Can PS Partner?

Every services organization eventually establishes partnerships of one form or another with other services organizations.  For PS organizations, those partnership opportunities present themselves in three categories:

Sub-contractors: These are partners that help the services organization deliver services engagements. The services project is booked by the product company and these partners provide resources to help deliver the engagement. These partners provide skills that complement or augment the resources of the services organization.

Resellers: These are partners that resell the products and services provided by the company. They most likely provide their own value add services to help implement the products of the company. Their capabilities can overlap with the capabilities of the embedded services organization.

Influencers: These are partners that my not necessarily resell the products or services of the company but they can have a significant influence on what products companies purchase. Think large system integrators like Accenture which help companies decide what technologies to implement.

Last week I buried myself in the data we collected from our 2009 Partner Practices survey. Forty companies provided information on both practices and results surrounding their engagement with these types of partners. From my perspective, the results were a little disheartening.

First of all, let’s pause and document why PS organizations should want to partner with other services providers in the first place. By establishing effective relationships with sub-contractors, system integrators, and specialized consulting firms, PS organizations can leverage these partnerships to improve the following key PS business metrics:

Metric

Definition

Calculation

Billable Utilization Rate

Measures the organization’s ability to maximize its billable resources.          

Total number of hours billed / [2080 x number of billable employees]

Growth Rate

The increase in services revenues from the previous year.

[Current year revenues / Last year’s revenues ]- 1

Labor Multiplier                               

The average factor by which billable personnel can be charged over and above their fully loaded costs.  (Fully Loaded costs = direct salary + direct fringe benefits + overhead + G&A + Margin). (A Labor multiplier of 1.0 indicates a breakeven point.)

Total dollar amount of personnel hours billed / Fully Loaded Labor Cost

Project Gross Margin

Difference between what customers pay for the services and what it costs the company to deliver those services

Project Revenue – Total costs to deliver the project

Sales Costs

The total costs for the selling efforts of each line of business.  Total Sales Costs include salaries, expense accounts, and commissions for sales management, sales people, and sales support.   

Total Sales Costs / Total Services Revenue
Time to Source

Number of days it takes for resource to begin work after a signed statement of work (SOW) has been received from the customer    

Start Date – SOW Date

As I analyzed the survey data and reflected on the partner strategies of PS organizations, it became clear to me that, in general, PS organizations are still struggling to create game changing partnership relationships.  By game changing, I mean partner relationships that have significant impact on the metrics itemized above.  Why do I feel so pessimistic? Consider three data points that came out of the survey:

  • 70% of the respondents did not feel they were leveraging system integrators effectively as a channel for selling products
  • Only 12% of respondents felt partnering with system integrators actually decreased the cost of sales
  • Only 35% of respondents felt the involvement of partners improved the quality of the customer engagement.

I do believe that PS organizations within product companies are mastering the ability to leverage the arms and legs of sub-contractors during engagements. In other words, leveraging partners as a source of supply for specific skill sets. However, product companies are not yet achieving the full economic potential of service partnership relationships. In my next entry, I will discuss some of the current barriers that inhibit services partner success.

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2 Responses to “Can PS Partner?”

  1. jragsdale Says:

    This is great information. From my perspective, the biggest problem comes from Resellers because, as you say, “Their capabilities can overlap with the capabilities of the embedded services organization.” I see several scenarios play out again and again with CRM and service software vendors because the rules of engagement are never well defined:

    –Small vendors let a big reseller partner take the lead in sales, but the partner pitches transformation, not solution implementation, and the small vendor never gets any business because the reseller is asking for 10x what all the competitors (whose PS teams do the selling) are charging.
    –PS teams end up competing with their resellers for the same deal–yes, it happens!
    –PS managers try to land deals they shouldn’t–like process redesign–because they don’t want to ‘lose’ money to a reseller partner.
    –Resellers don’t have adequate technical contacts when problems arise, leading to over-customization and hardcoding of software that will never upgrade.

    The customer is usually the loser when these things happen. Bottom line, it seems there is often a lack of ‘partnership’ between partners.

    –John

  2. Who REALLY Owns Partner Success? « Service Visions Says:

    […] year ago, I wrote a blog entry titled “Can PS Partner?” It was a response to recent data TSIA had gathered on how embedded PS organizations were working […]

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