Creating Paths to Long-Term Client Success Through Services
This is a guest post from John Ragsdale, distinguished researcher and vice president of technology ecosystems for Technology & Services Industry Association (TSIA).
As the technology industry continues to evolve from on-premise hardware and software to cloud and “anything as a service,” or XaaS, the approach to technology implementations is also evolving. With the primary charter of professional services now largely focused on increasing customer adoption and/or value, the emphasis of projects is changing from custom implementations with extensive customizations to more fixed price, repeatable projects that enable businesses to reign in customizations and follow more “out of box” data models and process flows. However, with customer success organizations typically viewed as the owner of adoption, what is the role of professional services (PS) in long-term value realization by customers?
This blog will present data that shows the progress PS teams have made in transforming the culture, the charter, and the offers that drive long-term client success, and where improvements are needed to complete this transition.
From On-Prem to XaaS: PS Charters Evolve
If you think that on-premise technology is dead, you would be mistaken. According to TSIA’s PS benchmark survey, which captures data from hundreds of B2B technology firms, there is still significant revenue coming from legacy products. On average, 37% of total company revenues still come from legacy products and licenses, 36% from technology subscriptions, and 26% from services (professional services and support/maintenance services representing the lion’s share). There are, of course, a growing number of born-in-the-cloud pure XaaS firms out there, with Salesforce and Kantata being prime examples. However, for long-time tech titans, migrating customers (and revenue) to the cloud is a slow process.
This shift to the cloud does mean a different focus for implementations. PS organizations are in the midst of transformation and need to shift focus, with some companies leading the way, some making progress, and others being dragged kicking and screaming towards new approaches. One of the best examples of this transformation is the evolving charter of PS, as seen in Figure 1.
Evolving Charter of Professional Services
Note: Sourced from TSIA PS Alignment Workshop Survey
In 2018, the top charter for PS was margin, and any TSIA research relating to project margins and utilization rates always climbed to the top of most accessed content. Today, we see that focus has shifted away from margin, and adoption/customer value is now the #1 charter of PS groups.
For most technology firms, customer success (CS) is seen as the primary driver of customer adoption. In fact, 88% of CS teams, and 93% of CS teams in XaaS companies, say they have a charter to drive customer adoption. Although CS may be front and center in this focus, they can’t do it alone. With increasing interest in product-led growth, customer success is a culture, not a department, and everyone has a role to play: the product team, the sales team, the support organization, and unquestionably, professional services.
The Role of Professional Services in Driving Adoption and Value
Professional services drives adoption and long-term value for customers in several key areas:
- Training and Onboarding: Approximately 29% of companies say PS has the primary responsibility for customer onboarding, and even if CS is handling end user onboarding, PS typically owns system admin and “train the trainer” training.
- Less Customization, More Out-of-the-Box: On average, 55% of PS projects are now fixed price, repeatable offers, but for pure cloud firms, this can be 90% or higher. Pushing customers to embrace out-of-the-box processes and avoid over-customizing the data model will shorten implementation time, lower ownership costs and complexity, and should allow faster time to value provided there is enough training implemented to overcome reliance on a highly customized legacy system.
- Provide Customers with the Right Mix of Resources: As implementation projects focus more on how to drive rapid adoption, PS teams increasingly need more than technical skills. Business acumen and industry/vertical expertise will become increasingly important to help customers identify changes and the required people, process, and culture needed to receive the maximum benefits of technology investments.
And of course, there must be new offers.
Creating Value-Based Offers
Though 41% of firms say they have a formal methodology for developing PS offerings that are intended to increase the adoption of products by existing customers, only 3% of projects, and 6% of total PS revenue, comes from value or outcome-based projects. So, what are examples of offers to boost adoption or time-to-value?
According to TSIA’s CS benchmark survey, 40% of companies today have monetized CS offers. In a survey conducted last year asking what typical offers for monetized CS exist, a few examples are clearly PS plays:
- Process consulting: 79%
- Performance optimization: 64%
- Risk management/compliance: 32%
It is unlikely that customer success managers (CSMs) have the skill set to deliver these projects, but they are well positioned to identify the opportunities.
While monetizing CS offers is becoming more common, it doesn’t mean everyone has figured out how to do this profitably. According to the CS benchmark survey, only 21% of companies measure gross margin for monetized CS offers. For those that do track project margin, the average margin was 25%, compared to 44% for PS project margins.
Closely partnering PS and CS becomes a critical path, not only to better inform CSMs on available offers and how to identify them, but also to push CSMs to introduce better practices around delivering profitable projects. Where organizations are using technology designed to optimize professional services performance, such as professional services automation (PSA), adding licenses for the CS team is a good start.
With an eye toward shifting the focus of professional services more toward enabling customer adoption and value realization, I offer these final recommendations:
- Proactively Manage Change with Consultants. Instead of having a primary focus on revenue and margin, prioritize customer adoption. This change has implications to the offers you create, the skills you recruit for, and the incentives you provide consultants. Be proactive in communicating these changes to help employees understand the importance of being invested in customer success and the critical role they play. Also, you may want to rethink how you are screening new applicants to ensure you are recruiting consultants who understand customer success, and you may need to pay more attention to business acumen and soft skills instead of just technical prowess.
- Create a Service Catalog of Fixed Price, Repeatable Offers. If you have primarily been delivering custom implementations, it is time to rethink your strategy and begin building fixed price, repeatable offers, and leveraging the project management capabilities of your PSA system to architect prescriptive project plans. Also, encourage consultants to capture lessons learned and best practices in those plans every time they execute a project, so future consultants never have to “reinvent the wheel” to overcome obstacles.
- Forecast Resources, Not Just Revenue. As charters and projects evolve, resource requirements are evolving too. Enabling customer adoption may require project teams to include more business acumen, process expertise, and industry experience. While most companies are using their PSA solution to forecast project revenue, be sure you are also forecasting resources to help you understand the consultant skills required 6, 12, and 18 months from now, and start recruiting for those skills today. Delaying this will only lead to project backlog when the critical skills to drive adoption are in short supply.
With a stronger focus on client success in projects today and an eye on continuous improvement through lessons learned, professional services organizations can find a more meaningful level of success.