In today’s tech services economy (especially in the US Federal government) Systems Integrators / Contractors have to bring additional value (frameworks; code; subject matter expertise) to the customer to win. It is not enough anymore to be a professional services company especially with the onset of the “Cloud” services economy. Because of this services companies are buying up tech companies to add to their qualifications. However, services companies need to be very careful how they orchestrate success for both the services business and the new product business.
Here are a few recommendations:
#1 Don’t mix the P&Ls below the CXO level. Resources need to stay on one side of the p&l or the other.
What happens if you mix?
- Every product sales is a different variation / customization of the product and there is never a version 1,2,3,4 etc..
- Profit on products hide sins of the services business and Revenue of the services business hide sins of the product business
- You won’t do either well as you will be trying to take services profit to do long term R&D for the product or you will be taking product people and making them billable
- Services will usually be a bigger part of the company with more executives. The products may be buried in the organization and then the exec bureaucracy start ordering the product guys to do x, y and z and then there is all out chaos.
- The Services arm will always push the product arm to do more than the product is designed to do at its current release… For example, Microsoft and Oracle are always asked to add features and functions to their products by their customers and they add those requests to the list of thousands of others and prioritize the next releases features based on the size of the market for those features. But a services company can fall into the trap of pushing 1 clients features above all others because that is the engagement they are currently billing.
- In today’s LPTA (Lowest Price Technically Acceptable) contracting environment Service organizations are driven to constantly lower their indirect costs in order to bid the lowest hourly labor rate possible. This is in direct conflict with the need for a Products business to invest current year dollars in IR&D (increasing current year Wrap rates), in order to gain future revenue. This tension usually results in the IR&D budget being trimmed for the sake of a lower wrap rate, and product development suffering.
- Services ‘business/suit’ culture doesn’t map to product casual culture. You won’t get the best talent
#2 Staff your product business appropriately–You need a product manager, dedicated product team, dedicated product marketing, channel support and sales tech/business infrastructure. You need to run the product group as a company with an R&D investment budget and P&L expectations.
#3 Create a reseller contract between the Services groups and the Product groups. This enables your Services BD to fully discount products at an agreed to level.
#4 Empower your product business to work with other services firms and not exclusively with your services groups. Your Services BD will always be able to reach in and pull the product sales into deals easier than your competition.
#5 Get everyone in the products business a copy of Lean Startup, Crossing the Chasm, Blue Ocean Strategy, Rework… Get everyone in the services business a copy of Managing the Professional Services Firm.