....More and More, Product Focused Firms are Recognizing the Contributions That a Robust Professional Services Capability can have on Growing Revenue, Increasing Profit and Improving Overall Customer Satisfaction and Loyalty....

As most product markets become increasingly competitive, and commoditized, and product life cycles continue to shrink, traditional hardware and software manufacturers, and their business partners, have become increasingly sensitized to the need for new strategies to increase brand differentiation and to develop sustainable competitive advantage ... enter professional services.

New professional services strategies are not entirely driven by manufacturers' internally focused business objectives. In most cases, notably technology markets, customers are demanding services to help them select and integrate technology solutions into their business models (... a Changing Business Model).

Today, many firms are aggressively pursuing the significant revenue and profit opportunities emerging from the rapid growth of their customers' services requirements. Best-in-Class product development and distribution firms are recognizing that customers place a much greater value on business solutions (products & services) focused on improving the success and the competitiveness of their businesses, vs. piece parts product and services offerings.

Emerging Opportunity
"Information Technology services will be to business in the 21st century what Information Technology was to business in the 20th century" (IDC)

Recently, The INSIGHT Group participated in two major assessments involving the impact and value of professional services to a firm's bottom line.

Software Firms: The first assessment was conducted in conjunction with Arizona State University's Graduate School of Business and The Center for Services Leadership. This study focused on the impact of services to the overall success of Software firms.

The objective of this study was to provide senior company executives with an in-depth understanding of the trends and best practices related to the strategic role services play in the software industry. INSIGHT analyzed the top 100 software firms and interviewed senior executives in 16 of these major firms. The findings were very compelling in making a strong case for significantly improving the professional services capabilities for both themselves, and their business partners. Of the 100 firms in the study, 48 companies provided financials for each service segment. The data represented $42billion in total revenues for 2004. Key findings:

• Total services revenue was 59% of total revenues in 2004 ... up from 57% in 2002, and growing at a compound rate of 5%.
• The companies experiencing positive growth in Professional Services revenue also grew all other revenues significantly more than the companies experiencing negative growth in Professional Services.

All of the software companies interviewed view professional services as a priority to help support/sell products &/or improve customer satisfaction

Hardware Distributors (VARS): The second multi-client study dealt with the need and importance of professional services to computer hardware distributors (VARS). This study included a large percent of HP and IBM business partners. Again the findings were consistent with the software firm study.

When asked: Which of your businesses will have a greater impact on your future success? 45% of respondents said both Product & Professional Services would contribute equally. And 36% of respondents said Professional Services would contribute more.

Those who said product & professional services were of equal impacts shared the view that they feed off each other pulling in sales of each.

A significant number of business partners interviewed also expressed a high need and interest in getting education on best practices for developing and managing a best-in-class professional services business. People Management, i.e., sourcing, retaining, culture change & motivating, professional development, training, certification, and career management for both professional services delivery and sales professionals, was also on the top of their wants and needs list.

Successful Strategies & Initiatives

"Essence of a Successful Professional Services Business

• Ability to dynamically allocate enterprise resources to solve unique customer problems / issues
• Value proposition / measure of success ... Did we improve our customer's competitive position"

To be successful in a business solutions focused environment, professional services business units must leverage their companies' core capabilities... rapidly and dynamically allocate resources to solve unique customer problems. Professional services leadership requires a "market of one" customer focus ... meaning that services offerings must extend far beyond the needs of the products ... to the overall business needs of the client and their customers. Ultimately, success is dependent on effective management of professional services as a unique yet fully aligned business. Today many firms limit their services growth opportunity by managing their professional services business as an extension to their product business ... using product business processes and metrics.

The professional services business model is process based ... with roles and responsibilities that cross organizational and geographic boundaries.

Rather than a primary focus on hardware product development and marketing, the services business relies on the skills, capabilities and innovation of the "People" who develop the business solutions that anticipate and satisfy specific client needs. Empirical "Best Practice" evidence shows that the most successful "services-led" organizations have:

• aligned senior leadership with a "services" vision and sponsorship with a comprehensive services strategy and business plan;
• organizational cultures that enable the strategy and embrace collaborative services and solutions development and delivery ... across business units and geographies;
• a "Common Services Framework," that aligns services offerings, methodologies, professional skills and capabilities to customer needs;
• aligned functional support processes, such as HR, Finance, Accounting, IT, Contracts Administration, Pricing Models, etc., unique to the professional services business; and
• ability to continuously identify, acquire, develop, deploy, incent, reward and retain "customer valued" professional services skills.

Evidence of Successful Implementation

As Chief Reengineering Officer for IBM Global Services during the mid 90's, I had the opportunity to benchmark most of the best-in-class professional services firms. During the last 10 years with INSIGHT, we have worked with dozens of firms, large and small and have developed a substantial amount of additional best practices intellectual capital. As a result of these experiences, we have observed a number of common success elements implemented by product firms who have also created successful professional services business units. Each is critical to success... Success Principle One: Run your professional services unit as a business, using the professional services business model, business processes, accounting procedures and metrics.

Unfortunately, today many product focused firms are driven by a product oriented management system and mentality. In most cases, the professional services business in these firms is held hostage to the product business. Worse yet, in difficult times, revenue producing services professionals are treated much the same as expense overhead and subjected to cross-the-board headcount cuts. Where as in many cases, they should be investing in the professional services business and driving efficiencies in their product business

The follow questions can serve as a "Health Check" and a good indicator for firms seeking to achieve best-in-class status for their professional services unit or business...

Key Questions:
1. Is there an overall business owner for Professional Services?
2. Is there a documented, agreed to professional services strategy and business plan, aligned with your business partner strategy and ...fully supported by senior management?
3. Is there a separate P&L for the professional services business?
4. Is there a common documented process for assessing customer services wants and needs?
5. Is there a common consultative selling / deal making process in place for services led opportunities?
6. Do you have dedicated professional services marketing and business development (sales) teams in place?
7. Have you structured your services delivery capabilities along a practice-based model with practice leaders, documented methodologies and intellectual capital support processes in place for each offering?
8. Do you have the ability to rapidly commit and share assets between your product and services business?
9. Do you have a documented skills management and professional development process with careers and supporting compensation plans in place?
10. Do you manage your professional services unit utilizing services metrics and accounting practices?
11. Do you have a project based customer satisfaction management -engagement complete process in place?

Perspective
Professional Services Capabilities will continue to grow in value and importance as customers demand more integrated business solutions.
Professional Services Capabilities are becoming the critical component of the overall solutions mix... driving more revenue, profit and customer satisfaction.
Success for most product firms will be tied to acquiring the knowledge and implementing the professional services business model and business processes. A no answer to any of the above questions should raise a flag regarding your ability to compete effectively for the significant "services lead" opportunities in the future.

Tom Esposito is Chairman of The INSIGHT Group , a best practices / skills transfer management-consulting firm focused on helping clients develop high growth services businesses. He Co-Founded the INSIGHT Group in 1996 following 30 years at IBM where he was acknowledged as one of the key architects of IBM's Global Services Business. Email Tom at esposr@insight-group.com