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.
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