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The Services Alignment Risk Factor: The Real Challenge for HP

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Positioning your company as a provider of professional services requires clear thinking: What exactly is the main objective of these service offerings? If you don't determine this answer in advance, the discrepancies between your professional services offerings and your core product(s) may end up hurting overall company performance.
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In today's business environment, companies that make high-tech products are also under immense pressure to provide "high-touch" services that facilitate the success of customers. (For more insight on why customer expectations have changed to expect more complete service offerings from product vendors, refer to my previous article, "The Sirens' Song of Services.") Many product companies are happy to oblige their customers' requests for high-end professional services. This article focuses not only on why product companies offer professional services, but the tactics of how those services are offered. Specifically, I'll focus on unique risks that a product company such as Hewlett-Packard faces when it enters the waters of professional services.

Quick Review: Types of Service Offerings

If you visit the web sites of high-tech product companies such as Hewlett-Packard (now HP-Compaq), IBM, EMC, and Silicon Graphics, you see very consistent positioning of their newly developed service offerings. All these product companies now offer at least four distinct flavors of services:

  • Support services. Basic break/fix support services that product companies have always offered.

  • Education services. Traditional product training offered directly by the product companies.

  • Managed services. Services focused on successfully implementing the core products of the company. Usually these services are tightly scoped and very similar from customer to customer. They're usually offered at a fixed price and are a natural extension of standard support services already being offered. In fact, support service technical staff often delivers these services.

  • Consulting (or professional) services. Services that move beyond implementation and into integrating the products of the company into the customer's business. These services may involve developing custom code to integrate the product into existing infrastructure, or consulting with the customer on workflow and business processes. To deliver these services, the product company must invest in new skill sets and business processes.

Larger product companies like IBM and HP offer a fifth service, outsourcing, in which the product company literally takes over the day-to-day operations of a customer's technical environment. Table 1 provides a summary of the five types of services that product companies are now likely to offer.

Table 1-Types of Service Offerings

Service Name

Description

Tag Lines

Pricing Attributes

Length Attributes

Proposed Benefits

Support services

Basic break-fix service for products of the company

24x7, remote administration

Fixed percentage of product costs; price is also driven by response time that the customer is willing to pay

Annual contracts, life of product

Insurance policy

Education services

Product training

E-learning, web learning

Fixed percentage of product costs or per class

Measured in days of training

Increased employee productivity, employee certification

Managed services

Standard services designed to help the customer implement the product faster or make the product more efficient

Quick start, system tuning, performance analysis

Fixed price per service requested

From 1 day to 4 weeks

Decreased time to implement new products, improved effectiveness of products already implemented

Consulting or Professional Services

Custom services designed to truly integrate the product offering into the customer's business

Business solutions, best practices, turnkey integration

Variable price, driven by the complexity of deliverables

2 weeks to 6 months

Improved ROI, reduced risk, reduced time to implement business solution

Outsourcing services

Product company provides staff to administer the product for the customer on an ongoing basis

Staff augmentation

Fixed rate per head

Months to years

Reduced costs, allows customer to focus on core competencies


Compare this current list of service offerings to what you might have seen five years ago from a product-centric company. Five years ago, most product companies surely would offer support services, focused on their core product line. They would probably offer education services—again, focused on training customers on the core products of the company. But managed services? Consulting services? Not likely. Customers who required assistance in implementing technologies into the business environment would be pointed to a system integrator such as EDS. But now, many product-centric companies are heavily invested into providing high-end consulting services to customers. They're pursuing the highly touted "IBM Global Services" business model. HP continues to lead the charge on this front. With HP's move to acquire Compaq, analysts were quick to comment on the impact that this move would have on the service strategy of the newly created behemoth. CNN Financial News reported the following:

Many computer hardware makers have been sharpening their focus on servers and storage systems, which are more profitable business lines with more potential for growth. The combined company also will have a stronger technology consulting and services business, another more-profitable business line on which high-tech companies have concentrated recently. IBM has made exceptional strides in this area. During the second quarter, Big Blue reported that its services business had overtaken its hardware business in terms of total revenue.

Market analysts value businesses that drive toward offering a services/solution approach. But are they focusing on the right issue? I'm talking here about alignment. Let's look at an example.

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