Professional Services Operations (PSO) in a Box

RTM Consulting Professional Services Operations (PSO) in a Box How to Quickly and Effectively Deploy a PS Capability Mark E. Sloan Chief Operating Officer 1-855-786-2555

RTM Consulting 2 2007-2012. All rights reserved. PSO-IN-A-BOX How to Quickly and Effectively Deploy a PS Capability OVERVIEW In today s technology market, offering and delivering compelling professional services has become a requirement not a nice to have. An analysis of market data between 2000 and 2010 shows that: 1. Product margins decline over time for both software and hardware vendors; 2. Services revenue as a % of total revenue for technology firms has doubled; and 3. Technology companies with a focus on services better weathered the 2009 economic crisis. The challenge for these technology companies, however, is that managing services organizations is inherently different than managing a product organization: Sales: Customer Need (Services) vs. Feature Led (Product) Delivery: In front of the customer (Services) vs. Behind closed doors (Product) Management: Utilization / Project (Services) vs. R&D / Inventory (Product) This white paper addresses the market challenges that exist and more importantly lays out an innovative market approach that the most progressive, leading technology companies are now taking in order to stay focused on their core (product) while leveraging a partner with proven industry capabilities to deliver their context (services). MARKET SITUATION: THE SERVICES IMPERATIVE Let s be clear. Technology companies both hardware and software are generally founded by either engineers who have an idea for a great product OR by marketers who see a clear market need and can define requirements that engineers can translate into a great product. Investors may be brought in; and all parties are excited about the market potential for the product. This is as it should be. Once the company engages with the market and begins making sales, some of the engineers get involved with the client, helping them install, configure, and even use the product. Perhaps a few folks are hired into a nascent professional services group to take on more of these client engagement activities. Let s be clear. The focus is on the product. Services whether they be professional and delivered through a professional services organization or simply delivered by the engineers who are available are all too often an afterthought. This is not as it should be.

RTM Consulting 3 Available market data demonstrates both the market potential as well as the market need for services to not be an afterthought. Let s look at the data. First, let s look at the case of two very successful product companies: Intel and Cisco. The chart demonstrates what happened to their product margins over the 2003 to 2008 timeframe. In a nutshell: they shrunk. According to the Technology Services Industry Association (TSIA) 1, these declines in product margin cost Intel and Cisco a combined $3B in margin during this period. That s not pocket change! There are a variety of causes for the margin decline: increasing competition; declining product usefulness; market saturation. Regardless, product companies need to understand that over time, their product margins are very likely to decline. And it doesn t take long. Second, let s look at how the technology market has been deriving its revenue 2. Quite simply, since 1999, services revenue has become an increasing portion of overall revenue for both hardware and software companies. For both hardware and software companies the percent of revenue from services has doubled. For software companies, the majority of revenue (60%) is now derived from services. The causes for this are many: increasing complexity of the product set being sold (and serviced); shift from using independent systems integrators (SI) to relying on the product company personnel (who presumably know more about the product than an SI); shift from large IT organizations to the use of third parties. So, while the product is important, services needs a more strategic focus. Successful technology companies must have a well thought out services strategy and operating model to optimize profitability. 1 Source: Technology Services Industry Association 2009 TSW Keynote Address. 2 Source: Technology Services Industry Association 2009 TSW Keynote Address.

RTM Consulting 4 Look at the market data 3 during a difficult economic climate. Technology companies that were services heavy (derived >65% of their revenue from services) saw their OI increase by nearly 3 points (Q209 vs. Q208). Product heavy companies (derived >65% of their revenue from products) saw their OI drop by over 6 points over the same period. The companies in between Service and Product Heavy saw a small growth. Where would you have rather been working? MARKET SITUATION: THE SERVICES COMPLEXITY There are many technology companies with well thought out services strategies and services operating models. At the same time, it is not an easy task. The management team of a technology company has a host of functions to manage and many times there are competing objectives and limited capital for investment. As mentioned earlier, the core focus of a technology company is quite often product centric. Whether because the management team thought up the great product or because the strategy requires market penetration of the product to drive sales (and to satisfy those investors who came on board due to their excitement around the product). The diagram above is a simplified view of the functions a management team of a technology company needs to manage. The investment dollars and operating capital quite often get funneled to Sales & Marketing and R&D. On one hand, this makes perfect sense. Invest in strong sales to penetrate the market. Invest in R&D to build and maintain a world-class product. However, as the previous section pointed out, the company that makes Services an afterthought creates long-term (and some near term) risks for the company. 3 Source: Technology Services Industry Association 2009 TSW Keynote Address.

RTM Consulting 5 Additionally, the mentality for a product oriented executive is quite often at odds with the approach required for a services organization. Any consultant who has moved from an independent consulting / systems integration firm to a services organization embedded inside a technology company has likely experienced this firsthand. More specifically, the differences can be categorized across the following dimensions: Dimension Product Orientation Services Orientation Sales Feature led with sales focused on here is what the product can do In other words, sales is focused on the demo and getting customers hooked on what the product can do Customer needs led as a friend of mine always focused on what are your goals, problems, and needs In other words, sales may start with a blank page and the consultant is focused on defining an approach that satisfies the customer s needs Management Delivery Is focused optimizing its investment in R&D, selling its inventory traditional product company metrics Predictability is inherent in this model you can build a budget at the beginning of the year and manage to that spend As the adage goes, You never want to tour a sausage factory. Delivery is done behind closed doors; engineers can be sloppy, rude, arrogant as long as a good product gets delivered on-time The services management is focused on people managing projects and utilization There is very little predictability in the services manager s world the key is optimizing from month to month, quarter to quarter Services is more of a performance art Everything is generally done in plain sight of the customer (or they at least have very clear visibility) Personnel need to have a good bedside manner to keep clients happy Understanding these differences, you can see why management of a technology company where their backgrounds are product oriented would focus on the core (aka Product) as opposed to what they view as context (aka Services aka necessary evil ). MARKET SOLUTION: PSO-IN-A-BOX Running a services organization itself is complex with a lot of different things to do and is not core to what Product companies are all about. Rather, Professional Services is context. So, in a nutshell, how does a growing product company put the right strategy, management personnel, operations, and execution mindset in place required to: Drive revenue growth Drive profitability Maintain customer satisfaction?

RTM Consulting 6 Quite simply, paraphrasing author Geoffrey Moore, Stay focused on your Core and outsource your Context. RTM Consulting has defined its PSO-in-a-Box Framework to partner with technology companies in order to build, improve, and successfully execute a PS organization. The framework lays out the core functions that a services organization needs to put in place to operate successfully. Interestingly, if you compare this to the Technology Company diagram above you see that a services organization is almost a company inside the overall company in that you need to effectively market, engineer, sell and delivery services all with well rounded enabling operations. It s no wonder that a services organization can be difficult to manage inside a product company. Over the next few pages, you will see the experiences of technology companies that have chosen to outsource some or all of their services operations in order to more effectively execute a services organization.

RTM Consulting 7 EXAMPLE 1: SOFTWARE COMPANY STAY FOCUSED ON THE PRODUCT This client, a venture backed software company had grown to the $25 - $35M revenue range in a relatively short time horizon. The majority of their revenue was derived from product licenses. At the same time, the product did require a considerable amount of install, configuration, and customer handholding time. The company was founded by two executives with a long and successful history of founding software companies. With this company, they reached back into their network of contacts and hired a tremendous group of software engineers to develop the product. And it showed. Clients loved the product and they quickly established a strong revenue stream from their target market. The Situation As the company sold their software product, they would assign an engineer (or two) to a client engagement to do the install, configuration, and customer hand-holding to get the product working. Early on this was not an issue as they had a small number of clients and the customer use of the product was limited as customers were evaluating if and how they could more widely deploy the technology. As the customer base grew and the typical deployment size expanded, the company experienced growing pains. Their marquee client began to use the technology in mission critical operations and demanded that the same senior engineers (including the product architect) continue to provide the same white glove service that they had when they were the company s only client. This was a challenge for a variety of reasons. First, the client base had expanded and these same resources were being stretched in multiple directions across a variety of client installation efforts. Second, the services resources they hired to provide coverage were not skilled enough to work on projects alone. This should not have been a surprise as there was very little training, no defined implementation process, and very little documentation they could leverage. In short, there was no way for these new hires to become the experts they so desperately needed. Third, the very same engineers that were needed on the project based work were needed on product road-map development; much of which was contractually committed product development work. While there are twenty four hours in a day, twenty four hours was not enough time to get all the work done. Then it really got interesting. The Breaking Point An opportunity arose with a Tier 1 customer prospect that could have added nearly 50% to the top-line of the company. So, likely any company looking to grow, they juggled the same few resources again to wow this prospect. The prospect was wowed but their backlog and client satisfaction suffered further. And eventually, the Tier 1 prospect became concerned. The Tier 1 was accustomed to working

RTM Consulting 8 with Tier 1 oriented services organizations. The prospect told the software company: Fix your professional services problem or we are not going to ink this deal with you.

The Solution This organization partnered with RTM Consulting to build out a PS organization. PSO-in-a-Box RTMC Activity Benefit / Value Strategy & Management Go-to-Market: Delivery & Sales Support Services Engineering & Marketing Operations Infrastructure RTMC provided an SVP of Professional Services on a parttime (~50%) basis As the Client was pursuing its Tier 1 opportunity, RTMC provided a Senior Program Manager to get engaged on scoping the solution, partnering with Client and other SI resources; and managing the day to day client interactions Over time, additional delivery resources were added to cover expanding scope (that scope was covered by revenue from new customer SOWs that had been scoped by the Senior Program Manager) The client had little services oriented documentation (e.g., lack of methodology / capability documentation) The Delivery resources engaged developed materials in the course of their day to day work that could be translated into more standard documentation that could be used for both sales and delivery activities The RTMC provided SVP of PS built out initial Operations oriented capabilities to help with the overall growth and scalability of the Client s services capability Senior PS exec that could engage with Client and the Tier 1 prospect; identify PS capabilities required to be built; and manage existing company resources delivering services work Deploying a Senior Program Manager enabled the Client s product architect to ramp down his day to day involvement allowing him to focus on product development as well as the other clients where the company was earning its overall revenue Additionally, the Senior Program Manager demonstrated to the Tier 1 prospect that the Client had the necessary competence to deliver on a complex project Ultimately providing a scalable workforce that could ramp up and down as end client work ramped up and down Developing these materials helped both with the Tier 1 prospect (enhancing their confidence in selecting the Client for their deployment) and with additional clients Built Resource Management processes to better define future capability needs (i.e., quantity and skill-set) to help align supply of resources with market demand; this included building out training programs to enhance the capabilities of new hires Developed Project Management capabilities to improve consistency of delivery 1-855-786-2555

The Result With RTM Consulting s unique PSO-in-a-Box solution in place, the Client was able to rapidly develop and deploy the people, processes, and technologies needed to take their services operations to the next level. Rapid expansion of PS and resource deployment capabilities to support improved customer satisfaction and expansion of business at key accounts. Clearly defined processes for client / project management and resource management that are helping drive improved performance across the portfolio. Re-dedication of product architects and engineers to the product laying the groundwork for future company growth. Not to mention, this all led to a much better relationship with that Tier 1 client (no longer a prospect)! 1-855-786-2555

RTM Consulting 11 EXAMPLE 2: WE VE BUILT SYSTEMS INTEGRATION NOW WE NEED TO CONSULT This client, a Fortune 1000 technology (both hardware and software) company had built a successful professional services organization. They delivered hundreds of projects annually and delivered nearly $500M in revenue to the company s top-line. The Situation As they continued to expand, the Client realized that it was: 1) Being pushed to a vendor status in light of its primary / sole focus on only the professional services around their product; 2) Not commercializing industry knowledge that it had built up; and 3) Missing out on a market opportunity to be an industry thought leader. The Client s professional services organization s charter was centered on supporting the sale, installation, implementation of the company s HW / SW products. It was a successful business with recent organization changes helping to drive both revenue and margin growth. However, over the past few years, the Client was seeing that at a number of its clients and prospects, it was not engaged in the client discussion until an RFP was issued. While they would win a number of the RFPs, the Client did not want to be left out of the discussion until such a late point the in opportunity. The Client began to see that the Big 4 consulting organizations were at the table early on the discussion around their clients programs. Additionally, the Client began to see that they had hired people of similar profiles into their PS organization as well as having built up considerable industry knowledge in their long tenured resources. Yet the Big 4 consulting organizations were getting paid to advise, consult, and develop new programs for their client base. In short, the Client was missing out on an opportunity to drive thought leadership, earn incremental consulting revenue, and get involved with client programs long before an RFP was issued. As most in the industry acknowledge, it is very beneficial to get involved in the process early as opposed to being on the receiving end of an RFP. The Breaking Point CEO expectations on growth and margin ultimately provided the tipping point for the PS organization to make its move into pure consulting. The head of PS tasked various PS personnel with some key activities to support the transition. Significant progress was made in terms of building out offerings and getting people thinking about consulting. However, the Client was not seeing the financial benefit for a variety of reasons: resources involved would get pulled back into more traditional PS delivery work; the organization did not understand how to position and sell pure consulting work (e.g., quite often it was given away to the client); and the extended Client organization could not see how this new consulting work would be delivered.

The Solution This organization partnered with RTM Consulting to build out a consulting organization. PSO-in-a-Box RTMC Activity Benefit / Value Strategy & Management Go-to-Market: Sales Support Delivery Services Engineering & Marketing RTMC provided an VP of Consulting Services on a full-time basis to drive the formation of a consulting organization The VP of Consulting partnered with the Client s Account Management, Sales, and other personnel to get in front of the client base to discuss how the Client could help The VP of Consulting led recruiting efforts both internal and external to help staff the Consulting organization As with the Sales Support activities, the VP of Consulting was able to take the lead on developing and shaping a variety of materials that would support the sale of consulting services Focus: Senior exec that was solely focused on consulting did not have a heritage in the Client s PS business so could not get pulled into non-consulting work A fresh set of eyes to think about the Client s business in order to define what would (and would not) work with respect to Consulting Client gained a resource that was experienced in positioning and selling consulting services; this helped not only with the Client s prospects but also with the Client s own personnel; it demonstrated to them how to do it and that it could be done without negatively impacting client relationships (essentially helping to overcome the internal objections of we can t charge them for that, they ll expect that for free People tend to hire people that look like themselves; by leveraging the VP of Consulting to lead hiring, the Client was able to staff the consulting organization with well qualified consultants Having sales materials in hand helped to increase the sales organizations confidence in what was being sold and positioned to the target market 1-855-786-2555

The Result With RTM Consulting s unique PSO-in-a-Box solution in place, the Client was able to rapidly develop and deploy a Consulting organization that is helping the Client: Get involved earlier in the overall opportunity development process; Earn revenue for what it knows (e.g., consulting) in addition to what it does (e.g., professional services); and Help drive industry thought leadership to help shape where the market is moving. CLOSING Running technology organizations is a complex task as it involves: 1) running a product organization that must build, market, sell, and deliver a production to the market; and 2) running a services organization that must do the same in terms of building, marketing, selling, and delivering services to market. At times, these two requirements may be at competing points. At a minimum, there are countless tradeoffs that have to be made. In light of the fact that most technology companies are first developed around the product with the services organization being added over time, the primary focus is typically on the product despite the very real market need for a comprehensive services strategy and operating model. For emerging and developed technology organizations, partnering with a 3 rd party that has a focus on the services side of the business is a way to help balance these potentially competing priorities. ABOUT RTM CONSULTING AND THE AUTHOR Cincinnati-based RTM Consulting provides strategic and operational advice to assist technology companies with increasing revenues and margins by leveraging services more effectively. Specializing in Resource Management and Services Business Optimization, RTM Consulting helps IT hardware, software and pure consulting businesses achieve the benefits associated with successful professional and consulting services portfolios. With its unique Just-in-Time Resourcing solution and Business Acceleration Services, RTM Consulting helps large, medium and small firms move beyond theory to practical application of industry best practices and achievement of exceptional results in the shortest possible period of time. Mark E. Sloan is the COO of RTM Consulting. Mark is an industry pioneer with respect to defining and deploying Global Resource Management processes for Consulting and Professional Service Operators. Mark is a frequent speaker at industry events and has served as an Advisory Board Member for the Technology Services Industry Association (TSIA). Prior to his current role as COO and Senior Founding Partner of RTM Consulting, Mark held a number of executive consulting and entrepreneurial roles with Accenture and Convergys. 2007-2012. All rights reserved. 1-855-786-2555

RTM Consulting The Challenge Technology service providers and other human capital intensive service organizations including hardware, software and consulting companies, internal shared service organizations and outsourcing entities all know that efficient management of human capital, project processes, and other service delivery and go-to-market related processes are key to market success. Today s challenging business environment makes running a services business highly dependent upon having lean and proven business and operational processes designed for peak performance. The Solution Our unique combination of decades of services and outsourcing operational experience coupled with solutions targeted to the services organization allow us to work with large, medium and small firms to move beyond theory to practical application of industry best practices and achievement of exceptional results in the shortest possible period of time. Contact Us: www.rtmconsulting.net 855.786.2555 (855.RTMC555) info@rtmconsulting.net Who We Are RTM Consulting provides strategic and operational advisory services to technology companies and other industries to assist them in increasing revenues and growing margins by leveraging consulting, professional and shared services more effectively. What We Do Strategic Planning Services - We use our extensive leadership experience to help services organizations build the right strategy and operational model to make value creation a reality. Resource Management - We help you focus on Getting the Right Person in the Right Place at the Right Time with our Just-in-Time Resourcing (JITR) solution. Project and Portfolio Management Our unique PMO/PM frameworks will help your organization efficiently run projects on-time, on-budget, with consistently excellent quality. Services Business Optimization - Our skilled practitioners help you identify and implement best practices necessary to transform your services business into the most efficient and effective operation possible. Skills Development/Training - We enhance the soft skills of your consulting and professional services personnel to complement your product, business and technical knowledge. We also offer training in project management, resource management and other services based disciplines. PSA/PPM Consulting - We provide an objective third party assessment and assistance in choosing the right automation solution for your needs and assist you with implementation to achieve the benefits of your investment. Outsourcing Advisory Services - We assist both providers and consumers of outsourcing services with Strategic Sourcing Consulting, Resource Management Strategies, Business Optimization, Skills Development and Training, and Resource Management/Project Management Automation. Value Realization Services - Our unique Value Realization Framework enables you to help your clients close the technology consumption gap by accelerating adoption of your products full range of features and functions. How We Do It Company Capabilities Overview Our mission is to help consulting, professional, and shared services organizations get better at what they do Our highly disciplined management consulting and operational services include: Rapid Diagnostics to identify opportunities to improve business performance. Implementation Services to make solution implementation fast and effective. Business Planning Services to turn your vision into a realistic operating plan. Business Acceleration Services to accelerate your time to value with RTMC solutions. Copyright 2007 2012. All Rights Reserved.