A few years ago I sat with a senior executive of a global consumer products company reviewing our week’s findings. We had just concluded a parade of prospective services provider presentations, and it was time to reflect.
Dave was a finance executive, accustomed to quantitative precision. Our week had been spent listening to six services companies try to impress upon Dave their unique abilities to service his global operations. Precision was as far from reality as one could imagine.
As our reflections concluded, Dave asked one final question of me. “Can you explain to me why this industry is fixated on capabilities, when what we’re trying to buy is services?”
Dave was frustrated by what he had just experienced – broad and general claims about undefined and unmeasurable expressions of effort that were entirely disconnected with his business priorities. Not from a minority of companies, but from all of them. Having heard from industry peers complaints regarding the lack of innovation via outsourcing, Dave’s doubts about the outsourcing proposition were only exacerbated by the experience.
Dave compared what he had seen presented by the leading companies in the fee-for-service outsourcing industry to what his company had achieved for themselves via a Global Shared Services mode of operation. He looked for a service catalog, committed service levels, volume-based pricing, a talent management utility, alignment of rewards for productivity … all of the traits that typical service companies employ. He had hoped to find new sources of leverage that would accrue new classes of benefits.
Outsourcing is hardly a novel concept. It’s a business convention that has been in play for over a hundred years. That reality made Dave wonder how it could be that the IT Outsourcing and Business Process Outsourcing industries could be so backward in the definition of services.
In trying to explain what he had just experienced, I noted that the ITO/BPO service providers generally trace their roots to one of two heritages. Very few providers are built-for-purpose service providers. The mindset and management muscle of these companies are informed by a grounding in systems integration or offshoring.
Companies with a systems integration DNA are very requirements-driven. They are literal. They thrive in solving problems as if they’d never been solved before – approaching each situation with an eye to building a unique and distinct solution. Commonly, the end result is a well-engineered design but lacks scale or market-based application.
Conversely, companies that trace their origins to the offshoring industry are much less fixated on the specific requirements, opting to promote value by recruiting, cultivating, and deploying the best talent. These providers rely on the Client to define HOW a job is to be performed, and pride themselves on finding excellent talent to complete the tasks. The companies tend to standardize work very well and deliver with predictable results. But, the scale potential is limited. Wage arbitrage is a lever that can be pulled only a few number of times.
As one might imagine, both of these classes of services companies tend to promote capabilities.
In the commercial services industry, the term “capabilities” is a red flag. A capability is considered the inverse of a commitment. A systems integrator is certainly capable of building an elegant solution to a set of requirements. And, an offshore services company is equally capable of excellent human capital management. Neither, however, conforms to the expected definition of a “service.”
Today I guide both buyers and providers of commercial services around the lexicon and terminology of alignment. Service providers are using different words, and making new claims, around their commitment to progressive forms of offerings. Some are using the “As A Service” phrasing. Some are promoting outcome-based pricing. Yet, the depth and reality of their commitment to true services proposition are easily tested by discriminating buyers.
On the other side of the equation, many companies profess to want to buy market-based service offerings yet insist on imposing a spectrum of stale and constraining requirements on the prospective service providers. Having it both ways rarely works.
I’ve found that a handful of principles are effective tools to foster the conversation around buying and selling/delivering true “As A Service” relationships. One of the more significant is “Buy from a Market.”
The parties must recognize that buying standard and industrial services is the foundation for a true “As A Service” relationship. At its heart, prescription of a solution by the buyer is to be avoided at all costs. The service provider’s ability to drive leverage is central to making this model work.
Relatedly, a more comprehensive and scenario-based business case format must be used to capture derivative benefits that are not customary in traditional services contracting. And, there needs to apply different forms of diligence, ultimately proving the Supplier’s commitment to a Services life-cycle and existence of a market of like-oriented subscribers.
To drive this point, I often facilitate conversations around the innovation investment model for the contracted services. Clients are expecting their providers to have a strategy for funding the evolution of their services over time. If a provider stumbles on this question, it’s a sign that they are not fully committed to being in the “As A Service” business.
For a service provider to win in this environment, they must break down the traditional silos of service capabilities and show up with a unified offering in all respects. Showing up with a team of people who carry the flags for their own parochial business elements only reveals the lack of alignment and integration behind a built-for-purpose service proposition.
Acceptance of new forms of risk is table stakes - and directly related to the fact that the provider is serving a market, not a sole client. An effective selling technique is for the service provider to be clear on the risks that they are taking on by committing to the commercial services under consideration. In earlier forms of outsourcing – whether via a systems integration or offshoring worldview – the provider often allocated considerable risk to the Client. “As A Service” shifts this risk, and that fact should be clear in the sales process.
Transparency requirements will increase, in various forms. The term “Service Catalog” must be pervasive – in how the provider thinks about and communicates its propositions, and how the Client will manage variants in service classes. Further, the approach to diligence on the Client’s environment is critical – the provider must be expert at knowing whether it’s offerings are fit for purpose.
In a fee-for-service world, Dave expects a market-based, fee-for-service conversation.
Peter Allen applies many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Chief Evangelist at Peter Allen & Partners and Senior Advisor for Alvarez & Marsal.