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Services CPQ - what Zimit has to offer in the services software space

Brian Sommer Profile picture for user brianssommer March 18, 2021
With more and more as-a-Service business models out there, isn’t it time to eliminate the often manual, spreadsheet-driven pricing of services? Here’s a look at Zimit and other changes in the services value chain.

(Vital Analysis)

Things are starting to get interesting again in the Services software space.

Over the years, there have been a number applications designed for the services space with some of them achieving a fair bit of market share. This space really started to take off in the late 1990s when firms like Niku, BusinessEngine, SkillsVillage, QuickArrow, Evolve, etc. sprang up. After 20 years or so, many of these were acquired or went away.

One part of this space, Professional Services Automation (PSA) has remained strong. ERP vendors such as Workday,  FinancialForce and NetSuite each have a major PSA sub-suite in their product portfolios. A number of standalone PSA’s have also prospered, such as Kimble for example, which I first covered in 2016. This is a PSA vendor that has played well in the Sage and Salesforce ecosystems and this week announced: 

...the closing of a significant growth investment from Accel-KKR, a leading technology-focused investment firm. This transaction, which follows Accel-KKR’s initial investment in Kimble in early 2018, results in the firm becoming a majority interest holder in the company. The new investment will fuel continued innovation of the company’s industry-leading PSA platform and accelerate go-to-market initiatives that cement Kimble’s leadership position in North America for modern services organizations such as software companies.

As news goes, Kimble didn’t offer many details regarding this deal (eg: pre/post money valuation, total capital raised, etc.). That said, it is good to see capital going into the PSA space again.

The CPQ space

One area of services technology that has been missing in the services tech stack involves the ability to respond to RFP’s and price out deals. A new entrant, Zimit, is focused on this space.

Zimit is a CPQ (Configure, Price, Quote) application for service organizations. It replaces tons of spreadsheets and paper.  Once installed, the product allows users to quickly incorporate standard terms, proposal materials and other responses to the RFP submission. A key component of this is the development of a quote.

Interestingly, Zimit defines their space as CPQ for the ‘everything-as-a-Service’ market. This is in contrast to the numerous configure price quote tools used by product manufacturers. And, it’s actually an important point as selling a person’s time (and the outcomes these should produce) is quite different from preparing a quote to do something (e.g., build a car).

Services CPQ functionality is not without its challenges. Unlike selling a fixed, defined product, many service deals can be one-off arrangements (eg: digital transformation projects, management consulting projects, legal cases, architecture gigs, etc.). Those projects require time to estimate effort and price out. Many service firms start with a similar project’s work plan and adjust the latest effort up/down based on differences the proposed client wants or needs. This effort often starts in a spreadsheet and stays there.

The problems with the spreadsheet approach are numerous:

  • Embedded formulas, prices/rates, etc. may be outdated
  • Prior spreadsheets may have certain assumptions built-in (eg: skills availability, scope requirements, etc.) that aren’t documented but exist in the time and rate values
  • Critical plan elements may have been dropped in a prior version and don’t get re-inserted into new cost estimates/plans
  • It can be difficult to feed the proposed quote into a PSA and/or project management tool without re-keying data
  • Etc.

But the real value in having an integrated services CPQ (and not reliance on spreadsheets and paper) is that it can speed the time to prepare (and approve) a services quote from days to hours while also enforcing standard practices, pricing, etc.

The scope of services CPQ

A great CPQ tool would generate:

  • A solid pricing estimate
  • A risk memorandum or schedule (eg: is the estimator selling services that can’t be delivered with the available staff complement?)
  • The terms and conditions needed to complete the deal quickly. This could include a MSA (master services agreement) and individual statements of work (SOW).
  • An approval workflow that automatically sends the quote through the firm’s email, collaboration or other systems to get the pricing signed off. Approvals may be needed to ensure appropriate gross margin targets are being met, any planned fee adjustments are reasonable/supported, the proposed staffing is correct etc.
  • An escalation process if the deal is deemed risky or is beyond normal size for such a project

But not all services deals are alike. While some deals are one-offs, there are many technology deals where the hardware or software vendor has a templated, standardized work plan. Sometimes these are marketed as a ‘fast implementation’ project. These projects have pre-defined tasks, work efforts, etc. But the process of getting these priced and accepted by clients still has challenges.

Clients might say they want a fast install but they’ll also possess unique requirements or needs within their firm.  Those unique aspects can affect the quoted price, timeline and staffing. The potential client might have an aggressive time frame, decide they want to pick and chose which resources go on the project, etc.

A great CPQ tool needs to be connected to other applications. As the graphic above illustrates, CPQ rests within the value chain. It must connect with CRM, PSA and other applications. In Zimit’s case, it has integrations with Salesforce, FinancialForce and Workday as well as connections to many popular ERP solutions.

What a services CPQ will or won’t do

A services CPQ can generate pricing and bid documentation. However, some functions will likely rest within a PSA or financial system. For example, the CPQ product will likely quote pricing based on skill types versus a named services person. This is common as the service provider may not know exactly when the project will start and which personnel will have availability at that time. The CPQ tool won’t necessarily prevent a firm from over-committing its most experienced or in-demand personnel. A PSA product, specifically its Resource Management module, will provide visibility into that dynamic.

A services CPQ should have a feedback loop to see if the work that was proposed was, in fact, what was delivered. This has been a tough one for services organization as so many things can change during the life of services project. Those changes can include:

  • Sudden loss of a project team member
  • The billing rate of one or more team members goes up mid-project
  • A team member gets promoted and sees their billing rate move up materially
  • The project scope changes
  • New information emerges that suggests the original estimate requires changing
  • The client’s business changes in an unforeseen manner (e.g., merger, acquisition, divestiture)
  • A pandemic occurs
  • Etc.

A feedback mechanism could help a service provider understand whether the planned vs. actual customer pricing was due to a planning error or a change in the client’s business. This is a material issue as many service groups will want to bill for scope or staffing changes that it did not trigger. Likewise, service buyers don’t want to pay more for what should have been a foreseeable event. Service providers needs to know if their quoting process missed material workstreams. Clients hate to be surprised with a barrage of change orders after they’ve signed a service deal.

Change orders are often a reflection of a bad sales effort. On a personal note, in almost 30 years of doing consulting work, I’ve only done 2-3 change orders. Why so few? I spend time with clients ahead of the quoting effort to understand the breadth and depth of the work to be completed. Of course, if the client makes a surprise acquisition of another firm mid-project, a change is in order. However, there are too many sales pros who want to whip out a generic, uninformed services proposal quickly so that they can collect a commission and then throw the proposal over the wall to the lead service manager to figure out how to make this work.  If you’re the client in that scenario, this sucks.

Buyers should NEVER accept a services proposal from a firm that never bothered to really understand the business problem, the client’s resources (or lack thereof), the unique aspects of the customer’s business, etc.  Whenever a client shows me an implementation proposal from a software vendor or implementer and it says that the first piece of work is a paid-for 4 week “discovery” effort after which the service provider will attach a number of change orders to the proposal, I tell the client to pass on this. Why? If the service provider can’t be bothered to give you a proposal that has a reasonable chance of being correct, then you shouldn’t be bothered by dumping them and seeking true love elsewhere.

CPQ could help in this situation if it means that service firms want to make deal pricing easy for sales pros to develop a high quality and accurate proposal fast.  But I’m not sure that’s what some technology firms want to do. There are two anti-client issues at work here. First, there’s the desire by a sales person to get a low-ball quote out the door fast. This person likely gets a big commission pushing product and less so for pushing services. So, the sales pro will put anything plausible into a services quote to make sure that the product sale goes through. The actual delivery of the services is not his/her problem. In fact, the sales pro may have cashed the commission check months before anyone’s wise to the quote problems.

The other issue is that some tech vendors are really trying to push rapid implementations irrespective of the actual effort to make such a project a success. This issue is thorny as a vendor might define success as a product that got implemented even though it does exactly what the old system did. The client may actually want the new system to reflect reimagined and reengineered processes (or digitally transformed processes). The fast implementation might not reflect that.

CPQ can only help service firms that want to deliver better (and expected) outcomes for their clients. That only happens when they take time to understand the client.

Zimit data points

Zimit has integrations with FinancialForce, Salesforce, Workday, and other leading CRM, PSA, and ERP applications. Workday Ventures has a relationship with Zimit (see this piece by Den Howlett). For more on Zimit, see this piece by diginomica’s Phil Wainewright.

My take

Innovation in services procurement has been a lumpy affair. Investors have been fair weather backers in this space since the late 1990s. That’s odd as services make up a large and growing part of the world economy. The money always seems to go to technologies for the production of goods.   

The Zimit briefing I did last week was interesting as it was about an all-new offering in a services space previously ignored. We should not overlook this fact. Zimit’s focus on eliminating spreadsheets and paper isn’t just an efficiency play as better tools could actually trigger better plans being produced. That should benefit service firms and their clients – that’s also a good thing.

The other key observation must be that Zimit exists because it is focused on eliminating a non-automated or less-than-optimally automated aspect of services’ sales. It’s astonishing that white space opportunities like this are still present in many business processes. Businesses can’t very well ‘digitally transform’ themselves when manual, analog or paper-based process components are still present.

Finally, some aspects of services procurement need help that technology alone can’t solve. The best firms will ensure that sales processes, sales commission/compensation and more are designed to help the firm, the customer and sales professionals equally. Whenever there’s an imbalance, problems will exist.

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