Building a Professional Services Division: Setting the Parameters
Mission, business model, objectives, and guiding principles
When a product company first hears the call of professional services, the call may indeed sound very sweet. The potential for more revenue is seductive. The hope of high margins is uplifting. And, the benefit of greater customer account control is a soothing concept to nervous executives. But before a product company launches a new service endeavor, it must set clear parameters for that portion of the organization. If these parameters are not discussed at inception, the success of the new service business unit can be grossly inhibited. Specifically, the executive staff must discuss the mission, the strategic objectives, the guiding principles of operation, and, finally, the financial business model (or the level of performance) the new unit will be expected to execute. This chapter reviews each one of these parameters in detail and provides guidance on what to consider when setting them.
Sirens' Song: Offering high-margin professional services is a sound business move for most product companies.
Boulder Ahead: The truth is, like any business decision, the decision to offer professional services should first be reviewed and evaluated before being agreed to. Not all product companies are well positioned to offer professional services.
Are You Sure? Four Qualifying Questions
Before we explore the parameters that need to be set for the new PS unit you're dying to launch, let's step back. Are you absolutely sure this is the right thing for your company? Should your company create a PS organization? These are fundamental questions. In the introduction, we highlighted many of the reasons product companies want to offer professional services, but want and should are entirely different things. We know you want to get into the PS game, but should you? Your answer to that question is probably driven by many complex variables. Here are four fundamental questions the executive team of any company should ask before plunging into the PS business:
Can your management team articulate what would differentiate your professional services from everybody else's? Typically, product companies possess some type of unique technical expertise. If you cannot identify any unique skills or solutions that will set you apart in the service world, perhaps partnering with another service provider is the better play.
Do you intend to make fee-based professional expertise a core competency of your company? The story goes that way back when, IBM made the fundamental decision that it was actually a service company, not a product company. Today, offering everything from technology-planning consulting services to full-scale outsourcing is core to IBM. Will your new services be core to who you are? Or are they just expensive window dressing you really can't afford?
Is there a market for your services? You may be able to articulate a unique set of new services that you feel is core to future success, but is there a viable market? Before diving in head first, make sure the water is deep enough. In other words, is the customer base actually there?
Can you sell these new services to your existing customers through your existing channels?1 You have identified the service, you are committed to it, and it looks like there is a healthy market. All good. But there are two potential issues you must consider. What if the buyer of your new services is not your current product customer? Here is a simple example: Your company makes specialized design software for engineers in the auto industry. Your typical buyer is a departmental engineering manager. Over the years your company has accumulated in-depth expertise and knowledge about how various manufacturers design automobiles. Now, you intend to offer high-level consulting on the entire design process. But guess what? The departmental engineering manager does not sign $250,000 purchase orders for consulting services. The vice president of engineering does, but your company has never sold to this vice president. In fact, your company has very few contacts at that level. It will be very difficult to sell your new service through your current channels. Is this a showstopper? It depends on your business objectives and how much you are willing to invest to create new channels. The important checkpoint is to assess your current channels and know where you stand before forging ahead.
From this point forward, we will assume your company has discussed these four questions and has determined that starting a PS organization is a sound business decision. If your service opportunity failed to pass these qualification questions, but you intend to move forward anyway, please don't disregard the rest of this book. You will need the frameworks it offers more than ever to survive the journey ahead. Now, let's review the key parameters the executive team needs to set before launching this new business unit.