Service productisation and how organisations can achieve more predictable and consistent services

PSO

Professional services organisations looking to provide productised services face a tough challenge in standardising and packaging their offerings. But new tools and techniques are smoothing their transition.

In a professional services market that – despite the downturn – is continuing to hold its own, service buyers are looking for greater consistency, predictability and accountability from professional services organisations (PSOs). Rather than open-ended, time and expense-priced projects, the market has moved towards deliverables-based and fixed-price engagements, shifting more of the risk and responsibility for success to the service provider.

Delivering productised – or packaged – services allows PSOs to better meet these new expectations – and using standard methodologies can also result in dramatically improved revenues, solid pipelines and increases in revenue per employee and billable hours. But the move also presents a number of challenges, not least in the need to package up complex service offerings around what remains an intangible commodity: people skills.

Without the right level of governance, offering guarantees that projects will be completed on time and to budget can leave PSOs exposed to unacceptably high risks, and see them footing the bill for project overruns. Organisations therefore need new tools and techniques to create and implement productised services, such as blueprinting and setting up project management offices (see boxout).

What is service productisation?

Productised services have a number of essential characteristics:

  • a pre-defined and clear offering;
  • a consistent methodology;
  • supporting tools and templates;
  • consistent knowledge and skills to deliver them; and,
  • quantifiable costs and demonstrable value.

Most services can be productised because while they all have different requirements, the underlying components that make up the services are the same.

Service productisation takes its lead from the manufacturing sector, where alongside commodity offerings, many products have become increasingly complex and require a level of professional services expertise for their deployment. Services are also part of an increasingly important service and support feedback loop designed to improve quality and better understand costs.

Productised services not only allow companies to deliver consistent service at a lower cost and higher quality, they also help with the training of service personnel as there are guidelines and previous
experience for new recruits to follow.

An important new function of PSA tools like eTask-it is the ability to have clear delivery guidelines or blueprints, refined over time and reused from one project to the next.

A ticking meter

The challenge for PSOs is to deliver quality, consistency and repeatability to service delivery when pricing is based on the hard-to-predict billable hours of consultants. When service engagements are time and materials priced, the odds are stacked in favour of the PSO, and if consultants work extra hours, the client just has to pay the extra. There is little incentive for the service provider to reduce the time and cost of a project – and in many cases the clients has little visibility into the true cost of the services being delivered.

However, clients are becoming more sophisticated buyers and have a better understanding of the services being provided by the PSO, and the work required to deliver them. More are starting to demand fixed-time, fixed-fee and shared risk engagements – in fact these type of projects represent about half of the work performed for Service Performance Insight’s (www.spiresearch.com) most recent benchmark survey.

The client/supplier dynamic changes when the product has a fixed price and timeframe. People don’t operate as consistently as machinery, and no one service is delivered in exactly the same way twice. PSOs therefore need to focus on developing ‘blueprints’ with structured business processes and quality control procedures, so consultants don’t just cut corners to finish projects within anticipated timeframes.

PSOs looking to deliver productised services need to break services down into their fundamental building blocks of work items, tasks and process steps that make up the service delivery lifecycle. They can then package those blocks into repeatable service offerings that appeal to their client base.

That requires consistent methodologies and implementation criteria from the PSO. It requires structured deliverables, with pre-defined scope, methods, skills, time and cost. But if that sounds too onerous bear in mind it also helps PSOs to scale out more effectively as they expand by geography, industry and in the number of services they offer.

Benefits for service providers

In fact, there are a range of benefits for PSOs of these types of engagements. Customers love the predictability and repeatability of the productised service. After all, no one likes getting in a cab and being told the meter is running when they don’t know where they’re going.

Sales and marketing teams therefore have a product that is easier to package up, put pricing around and sell because pricing and scoping parameters are based on well understood and previously experienced parameters. PSOs have improved planning and execution and are forced to implement tools and methodologies that lead to continuous improvement.

They have more predicable employee costs and current consultants and new starters spend less time on the bench because they are able to plan utilisation better. And from a finance and operations perspective, forecasting is easier based on the profitability of previous engagement with more predictable costs and service duration.

PSOs are already adopting some of the elements of productisation. Based on a survey of 214 PSOs, 48% already have a standardised service methodology and are experiencing significant benefits from it. For example, PSOs with a standard methodology on more than 60% of their projects have experienced nearly four times the revenue growth of those with less than 60% standardisation, up from 3% to 11%. They also have 13% higher revenue per billable employee, and a 13% higher billable utilisation.

Ultimately, though, the focus is on raising client satisfaction, and that in turn results in higher revenue and lower customer attrition. Customers like to buy products because they know what a product can do – they can see them, test them and compare them. Clients value something predictable that has been tested, proven and has demonstrable, reference-able value.

Service Performance Insight’s founder and Managing Director, David Hofferberth has championed solutions for the professional services sector for over a decade. David has over 25 years experience in information technology (IT) serving as an industry analyst, product director and consultant. David’s research is focused on the services economy, and in particular, on white-collar productivity issues and the technologies that help people perform at their highest capacity. David earned an MBA from Duke University and a BS in Industrial Engineering from the University of Tennessee. He is also a licensed Professional Engineer (PE). He serves on the advisory board of rightERP, and UK-based research organisation.