The Case for Centralized Services

There is a debate that occasionally resurfaces within companies that have multiple business units:

Should Professional Services be distributed within each business unit or centralized to support all the business units?

There are three compelling arguments for distributing PS into each business unit:

  • The PS capability can be customized to meet the unique needs of each business unit
  • The GM of the business unit can have direct control of the resources required to implement the products of the business unit
  • PS experts will create tighter relationships with the R&D staff building the products

All three of these points have merit. However, the most recent data from TSIA organizational structure surveys shows that the vast majority of technology companies DO NOT distribute Professional Services into each business unit. Instead, they create a global PS capability that supports the needs of all the business units. Why is this the predominate model? There are four critical economies of scale that drive this decision:

  1. Reduction of management overhead: By creating one PS organization, there is an opportunity to minimize the amount of non-billable management headcount required to support PS activities.
  2. Reduction of duplicate processes: Having multiple business units spinning up PS processes is less than optimal.
  3. Opportunity to cross-pollinate: By having one PS organization supporting multiple products, there are opportunities to share best practices in design and implementation across technologies.
  4. Critical mass of delivery resources: Finally, most importantly, the PS business is a lumpy project based business. The more projects in play, the more opportunity to smooth out resourcing requirements across those projects. Smaller PS organizations embedded in business units often struggle to reach a critical mass of headcount to sustain profitability.

In addition to the economies of scale, there are other reasons to not embed PS into product oriented business units:

  • Free projects: Business units focused on making product often have a tendency to give services away in order to secure product deals. This approach quickly makes PS an expensive cost of sales capability.
  • Lack of service processes: Product oriented business units often have little experience or little interest in maturing the processes required to deliver profitable services. Service pricing, risk assessment, project management, scope management, skills development, and resource planning are but a few of the processes critical to service success but foreign to product business units.
  • Cannibalization of delivery resources: Finally, PS organizations that are integrated into business units often find themselves on the short end of the headcount conversation. Product Engineering, Product Marketing, and Product Sales all receive a higher priority when it comes to resource allocation. This can leave the PS team struggling to build critical mass.

Several years ago I had the opportunity to interview John Swainson when he was the CEO of CA. At the time, some of the CA management team was debating the optimal organizational configuration for Professional Services. Mr. Swainson has a long tenure in tech, including 26 years at IBM. During our conversation, I recall he made some astute observations:

I have seen PS organized three ways: decentralized with R&D into business units, centralized but reporting to sales, centralized and separate from sales. The last model is the only one I have ever seen where PS doesn’t become a cost burden to the company. Sales has a tendency to give services away. R&D doesn’t really want to manage a services P&L.

Words of wisdom from a seasoned tech exec. Having a separate PS organization can create tension with both sales and product leaders. However, it is a healthy and required tension that serves the company well. If an independent PS organization is not aggressively managing project costs and risks, who is?

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One Response to “The Case for Centralized Services”

  1. Joel Says:

    Great article. I’ve seen it in all three forms and agree that the focus just isn’t there when services organizations are embedded. Too many free days are given and there is a general lack of interest in the disciplines required to run a services business at any sort of reasonable margin. The product development and sales teams don’t typically appreciate the “grind it out” daily slog that services requires.

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