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Conclusions

Coase's theory of transactional costs applies more than ever to our current business environment. Specifically, product-centric companies will become very focused and crisp in determining what functions should be developed internally and what functions should be outsourced. Only functions that have the real potential to generate margin will be managed internally. The internal professional services function, however, is currently in a no-man's land. There are no easy ways to outsource this function. When managed internally, it often generates a loss or below target margins.

However, I believe that this state for the professional services function is an anomaly that won't persist. I believe that product companies will aggressively pursue options to outsource non-core aspects of professional services. Finally, I believe that the management strategies and tactics on how to effectively manage this function internally will develop and mature over the next few years, allowing product companies to be much more successful with this function.

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