The Sirens’ Song: Building Professional Services at a Product Company

1. ©Thomas E. Lah, 2001

2. The Sirens’ Song:Building Professional Servicesat a Product Company By Thomas E. Lah Steve O’Connor Mitch Peterson ©Thomas E. Lah, 2001

3. Current Issues for Product Companies • Under immense pressure from customers to provide business solutions, not technology components. • Required to identify new revenue opportunities. • Working to offset decreased product margins. • Fighting system integrators for account control. ©Thomas E. Lah, 2001

4. Common Response Professional Services • Offer more services! • Critical Support Services • Education Services • Managed Services • Professional Services Managed Services Education Services Core Product(s) Support Services ©Thomas E. Lah, 2001

5. Common Consequences • Product companies are experiencing 10%-15% gross margins on professional services offerings. • Product companies are operating their PS business unit at break even or a loss. • Internal friction caused by PS offsets benefits like account control and product pull through. • Management is unclear why the PS unit is not meeting business objectives. ©Thomas E. Lah, 2001

6. Improving the Situation ©Thomas E. Lah, 2001

7. Improving Any Business Two ways to improve profitability ©Thomas E. Lah, 2001

8. Raise the Bridge & Lower the Water • Understand how to structure, charter, and metric a PS business unit when it is part of a product company. • Understand how you create a solution portfolio that is aligned, differentiated, and more profitable. • Understand the unique issues that handicap a professional services business unit based in a product company. • Learn techniques to improve the operational efficiency of a professional services business. ©Thomas E. Lah, 2001

9. Key Concepts of the Book The Product-Services Wheel • The Gartner Group has documented an identity crisis both product and service companies constantly go through: Product companies want to become service companies and service companies want to become product companies. • For product companies offering technology, the turning of the wheel begins with “product services”. These are services offered to support the core products of the company. Commonly known as support services. ©Thomas E. Lah, 2001

10. The Product-Services Wheel The Product-Services Wheel • After product services, the product company is tempted to move up stream. In particular, the siren call of potentially high growth and high margin “Consulting Services” is almost too tempting to resist, especially if the product company is experiencing an erosion in product margins. ©Thomas E. Lah, 2001

11. Managed Services Education Services Core Product(s) Support Services Key Concepts of the Book The SAR Factor • When product companies create a new professional services organization, they run a high risk of creating a new business unit that is not synergistic to the overall objectives of the product company. We call this the SAR Factor: The Service Alignment Risk Factor. Professional Services SAR Factor ©Thomas E. Lah, 2001

12. Key Concepts of the Book Qualifying Questions • Should your company invest in professional services? • There are four key questions the management team needs to ask and answer before making the commitment to launch professional service offerings. ©Thomas E. Lah, 2001

13. Key Concepts of the Book PS Business Parameters • There are ten key parameters an executive team needs to set when launching a new professional services business unit. • Key parameters include mission statement, target business model, and organizational structure. ©Thomas E. Lah, 2001

14. REVENUE REFERENCES REPEATABILITY Key Concepts of the Book PS Profitability Triangle • The growth and success of a professional services organization is driven by three critical variables:Revenue, References, and Repeatability. • Every activity invested in should be targeted at improving one of these three variables. ©Thomas E. Lah, 2001

15. Sell Services Sales Services Marketing Services Delivery Promote Deliver Services Engineering Productize Key Concepts of the Book Services Operations PS Organizational Overview ©Thomas E. Lah, 2001

16. Key Concepts of the Book • Function by Function Review Services Operations Services Sales KEY Metrics KEY Processes Services Marketing Services Delivery Organizational Design Services Engineering Key Interfaces ©Thomas E. Lah, 2001

17. Key Concepts of the Book Four Phases of Maturity • When a product company makes the decision to move upstream to more solution oriented consulting services, there are distinct phases to the journey. • Each phase has its unique challenges and priorities. The key is to understand what phase your professional services organization is in. ©Thomas E. Lah, 2001

18. Key Concepts of the Book Unique Issues • There are six unique issues a professional services organization within a product company faces that an independent consulting firm does not face. • Unique issues include partner conflict, channel misalignment, and skill overlaps. ©Thomas E. Lah, 2001

19. Key Concepts of the Book Solution Portfolio Management • Companies must review both solution revenue and solution maturity to effectively map and manage a professional services solution portfolio. ©Thomas E. Lah, 2001

20. Maturity Review CONTINUE IMPROVE REMOVE Revenue Review PS Solution Portfolio Management ©Thomas E. Lah, 2001

21. About the Authors Thomas E. Lah • Thomas has held many roles in both I/T and Consulting over the past fifteen years. Previous roles include Business Development Manager, Regional Sales Director, and Senior I/T Development Manager. Most recently, Thomas was Director of Solutions Engineering at Silicon Graphics where his team was responsible for developing and launching consulting solutions on a global basis. He received an undergraduate degree in Information Systems and holds an MBA from the Fischer College of Business at The Ohio State University. ©Thomas E. Lah, 2001

22. About the Authors Steve O’Connor • Steve has held both Business and Information Services Leadership roles during the past twenty years. He most recently was the Vice President for Professional Services at SGI where he was responsible for building a profitable Global Professional Services Business. Before that he was the Chief Information Officer at SGI. He spent four years at Sun Microsystems where he held a number of Information Services leadership roles. He received his undergraduate degree in Management from the Boston College, School of Management. He also holds a Law Degree from Suffolk University, School of Law in Boston Massachusetts. ©Thomas E. Lah, 2001

23. About the Authors Mitchel Peterson • Mitchel Peterson has held a variety of financial and operational roles over the last eighteen years. Previous management roles included supporting the areas of Internal Audit, Engineering, Finance, Cost Accounting, Facilities, and Human Resources. Mitch is currently the Senior Manager of Strategic Planning and Communications for the Professional Services Organization within Silicon Graphics where he has been responsible for developing and implementing various strategic and tactical programs for the Professional Services organization. He received an undergraduate degree in Accounting from Oregon State University and an MBA from Santa Clara University. ©Thomas E. Lah, 2001

24. Additional Information Please Contact • For additional information on this book and any of the concepts presented, please contact Thomas E. Lah. • Email: thomas@thomaslah.com • Cell Phone: 614-284-0375 • Or visit: www.thomaslah.com ©Thomas E. Lah, 2001