Managed Services Mistakes

In my last post related to Managed Services (Framing Managed Services), I made the following observation:

Managed Services is the fastest growing service line for hardware and software companies that have established support and professional service businesses.

At TSIA, we see this trend continuing in 2013. To support this critical service line, we have hired a veteran from the Managed Services industry to lead a new TSIA service discipline dedicated to Managed Services. George Humphrey joins us from Avaya where he helped build and optimize their Managed Services offerings.

This week, George was debriefing me on conversations he has had during his first thirty days with the advisory board members of this new discipline. Companies currently represented on the board include: Avaya, Cisco, EMC, JDA Software, Microsoft, IBM, Symantec, and Ricoh.

As George summarized the discussions, I was transported back in time. I felt like it was twelve years ago, when I first started working with multiple product companies regarding their Professional Services business. At that time, all of the PS leaders suffered from the same handicap—they could not benchmark the financial performance of their business against similar embedded organizations. Because no meaningful benchmark existed, management teams (and executive teams and boards) were forced to guess what reasonable or unreasonable performance was. This vacuum of facts created many absurd expectations. Today, Managed Service organizations are suffering from this same exact vacuum of facts. Just as Professional Services embedded within a product company IS NOT the same business as independent consulting, Managed Services within product companies IS NOT the same business as independent Managed Services.

George said to me “I see it again and again—companies under estimating the time and investment required maturing an MS platform.” With no baselines grounded in fact, I have found management teams will gravitate to optimistic fiction.

As we talked more, George began outlining the common mistakes he has seen product companies make as they work to establish an MS business. Besides underinvesting in general, product companies also miscalculate the shift required in the sales model. Managed Services is different from every other service line product companies establish such as Professional Services, Education Services, and Support Services. Why? Because Managed Services DOES NOT naturally relate to a product transaction. Think about the consequences of that reality for a moment. They are massive when it comes to creating demand for this service line.

By the end of the conversation, George had outlined several more challenges commonly faced by embedded MS organizations. I have asked George to publish a paper for the MS membership titled: “The Top Five Mistakes Made When Building a Managed Services Business.” Even before the data from his new MS benchmark starts flowing in, he knows what these common friction points are.

For more information on George’s work and TSIA’s Managed Services Discipline, contract George directly at george.humphrey@tsia.com

Last But Not Least

The last day of TSW! And still, we are cramming in great presentations.

Yesterday we saw a killer presentation by Guy Gauvin of Taleo. Guy showed how Taleo is already living and succeeding by the new rules of tech.

Today, Maria Martinez, the executive in charge of the “Customer’s for Life” organization within salesforce.com will be sharing the mission and tactics of her organization. Clearly, salesforce is already living and dying by the rules of Consumption Economics.

After the keynote, we have multiple breakouts scheduled. I will be hosting one that overviews our brand new PS ODP offering. TSIA members now have the ability to engage TSIA to audit and diagnose the maturity of over 200 processes related to executing a PS business. We launched the pilot for this program at the beginning of this year. The PS organizations from five TSIA members have participated, including , HP Software Services, Schlumberger, Ericsson, Microsoft, and EMC.

In my breakout today, I will overview how the PS ODP works and discuss some of the processes we evaluate during audits. For any PS organization looking for a mechanism to improve performance or align global processes, I recommend you stop in for the overview.

Thanks to the TSIA team and the TSIA members for another outstanding industry conference.

And have fun launching those trojan horses…

The Service 50: Where to Spend the Cash?

This Thursday I will be delivering the quarterly review of the TSIA Service 50 data.

As I look at the Q4 2010 data, it is clear the recovery is holding for the tech industry. Top line growth is steady, and profits continue to remain strong. But what is the deal with all the cash these tech companies are aggregating? Check out the war chests being horded by some of the Service 50 companies:

Join me this Thursday for the complete Service 50 readout as well as some discussion on this emerging challenge facing tech companies: Where to invest the cash?

http://webcasts.tsia.com/home/listing/tabid/64/listingkey/83/the_tsia_service_50_q4_2010.aspx

 

The Q3 Services 50 Webcast

What the heck does this mean?

Join me on Thursday to find out during the Q3 TSIA Service 50 webcast:

webcasts.tsia.com/home/listing/tabid/64/listingkey/63/the_tsia_service_50_q3_2010.aspx

 

 

The Cloud 20

The impact of cloud computing on technology services is a area TSIA continues to study with great interest.

I’ve just completed a review of the financial performance of companies in The TSIA Cloud 20. This is an index of twenty of the largest cloud computing players. In March, when we took the last snapshot of The Cloud 20, I made three observations:

• •Cloud computing revenues are less than 5% of total technology solution revenues.
• •Currently, SaaS models are at least 50% less profitable than the traditional enterprise software business model.
• •YET: “Cloud 20” revenues grew 3% last year while “Service 50” revenues shrank 8%.

After reviewing the current data, there are three new ratios I have observed:

• •49%
• •80/20
• •2X

To find out more about these three ratios, join me for the Cloud 20 webcast this Thursday:

http://webcasts.tsia.com/home/listing/tabid/64/listingkey/59/the_tsia_cloud_20.aspx

The Service 50: The Tech Recovery Continues

This week, TSIA has been analyzing data from our Q2 2010 snapshot of the TSIA Service 50. This is an index of fifty of the largest providers of technology services. As I pore over the data from the Q2 quarterly earnings, it is clear that the recovery for the tech industry is not just centered in a few strong performers like Xerox or Intel.  The recovery is presenting itself across the tech sector in companies both large and medium sized. Also, the Q2 numbers were better than the Q1 numbers—which shows the trending is in right direction!

On Thursday, I will be delivering my one hour dissertation on the Service 50 Q2 data. To join me, register here:

http://webcasts.tsia.com/event/809lglbhcy

To give you a glimpse of some of the analysis, below is a chart that segments the revenue trends of the companies in the Service 50. As can be seen, compared to the same quarter one year ago, companies are seeing an increase in product revenues.

Historically, for technology companies, the return of product revenue growth is always news for celebration. Specifically, because tech companies operate to one clear truism:

Product Revenue = Profitability

Even services intensive tech companies like IBM, Xerox, and Oracle still operate to this unshakable truth. Yet, there is a disturbing trend that is beginning to present itself in the Service 50 data that questions this high tech truism. To learn more, join me on Thursday.

The Google Price

In Santa Clara last week, I delivered a keynote on the impact cloud computing will have on technology providers. In the section of my presentation titled “Breaking Glass”, I emphasized the emergence of “The Google Price.” The Google Price is the baseline price IT consumers will be willing to pay for commodity IT capabilities. Companies like Google, Amazon, and Apple are setting price expectations for basic IT capabilities like email, storage, and targeted software applications.

I argued in Santa Clara that for legacy IT providers to compete in this emerging environment, they would need to provide basic IT subscription services that are competitive at the Google price. Then, they would need to wrap a set of value added service capabilities around these base subscriptions. I have been making this argument since November of last year:

• Product Centric Cloud Computing: A Race to the Bottom

This week, a reporter at CRN echoes the message TSIA is driving to members:

Price Is A Key Issue For EMC-Cisco Cloud Venture

By Steven Burke, CRN

Check out these excerpts from the article:

“The question for Cisco and EMC as they collaborate is how do they get to a price point that makes sense for customers?” said one executive for a large systems integrator that is partnering with the two giants to deliver private cloud solutions.

That’s a sensitive topic given that Hewlett-Packard, the world’s largest IT company at $124 billion, is pushing forward with its converged infrastructure (servers-storage-networking) offerings and has vowed to drive down margins both in the networking segment, where it says Cisco has enjoyed 80 percent margins, and in the storage segment, where it pegs margins at 48 percent. HP has pledged to leverage its $70 billion supply chain to pressure competitors.

A big question for solution providers looking to play in the cloud is the services opportunity that comes with the territory. “It’s all services,” said one executive for a systems integrator. “That is the only place margins are being made.”

Cloud computing will be incredibly disruptive to the current business models of IT product providers. I cannot emphasize this fact enough. Attendees at the conference last week heard my message: Smoke, Cloud, Breaking Glass.

If your company is not calculating the impact of cloud consumption models on your current business model, you have your head in the sand.

If you are not on a journey to develop value added services that augment basic technology subscriptions, you are in a race to the bottom.

If you believe your company will navigate its way through this storm on the back of product innovation, you are throwing good investment dollars at an option that is getting marginalized by the quarter.

“Cloudprem” Providers

I’m in the middle of the TSW conference here in Silicon Valley. So far, the discussions, presentations, and panels have validated several assumptions related to the impact of cloud computing on technology providers:

• Cloud breaks existing financial models
• Cloud is incredibly disruptive to the current go to market models of the tech industry
• Cloud has the potential to devalue the current service offerings of product companies
• Cloud forces technology providers to “declare” their service intentions. Will they focus on providing technology components to others that provide cloud offerings or will they begin offering value added services directly?
• Customers under immense IT budget constraints are anxious to explore new cloud computing options.

Validation always feels good, but it is the impact of cloud I did not understand that is blowing me away right now.

End of the Great Recession?

On Thursday, I will be reviewing the Q1 2010 financial results of the largest technology companies on the planet. Are tech revenues growing again? Are service revenues and margins still staying strong? Join me for The TSIA Service 50 webcast to find out how 2010 is shaping up for product technology companies.

To register:  http://webcasts.tsia.com/event/0u9q8m2dg5

The TSIA Service 50

This Thursday, I will be hosting our quarterly Service 50 webcast. It is open to the public.  Follow this link to register:

http://webcasts.tpsaonline.com/event/v12hg2c78k

For those readers that have not attended in the past, I host a webcast every quarter that reviews the financial performance of fifty of the largest providers of technology services. The analysis is designed to answer the following questions regarding trends in tech services:

1. Who are the best performing providers of technology services?
2. Are technology service margins trending up or down?
3. Are net incomes trending up or down?
4. Are hardware and software companies becoming more or less service intensive?
5. What is the product service mix for the most profitable companies in the Service 50?
6. What is the product service mix for the largest companies in the Service 50?

As I review the Q3 data, I can tell you the global downturn clearly caught up to the tech companies this past quarter. However, there are some surprises. Also, service revenues and margins are continuing to play a critical role as product revenues and margins lag.

Join me Thursday for all the key trends.