Over the past decade or so, product companies have been learning a lot about delivering services. Digital connection has allowed them to become far more engaged in ensuring their customers have a successful experience with their products, and in industries such as software, many have repackaged their entire output into X-as-a-Service (XaaS) offerings. But similar changes are coming to service companies too. Service organizations have always had to engage deeply with customers, but digital connection is changing how they deliver their services.
I recently wrote how traditional, asset-intensive businesses have moved towards what they call servitization, built around gathering data about how their customers use their products. These moves often stem from wanting to provide a better after-sales service experience, based on the very sensible observation that if vendors get paid by results, they have more of a vested interest in doing the work quickly and efficiently than if they are paid by the hour or for each call-out. At its most sophisticated, this becomes what Geoffrey Moore in his book Crossing the Chasm describes as 'the whole product' — for example, a maritime paint manufacturer ends up being paid based on the fuel savings achieved by ships whose hulls use its paint. The product is no longer the paint alone, but a whole package of services that maximize the paint's impact on this outcome of lower fuel consumption.
But what about companies whose entire offering is professional services? They have no product of their own to wrap their services around, so what is the 'X' in their XaaS? How can 'Services-as-a-Service' be anything other than an empty tautology?
Earlier this year I spoke to Chris Barbin, an experienced technology services entrepreneur who is now CEO of Tercera, a firm he founded last year to invest solely in consultancies and managed service providers specializing in certain cloud technologies and applications. He sees this latest breed of technology services companies adapting to a digitally connected mode of operation, characterized by flexible remote working, packaged services often tailored to specific industries, and a willingness to 'co-innovate' with customers to help harness the technology to achieve specific business outcomes.
Products and services - two sides of XaaS
These are all useful pointers, but what about the actual packaging and pricing of the services offering? I got closer to answering this question in a conversation with Dan Brown, Chief Product and Strategy Officer at FinancialForce. With a product portfolio that covers both cloud ERP and Professional Services Automation (PSA), the software vendor has seen both sides of the rise of XaaS. Many of its cloud financials customers are from the technology industry, while its PSA product is popular among professional services companies, as well as the technology companies' own in-house Professional Services Organizations (PSOs). Brown says:
One of the things that is pretty interesting about our business is that there's learning that is happening between the part of the business that is selling Software-as-a-Service, and the part of the business that is selling traditional employee-oriented business services ...
How are PSOs learning from tech vendors and how are tech vendors learning from PSOs, I think is really interesting.
One example of that crossover learning is that services organizations are having to learn how to package up their services for consumption from a digital catalog, rather than manually creating a custom quotation from scratch every time. He explains:
In the professional services organization, services quotation and configuration has been an afterthought for quite a bit of time. Like, how many Excel spreadsheet versions do you have to go through before you say, 'Hey, enough, is enough'? So that's an area where you have spillover from technology to a professional services model.
Crossing in the other direction, software companies have had to learn how to engage with customers and help them resolve issues on the fly, or track their progress over time to ensure that they're achieving success with their use of the product. These are things that services organizations have long understood how to do. He continues:
The way that you treat clients and organize around service delivery is not something that software companies are used to. Playbooks, to me, are just a great example of how you swarm and get multiple team members to focus on a client. That's pretty typical in a pureplay professional services organization ...
Early in my career, I worked for a [technology services] company called Cambridge Technology Partners. We had a position called a client partner — somebody who had been in the industry, probably around 10 years. They typically had a fairly deep technical knowledge — if we were doing customized software, the technology used to do that. They understood the accounts that they were operating in. And they did everything. They were there from a sales perspective, they were there on any project that was being implemented, they were there on any project that needed post-completion support. And that whole idea of this client partner is something you're starting to see more and more of, particularly in the enterprise ...
I think this is an inversion. Ten, twenty years ago, in the software industry, nobody would talk about that. It was like, 'Hey, we sold, and goodbye. If you have an issue, pick it up with support.'
Productizing and economics of services
But services companies and organizations still have more to do as they adapt to XaaS, he believes. They are particularly in need of a more rigorous approach to productizing and managing their offerings, as well as paying more attention to the economics of what they're delivering. He comments:
Service organizations are exceptionally operationally inclined. But when they create a new offer, they don't often have the discipline to go through a new product introduction.
The economics are getting more challenging as service offerings become more varied, encompassing consumption-based elements, managed services, multi-tier support levels and so on, each of which may be billed in different ways. For each component, it's important to understand both the initial Customer Acquisition Cost (CAC) and the total cost of providing the service. He explains:
Everybody wants to understand CAC and cost-to-serve. They want to do it at a unit economic level. That's the Holy Grail, where do I put my limited [sales] resources, if I can put them on a deal that has a higher probability of closing? ...
On the tail end, the cost-to-serve. Every CFO on the planet wants to know, 'How much money are we putting into an account?' Whether it's from an implementation standpoint, or a support perspective, or a success perspective, or all the other interactions that you don't even know about, that are cost-to-serve for that engagement. Are you profitable? ...
You have to think about the unit economics and the supply chain, the skills and the technology that help your employees bring success to your customers.
Telemetry and data analysis
This in turn relies on bringing together all of the data surrounding those activities, along with metrics that can shed light on customer engagement and retention. FinancialForce has coined the term 'Service-as-a-Business' to describe this combined emphasis on customer value creation and digital connection. But the data that services organizations currently gather typically falls far short of what they could track. He continues:
Ultimately, telemetry is the common denominator to great services business. How do you have signal? How do you mind the signal? And what do you do with it? How do you shape your business based on ongoing signal?
It's relatively easy to answer these questions for FinancialForce's portfolio of software products, he adds. The usage telemetry collected within each of these products is fed back into the product development lifecycle and used to improve the next iteration of the offering. But the vendor is also starting to think about the customer lifecycle as a product too, and gathers data and feedback about various service delivery points in the customer journey such as implementation, ongoing configuration, customer support, renewal, upgrades and so on. He elaborates:
That actually turns out to be a harder problem to get signal on ... You have telemetry that is built into the product and is typically unique to the product ... You have telemetry that is based on systems of record for operational interaction with your customers — support ticket, a project, a pipeline opportunity, and so on.
But then there's all this other signal that is out there. It's everywhere, it's in every dialog, it's in every video conference, it's in every customer visit. I don't know if that's 50 or 80% of the total telemetry that you have about your customer or your prospect, but it's a lot. Every product and go-to-market organization on the planet would love to have that and be able to mine it.
All of this is part of what it means to deliver services within an XaaS offering, or as FinancialForce prefers to call it, Services-as-a-Business. He sums up the philosophy:
In a nutshell, number one, always focusing on customer value creation. Number two, you need this set of connected and digitized capabilities. And number three, what do you get from those, that help you create value? ...
We have to keep in mind that all functions that touch the customer are selling. All functions that touch the customer are supporting. But you always have to put the customer success and the value creation ahead of everything else. If you don't do that in a service business, you're thinking short-term, and that customer is probably not going to be with you for the long haul.
I think Brown does a good job of articulating the challenges services companies and organizations face as they adapt to the XaaS model. Digital connection does fundamentally change these service relationships, even though there are many more human interactions than you will typically find in a product relationship. Processes and touchpoints still need to be digitized, and as part of that they need to be more standardized so that they can be handled digitally rather than manually. This produces much more data, which needs to be analyzed more intensively to ensure that the service delivery remains competitive. More automation makes it all the more important to track engagement, so that adverse sentiment can be picked up quickly and acted upon, either with an automated response or, where necessary, by escalation to human intervention. All of this data collection and analysis then potentially yields further opportunities to enhance or streamline the service.
Having said all of that, services companies typically start out with a much better understanding of how to keep customers engaged and happy than their peers in product-centric businesses. Everyone is having to learn new digital tricks in an XaaS world, but if everything becomes a service, those with a service delivery background do at least have a head start.