Mapping Business Models to Business Maturity
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. Each phase has its unique challenges and priorities. For a product company to successfully manage a professional services unit, the key is to understand what phase the professional services organization is in (see Figure 3).
Figure 3 Four phases of building professional services.
The first phase that can be recognized is when a product 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 adamantly demand 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 the product company masters the implementation services phase successfully, they may migrate to the integration services phase, in which the product company realizes that critical components required to glue a customer solution together don't actually exist in the marketplace. The product company invests in specific technical skills required to build that glue. If the product company masters this new level of complexity, it becomes a crucial business partner to the customer.
Basking in this newfound glow, the product company may move to the next phase by offering consulting services, 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. This is a phase most product-centric professional service organizations won't reach. However, it's the most profitable phase for a product-centric professional service organization! In this productized services phase, the professional services team has mastered the skill of identifying the most profitable intellectual property, capturing that knowledge, and effectively leveraging that knowledge across the global organization. Unfortunately, managing intellectual property requires great discipline. This is why few service organizations reach the shores of this phase.
Each one of these phases has unique challenges and operates most efficiently within specific business models. In particular, each phase addresses for the following areas differently:
Value proposition. The value proposition being positioned with the customer during the phase.
Business focus. Top-line revenue? Bottom-line profitability? Expanded reference base?
Critical skills. What are the critical hires you need to make in the phase? Sales staff to sell professional services? Delivery staff? Marketing?
Required operational infrastructure. The phases require different infrastructures to operate effectively.
Target mix. The revenue mix during each phase is significantly different.
Revenue growth rate. How fast can you expect to grow the top-line revenue? For each phase, this answer varies.
Target margin. As the professional services business matures through each phase, the overall gross and operational margins will improve.
A product company must understand these phases and these parameters to successfully manage its professional services business. Ignorance of these phases creates incorrect priorities and performance expectations that can't be met by the professional services business unit.