In this continuing discussion on professional services (PS) at product companies, I would like to outline the curve through which product companies often must manage as they incubate their professional services organization. I must warn you that it's not one of those simple "up and to the right" curves. In fact, as many product companies can testify, the process of growing professional services can be a financial drain. This article defines where and how this drain occurs.
Overview of Phases
When a product company makes the decision to move upstream from basic product support services to more solution-oriented consulting services, there are distinct phases to the journey (see Figure 1). Each phase has its unique challenges and priorities. The key is to understand what phase your professional services organization is in.
Figure 1 Four phases of building professional services.
The first phase to recognize is when your company begins to offer implementation services. This phase occurs when the product company first makes the decision to offer services beyond basic support services. Often, a product company is pulled into this phase by customers, who start adamantly requesting help implementing the company's products. To close the deal or guarantee customer satisfaction, the product company responds to the requests. In this phase, the product company is willing to take on more responsibility for the overall success of a customer project. This typically means a willingness to manage the successful implementation of products from other companies. If, and let me stress if, a product company survives this phase successfully, the company migrates to the integration services phase.
In the integration services phase, the product company realizes that some critical components are required to glue together a customer solution, and these components don't exist in the marketplace. The product company invests in specific technical skills required to build the glue. If the product company masters this new level of complexity, it becomes a critical business partner to the customer. Basking in this newfound glow, the product company may move to the next phase by offering consulting services.
Consulting services are designed to solve high-level business problems, where discussions regarding technology and products are secondary. This is good business if your company has the credibility and expertise to deliver it.
Finally, there is one last phase, which most product-centric professional service organizations never reach. However, it's the most profitable phase in which a product-centric professional service organization can operate! In the productized services phase, the professional services team has mastered the skills of identifying the most profitable intellectual property, capturing that knowledge, and effectively leveraging that knowledge across the global organization. Managing intellectual property requires great discipline. This is why few service organizations reach this phase.
During each unique phase, the following business parameters are managed differently:
Value proposition: The value proposition being positioned with the customer during the phase.
Strategic focus: Is PS attempting to grow top-line revenue? Customer references? Or is the concept of building repeatable solutions the correct focus?
Critical skills: The skills that are critical to growing the business during the phase. Critical skills for the professional services organization can be bucketed into sales, delivery, marketing, and IP management. During each phase, the hiring priority for these four types of skills is different.
Required operational infrastructure: Each phase requires a different infrastructure. Infrastructure investments can be focused on three levels: the overall business, the project management level, or the individual employee level.
Target mix: The revenue mix during each phase is significantly different. The amount of direct revenue and pass-through revenue help differentiate the growth phases.
Revenue growth rate: How fast can you expect to grow the top-line revenue? For each phase, this answer varies based on mix and business maturity.
Target margin: As your business matures through each phase, your overall gross and operational margins will improve. Senior management should expect different financial results from PS in each phase.
Let's review and analyze each of these distinctive phases.