Last week, Bo DiMuccio posted a blog entry on the correlation between the charter of the PS organization and the billable utilization the PS organization achieves. The charter of the PS organization is a data point TPSA benchmarks. Over the past few weeks, Bo has become intensely interested in the correlation of the PS charter with key business metrics such as utilization and the shifting nature of the PS charter. I thought it would be helpful to make sure our readers understand how we define the concept of charter of why we believe it is a key data point to track for the industry.
FOUR CORNERS OF THE PS CHARTER
In Master Professional Services, I defined the setting of the PS charter as one of the nine strategy variables product companies must align to optimize the execution of their PS business. This variable is critical is aligning the executive expectations regarding the priorities of the embedded PS organization. Over the past eight years, I continue to find four fundamental reasons a product company invests in professional services:
- PS Revenues: The product company is looking for additional sources of top line revenue growth.
- PS Profits: To offset shrinking margins in other business lines, the company is looking for higher margin revenue sources.
- Account Satisfaction: The product views professional services as a vehicle to improve customer satisfaction and protect account relationships.
- Product Support/Market Share: The company would like to use value add services to lead the sales cycle. Professional services are used to accelerate the adoption of new products, or to carry existing products into new vertical markets.
There may be other reasons a company invests in professional services, but I have found that in companies both large and small, these are typically the top four reasons. Product companies fall into the mud when they want a PS organization to maximize all four objectives. “Hey, why can’t I have a services business that makes lots of high margin revenue, delights our customers, and leads us into previously untapped product markets?” Hey, it doesn’t hurt to ask. Besides, you may be at a company where your brand equity and market dynamics permit services to meet all of those objectives. However, I doubt it.
To make this charter conversation meaningful, a management team MUST force rank the business objectives of the services function. If this prioritization does not occur, the service organization may miss the objective that was most critical to the company. To help facilitate this difficult discussion, we recommend management teams look at each potential objective and assign an importance ranking to it. The most important objective to overall company success is assigned a “4.” If the objective has no or little value to the company, assign a “1”. The next step is to graph the rankings to create a visual version of the PS charter. Once again, TPSA actually benchmarks this ranked charter data for embedded PS organizations, In 2006, the most common embedded PS charter looked like the one shown below.
Behold, the Power of Charter
We find the PS charter graph to be a simple yet powerful tool in communicating why the PS function exists in the eyes of senior management. The process to document a concise charter for the PS organization is not an academic exercise. What if a regional PS manager receives a request to allocate a project manager and technical consultant to a very important account? No, the customer will not be paying for these resources. How should the services manager respond? Using the charter documented above, the services manager must consider the fact that the primary reason PS exists is to facilitate customer satisfaction and product sales. Yes, a financial impact discussion should occur, but at face value, the services manager should consider how to fulfill the request.
Without documenting the charter of the services organization, a product sales force will be unclear on when and how to use the services organization. Without documenting the charter of the services organization, service managers will be unclear on how to respond to requests for free sales enablement activities. A clear charter puts a stake in the ground. A clear charter communicates to the company what business objectives the management team expects the services function to achieve.
As can be seen from the above graph, a majority of product companies have historically viewed PS as much more of a sales enabler as opposed to a stand-alone profit and loss center that drives revenue and margin. This reality has lead embedded PS organizations to sometimes sacrifice project profitability to achieve product adoption or account satisfaction. However, there is a shift in the charter winds. For that observation, read my next posting.