One of the data points we benchmark at TSIA related to PS businesses is “charter.” Every business function has a set of primary reasons for existing. For product companies, four primary reasons exist for having an embedded PS organization:
- Services Revenue: The product company is looking for additional sources of top-line revenue growth.
- Services Margin: The product company is looking for higher margin revenue sources in order to offset shrinking product margins.
- Customer Satisfaction: The product company views services as a vehicle to improve customer satisfaction and protect account relationships.
- Product Market Share: The product company would like to use value-added services to expand product sales. Services are used to accelerate the adoption of new products or to carry existing products into new vertical markets.
My colleague Bo DiMuccio has done some very nice work analyzing the impact of PS charter on key PS performance metrics like billable utilization. Check out his post:
The reason I am bringing up the concept of charter, is that product companies are continuing to shift their expectations of PS. It is good services hygiene to periodically test executive expectations regarding the charter of your PS business. This alignment can be the difference between long term and short term employment for a services leader. This blog entry outlines a process for testing this alignment.
How to Test Alignment
In Mastering Professional Services, I make the argument that PS leaders must work with executives to define a clear charter for the PS organization. Bo DiMuccio has verified the strong correlation between PS charter and key PS performance metrics.
In Bridging the Services Chasm, I outline four mechanisms PS leaders can use to drive alignment of the PS charter:
- Economic Role of PS: Verify the expectations on the total percentage of company revenues the executive team expects to come from PS activities.
- Priorities of PS: Have the management prioritize the four potential priorities of PS (listed above) and agree on which one of these priorities is MOST important to overall company success.
- Guiding Principles: Define a set of guiding principles the PS organization will use when determining what project opportunities it will pursue and how it will pursue them. For examples, see Bridging the Services Chasm
- Twelve Question Test: Ask the management team twelve questions related to the role of PS. If they do not agree on the answers of at least 9 to 10 of those questions, the PS charter is not yet aligned.
Time to Redefine?
At TSIA, we define “product providers” as technology companies that receive a majority of their total company revenues from the sale of a technology product. In general, product providers are very clear on the role they expect from their embedded PS organization. It’s all about product enablement and customer satisfaction. Many times these PS organizations are treated as a cost of sales with no or low financial expectations. In the past year, I have seen several hard core product providers revisit their expectations for PS. There is a host of reasons for this shift, some of which I will discuss in my keynote next month in Santa Clara. However, my point now is simple: check your PS charter. Are management expectations shifting?
For product providers, the twelve question test is as follows:
1. Are PS revenues expected to stay less than 10% of total company revenues?
2. Are PS revenues expected to be less than 25% of the total deal when professional services and products are sold together?
3. Are PS revenues expected to grow slower than product sales?
4. Does the PS organization in your company exist primarily to make sure product sales are successful?
5. Are sales reps, with the support of sales management, empowered to discount professional services to ensure a product sale?
6. Will executive management become concerned if professional service revenues are growing faster than product revenues?
7. Is professional services encouraged to send service opportunities to service partners?
8. Is there no dedicated sales force selling professional services?
9. Does our company prefer to defer prime responsibility for large integration projects to service partners?
10. Are PS hiring decisions made by the regional manager that is responsible for the overall profitability of the region (products + services)?
11. Is a product dollar worth much more than a PS dollar to our company?
12. Should professional services spend a great deal of time with customers that are not in a buying cycle?
If your executive management team answers a majority of these questions with a resounding “YES”, than the charter is aligned and you are most likely executing a classic product provider business. However, if some of these answers historically were “YES” but have recently shifted to “NO”, you have some work ahead of you. As I wrote above, this alignment can be the difference between long term and short term employment for a services leader.