Getting Closer to Customers:Trends and Strategies in IT Services

• Customers are under constant pressure to deliver more complex systems of higher quality and greater functionality — in less time and using fewer resources. 
• Technology keeps evolving, and the skills required to deliver software systems continue to become more specialized. 
• The need to solve business prob-lems — as opposed to the need to keep up with technological advances — is now the main driver behind system implementations. 

On the customer side, IT has assumed greater importance within most organizations. Whereas they once thought of IT as a support function, businesses are now realizing that they can obtain significant advantages with competitive, high-performing IT departments and projects. 

On the services provider's side, the goal is now to deliver solutions that not only solve specific problems, but also provide customers with the highest possible Return on Investment (ROI) for the entire initiative, which includes both products and services. This ROI-centric approach is providing quantifiable proof that coupling product technologies with a mix of services provides a greater level of return and value for the customer. 

It is also providing services vendors with a competitive advantage in certain markets or industries. Of course, for product companies that have an IT services business unit (as opposed to a pure IT services provider), the situation is more complex, as they must figure out how best to distribute resources, investments, and revenue between their product and services sides. 

While strengthening customer relationships has advantages for the customer, the benefits for the vendors are also significant. Repeat sales (and therefore a lower cost of sale), increased market share within specific verticals, creating higher entry barriers for vendor competitors, customer referrals, and a deeper understanding of the customer's business, market, and competition are just a few of the reasons why spending more time with your customers is well worth the investment. 

The Evolution of IT Products and Services

Over the past ten years, the explosive growth in IT offerings has added enormous gains to many bottom lines. And as technology has evolved, IT services organizations have expanded with an array of new solutions to solve new business problems. We can understand more about this parallel evolution by looking at the Focus/Value diagram in Figure 1. 

Technology Advancement Solutions

As Figure 1 shows, a decade ago, IT companies led with offerings driven by advances in technology — high-performance servers, increased bandwidth, increased complexity and functionality in software. These advances were general in scope and applicable to many domains; they did not focus on a particular business problem or function. In this environment, the role of services was to deliver the technology across many domains, without necessarily under-standing the customer's business or key issues. 
As time marched on, however, solutions became more focused on specific business problems or areas. The solutions' applicability to these areas was also better defined. Then, services organizations had to gain a fundamental understanding and app-reciation of the customer's business and how technology could improve performance and address business drivers. 

Large Customizations

As vendors increased their understanding and awareness of the challenges in their customers' evolving environments, they began to deliver large, customized, single-application suite solutions such as monolithic ERP or MRP implemen-tations. These solutions were more specific than those earlier solutions that focused on technology advancements; instead, they focused on specific market verticals (e.g., automotive, financial services, manufacturing). 
They were also highly complex and required a huge investment in both capital outlay and personnel time spent by the customer. Customers often found that implementations took longer and were much more expensive than they had bargained for. 

To get the most from these complex and highly proprietary systems, customers were dependent on services organizations to do the customization, supply integration services, provide training, and maintain the system after it was deployed. 

In addition, it was often the case that customers had to adopt new business processes that were aligned with this implementation and tool suite, as opposed to having the solutions adapt to the customer's existing business practices. 

Function-Specific Solutions

In the next evolutionary stage, vendors began to target IT products and services to specific functional segments: eBusiness, CRM (Customer Relationship Management), SCM (Supply Chain Management), HR (Human Resources), etc. Instead of lumping these functional areas into one huge, customized implemen-tation, this approach treated each one as a set of distinct and independent business processes. On the services side, many new companies were created, and many existing organi-zations shifted direction to take advantage of this new, multi-billion dollar market. 

Industry-Specific Solutions

The last evolutionary stage depicted in Figure 1 shows where IT product companies are going today: toward industry-specific solutions that address particular problems within both businesses and functions. These packaged solutions (products and services) and applications generally require less customization by the vendor or customer. 

With these implementations, the balance of products and services shifts more to the services side as deployments focus on the customers' business processes, environments, training, and specific market constraints and challenges. These solutions include such things as human resources applications for healthcare markets, transaction processing for the gaming industry, supply chain management for military logistics and troop support, and call center routing and management for telecom service providers. 
Packaged solutions do, however, require more integration services than pure development efforts, as customers work to implement them within their existing architectures and systems. This brings a whole new level of focus to IT services, allowing vendors to get closer to their customers and solve very specific and complex business issues.

Business Models: Services Operations in IT Product Companies

In today's business climate, many vertical industries are realizing that services are a leverage point for customer success and satisfaction, repeat business, and market share. In the auto industry, for example, new cars are now sold with maintenance included during the warranty period. This bundling of services helps the dealers build customer relationships and enhances their ability to understand what interests consumers and why they buy certain cars. 

IT product companies use a similar approach, typically adopting one of three basic business models to deliver a combination of products and services: 

• A separate IT services business unit that provides personnel on a contract basis to perform functions in areas such as outsourcing, call center support, and multi-vendor services. This services unit also supports the company's own products, but it operates independently of product sales. 
• A semi-integrated consulting or services unit that supports the company's product sales and places consultants on site as "residents" to provide long-term support. Services can also be independent of product sales. 
• A tightly integrated services unit that supports only the company's own product sales and emphasizes knowledge transfer—so that customers can quickly increase their own development capacity. These services organizations do not provide long-term support but can leverage a partner pool of IT services providers for that purpose. Services are delivered only in the context of product sales. We employ this model at Rational, helping customers adopt our technology and that of our partners, and enabling them to operate efficiently and leverage the abundant functionality and value in our integrated tool suites and the Rational Unified Process® (RUP®). Customer success (not just customer satisfaction) is a key driver; the emphasis is on accelerating the customer's ability to develop and deploy high-quality software in less time.

For any company, the pros and cons of each model are highly dependent on the company's technology product set, field business and revenue model, company culture, customer profiles, and targeted markets. Each model also supports different strategies (e.g., increasing customer capability vs. adding resource capacity), customer sets, and company cultures. 

Staying on Top in a Changing Environment

How do successful IT product companies with services operations (or pure services companies) continue to meet the ever-changing demands of the industry, stay competitive, and deliver the most value to customers? They continually fine-tune their business models. They evaluate not only their product and service offerings, but also their internal business and field models to assess whether they can adapt and scale to new demands. Then, they make incremental changes to minimize disruption to both their own organization and their customers' organizations. Companies that avoid incremental change, or any change at all, either die a quick death or wither on the vine. The key is to evaluate constantly and be willing to act on the conclusions you come up with. Below we will discuss strategies for adjusting business models in response to current trends. 

Develop Domain Expertise

In the past, vendor/customer relationships worked as follows: Vendors brought technology expertise (hardware, software, networking, etc.) to the effort or project; the customer brought domain experience; and together, they arrived at a solution. 

Today, however, as IT vendors become more entrenched in their customers' business processes and attempt to deliver more focused solutions, they must create teams that have experience in their customers' domains.If a software company wants to penetrate the financial services market, for example, it should hire application developers and support people from the financial industry. With this domain expertise they will not only increase their ability to understand the nuances and specifics of that industry; they will also be able to deliver and support solutions that have a much greater value than those that take a more generic approach. 

Organize by Vertical Markets 

Companies that build industry-specific solutions generally organize themselves to reflect the vertical markets they pursue. For example, many large, and sometimes small- to mid-size companies, have a federal government business unit dedicated to sales and service for that vertical. Why does this make sense? Here are a few reasons, based on my years of experience working within a government agency: 

• The federal government has the largest IT budget in the world. 
• The government's motivation is not to turn a profit, but to produce efficient programs. This means that vendors must understand and create unique solution strategies that focus on the same goal as the customer in this situation — focusing the goals of commercial customers (e.g., profitability, faster time to market, competitive advantage), may not work effectively in the government space. 
• The buying cycle for government is generally longer, more involved, and requires more vendor investment than the commercial buying cycle (the government's big IT budget supports this). 
• Security clearances and special access certifications are sometimes required to work in this vertical (you can't get close enough to make a difference if you don't have access to their world, their problems, and their strategies). Therefore, vendors who invest in obtaining these clearances and certifications can gain a competitive advantage. 
• The technical and business challenges of the government are usually leading edge and unique from those of their commercial counterparts — although this is changing as the commercial world is catching up. 
  Working with federal government customers requires a level of experience and skill that typical account managers or consultants may not have. The same is true for other verticals. By focusing on what is unique about a particular industry or customer, IT services organizations can accomplish several things: 
• Get very close to the customer and become a part of their planning process. 
• Have a deeper understanding of the customer's issues — technical, political, financial, and cultural. 
• Create and deliver solutions that address a specific problem; this means adapting the vendor's app-roach, practices, and values to fit the customer's world instead of vice versa. 
• Increase chances of securing repeat business and long-term relationships, which reduce the cost of sales and provide a more predictable revenue stream 
• Enable the vendor's own teams to work together on targeting multiple customers, in multiple geographic locations, within that vertical. A team in Washington, DC, that is working on an opportunity with a government customer, for example, can communicate and work closely with another team in Los Angeles working on a similar opportunity with a different government customer or contractor. This kind of information sharing and coordination also reduces conflict over credit splits and resource allocation. 
• Create a knowledge base of information on the history, buying habits and preferences, priorities, and relationships of key customers within that vertical. This gives the vendor and the customers significant leverage and allows the vendors to approach these customers at the enterprise level (economies of scale for the customer), and work with both ongoing and new customers in a more efficient and effective manner. Also, the vendor can manage and use ROI data for each customer as a sales tool — to consistently demonstrate value in the customer's environment. 

A cautionary note: As customer organizations grow, bureaucracy tends to set in, impacting efficiency and execution. Often, vendors can help management monitor for these behaviors and take corrective action.

Broaden Perspectives and Develop New Skills

As the market grows but also becomes more competitive for IT vendors, having people in your organization that can do many things is a definite advantage. 

While it will always be critical to have a cadre of talented experts with a narrow technology focus on your consulting team, it is just as important to have teammates able not only to do consulting, but also work with customers. 

I have found that it takes a combination of people skills, business acumen, management ability, salesmanship, and depth of understanding to be effective in today's environment. As a manager, one thing you can do is expose your technical teams to the customer from different perspectives. Discuss sales strategies, business drivers, budget concerns, and other issues outside of the technical realm to help them understand what is driving the customer a certain way. Also, you should consider training as an integral part of the team's development and find ways to increase their competency in new technical areas. 

Link Solutions to Specific Business Areas

As we saw earlier, IT vendor offerings used to be driven, typically, by advances in technology. 

They described their value in phrases such as "price/performance" (hardware), "transactions per second" (databases), or "bandwidth" and "capacity" (network devices). These value propositions could be applied to many industries, from government to financial services; the offerings were rarely specific to any vertical. In today's world, however, IT vendors must develop and deliver solutions that address specific business areas. If a company has the world's fastest database or most efficient development process, how can it be tailored to or configured for a specific industry? What works for the auto manufacturers probably wouldn't add the same value for the hotel industry. A software company that has excellent technology must send the message that its technology and services are not just best-of-breed across a wide spectrum, but that they can also help customers address and resolve specific needs. 

To use a medical analogy, you wouldn't go to a general practitioner for a heart problem; you would go to a specialist, a cardiologist in this case, for help. 
A "one solution fits all" approach dilutes the value proposition for everyone and also signals the customer that the vendor doesn't have a true understanding and appreciation for industry issues. If vendors are going to be true "partners," then they must share the risks as well as the rewards; they need to demonstrate a deep understanding of the customer's problems as well as a commitment to helping the customer solve them. 

Also, as return on investment (ROI) takes on greater importance in most customers' buying decisions, vendors will need to demonstrate ROI in the context of the customer's environment to make meaningful and relevant competitive comparisons. Showing a customer in the telecom world that a customer in the healthcare industry got a 200 percent ROI is much less compelling than a comparison within the telecom world. When you focus a solution on a specific industry, you can collect and use metrics that carry much more weight with customers. 

Leverage Partner Relationships and Programs

Obviously, one company cannot be all things to all markets. In order to improve coverage across several markets, vendors must leverage the skills and experience of IT service partners. Establishing a well-managed and well-structured partner program that focuses on complementary skills enables vendors to pursue a wider range of business and reduce channel conflict. 
Almost every company today has some type of strategic partnership with another vendor or service provider. Unfortunately, more often than not, these relationships result in "marketecture": marketing relationships rather than real working relationships. In order to avoid falling into this trap, it is essential that partner programs contain the following: 

• A plan to cross-train each company's employees on the partner's technology; the plan should also identify resources, timelines, and costs. 
• A plan to cross-sell each other's products and services. This should include sales credit, product support, and channel agreements. 
• A certification plan that ensures the partner companies have some level of competency in both partners' technologies. This should also include a mechanism for updating these skills as product releases occur. 
• An agreement that outlines what products and services will be required to implement these plans, as well as resources and timelines. 

As a side note, when discussions are taking place to establish a partner program, it is important that field personnel be involved. They know what it takes to work with customers, partners, and their own teams, and have a good sense of what is needed to make the partnerships effective. Too many times I have seen agreements in place that did not take these things into account. The results are almost always poor in these situations. 

Make Incremental Changes

As a services provider, you will often find yourself dealing with companies that invested heavily during one evolutionary stage and now have a desire to move forward.  It is not always clear what path to follow, and the decision making can be tough. 

If the organization spent an enormous amount of time and money implementing a corporate-wide Enterprise Resource Planning (ERP) solution a few years ago, for example, it's important for them to assess whether the system has really solved the business problems it was designed to address. If not, then they should begin making incremental changes as soon as possible. 

The longer a problem exists, the harder it is to change; this is due to many factors, including feelings of ownership that develop, business processes and systems that become entrenched, specialized skill sets that people acquire, and the substantial investment of resources and money that are made as time goes on. Also, an organization's current system may be wasting precious resources, time, and money that may not be available when the time comes to implement a more effective system.
 
In cases like these, I begin by helping the organization identify and prioritize business issues according to severity. Then, we take things one step at a time. We assess whether an integrated solution (generally less costly) or a single, best-of-breed solution (requiring more time and money to integrate) makes sense for their business. We define a resolution plan and the results we want, then begin executing changes. 

After implementation, we carefully assess the impact of each change before proceeding with the next one. This ensures that we won't get too far down the wrong path and often protects the company's existing technology investments. 

Understanding the Past, Looking Toward the Future

In today's business environment, IT services is now a key differentiator when it comes to delivering value. While general IT solutions will always have a role in the industry, advances in technology have allowed us to create solutions for more complex and specific issues. 

And if the demand is, increasingly, for industry-specific solutions, then vendor companies must get rid of the "bump and run" approach to selling product or services, which means moving on to the next deal before they deliver proven value. Getting close to a customer and becoming an integral part of their solution can only be accomplished by spending time with that customer, taking a true interest in their world, and working collaboratively to create high value solutions.
 
This approach can also give IT vendors a competitive advantage. If you develop a service or methodology to help a pharmaceutical company obtain FDA approval for its software development process, then you can package that solution and leverage it to many similar companies within that vertical. In this way, you can transform a specific solution into a force multiplier and offset the development and selling costs for this solution with each sale and delivery. 

One thing we know for sure about the future: Software will be the prevailing technology. Other technologies will be important and necessary, but the creativity, functionality, and innovation required to meet new demands and solve increasingly complex problems will reside in the software technologies and methodologies of the future. In this environment, IT product vendors will have unlimited opportunities to make a real difference in the way we live and work, and IT services organizations will continue to thrive as they support those vendors' efforts.

Sid Fuchs is the Director of Professional Services, Rational Software Corporation. As a Director of Professional Services at Rational, Sidney E. Fuchs has led and managed deployment teams and large software projects for a variety of commercial and government customers worldwide over the past several years.