- Where is the professional services sector headed? – Marc Lacroix
Where is the professional services sector headed? - Marc Lacroix
In a wide-ranging discussion, Marc Lacroix considers some of the key development within professional services in recent years and looks at where the sector is going, identifying likely areas for innovation. For instance, after adapting from time and materials to fixed price, many businesses are now moving to offer outcome-based pricing models.
In this, the second of his PS Insights podcasts, Marc – managing partner at RTM Consulting – looks at how PS businesses can drive value from AI and big data. Marc looks forward to new developments in the commoditization of services and considers the meaning of ‘agile’ and how it is interpreted in the services sector today.
Mark LaCroix – Keeping your business on the money.
Doug D’Argenio: Welcome to the PS Insights podcast series sponsored by Kimble Applications. Professional services organizations strive for efficiency, success, and growth. This series is intended to provide key insights on how to achieve this from industry leaders.
Steve Brooks: Hello. My name is Steve Brooks. And today I’m talking to Mark Lacroix about keeping your business on the money, how professional services, organizations need to tune to the market and adapt to change. Mark is a founding partner at RTM Consulting, a firm that specializes in helping services organizations at getting better at what they do. He has worked with many global clients to improve the efficiency and effectiveness of service delivery organizations with extra emphasis on strategic resource management, project deliver, and PS automation.
Mark has spent the majority of his career in consulting in professional service delivery with Ernst and Young, Capgemini, software start-ups and Fortune 500 global software companies. For nearly 10 years at RTMC, Mark has developed a strong track record of transforming services organizations. Mark, hello.
Marc Lacroix: Hi, glad to be here.
Steve Brooks: Keeping your business on the money is a kind of loose phrase. How should professional services leaders understand it?
Marc Lacroix: I think it’s important when we say that phrase, for professional services leaders to understand that things are changing. And more importantly, professional services can be even more relevant and strategic to their organizations. By doing so, they have to keep their eye on where the customer requirements and needs are. There’s quite a few things changing in the marketplace that’s going to necessitate the need to re-look at your delivery models, to look at the types of services you’re giving your clients, and more importantly to be more focused than ever on delivering value and value realization for your customers. And to me, that’s where professional services leaders need to keep their eye on where is the ball going and how they’re going to continue to remain more and more relevant to their customers they serve.
Steve Brooks: When we talk about money, are we talking revenues or profits and costs?
Marc Lacroix: Well, my belief is that if you figure out how to help your customers have success, and make money, and get value from what you’re doing for them, you will then benefit from that as well. We don’t want to just be a commodity shop where we’re just trying to turn some screws and get a few things done. What we’d like to do is really focus on making sure that what we’re doing is helping customer’s achieve objectives. And with that sometimes, we can bring more higher value services to bear in order to achieve that. In that example, there’s a case where both we’re able to bring more higher margin services and the client is able to, and values having those services.
Steve Brooks: All we hear is the only constant is change. How is the marketplace evolving now?
Marc Lacroix: I think when it comes to professional and service delivery organizations, there is a period of change here that is different than others. There have been evolutions to the model. But I would say that if a couple of dynamics in the marketplace have come to bear. One is the nature of the solutions. The SAAS solution, the move to the cloud. A quantum shift from premise-based solutions to SAAS and in the cloud solutions has really changed the delivery dynamic. Not only in delivery models, but also in terms of how customers that we serve, their expectations have changed. They think that there’s less complexity. They think that projects are easier and more simple. They think that they’ve been told of the promise of speed to value. And so, we have to now as professional services, deliver on those expectations and promises. And they’re very real. And that has a ripple effect to our delivery models and the way we even organize our services.
Steve Brooks: I note a slight hesitation in your voice there in terms of the customer expectations and saying the project is simple. Yes, technology implementation is simple, but surely change management is the same. And actually, has it changed that much?
Marc Lacroix: You picked up on exactly what I hesitated about. I would say that while the technology may be getting less complex, the projects are no less complex. And that is a conundrum for any delivery organization and working with their clients and sales organizations is to say that these are big events, whether you’re putting in ERP or PSA or PCON. These are wide solutions that create change. And they are a business event, not a technology event. We can’t take our eye off that. And we have to continue to educate our clients and our sales organizations that just because the solution has gotten potentially more simple to implement, the complexity of the whole project and the event itself is not less complex.
It’s really important to navigate a customer through this because we see too often and we read too often where these easy to implement cloud solutions are dropped on the doorstep of our clients. And what happens six months later? High dissatisfaction, low adoption, and inability to achieve the outcomes that we had promised them.
Steve Brooks: But as you’ve already mentioned, technology itself is changing and that change is also constant in terms of things are getting even simpler year by year. How is that impacting how companies need to tune to the market?
Marc Lacroix: The organizations that deliver these solutions have a couple of decisions that they’re going through right now. One is, how do I shift the skills mix of my team? The skill and technical requirements to deliver the solution have shifted and changed. In some cases, gotten more simple. In some cases, not. Because we’ve taken some of the complexity and thrown it to some core teams. And then it’s also the continued rise of the business consultant because we can do a lot of work back in offshore or back in the home office, but what the clients want is somebody guiding them and directing them in how to best meet their needs and business needs with the solution. The need to solve that is a pretty critical one, I believe, for services organizations to fill that void.
Steve Brooks: So, what does that mean in terms of the delivery model?
Marc Lacroix: What we see is a rise of what I’ll call outcome-based. I’ve worked with a lot of companies and a question I always ask theme is what percentage of time and materials versus fixed fee do you do? And it ranges quite a bit. Some companies are still fairly embedded in time and materials. And are, I’ll say afraid or hesitant to get too far into fixed fee. With the real talk in the industry now, it’s about outcome-based. A little more risk. And that’s some variation maybe to fixed fee, but you’re really getting in with the customer and saying, “We can deliver a certain type of outcome. And if we do, we’re going to get rewarded for it. You’re going to get the business benefit from it.” I’ll say that the traditional delivery models are the way in which we’re positioning our projects needs to shift and change. And I would argue, a professional services organization needs to be prepared to deliver on all three models: fixed feed, time material and some amount of risk based or outcome-based. And I don’t think many organizations out there are suited to do that or have the mentality at this point yet.
Steve Brooks: When you talk about outcome-based, are you talking also value-based pricing?
Marc Lacroix: It is tricky, yes. And so that’s still a narrow group of folks that can do that. You have to be able to measure it, of course. And measuring that common KPI with a customer can be tricky at times. There are some variations to it. I would say again, a variation of even fixed-fee where you’re putting a little bit of skin of the game or a little bit at risk. And you’re getting a risk premium if you’re able to deliver on the promise for the client.
Steve Brooks: Are there any other ways that customers are changing?
Marc Lacroix: Yes. The other part is the rise of big data. We’re creating our own complexity in some cases. You read about it in all the rags and everything about the value of data and analytics. And it’s very real. On the other hand, it’s very complex to distill that down to a capability that your client can get value from. I’ve seen many cases where we talk about all the data that’s possible, but you have to ultimately get that to a dashboard, to a business user that they can get value from. That process is very complicated and has a lot of issues associated with it. We as a delivery organization are still grappling with how we deliver on that promise. Every application or technology that gets implemented, I see, always has that element of reporting, analytics, dashboarding, because we have created that expectation in the customers. What I see is my customers grappling with is how to deliver on that promise.
Steve Brooks: What about AI? Because that’s obviously really at the top of the hype cycle, but there is some reality in there now.
Marc Lacroix: It’s getting there. When I think of AI, I don’t think of the movie where robots are ruling the world. I think of it more as how can our systems better predict or indicate when things are happening when we can’t observe them ourselves. And so that’s to me, maybe the more rudimentary thing when I think of AI. I think there’s a lot of complexity there. When we think of delivery model, some people might view that as a data problem, as an analytics problem. I view is as a business problem. And that’s where I go back to as professional service organizations, we have to have more dexterity in the kinds of people we bring to projects. AI has to have, a human thought process behind it. Say, “What am I looking for? What do I want to see? What would I like my system to detect and determine for me?” I have to map that out with my brain first a little bit before I can then ask the system to then think for me.
I think a lot of that has not been well-defined or it certainly as we look at our delivery approaches. We can’t just say to the customer and this is my least favorite thing, “What would you like it to do?” The customer really wants us to say, “You tell me what I should ask it do.” There’s a big difference between how we consult and advise our clients in that case.
Steve Brooks: Are you seeing any impact from the next generation millennials coming into the workplace, in evolving the cultures, both within the customers and also within your own organization?
Marc Lacroix: Yes. work style, of course, comes with that. Agile has been a delivery method largely contained to IT organizations and product development shops. But I’m seeing a decent uptick in the professional services. I even was, admittedly, a little bit of a skeptic years back to say, delivering agile in a client facing environment is tricky. It takes a lot of trust. It introduces a lot of risk.
I have a client I worked with recently, the executive, I’ll say burned the ships. And said, “We are going as agile as possible. Every new project we do, we’re going to present it to the client as an agile-based project. We’re going to retune our methodology to do that.” And really what he had to do is he was dealing with a company where large, large, multi-million-dollar solutions of which the customer really didn’t get to see the results of the solution until UAT. Until they were actually testing it at the end. Well, lo and behold, that’s when they first realized, “Well, I didn’t really want that requirement. I wanted this requirement.” So, they had a tremendous amount of rework at that time.
And so, what he decided was, “I need to show value in the solution earlier and I’m going to force that into the model. And I’m going to have to deal with the risk factors that come into play with that, with my customer, but the benefits I’m going to give the customer and the risk reduction I’ll get by showing them the system, by evoking reactions, and getting better acceptance, and less rework down the line.” Fairly big shift. I would say an innovator in that. And when you see a company that commits to a multi-million-dollar Fortune 1,000 customers and says, “We’re doing agile on your next project.” That’s pretty bold.
Steve Brooks: Is agile the perfect answer all the time?
Marc Lacroix: No. It’s not. I think that in some cases it really does, it’s very situational relative to what solution or what capability you’re trying to enable for your client. In some cases, people would argue that let’s do a small pilot phase. Let’s cordon off a small group and let’s deploy to them first. And let’s kick the tires. Again, SAAS and cloud do give you more flexibility to shrink the model a little bit and get a little more iterative even in a complete deployment. I would argue that some of these are almost agile like in that, but they’re complete deployments just to a smaller sub-section of folks to kick the tire. So, there’s, I’ll say, some variations to the model that can be applied so that it’s not pure agile, but it’s agile-like.
The real positive change that I see along your lines of questioning. If people were to adopt one thing, it would be: Get your customers up the education curve as fast as possible. Whether that’s agile or not, it’s a tool to do that. The more your customers are educated about what they’re about to get, what this project’s outcome is going to be, the less risk, and the more engaged they are. I think it’s probably one of the biggest keys to success. How you tune your model, how you tune your delivery model and how you help your customers do that, to me, should be focused around the ramp of education of the new solution.
Steve Brooks: You talked about this company you innovated in terms of using agile. Peter Drucker has the dictum, “Innovate or die.” How should professional service firms approach that? Is that a really important today?
Marc Lacroix: I believe it is. if you go back even recent history about innovation and innovate or die. I mean, moving near-shore, offshore became critical because you could not be competitive on rates on some of those commoditized services like development or some support capabilities if you couldn’t compete with folks that were already doing it at cut rate prices. In some cases, if you didn’t follow that model, you would have found your revenue share going down fairly quickly because others were doing it.
One of the areas too is that the business consulting part is, also critical, working the other direction. I think we tend to think of innovating to cut rate pricing and as cheaply as possible. I think the other side of the innovation is to actually have as much business innovation capability in your organization as possible too. And convincing clients of the value of the business change and business management. And I see that often.
I worked with a customer a couple of years ago, large, global professional services organization. They put in their solutions very well. Great technical team. Had the offshore model, near-shore, onshore. But what their customers were demanding were, “Tell us best practices. We think your experts in this industry because you’ve been putting the solution in for all of our peers. Tell us what we should be thinking about, what we should be doing.” And they weren’t able to do that. So, the customers were going to other partners and other firms to get that knowledge when the knowledge was sitting right in the group. They just didn’t have a way to deliver it and they weren’t poised to do that.
So, to me, those are lost opportunities to innovate. Not only to, what you want to do is take advantage of that revenue share, but you lose command of the client too the minute you let somebody else talk to your client about business problems, you’re second chair now. And you want to have that first seat.
Steve Brooks: It sounds like you’re saying that companies need to innovate both within themselves, and their operational processes, in their customer-facing processes, and also take the lessons learned from each of those two sets, and make sure they pollinate across each other.
Marc Lacroix: Yes, and with an eye towards the business problem, not the technical solution. We’re pretty good at remembering which configuration or which button or which might be the most common ways when customers use a specific feature, but getting a little beyond that. Because often what solutions exist to support many needs. And so, what you have to do is you find out what’s the right need of this client. And to do that, you have to ask business questions. And you have to talk business. I like to think that today, I don’t even like to use the word requirements anymore. It’s a long-standing term in customer service delivery. What are your functional requirements? What are your business routes? No. Let’s talk about what your needs are and let’s express those in use cases and scenarios. I want to know what it means to do business in your world. I can then consider what we have to offer and how to guide that to the right purpose. But to say that I have a specific requirement, to me, narrows the conversation and gets it to more of technical, functional and less about a business discussion.
Steve Brooks: You talked about near-shoring, offshoring and commoditizing services. How is the commoditization of services changing at the moment? And is it a threat?
Marc Lacroix: I feel that the commoditization has been there for the past decade. I think that that has flattened out. Initially, there were moves to certain low-cost delivery areas and then there was the secondary and tertiary environments that seemed to get even cheaper and cheaper. The move to find cheaper places has flattened out whether it’s China, Philippines I don’t think we can go to Antarctica and find folks to deliver. I think we’ve found the lowest cost models we can, the question really is what is a commodity and what is not? That’s where professional services organizations still struggle with coming up with the right pricing models given the services they’re providing. There is not enough confidence, honestly, out there or discernment to say that, “I’m fine calling this service a commodity.” But you have to have good market awareness to say that, “Does my customer have the option to buy that elsewhere and buy it cheaply? And can I meet that? Do I want to be in that business?”
And then on the other hand, to really reckon with what is unique to what we can do. when I work with customers, I’m very much more, of course, a business guy than a technologist per se. But I’ve been doing technology implementations most of my career. I migrate more towards what do you know? And what is the knowledge that your team has? And how can you turn that knowledge into value? That’s the non-commoditized services that you should be putting premium pricing around and packaging those services. So, I think that the commoditization is not a threat. It’s just simply accepting it, understanding which portion of your delivery fits into that mold, but don’t succumb to it. And also make sure you know what is of high value and not commoditized in what you can do.
Steve Brooks: Are professional services companies able to commoditize through the use of improved technology though nowadays? Because if you look at some software solutions, their implementation processes are speeding up through the application of technology and they require less, professional services people to deliver an implementation.
Marc Lacroix: If you’re in the business of armies of developers, then you might have to be innovating, and looking ahead of the curve, and seeing where this is going. I would agree with you. But this is true for any technology company with software. But again, it goes back to our original point of this is still a business impacting event. While the developers may be of less demand in the future because the solutions are getting more configurable, we need a rise of business analysts and business consultants to tell clients how they’re going to get the use out of them. And how to map, and design the solutions to meet their needs.
I don’t believe there’s ever and ever should be push button solutions unless it’s out of a box going onto your desktop or your laptop. If it’s a business system, it needs to be thought through and designed into the fabric of the business with use cases and scenarios and business change along with it.
Steve Brooks: How do professional services firms ensure their skills base is the right skills base now, and in six months, and in two years time?
Marc Lacroix: It’s definitely something that’s on the rise, more focus on skills. I’ve worked with three or four clients in the last couple years. All we focused on is the skills database so to speak. More and more emphasis now is, skills and skills to deliver on where we’re trying to go. The phrase I always like to use when I talk to customers or I used to use myself is when it comes to a services organization is, “Deliver what you sell, but sell what you can deliver.” There’s always this little bit of tension between, always trying to adapt to what my company is selling and how I could best serve that. On the other hand, I want them to sell what I can do. I don’t want them to sell something I can’t do. But there is that fringe edge of innovation or change where our company and organization is trying to go into new areas. And how am I adapting my team to meet that skills set.
The rise of the skills database and using that more for just picking a resource to go on a project is definitely on the rise. Customers that I work with or that I’m seeing are using it for evolution of the skills of their team. They can do more ad hoc searching to say, “If we were to“-. I had one customer who was a traditional infrastructure type solution provider, servers, and networking, and all the stuff that goes into big data centers. Well, the innovation on that side is virtualization. It’s a game changer relative to infrastructure. Well, they had to be the leader in virtualization or at least certainly one of the top three. But if you look back, it was as seismic as mainframe to client server to web-based. It was that seismic in terms of change. They used their skills database to really look at and interrogate. Okay, who has the propensity to learn some of the new virtualization technologies?
And they went of a two-year massive shift of which the skills database really became one of their sources of the analysis to know how to target people, how to create training programmes, and how to evolve. That more and more, is going to become the norm for companies that are trying to move quickly, innovate, and when they’re companies themselves are dealing either with change or driving some new product innovation that the service organization has to adapt to.
Steve Brooks: Does that put an extra emphasis on talent retention as well?
Marc Lacroix: Yes. depending on what part of the world you’re in, if you have different retention challenges, certainly. Speaking locally here, we have low unemployment in North America right now, but there’s always been retention challenges in Asia Pacific and those areas because of just the huge growth, number of jobs, and competitiveness of it. I don’t know that retention is always going to continue to be an issue. I haven’t seen it change much or more. I think that if you’re doing good, and innovative work, and you’re keeping an eye on your clients, I think that part kind of takes care of itself. And some more macro events, you might not be able to take care of like low unemployment or high availability of jobs, and resources, and propensity to flip.
Steve Brooks: What three things do professional services organizations, need to do to tune to the ever-evolving market that we’re now facing?
Marc Lacroix: The first thing that every professional or delivery organization leader probably does this as you need to really look hard at where your company is going and where the products and technologies, what you exist to do, and where that’s going. Because we don’t certainly want to be stubborn in our ways. I’ll take a simple example. When I talk to customers that say, “We do 90% of our work time in materials. We don’t do fixed fee.” Well, to me, that’s short-sighted just to even make that statement. If what the nature of the work you’re doing requires you to take on a little bit more risk because your clients don’t exactly know what outcome they’re going to get, then you might have to share some of that risk and go to a more of a fixed fee model to adapt or something like that.
The other is, and I know this sounds quite cliché and overused, but listen and read your clients. If I had a nickel for every client I worked with, who after interviewing and getting to understand the nature of their delivery, their clients are asking for more knowledge from them. What a great situation. Your customers are asking for more from you. But what is that? And so, what I see is that organizations struggling to figure out how to convert that into money and delivery. What they’re usually asking for, as I mentioned before is, best practice, industry knowledge, business awareness. And they want that collective knowledge that your team has gained. And so, we have to figure out how to deliver on that and monetize that. To me, that’s listening to your clients and figuring out what they want from you. If they want a managed service model from you, give them a managed service model. If you don’t delivery that today and you’re getting asked for it, figure out how to deliver it, and deliver it. Because again, if you don’t, they’ll find somebody who will. And you’ve missed out on that.
We tend to let our internal circumstance of, “Oh, we’re only in the business to do this. And I’ve been told by top-down to only do this.” Well, that’s where I see innovation die is that you choose the road you walk on. Maybe your executives are trying to hold you to certain financial models. And you’re missing out on a huge opportunity. I’m a delivery and consulting guy at heart. And I believe that customers can guide you to the next thing. As a delivery person, we should let our customers guide us to the next thing. It might even be the next product innovation. let your customers lead you a little bit and they might lead you to that next big thing that your whole company can benefit from.
Steve Brooks: And the third one?
Marc Lacroix: As we look at the delivery models today, making sense of the fact that while the technical implementation may be getting easier and simpler, there’s a tremendous need and opportunity to provide the full range of services. These projects are still projects. They need project management. They need business analysis and business consultancy. They need integration. These are still not simple events. And my third and underscored point is, innovating isn’t just about coming up with some new high-fangled way to price or do something. It really should get back to giving customers the full service that they need and delivering on that. While that doesn’t sound innovative, it really will take you and your organization in a way that you want to provide the full service for your clients. And ultimately make them successful. Innovation isn’t that interesting unless at the end of each project, you think your customer is successful. And that’s really the goal.
Steve Brooks: Can you share an example of where you’ve seen a company get it wrong?
Marc Lacroix: Get it wrong. I think I see them get it wrong more often than get it right. I wrote a white paper recently actually, about the diminishing role of the project manager. And so, that’s to me, an endemic problem. Just one example of it where, because these projects are so simple and so easy, why do we need a project manager? Or why do we need much of a project manager? Let’s just put two hours a week and run a status meeting and that’s all we need. That combined with underestimating the amount of change that’s going with these clients that we’re serving. I see that time and time again. You can look at the data to see the adoption and satisfaction challenges with many solutions going in today. And it’s not because the products are bad. It is not because the functionality doesn’t meet business requirements. It’s because it was slammed in. It was not brought into the business in the right way. It was done too quickly.
Again, I talk about this education curve. You can put a solution in in four weeks, but you can’t educate a user group in four weeks. It takes a lot more time. It’s not just about training. It’s about understanding truly what we’re trying to accomplish, what really this does. And so that’s a tremendous challenge and failure that we’re trying to outcome is we’ve over-lurched towards the ease of implementation.
We need to actually get back to, dare I say, fatten up our projects. And we need to make them fatter. And if we can express that value to the client, and I’m trying to coach my clients to do this all the time is you have to show them that if they cut corners and if they are penny wise pound foolish, they will pay the price later. And you don’t want to be around later and say, “I told you so.” And so, you need to paint that picture. Only services is going to do that. The sales team is going to sell the most aggressive, palatable deal possible. And the services teams need to step in and really establish the value in doing it right and justifying the cost to do it. So that we can all smile at the end.
Steve Brooks: You’re talking about having the hard conversations straight away, aren’t you?
Marc Lacroix: Yes. A big fan of putting it all out there. And then allowing the customer to take it off the table. And then at least you priced it, you put it out there. Let them remove it and say, “We’ve got a team that can do that.” Or, “We’ll defer that for later.” And then when things start to go a little bad, you can pull that back out and say, “Are you ready to now buy this service because I think you need it.”
Steve Brooks: What should a business leader actually do as a first step?
Marc Lacroix: I think that the first thing that I would do if I’m both been in an environment or hypothetically if I was stepping into a new team or a new organization.
What I would challenge every delivery leader to do is look at a few representative projects with good, solid customers and say, “Are we providing the right services and a complete set of services to make this customer successful?” And if we’re not, how did I change the way I sell, and deliver, and model, and skill to do that? And if I’m not giving them enough business consultancy, then I need to sell it. I need to get more team members on there to do it if I need to give them more development, and interface, and integration help. And I need to build up some team members to do that. More and more these days, we’re leaving it up to our clients to solve some of those gaps that we’re not delivering. And those gaps come back to bite you sometimes if you leave it to the customer.
Steve Brooks: Thank you. Mark.
Marc Lacroix: Thank you.
Steve Brooks: If you are listening to this podcast on Itunes? Please could you take the time to leave a rating and any feedback you may have. Thank you.
You’ve been listening to one of a series of podcasts dedicated to sharing best practices for professional services organizations. These can be found on www.kimbleapps.com.