up on this one. Just because you want to offer a professional service does not guarantee the market place will buy it from you. Customers are more cautious in buying professional services than traditional services. You must establish your credibility as a service provider. For instance, if you have been primarily servicing computers, why should they accept you as a network consultant? Too often, service providers decide they want to get into a new, high-growth area without paying their dues. It may be necessary to test your new services with a few friendly accounts to establish references before announcing them to a skeptical world. By the way, you should also test the value of these services with your customers or prospects before making any commitments. Several years ago, I was teaching a seminar on service & support pricing in Toronto, and a marketer in the class told me a story that illustrates the need to establish value carefully. It seems the service provider had come up with an idea for a new professional service and wanted to beta test it with a friendly customer before rolling it out to the rest of the country. The customer was quite excited and all was going well. Over lunch, the vendor casually asked the customer what would be a fair price for the new service. The customer's reply was twice what the vendor was considering for the price.
Establish a Separate Professional Services Organization
You may not like this next bit of advice. It is often necessary to establish a separate sales and delivery organization for professional services. Virtually no one has been successful using product sales channels alone to sell professional services. They invariably discount professional services, and everything else, to get products sold. Also, professional services are often sold at higher levels of management, take longer to sell and are difficult to quote. This requires a separate sales force with the requisite technical training, experience and compensation plan. Other traditional service sales channels, such as service managers or service sales specialists, are plagued with similar shortcomings. On the delivery side, it is not quite so clear. Some companies have been able to retrain and restructure to provide professional services. Others have set up a separate group of analysts, consultants and other specialists. One of our clients has been quite successful in retraining many of their very experienced and expensive CEs and turning them into network consultants. They told me it has taken significant investments in training, however, and they have been constantly training them for years. Assessing this issue is a difficult task, which requires an objective analysis of the new services, existing skills and even organization politics. I can only add that more companies seem to be succeeding with separate organizations.
If this is beginning to sound a bit complex, you are getting the message. You must allow proper time to establish this business. It is not a short-term situation. It will take time to determine which services to offer, sort through the organizational issues and staff correctly to sell and deliver them. The temptation is to offer too many services, too soon. Beware the corporate expectation that you will immediately experience double digit revenue growth and record margins next quarter. More likely, you will make major investments for a year before revenues are noticeable, and margins will take at least two years to begin to be decent and to stabilize.
Follow the Migration of Value
Services are migrating to higher orders of value, closer to customer solutions. Everyone in services marketing and management needs to understand this and plan accordingly. The earlier you start your own migration, the sooner you will be prepared for a future of higher value, higher margin services. If you are currently providing hardware services only, it might be a good time to consider adding software support. If you have already done that, consider professional services. Just be sure to set your own, and your company's expectations correctly. A lot of hard work and considerable patience can be rewarded with growth and profits.