Our industry has been debating the pros and cons of converging service organizations for years. And for good reason—there are so many obvious and truly meaningful benefits that can be realized by breaking down the silos:
- A more streamlined service offer portfolio
- Improved resource utilization
- Elimination of redundancies in skills and capabilities
- Improved economics achieved through cost optimization
Yet to date, there has been little more than lip service paid to the idea of collapsing and blending service organizations and capabilities. Understandably so, as there are careers and jobs at stake, not to mention just how daunting a task it is to dismantle and reassemble longstanding and highly stable structures and processes.
But in spite of the inherent forces of resistance, we at TSIA believe that 2017 is the year where we will see widespread and meaningful progress made on services convergence. Here's why.
Drivers for Services Convergence
TSIA is witnessing several industry trends that are stressing the current practice of completely independent service lines:
Growth of Managed Services
Currently, TSIA benchmark data shows managed services as the fastest growing service line in the industry (compared to professional services, support services, and education services). The challenge is that managed service contracts often require service capabilities from across multiple service organizations. The managed services P&L now requires resources from other service line P&Ls.
Rise of Customer Success
TSIA benchmark data shows that technology companies are creating customer success organizations with two primary objectives: help customers successfully adopt technology, and make sure those customers renew. Just like managed services, customer success may require capabilities from other service line P&Ls to drive adoption and retention.
The TSIA T&S 50 index clearly documents the struggles incumbent technology companies have been facing over the past four years to grow top line revenues. This has created immense pressure on service line P&Ls to create new offers to help drive revenue growth. Support organizations are creating new premium offers that look very much like managed service offers. Professional service organizations are creating annuity offers that could be interpreted as premium account services. Turf wars are quickly emerging between service lines.
The Confused Customer
Last and clearly not least, there is the confused customer. All of these independent service lines are vying for the customer's attention. All of these service lines are advocating their service offerings will have the greatest impact on success. In essence, technology companies are arguing in front of the customer—and it is not very becoming or helpful.
Some Promising Convergence Tactics
Managing independent service lines is a play the technology industry knows how to run well. Converging service lines sounds terrifying. For this reason, we believe that most companies will ease themselves into this journey. Here are a set of plays your company can run to begin leveraging the benefits of converged services:
Shared Centers of Excellence
Support services and more recently, professional services organizations, have been building Centers of Excellence (COE) that allow them to leverage centralized resource pools located throughout the globe. While to date, these have been largely separate initiatives, we see tremendous value in blending support and PS COE capabilities. Yes, there may be different skills requirements, but clearly there are synergies to be had. Add the needs of managed services to the mix and the business case for coordinating the location and management of centralized COEs becomes more compelling.
When a customer engagement is in play, having the ability to deploy the right employee with the right skills, regardless of what service line they report to, is a powerful capability. In our 2015 Organizational Structure survey, almost 65% of the respondents reported they were sharing delivery resources across service lines. The traditional sticking point in pursuing this tactic is the “internal transfer rate.” How much do you pay to use the resource from another P&L? The market rate? Some discounted rate? Discounted how much? If you let this one number stall the conversation, bad things can happen:
- Employee resources sit idle while a sub-contractor has to be deployed.
- The customer engages with a resource that is not as expert.
- Project start dates get delayed.
For these reasons, we believe it is well worth the effort to agree on internal transfer rates that keep resources flowing freely between service lines.
"65% of surveyed technology companies are sharing service delivery resources across service lines." - Tweet this!
One Portfolio Team
TSIA has been advocating for this tactic since 2013, which I discuss in my blog post, "The Outcome-Based Services Portfolio". This is the move where you migrate everyone that is working on service offer definitions into one team. That team is responsible for defining the offers that will be delivered by all service lines. This play can be run without collapsing the individual service line P&Ls.
TSIA is observing there are two powerful sub-plays to run after establishing a consolidated portfolio group. The first play: Have this group build detailed customer experience journey maps for key customer personas. That information will inform gaps in the service portfolio. The second play: Have this group build offer journey maps which clearly document what service offers customer segments should be consuming over time to unlock greater business value from the technology.
These are just three of convergence tactics that we recommend. There are others.
Get on the Path to Convergence
To learn more about TSIA's point of view on services convergence, I invite you to download my new paper entitled “Primer on Services Convergence” that provides the following insights:
- The drivers for services convergence
- The benefits of services convergence
- The tactics to migrate toward services convergence
- Industry examples of services convergence
- What a highly converged services organization will look like
I also encourage you to attend Technology Services World San Diego 2017, taking place May 1-3, where our entire agenda will be dedicated to “Organizational Convergence in a Recurring Revenue World.”
Let the blurring of organizational lines begin!
About the Author
Thomas Lah is executive director of TSIA. Since 1996, he has used his incisive analysis, strategic thinking, and creative solutions to help some of the world's largest technology companies improve the efficiency of their daily operations. He has authored several books, including, Bridging the Services Chasm (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016).