sample ps benchmark review: sample updated july, 2011 bo di muccio, ph.d. vice president,...
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PS Benchmark Review:SAMPLE
Updated July, 2011
Bo Di Muccio, Ph.D.
Vice President, Professional Services
Benchmark Highlights for SAMPLE
Overall, this exercise reveals that SAMPLE’s processes and performance levels are more on target than off target
Based on a core peer group comparison against other large, product-centric PS organizations (“Product Providers”), SAMPLE looks largely as one would expect
Especially on target benchmark results obtain for Services Engineering and Partner Management
Sales, Delivery, and Operations functions all compare favorably to current industry and peer group benchmark standards
The main area of concern is financial performance which - even compared to very product and partner centric PS businesses – benchmarks rather poorly
Detailed findings and recommendations attempt to zero in on high impact ways to aligning better to industry and peer group benchmarks
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PS Benchmark Dashboard: SAMPLE
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Reminder: This is a benchmark comparison, not a judgment about whether you’re “good or bad” at these things or whether your practices are “mature.” It’s simply a comparison of your practices and metrics to industry and peer group benchmarks using the logic and methodology previously articulated.
TSIA and Benchmark Methodology Overview
Technology Services Industry Association: Why, How, What?
Why: Product + Services = Maximum Economics
How: Community Model
What: Data, Benchmarking, Networking, Awards and Recognition, Advisory
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“The most interesting economics in technology are now being generated by the right combination of products and services.”
Community,Peer Collaboration,Recognition
AdvisoryIndustry Data and Benchmarking
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Professional Services
TSIA Community
• 300+ TSIA Members
• 105 PS Members as of 7/1/2011
• 40% growth in 3 years
• This is our benchmarking community
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Sample TSIA PS Members
2011 PS Research Activities
Public Financial
Data
Case Studies and Peer
Networking
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Service 50Cloud 20
Europe 20
Rates, CompProject Perform. Solution Centers,
Partner Mgt
Cloud and PS,Partner
Enablement
Basis for Benchmark
Reviews
Core PS Benchmark Study Overview
Perpetual study since 2005 Hundreds of PSOs benchmarked 100+ validated completes in most
recent snapshot Ability to segment in multiple ways:
Company/TPSO sizeHW versus SWTraditional SW vs. SaaS modelServices intensivenessPS charterPS Performance
Basis for:Data miningAdvisory/InquiryPS benchmark reviews
Core
©2009, TPSA Inc.
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Benchmark Review Logic
This is a benchmark review NOT a “maturity assessment” No theoretical/arbitrary standards, rather how you look against others Entries carefully validated to ensure benchmark quality data SAMPLE benchmark compared to 2 core groups
“Industry”100+ companies benchmarked and captured in Q410 snapshotCross section of larger/smaller (50/50) and software/hardware (65/35)Virtually all technology product companies with services in the portfolio
“Peer Group”: Product Providers60+ PSOs in this groupRevenue mix and PS size make it the best current-state comparison
Peer group is more heavily weighted in “scoring” Scoring is meant to highlight areas for focus or possible initiatives 100% confidential in every way
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Service Strategy Profiles
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Service Strategy Type
Role of PS Avg PS Revenue Contribution
Solution Provider
Solution completion Without PS capability, immature product capability never matures
50%
Product Extender
Account extensionPS extends service footprint into existing install
base to secure product renewal20%
Product Provider
Product enablement PS accelerates adoption of maturing product
Product/Customer success critical6%
Key Goals of Service Strategy Profile Approach
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Help PSOs Understand True Priorities
Help Align Executive Management Team Charter of PS Financial Business Model Growth Targets Type of Service Offerings Service Sales Strategy Core PS Skills Service Partner Strategy Scalability Model
Benchmarking Practices: Comparison 1
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Req
uir
ed
P
ract
ice
Your Practice
Peer Group
Majority Practice
Industry Majority Practice
Yes = Good
Yes = Better
In Alignment?
No = Worse
No = Bad
Comparison 2: Practice “Zones”
CommonPeer or
Pace SetterPractice
Uncommon Good or
Pace Setter Practice
Common Industry Practice
Differentiated Practice
Required Practice
Practices are business processes that help companies achieve target results.
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+/- 10% of Avg“On Target”
Average
Off Target(High)
Off Target(Low)
Metrics/Results Zones
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Important Exceptions
• Results or metrics that are off target relative to both the industry and peers, but in a clearly positive way are rated as “differentiated” (Ex: extremely high project margins)
• Key metrics or results that are off target relative to both the industry and peers and in a clearly negative way are rated as “critical off target” (extremely low project margins)
Metrics are analytical measurements intended to quantify the state of a business. They are independent variables or leading indicators for the performance of a PS business. Examples are attach rates, billable utilization, and project duration
Results are analytical measurements intended to
quantify the state of a business. These are
dependent variables or lagging indicators for the
performance of a PS business. Results are
produced by practices and metrics. Examples are
project margin, field margin and net operating income.
Evaluation Framework
Each self-reported practice was compared to the majority practices of the industry and the target peer group
On target industry practices were worth 3 points; on target peer group practices were worth 5 points
Each self-reported metric and result was compared to the average metrics and results of the industry and the target peer group
On target or better industry metrics and results were worth 3 points; on target peer metrics and results were worth 5 points
Differentiated practices/metrics: points taken off the table Missing of off target critical practices/metrics: points doubled Scores are expressed as % of total possible points and assigned color coding as
follows: 0% - 24%: RED 25% - 49%: ORANGE 50% - 74%: OLIVE 75% - 100%: GREEN
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Putting It All Together: An Example
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Overall Rating
(Points divided by total possible)Practice or Metric
Missing or Off Target(Possible points unchanged)
DifferentiatedMetric or Practice(Points taken off the table)
CRITICAL Practice or Metric Missing or Off
Target(Possible points doubled)
ProductImpact
Partners & Sourcing
Customer Experience
PS Engine
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PS Benchmark Dashboard: SAMPLE
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Reminder: This is a benchmark comparison, not a judgment about whether you’re “good or bad” at these things or whether your practices are “mature.” It’s simply a comparison of your practices and metrics to industry and peer group benchmarks using the logic and methodology previously articulated.
TPS Business Model
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Business Model: PS Pace Setters
Observation
The top 20% of PS organizations are very profitable, but the bottom 80% are just north of break-even
Yet, revenue mix for these two groups is not very different.
For the vast majority of PSOs, this data explodes the 20% Net OI “myth.”
Source: TSIA PS Benchmark Data, Q1 2011
PS Business Model
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Observations
Pretty close fit for a classic Product Extender
Very heavy emphasis on product over service in the revenue mix
PS revenue contribution precisely on the peer group average
PS Business Model
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Observation
Dashboard shows that SAMPLE is truly a classic Product Provider in virtually every way
Exception is in financial performance
Even Product Providers do better on project margin
Field costs are about average
So pressure on field margin comes from low project margins
PS Business Model
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Observation
Total below the line OpEx is pretty much on target
The one potential miss is in the fact that SAMPLE is spending 2X the average on sales
G&A spending is ½ the industry average. Is this high efficiency or lack of critical investment?
PS Business Model
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Observation
Combination of low project margins and moderately high costs means that SAMPLE’s business model looks very different from the industry and from the Product Provider peer group
Cost Center model was more common 10 years ago
It’s actually very uncommon now
Doesn’t mean it isn’t the right model for you
PS Business Model
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Observation
Same data, different view
This view highlight the consequences of lower project margins coupled with higher overall costs
Overall Observations and Recommendations
PS Benchmark Dashboard: SAMPLE
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Reminder: This is a benchmark comparison, not a judgment about whether you’re “good or bad” at these things or whether your practices are “mature.” It’s simply a comparison of your practices and metrics to industry and peer group benchmarks using the logic and methodology previously articulated.
Delivery
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Delivery in the green, but not by much:• Delivery staff spending a lot of time on presales, which likely contributes to higher sales costs• Revenue metrics are off the charts high, so that’s not the problem• However, rate realization and discount rates (from Sales Module) are huge misses• What’s puzzling is that the actual rates are squarely in range, indicating rate card is skewed• Most companies have far higher involvement of direct FTE project managers
Business Model
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The other of only two ratings areas NOT in the green:• If this business models is documented in the strategy and represents a deliberate decision to run PS
as a cost center, this has been achieved• The message is that even Product Providers have moved to a profit center model for PS, including
ones that have a heavily partner centric model• A 5% to 10% increase in project margins would move SAMPLE squarely into the expected profile for
Product Providers• This will be difficult as long as PS reports to Sales, which likely is only concerned about product
margins• Question: Do you have a “seat at the table” with this economic model in place?• Would you have a better seat if you could demonstrate good “services hygiene?”
Framework for Prioritizing Initiatives
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TPSO
Abi
lity
to C
hang
e
Positive Impact on PS Financial Performance
Higher ImpactEasier to Do
Higher Impact
Harder to Do
Lower Impact
Harder to Do
Lower Impact
Easier to Do
Priority Initiatives for SAMPLE
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TPSO
Abi
lity
to C
hang
e
Positive Impact on PS Financial Performance
Review Rate Card and Discounting Policy
Review Project Margin PerformanceSolution Center
Overall Pyramid/Labor Costs
Validate Product Provider Model as Foundation of
Service Strategy
Review and Validate Sales Model
Consider Formal Project C-Sat Program
Consider implementing PMO Practice
Appendix:Additional Function Detail
Total Score
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Practice Zones: SAMPLE
PeerPractice
Reasonable
Practice
Industry Practice
Differentiated Practices
• Documented PS Strategy• Formal sales methodology• Formal skills assessment• Defined career paths• Svcs Engin releases new PS offers• Formal partner certification
Missing/Off Target Practices
• PSE reports to Sales Exec• PSO w/o final pricing authority• Sales not comp’d on PS bookings• No project C-Sat program• Partners have primary customer rel.• Resourcing done locally only
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Good balance of missing/off target and differentiated practices
Key Metrics and Results: SAMPLE
Lagging ResultsSeverely Lagging
Results
On TargetResults
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Below Target
• Project margin• Field gross margin
• Net operating income• Attach rate
• PS- product revenue ratio• Proposal hit ratio
• Days quote to closure• % projects with C-Sat survey
• Rate realization• % delivery corp PS direct• % delivery remote direct
• Avg project duration• % projects with PM
• Avg days onboard to billable• Avg days to source new PS
• Engineering target utilization• Mktg spend: awareness• Mktg spend; demand gen
Above Target
• Total OpEx• Total costs
• PS 3 yr growth• Sales costs
• Avg rate discount• % engagements Fixed/NTE• Delivery % time on presales
• Revenue per consultant• Revenue per total PS HC• % delivery subcontracted• % delivery local partners
• Engineering costs• % offers repeatable packages
• Mktg spend: content• Mktg spend: analysis
On Target
• PS revenue contribution• PS EPS contribution
• Field costs• PS 1 yr growth
• Project size• Target utilization• Actual utilization• Realized rate ($)
• % delivery local PS direct• % delivery global partners
• Voluntary attrition• % projects with post-mortem
• G&A costs• % delivery time on training• New PS concept to delivery
• Marketing costs• Margin on sub resources
Relative balance of below target, on target and above target metrics and results
Overall Result vs. Recent Reviews
Results
Practices
SAMPLEvs. Peersvs. Industry
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Practices and Results on Target by Functional Area: Business Model
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Practices and Results on Target by Functional Area: Sales and CRM
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Practices and Results on Target by Functional Area: Delivery
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Practices and Results on Target by Functional Area: Operations
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Practices and Results on Target by Functional Area: Engineering
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Practices and Results on Target by Functional Area: Marketing
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Practices and Results on Target by Functional Area: Partner Management
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Questions?
Bo Di Muccio, Ph.DVice President, Professional Services
Technology Services Industry AssociationOffice: 724-946-9798Mobile: 724-877-0062
E-mail: [email protected]: DiMuccio's DataViews Blog
Website: www.tsia.com