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: bo.dimuccio@tsia.comBlog: DiMuccio's DataViews Blog

Website: www.tsia.com