I’ve been pondering recently how to promote Professional Services and the benefits to a sales organization of selling Professional Services to a customer base. It may seem obvious that adding services to a sale increases margin but there’s always the point of “If my target is £ 50k margin per month thats £ 2.5K per day. If it takes me 3 days effort to sell 5 days Professional Services then I am better off selling product.”
Of course this is true, but any Professional Services engagement includes and promotes other areas of the business such as helping to sell hardware and software, adding on follow on support services etc. Equally, just selling a straight installation service doesn’t add much value compared to providing a solution that resolves customer issues and removes pain points rather than just deploying a technology (installation only services). To this end I have devised the “Hierarchy of Value Add”
The hierarchy is split into four distinct layers. Each layer as you move up the ladder adds additional value to the solution from a customer point of view and, generally, adds more margin. The exception to this would be cloud computing which adds more discrete value per pound invested and so appears higher in the pecking order.
Box shifters add little additional value to a sale above the straight supply of goods.
Hardware and Software
Here is the stomping ground of the traditional supplier or box-shifter. Someone who supplies hardware or software with very little value add. As only one supplier can charge the lowest amount each differentiates themselves by the way in which they service their customers, credit terms, relationship, time to ship, returns policy etc. The percentage margin may be low per item but as this tends to be bulk supply the overall amount earned in pure cash terms can be high. If you are not a distributor though then the low margins with no added value may leave you unable to compete.
Value Added Reseller
As the name suggests, value added resellers merely resell Hardware and Software but add some modicum of value by performing basic services around the supply of those items. This enables customers to consume that supply more easily helping the sale to take place. Depending on the purchasers familiarity with the product they will be more likely or less likely to require Value Added services.
Basic installation services offer a primary amount of value add to any supply from simple racking of equipment through installation of software to version upgrade or migration from a competitive solution. The issue with merely providing installation services is that, over time, customers learn how to install hardware and software themselves and so the perceived value rapidly diminishes the more established a product becomes.
By extending installation services to include for support in case of issues arising, additional margin can be gained and customers retained. World class customer support is critical. Shoddy support services can destroy your reputation with the customer forcing them to seek alternative suppliers. On the other hand, excellent support continually reminds customers of your high quality of service and binds them ever closer to you as you understand their systems more and more. Support also provides a recurring revenue stream which, for the sales person, is an additional way to contribute towards target.
Installation and Support provide customers with a working system that they can plan to be available within SLA. By providing training customers receive additional value in that they can install or upgrade in future. While this may reduce revenue in future it provides value (and therefore margin) now and £ 1 of margin now is worth £ 5 of margin in the future. That is, present margin can be used to pay current bills and fund expansion or pay out profits whereas future estimated margin is like a morning fog .. liable to disappear when the sun comes out. The customer also gains additional value as they can now resolve more queries and issues themselves shortening the time to resolution. Depending on the pricing model for support, training may even make the support contract more profitable outside of notional margins due to the reduced number of calls placed.
Systems integrators take the value add to a new level. Because Systems Integrators work with more than one product to provide a solution customers are more likely to need their skills and will therefore pay a premium. Aristotle Onassis put it well when he said “The secret of business is to know something that nobody else knows.” and this is the essence of the System Integrator.
Many say that Consultants are paid merely to tell you what you already know. In terms of business consultancy that may well be the case but in IT consultancy, other than filling in for staff shortages or absences, that is rarely the case. Generally consultants are employed to review and assess a situation and then propose alternative solutions to the issue at hand. This will rarely involve the configuration or supply of one product hence consultancy residing under the Systems Integrator node. Consultancy has been split from solution provision as consultancy will usually involve explaining and detailing a fix leaving organizations with the option of either using in-house personnel to deploy their choice of proposed solution or recruiting a supplier to perform the work or even employing the consultant / their company to undertake the program of agreed works. As consultancy takes customers beyond their comfort level and ability to self service a premium (and therefore increased margin) can be charged.
Consultancy tells you what you should be doing to achieve a certain aim or to resolve a specific issue or set of issues. Solution Provision is concerned with the implementation of that solution and will either contain an element of consultancy to agree the solution detail or will follow on from a previous consultative engagement. As solution provision builds on consultancy it adds more margin to a deal. Also, solution provision differs markedly from installation services as from a system integrators point of view it typically involves blending several products together to obtain the overall benefits required. An example to differentiate the two would be that installation services would simple deploy VMWare ESXi with vCentre, perform physical to virtual conversions, supply machine templates, provide documentation and handover training and support the solution thereafter. Solution Provision would extend this out to provide integrated backup, off VM anti virus scanning, disaster recovery to an alternate site, backend tiered storage and a storage management solution, the ability for users to self deploy VM’s, high end virtualization aware data centre switches and so on and so forth. It is easy to see how providing a complete solution extends far beyond installation services. Solution Provision can also be used to sell training and support services as well as the initial supply of hardware and software.
Trusted Providers may also be known as Trusted Suppliers. These are suppliers that organizations will work with full time placing a large amount of trust in their ability to deliver now and far into the future. This high level of trust is required as responsibility for IT shifts from the in-house teams to external teams.
For the purposes of the hierarchy, cloud is any supply hosted externally on a shared platform that allows for changes to capacity on demand. Frequently such services include a non-annual payment period such as quarterly of more often monthly. Cloud services provide a tremendous amount of value add for a reduced cost. Value Add items can include:
- included high availability of service
- included 24 x 7 x 365 support
- included disaster recovery of service
- included free product updates
- included backup
- included service monitoring
- integrated security services
- automated synchronization or co-existence with internal systems
- little or no requirement for dedicated internal IT personnel
Cloud services are fully established and almost de facto in some areas such as e-mail scanning and provide recurring revenue and income streams. This is a boon over and above all of the items previously mentioned. As for Solution Provision, Cloud should not be seen as a stand alone supply but needs to be coupled with consultancy to ensure the proposed solution is a good fit for the organization, implementation services to help with migration to the cloud of the current service, ongoing support for the cloud solution and any synchronization technologies.
The “downside” of cloud is that you cannot generally bespoke the service to your own needs. Only simple changes are allowed within the parameters of the service (how often do I backup, who can provision more storage, which type of virtual machines can I deploy).
To overcome the limitations of cloud a truly managed service can be purchased which provides the benefits of cloud but with the ability to bespoke the solution to your needs. An example would be a managed firewall service where complete rule bases can be configured and the firewall device is devoted to one organization and usually based on the customer premises. Similarly may be managed BES with all devices homed on one server which may be hosted on the supplier site with a secure link through to the customer messaging environment allowing for high levels of security, distribution of approved applications, high degrees of configuration of policies etc.
Not all customers are the same and so no company should offer just one level of solution. Professional Services permeates each of the upper three sections of supply and so are a natural choice to help extend and grow sales opportunities to grow margin. The industry is driving ahead on differentiating offerings through marketing and promotion through social media but I believe that demonstrable added value that solves real business problems and helps drive organizations forward will always win over lists of purported benefits from out of the box products, services and solutions.