Services Safari

Professional Services Lessons From Sourcing Pros

          Advice From the Other Side of the Negotiating Table

                                                Part Two

I recently sat in on an all-day meeting with a dozen or so sourcing executives.  The entire day was spent discussing the acquisition of professional services.  There were a number of interesting insights that surfaced throughout the day.  Here are the second group of highlights I noted:

• Some executives whose companies utilize extensive amounts of contracted legal assistance, recommended placing lawyers on risk sharing or outcome based arrangements.  The typical deal they discussed involves the payout of bonuses when matters are resolved ahead of schedule and under favorable terms.
• Training projects are still wide open from a sourcing perspective. Practices for how this work should be negotiated, priced, etc. are far from standardized.
• The executives in attendance recommended that IT project management activities should be done by the client not an integrator or a specialist integrator. The issue involved is that a client would offer a more critical review of progress and press the integrator to stick to the contract and not find countless ways to expand the scope of work.
• The more commodity-like the services and the longer the project's duration, then the lower the target margin for the service work should be. Outsourcers and package installers should not expect nor receive the same margins that a short-term graphics artist gets for a 1-week gig.
• No consistent definition exists for professional services or consulting. Sourcing executives find it tough to apply a single set of practices that apply to the full breadth of services that companies procure.
• When service firms use delivery personnel that are different from the sales team, clients are warier than ever. They don't believe that sales pros know how to correctly estimate service work or are afraid that sales pros will intentionally under-scope the work just to get a nice commission.
• Several execs indicated that the fear of outsourcing is dissipating somewhat in their firms. It still is a touchy subject and one that must be handled carefully. One of the more interesting comments was that employees 'no longer think of travel or benefits processing as outsourcing. They (employees) just see it as a service now'. This may be true for non-core functions but it takes time for the thought process to change.
• SG&A costs of service providers are considered too high. This point was especially sensitive with sourcing executives who feel their firms are being invaded by service sales teams.
• Service firms should expect clients will pare back projects if the economy degrades further. Clients will go for shorter duration or fewer projects.
• Lastly, these executives have a new math equation they'll try out on service firms. They want to know how many clients you have so that they can calculate your revenue/client. The greater this number, then the lower margin they believe you should receive.

If you'd like more information on any of these comments, fire me off a comment or an email.

Professional Services Lessons From Sourcing Pros

               Advice From the Other Side of the Negotiating Table

                                                Part One

I recently sat in on an all-day meeting with a dozen or so sourcing executives.  The entire day was spent discussing the acquisition of professional services.  There were a number of interesting insights that surfaced throughout the day.  Here are the first group of highlights I noted:

• When it comes to approving expenditures for management consulting or strategic consulting, most sourcing executives indicated that this is controlled by their CEO. Procurement has no say in these decisions.
• Procurement executives are heavily involved in IT spending decisions.  In fact, IT is indicated as the greatest success area for procurement/sourcing executives.  Procurement is involved in all aspects of IT spend including hardware, services and software.
• Sourcing executives have little input in the choice of external auditors or outside counsel.  In-house counsel continues to control the selection and rate approvals for outside legal spend while board members and the CFO approve and negotiate fees with external auditors.
• Sourcing executives strongly recommended that service buyers include most favored nation's clauses in their master service agreements and other service contracts.  Several executives noted great success in enforcing these arrangements as too many service firms are uncoordinated in managing to a static rate card.
• Several sourcing executives indicated concern when they uncover that critical service suppliers (e.g., engineering firm) may have violated corporate intellectual property protection clauses.  Offending firms often have their contracts immediately canceled and are barred from future bidding for a multiyear time period. However, some executives noted that critical suppliers cannot be cut loose without creating material adverse harm to their own firm.
• Sourcing executives are particularly irritated with systems integrators who seemed to be blanketing their firms with sales teams on a global basis.  In retaliation, these executives have changed building access rules for consulting personnel.  Now, only one sales person per consultancy is allowed a building pass and all consultants must be signed in by a client.
• Sourcing executives are maintaining a watchful eye on the human resource practices of outsourcers.  These executives fully expect to expend more effort in monitoring compliance with critical regulations and policies in this area. 

Tomorrow- I'll post more observations

If you'd like more information on any of these comments, fire me off a comment or an email.

Service Marketplaces

                    A Market That Still Isn't Catching On

I was reading Global Services magazine (www.globalservicesmedia.com ) and came across a lengthy piece they completed titled "Online Services Marketplaces". The focus of the story concerned how small and medium sized firms are using online services marketplaces like eLance (www.elance.com), Guru.com (www.guru.com), Freelance.com (www.freelance.com) and others. The story pegs the total marketplace for such services around $200-250 million annually with a lot of deals being staffed from Eastern Europe personnel.

I have a lot of expertise in this space and so does my colleague and former IQ4Hire business partner Vinnie (www.dealarchitect.typepad.com). Here are my thoughts on this space:

• Renting a body for a specific price and time commitment is far simpler than getting an entire project staffed. It is a giant step up in complexity to choose an integrator for a full-blown SAP project vs. a graphics designer for a week.
• Intangible attributes (e.g., 'Chemistry' or 'cultural fit') about service providers are very hard to quantify in online service directories. Many service buyers want to meet the team/person before cementing a deal. An online service complicates or hinders this.
• Different sites are better at some tasks than others. Many sites are good for getting one person at a time. Some can help with completing a phase of a project while fewer still can help with an entire project. Almost no site carries the tools to assist in the selection and brokering of complex, large-scale IT programs (e.g., IT infrastructure outsourcing).
• Almost all sites are funded by service buyers. If you're expecting neutrality in an online service, forget it.
• Almost no site tries to help service buyers with tools to create statements of work, task descriptions, complex work estimates, project (not personal) work plans, etc. Most sites are like dating services with the addition of a reverse auction capability that applies to bill rates.
• Amazingly, few sites are specific to IT. This begs the question: Can a site that helps me find a babysitter, a lawn service and a logo artist really help me complete a major technology program? I don't think so.
• Subject matter experts could do a lot to help buyers make better decisions. However, low-end or small-deal size sites usually provide no human experts to counsel either buyers or sellers. If your firm has never completed a CRM deal, wouldn't you want someone who watches dozens of CRM deals every month to advise you?
• Intellectual property (i.e., relevant and synthesized work plans, task descriptions, performance metrics, etc.) could really help both buyers and sellers of services. However, few of these are to be found on most small market oriented sites.
• Big companies believe they can negotiate anything - including services. They believe that suppliers will flock to them and all they need to do is sift through bids and apply brutal leverage vendor-against-vendor. While I believe that pride goeth before a fall, it won't get big companies to use these marketplaces for big projects.
• Staffing firms (and others who provide contingent labor) provide tools for their customers that provide much of the same functionality offered in services marketplaces. This creates a substitute type of competition to existing services marketplaces and prevents these marketplaces from growing more.

I think the article is correct in its estimate of the market and any venture capitalist backing one of these firms should think really hard about the long-term growth prospects for this space. While I like the concept and believe that buyers would benefit from these marketplaces, people have been building these since the late 1990s and the adoption rate has been very slow. One marketplace I know has suffered through approx. half-dozen CEOs and close to $100 million in capital financing. Most marketplaces were eithered shuttered or merged. Still, the space didn't get stronger with market consolidation. It has just stayed tough, slow-growing and, often, unprofitable.

Good luck to those fighting to make these a market success.

How Clients React to Consultants

                    How Clients See You

The Stanley Bing column in the back of the recent Fortune (see "When McKinsey Comes", www.fortune.com) is a riot. He describes how clients react to the news of McKinsey consultants coming to their firm.

What I really enjoyed is how he used a 12-step like model to describe the process. That is, first there is shock, then denial, then anger, then bargaining, etc.

I've seen all of these and am currently dealing with a client executive who has moved through many of these phases. First, he was dismayed that the client retained me to help him with this huge capital project. Then, he got angry and tried to get me dislodged. That one was really interesting to me as the business owner approached me about taking this assignment. I didn't sell this opportunity. Next, the disaffected executive tried to bargain his way. He tried to reassert his claim to own the project and tried to shove me out. My client steadfastly refused. Then, this executive fell into a nasty funk and put his own job in jeopardy as his foul mood/behaviour had definitely been noticed. To management's credit, they were patient and counseled him through this.

We're not quite to acceptance just yet. I suspect this person may cycle through the phases one more time before this is over. Interestingly, another executive with similar, lateral responsibilities has never been bugged by my presence. He's delighted to have some help. He's secure in his position, recognizes that we have different but complementary skills sets and believes I will help him be more successful.

How clients see us is amazing. How we deal with these different folks is a critical success factor for consultants. I will attempt to offer some guidance I've used to work with those who fear the presence of outsiders:

• Talk, Talk, Talk - Humans fear the unknown. If the client person doesn't know who you are or what you're there to do, they'll invent a far more insidious view of your 'ultimate' objective. Ideally, the client that hired you should have informed all affected persons that you are coming on board. But, because many fail to do so, make sure you craft that opening communication script/memo for them before you arrive.
• Put a personal face on your activities - It's harder to hate or fear someone you know. They may not like you or everything you're doing, but help them see you for who you are, what is motivating you and how you'll make decisions.
• Drop clues that you have a career outside of this client and they'll come to see you're not after their job - People who are unsure in their job are terrified of consultants. They suspect you'll discover that they're not so great. So, when they see you're not gunning for their post, they'll relax and back off some.
• Some clients are bullies. Some are unprofessional. Deal with them directly - I worked with a fellow who swore profusely, was cruel to many and obstinate. I discovered that this type of person will only respect those who stand up to them. Once I shamed this fellow, cleverly and in front of peers, he realized I couldn't be cowed and he quit his belligerent act with me.
• Children hate change and employees are just older children - If you or your spouse has a routine they do with your child (e.g., reading a bed time story), you'll notice that they hate to see the status quo changed. Employees are the same way. You shouldn't need a big time change management study to know this. But, you need to be sensitive to these feelings and the unsettled wake you're creating.
• Watch for the passive resistant behavior - Some clients will tell you they agree with your approach/findings and even agree to help or complete activities. However, they do not actually deliver anything as they won't make anything of yours a priority for them. This behaviour is despicable and reprehensible; however, clients have a bad habit of tolerating bad behaviour of their own people while simultaneously holding your feet to the fire for meeting critical deadlines. You need to relentlessly follow up with all client personnel for critical deliverables. Any unexpected slippage must be immediately reported to this offender's superior .   

Women in Services

               The Performance Difference Women Make

I recently browsed the "2005 Catalyst Census of Women Corporate Officers and Top Earners in the Fortune 500"  (http://www.catalystwomen.org/files/exe/2005%20COTE%20-%20Executive%20Summary.pdf). The authors point out a startling fact about the difference women make in Fortune 500 firms.

I  hope you click on the graphic above as the financial returns difference between F500 firms with the most women officers and executives versus those with the least is staggering.

In my services career some of the best partners and colleagues I worked with were women. One of those will now become the CFO of Accenture next month. Why some executives still persist in maintaining male-dominated firms is beyond comprehension. It's not only illegal but it's bad business, too.

On a related theme, services firms are some of the biggest advertisers and sponsors of professional golf and the players of same. Many of the highest earning golfers today wear caps bearing the logos of service firms. Why? Service firms know that many of the executives they covet as clients are:

• Male
• Aged 48-60
• Favorite Hobby: Golf
• Favorite Television Shows: Golf tournaments, CNN and investment/financial advice programming

Is it wrong that these firms target these executives? No. As a Marketing strategy consultant, I support this decision. Where I differ with these firms is their exclusion of Marketing monies and campaigns to female executives.

Women business people don't share all of the same demographics and psychographics of their male counterparts. True, both groups possess many Type-A personalities; however, you're more likely to reach more of these executives at something other than a golf event. Music venues are one example of these. I was surprised to see so many women executives at a Christmas choir performance that a software vendor inexpensively sponsored. Certain charity events are also highly attended by women executives.

Selling services should be an inclusive (not exclusive) activity. How diverse is your Marketing? How diverse is your workforce?

Consulting Addiction

             When Consultants Are Part of the Problem

InfoWorld this week (8/26/2006, www.infoworld.com) has as its cover story a piece titled "Escaping Services Addiction". Besides the cover story, there's also a short op-ed piece in the Editor's Letter section, too.

The gist of the feature story is a 12-step process that businesses can use to extricate themselves from parasitic consultants. The author finds fault with both service providers and the companies who use them. The advice offered is not surprising or overly detailed. It's a sensationalized topic that I believe could have gone a lot deeper.

Tynan (the author) is quoted as saying "These folks, who I like to think of as recovering Big 4 consultants, confirmed all of the horror stories. There's a reason so many consultants show up and seemingly never leave. They get paid to find problems - and there are always new problems. It's not that consulting services, even the big ones, are bad. It's just that IT can easily grow too dependent on then, until they become a crutch."

I don't disagree with the piece but I would like to add to it. I believe that consultants that put their own business priorities (e.g., let's empty the bench) ahead of a client's, do so at their own risk. Short-term thinking hurts any business including service firms. I am particularly appalled at the behavior of several small-to-mid market resellers of accounting solutions as their people appear to be incapable of completing an installation and wrapping up a project. They see software as the intro for an annuity of service work with no end in sight. Their lack of professionalism and ethics is appalling. Equally culpable in this are the vendors, whose products these snakes resell.

It's a shame people have to write articles like the one in InfoWorld. But, these pieces wouldn't be needed if more consultants were more professional.            

                                                                         

M is different - but how different?

Medium organisations are different from small or large ones. How, asks Jyoti Banerjee in this guest column from KiteBlue? Check out this table from M Institute.

I recently wrote a guest column for Vinnie Mirchandani's blog on medium-sized organisations. I call them M organisations.

Although Vinnie's blog has a global audience, and my research is UK-based, it was interesting to receive comments and emails about the applicability of the UK findings to other countries. It seems that the match in ideas between the US and UK extends well beyond foreign policy (OK I admit it, its not a match - the UK slavishly copies US policy...). When it comes to M organisations, the challenges and obstacles faced by business leaders in the UK seem to map pretty well to those experienced in the US.

There isn't a lot of research that distinguishes M organisations from others. Most of the time, M is rather invisible, masked by the the SME (Small and Medium Enterprise) label that conjoins small and medium organisations. But a valid question to ask is how they differ from organisations of other scales. This is particularly important in the IT context, as most enterprise IT and services providers are pretty poor at understanding M organisations, or at selling to them.

As part of an ongoing study I am involved with at M Institute, we have tabulated the differences between the three sizes of organisation. Check out this list and tell me what you think.

Differences Table

Small business	Medium business	Large business
Owner-managed	Owner-directed	Professional management
Micro-management of employees	Empowerment of employees	Freedom to act within corporate guidelines
Informal processes	Formal processes	Formal structures and processes
Short-term planning horizon	Longer-term planning horizon	Short-term results / long-term planning horizon
Low external input	External input from professionals	Governance structure separate from management
Equity held by founder / family	Wider equity base	Diversified equity base
Small customer base	Diversified customer base	Diversified markets with diversified customers
Limited personnel development opportunities	Culture enables employee / management development	Multiple career development paths
Low borrowing requirement – government support possible	Borrowing needed long-term / funding available shorter term	Wide pool of funding sources

Source: M Institute

Clearly, not every business will fit these arbitrary buckets. What we are looking for is behavioural performance. If the weight of answers for a particular business leans towards a particular category, then we should see the business from the perspective of that category - whatever its actual size may be.

Posted by Jyoti Banerjee. This column draws on an article with the same name on the KiteBlue site.

Vendor Service Deals Fall Short

               Is Quality Service Disappearing?

This week I was with the top executives of a F500 firm. I listened in on a discussion regarding strategies for negotiating contracts for both new ERP software and a systems integrator. Before the meeting could get underway, these executives were still buzzing about the meeting they'd just completed with one of the finalist software vendors. That vendor said, in effect, that if the client wants a higher level of satisfaction with their services people/work, then the vendor would add a 10-15% premium to the services component of their proposal.

That's right. The original proposal apparently wouldn't provide the client with a satisfactory experience.

If you bought an automobile and the dealer withholds a non-value added option like 'clearcoating', of course you can decline it and not loose sleep over it. However, if the dealer withholds something like an engine, then what are you buying?

Selling services without any regard for whether the client is satisfied or not is just unprofessional. It is ethically challenged, too.

From the vendor perspective, I have some insight as to why this trend is occurring. Software vendors have usually offered service staff in point-excellence roles and not as self-contained teams with overall project implementation responsibility. Further, these services are sold by a sales person who has no connection to the delivery process and a very distant connection to the on-going account management. These sales people don't care about the  long-term client relationship as they've gotten their commission and have moved onto the next software prospect. As services becomes more important in software companies, sales people are promising more, putting more service people on projects but not stepping up to the program and client management needs these initiatives require. The leaders of these service groups are discovering that they must add more program management time to projects but since Sales isn't baking enough time into their proposals, Services must eat this extra effort or let client satisfaction suffer.

Clients are not creating this scenario, software vendors are. Vendors need to update the way they estimate and manage projects. Both of these disciplines, by the way, often lag those of systems integrators. If vendors are taking on integrator work, they need to step up to the requirements of the job. They need to get the program management religion.

Clients have an expectation, a reasonable expectation, of receiving satisfactory work. Vendors must construct the means to do so.  Providing services with no expectation of or responsibility for client satisfaction is unconscionable.

Two Colliding Perspectives

                        30 Days - Bangalore

FX network has a series called 30 Days. This week, they aired an episode about Chris Jobin. He's an American IT Programmer who was forced to train his replacement (from Tata) and then saw his job with Morgan Stanley disappear.

The show's producers sent Chris to Bangalore, India for a month. There, he lived with a family who had two family members working in the new Indian economy. One was an IT programmer and the other worked in a call center. A third family member was seriously contemplating a call center job, too. Chris spent 5 or so days being trained in US English and call center training. He couldn't get a job as a programmer as his local Indian IT knowledge wasn't strong enough.

The show was fascinating to me as:

- The employment center he visited had a sign stating "Walk in with a resume and walk out with a job". Clearly this economy is white hot now.

- Person after person that Chris encounters is stunned to learn that Americans are out of work or that Indians are displacing American workers. They assume all Americans are fully employed.

- Chris was stunned to see how delighted Indians are to have call center jobs. Chris tells his hosts that these are jobs no American wants.

- Chris' experience illustrates how different the culture, economics and living conditions are in this culture. The scene where the family dog attacks the rat under his bed is especially jarring.

Should this program come back via re-run, it's worth a watch. This is certainly relevant programming when it comes to understanding the global services economy. To paraphase another network, this is 'must-see' television.

For more info, see: http://www.fxnetworks.com/shows/originals/30days/home.htm

Conference Board Results

                  Knowing What to Sell to CXOs

                 Should SIs Do Some Homework?

The Conference Board's annual CEO Challenge report is out (CEO Challenge 2006 Perspectives and Analysis).

For those of you selling/marketing to CXOs, this is an exceptional publication. It describes top executive challenges and priorities by region of the world and other slices. Several of these challenges (e.g., Is there really a skills shortage?) are examined in greater detail. I use this document to reinforce with tech executives why their messages are/aren't exciting CXOs. This is one of the ways I know that F500 CEOs don't care about SOA but they do care about creating a more nimble, agile enterprise. Smarter service and tech executives may see the link between SOA and agility but too few take the time to explain that to prospects.

If you're interested, the top four overall challenges this year are:

- Sustained and steady top-line growth

- Profit growth

- Consistent execution of strategy by top management

- Speed, flexibility, adaptability to change

The cynical part of me would say "Boy, that sure describes the top CEO priorities of most professional service firms!" while the helpful part says "Well, some of these CEOs will remain busy just with these challenges".

Recently, I've been reviewing the operational performance of several systems integrators. Steady income is something government integrators do well but that may be due more to the long-term nature of their contracts than some kind of operational excellence capability. Adaptability to change seems to be the very issue behind the slow adoption of global service delivery models. And, of course, growth is a problem. Revenue from traditional MNCs is being siphoned away by process outsourcers, nearer offshore competitors, hosted solutions, application software vendors and more.

Change (and the need to rapidly adapt to it) seems to be vexing most CEOs. SIs are no exception.