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Service Delivery Innovation:
Creating Client Value and Enhancing Profitability
Service Delivery Innovation is also known as :
Successful Service Delivery Innovation,
Public Service Innovation,
Integrated services,
public service delivery,
electronic service delivery innovations,
routine service delivery,
Alternative Service Delivery.
ASD,
Service Delivery Review,
New Service Delivery,
New Service Delivery Model,
CONTENTS
- Executive Summary
- Driving Forces
- Increasingly Sophisticated Clients
- Intense Competition
- Market Globalization
- Evolving Technology Architecture
- Emergence of Modularization
- Convergence of Market Forces
- Service Delivery Innovation
- Resourcing and Partnering
- Packaging
- Cocreating Value
- Characteristics of Successful Service Delivery Innovation
- A Networked Organization
- Flexible Workflows
- Global Sourcing
- Client and Supplier Collaboration
- Continuous Innovation
- Enabling Technology
- Benefits of Service Delivery Innovation
- Conclusion
- About the Authors
EXECUTIVE SUMMARY
A variety of forces shape the professional services industry '
from fierce competition and globalization to the modularization
of business processes and technology. Clients want professional
services firms to deliver cost-effective services in smaller, fixedprice
contracts, but at the same time want to retain highly
seasoned professionals equipped to address their most challenging
industry-specific process needs.
To succeed in this environment, professional services firms must
continually improve their service delivery methods to increase
client value and profitability and lower costs. This involves implementing
more efficient resourcing and partnering processes,
creatively packaging services, and cocreating value with clients.
However, for any of these endeavors to work, a firm must have
a foundation that supports global processes and workflows that
enhance client and supplier collaboration. For the firms that
succeed, the rewards are great. They can differentiate themselves
in a crowded marketplace, lock in loyal clients, use internal and
external resources more profitably, and improve time to market.
This paper reviews the forces that affect the professional services
market today, defines and explains the main pillars of service
delivery innovation, and reviews the benefits firms derive from
service delivery innovation. It concludes by listing key operating
and financial metrics that can measure the value created for
firms when they commit their strategies to ongoing service
delivery innovation.
DRIVING FORCES
Faced with increasingly sophisticated clients, market globalization,
and evolving technology, professional services firms must
evaluate their business models to ensure that they can deliver the
greatest value to every client on every project. If firms continue
to do business as usual, they will face eroding profit margins,
increased operational complexity and risk, and underleveraged
partnerships. Let's take a moment to look at each of the five
fundamental driving forces at work in the professional services
marketplace today before we explore how firms can proactively
address these trends.
Increasingly Sophisticated Clients
The procurement process in the professional services industry
is maturing. Many companies are on their second or third wave
of outsourcing agreements and are clients that understand the
pro cess, know how to negotiate complex service-level agreements
for maximum value, routinely expect firms to offer highly experienced
consultants, and demand greater visibility into engagement
pricing and structure. In addition, they increasingly focus on
outcomes and demand more choices ' both in terms of services
and providers ' at lower costs.
Intense Competition
In addition to satisfying discerning clients, professional services
firms must deal with increased competition in a variety of forms.
The availability of online information, the pace at which the competition
copies innovative ideas, and industry consolidation result
in a steady and relentless increase in the number and types of
competitive forces a professional services firm faces. For example,
online service providers are making certain services obsolete, and
almost every client has a defined outsourced plan. Offshore firms
are gaining market share with their lower labor costs, and
product firms are emerging as new competitors by marketing
their manufacturing and product expertise to those seeking
process efficiencies.
Market Globalization
Competition is not only intense, it is global. National boundaries
have become irrelevant to global business as suppliers, clients,
information, and ideas easily flow across borders. Following this
trend, professional services firms are finding themselves largely
location-independent. No one region can serve as the single source
for the right labor mix, latest technology, or management innovation.
Clients expect their services partners to provide support
around the world and source from the locations that provide the
greatest expertise ' and best value. Professional services firms must
be able to deliver both custom and packaged services globally, yet
deliver each project configured for the local market. Fulfilling
this demand requires extraordinary operational and staffing
flexibility.
Evolving Technology Architecture
Squeezing the market still further, custom software, packaged
applications, and Software as a Service (SaaS) are now available
to solve business problems once addressed through labor-based
services. With the emergence of Web services and enterprise
service-oriented architecture (enterprise SOA), applications are
being broken down into smaller components that can interface
seamlessly and directly with other components. More and more
information services, technologies, and business applications can
be distributed across computers and organizations without the
expert guidance once provided by professional services firms.
Some of these are simply given away on the Internet, limiting
the need for certain external professional services.
Emergence of Modularization
Like software applications, business processes are also swiftly
becoming modular ' broken down into small elements to be
combined and recombined as needed. Companies can choose to
locate these modules inside or outside the enterprise, knowing
they integrate easily with other critical business activities and can
be reconfigured as needs change. The rapid and continued modularization
of business processes means that companies must focus
on and invest in only those world-class processes that create a
competitive advantage.
Convergence of Market Forces
As all five of these market forces converge, it becomes increasingly
difficult for professional services firms to differentiate based on
the products and services they provide. These firms are discovering
that their competitors copy many of their services and that
their clients' procurement departments compare every proposal
with competing offers in minute detail. Even as price pressures
squeeze profit margins, sophisticated global clients are demanding
that professional services firms deliver standardized elements at
the lowest possible cost and provide differentiated service in the
most cost-effective manner possible.
A recent independent survey of over 230 professional services
firms indicates that firms feel the top three challenges they face
in delivering services are: working with partners, rolling out new
services, and dealing with clients who demand more visibility
and collaboration ' as shown in Figure 1. The message is clear:
professional services firms must either constantly innovate to
deliver at the lowest cost the differentiated products and services
clients demand, or risk being swallowed by competitive forces.
SERVICE DELIVERY INNOVATION
How can a services firm best respond to overwhelming market
forces? It must find new ways to deliver its services, and it must
surpass client expectations. Through successful innovation a
firm can protect its largest revenue generators, making possible
its investment in the "next big thing" in terms of high-margin
service offerings. In doing so, a firm must address the converging
challenges of client sophistication, globalization, competition,
technology innovation, and modularization ' while still taking
advantage of the market opportunities as they arise. To succeed
at this balancing act, professional services firms must bring
together resources in new ways, creatively package high-value
products and services, and cocreate solutions with their clients.
Professional services firms that lead the pack are those that
consistently deliver on client service innovation in three primary
areas: resourcing and partnering, packaging, and cocreating
value with clients.
Resourcing and Partnering
At the heart of any professional services firm is talent resourcing
' optimally allocating scarce resources to projects. Innovation in
resourcing increasingly means drawing on an effective, available
pool of external, global talent while using internal resources as
efficiently as possible. It involves equipping both resource management
personnel and consultants with tools that enable them to
complete administrative tasks effortlessly while communicating
and collaborating across borders and organizational structures.
To perform innovative resourcing, systems and processes must be
established that encourage resource sharing between firms and
identify specialized expertise, innovative technology, and lowcost
labor ' regardless of location. Specifically, by retaining local
expertise and embracing the local conditions in the countries in
which they operate, firms can win business, manage projects,
and cement client relationships more effectively.
In the independent survey cited above, 71% of professional services
firms indicated it is important to partner with other services
providers. When a firm seamlessly blends internal and external
partner resources, it gains a distinct advantage because it can meet
a variety of client needs in a rapid, efficient manner. For example,
when internal consulting resources are stretched too thin, innovative
professional services firms rely on technology to quickly
identify and then deploy appropriate partners, subcontractors,
and offshore resources to meet clients' needs. To facilitate collaboration
with suppliers, firms can implement technology that
seamlessly integrates subcontractors into their service delivery
processes across diverse markets. Armed with tools designed to
improve supplier management, a professional services firm can
create a single, real-time view of all external resources and
effectively meet client needs regardless of location.
Packaging
Another trend in service delivery innovation is the move toward
packaging services. Professional services firms can deliver services in
an ad hoc manner for every client or package them in structured yet
flexible ways. Many firms find themselves creating one-off solu tions to
address every client request. The challenge is to turn these one-off
projects into a packaged offering that is repeatable, efficient, and
trans ferable throughout the firm ' and to other clients. An example
would be a packaged offering including templates, defined methodologies,
work plans, and how-to guides. By packag ing, pricing, and
marketing these mature service offer ings, a professional services
firm gains a streamlined sales process for both new and existing
clients, more predictable outcomes, and higher profitability.
Productization, a subset of packaging, turns services into standard
ized yet configurable products that efficiently and effectively
combine people, intellectual property, technology, software,
products, and consulting. Productization ' which is a priority
for 68% of firms recently surveyed ' benefits professional services
firms in the following ways:
- When firms combine resources in standardized ways rather than
on a project-by-project ad hoc basis, they can achieve substan tial
efficiencies and higher resource utilization.
- By productizing services, firms can standardize pricing. This
saves substantial scoping and proposing resources on every
project, makes it easier for clients to evaluate offers and make
buying decisions, and enables higher profit margins on welldelivered
projects. The most innovative firms can utilize a service
configurator to further streamline the proposal process.
- Productization simplifies the sales process and enables salespeople
to offer specific, defined packages to clients and prospects.
For some services, clients can actually use online catalogs to
order specific services, triggering immediate resourcing and
service execution. The result is an enhanced, multichannel
buying experience for all clients. Additionally, the firm can
employ low- or high-touch channels depending on the nature
of the service and client relationship.
The ultimate objective of professional services relationships is to
create value for the client. However, professional services firms
can create that value in many different ways. Some professional
firms continue with traditional "black box" service models that
create outcomes with minimal interaction and knowledge-sharing
with their clients. This results in a commodity relationship. By
contrast, innovative firms are building knowledge-based relationships
founded on collaboration and mutual knowledge exchange
between the organizations. In this type of relationship, the outcomes
include enhanced capabilities and knowledge for the client.
A deep, knowledge-based relationship is impossible to replicate
by competitors because the unique collaboration and mutual
understanding is developed over time.
Firms must recognize which of their services are commoditized and
which are high value ' and then price their offerings accordingly.
A collaborative or knowledge-based relationship ' character istic
of a high-value service ' relies on mutual trust, a willingness to
disclose information, and both sides being open to new ideas, as
illustrated in Figure 2. To truly cocreate and exploit intellectual
property, senior resources from both the professional services firm
and the client work together across organizational boundaries
to create new products or develop new ideas. Clients in such a
knowledge-based relationship are less affected by price because
they value the role that open communication, collaborative
teams, and complementary expertise play in creating value.
Characteristics of Successful Service Delivery
Innovation
Professional services firms that excel at service delivery
innovation demonstrate the six key characteristics:
- A networked organization
- Flexible workflows
- Global sourcing
- Client and supplier collaboration
- Continuous innovation
- Enabling technology
A Networked Organization
Professional services organizations are ultimately collections of
people: deeply specialized professionals who bring together their
expertise to create value for clients. As such, the relationships and
networks that link individual professionals are at the heart of the
organization. Siloed professional organizations are ineffective.
Successful organizational networks rely on human capital policies
and technologies that quickly and effectively locate expertise,
support project teams, and encourage collaboration throughout
the organization.
Flexible Workflows
Streamlined and effective workflows are a vital component of
service delivery innovation within a professional services firm.
However, this workflow is markedly different from the workflow
required by a routine operation, such as processing an invoice for
payment. Workflows within innovative professional services firms
need to be readily reconfigured to adapt to different projects,
situations, and emerging market needs. Workflows need to support
the firm's efforts to identify talent, create marketplaces, establish
pricing mechanisms, enhance client relationships, and integrate
quality assurance processes into workflows. The systems and
processes in place should support the introduction of new services
and products across the organization.
Global Sourcing
Both internal and external sourcing strategies are critical to
the success of a global professional services firm, and work and
resources need to flow across boundaries. To succeed at global
sourcing, professional services firms must undertake several initiatives.
First, they must consistently implement highly effective
processes for identifying and applying internal talent. Secondly,
firms must establish an approach for drawing on external talent
as soon as required. Professional services firms must master this
complex activity in order to compete in a global market influenced
by low-cost labor and emerging pools of expertise. Firms need
integrated workflow technologies, available collaboration spaces,
appropriate organizational design, and a professional culture that
supports work across borders. Firms must also adapt and mesh
the work and social attitudes of its home country with the very
different cultures of colleagues and clients on other continents.
Client and Supplier Collaboration
If a firm provides "black box" services ' characteristic of no
collaboration with clients ' it will rapidly become a commoditized
service provider. Professional services firms need to effectively and
continuously collaborate with their clients to build greater value
and lock in clients for the long term. Firms must also achieve outstanding
collaboration with their talent suppliers. In a modularized
economy, receiving the greatest value from external talent requires
bringing them into the firm's processes rather than contracting
for work piecemeal. To enable external collaboration, professional
services firms can use technology that allows remote professionals
to view and participate in key business processes.
Continuous Innovation
Service delivery innovation is an ongoing process; it must be
embedded into the way a professional services firm functions and
develops new products and services. Some initiatives ' such as
implementing global processes, developing client collaboration,
or creating a more networked organization ' are ongoing as well.
There is always room for improvement. Other strategies, such as
productizing services, may evolve in stages, building on existing
capabilities and firm maturity. Most importantly, everyone in the
company, from the executive team on down, must continually
seek better ways to deliver services.
Enabling Technology
Technology is a key enabler of service delivery innovation ' as
shown by the overwhelming response of 93% of the professional
services firms surveyed. Each of the characteristics of service delivery
innovation discussed so far requires a technology platform that is
modular, flexible, and reconfigurable. In addition, this platform
must integrate easily with external systems and processes to
support client and supplier collaboration and to draw on global
best-of-breed resources.
BENEFITS OF SERVICE DELIVERY INNOVATION
Firms effective at service delivery innovation will generate greater
value for their clients, achieve competitive differentiation, and
operate more profitably. Respondents in the independent survey
reported that the top four benefits of improved service delivery are
higher client satisfaction, reduced cost of service delivery, faster
time to market, and higher resource utilization ' as shown in
Figure 3.
Examples of key operating and financial metrics that measure
the value created by service delivery innovation include:
- Greater differentiation in the marketplace
Service delivery innovation enables professional firms to
differentiate themselves through new services that better
address client needs; competitively priced services that reach
new markets; and services that are easier for clients to use.
- Services that are easier to buy and sell
Effective service delivery innovation calls for clearly packaged
and structured service offerings that detail the included activities
and expected client outcomes. Additionally, a professional
services firm must be able to readily customize these offerings
to meet specific client requirements and issues. With predictable
pricing, clients can more easily make buying decisions,
making it faster and easier for firms to sell services to existing
and new clients.
- Increased client loyalty
Service delivery innovation enhances a firm's ability to lock in
client loyalty through an easier buying process, clearer communication
of deliverables and outcomes, and an increased ability
to meet client needs. The result is that clients will prefer to stay
with existing service providers. This leads to increased renewals,
a higher share of clients' spending on external services, and
increased value to clients from their lead service provider.
- Increased speed to market
In a world driven by innovation and speed, the firms that can
bring new products to market faster than their competitors
or swiftly follow market leaders can derive substantial benefits.
To do this, professional services firms require an innovative
service delivery platform that allows them to combine existing
resources in new ways ' or call upon new resources ' to create
innovative services and products with minimized cost and effort.
- Improved resource utilization
One of the primary profit drivers for professional services firms
is resource utilization. Service delivery innovation provides
better structure and enhanced flexibility for allocating resources
to projects and client work. With more highly defined services,
deliverables, and outcomes, firms can predict more precisely
what resources will be needed and where. At the same time,
firms can more readily reallocate resources, not just within
locations but across locations and countries when necessary.
The final outcome is higher resource utilization.
- Lower compliance risk
The recent dramatic increase in compliance costs for professional
services firms ' driven both by regulation and highly specific
reporting requirements from clients ' has had a significant
impact on profitability. Service delivery innovation creates
visibility into service processes and improves predictability of the
outcomes. This reduces the compliance burden, not to mention
considerably reducing the chance of deviating from contracted
client deliverables.
How to Measure the Value Created from
Service Delivery Innovation
Professional services firms that are effective at
service delivery innovation will deliver greater value
to their clients, achieve competitive differentiation,
and operate more profitably. Examples of key
operating and financial metrics that measure the
value created by service delivery innovation include:
- Operating Metrics
- Faster time to market with new services
- Increased win rate
- Higher resource utilization
- Better leveraging of intellectual capital
- Higher client satisfaction
- Higher wallet share
- Increased client renewals
- Financial Metrics
- Higher gross and operating margins
- Increased revenue and profit per resource
and by client
- Lower cost of compliance
- Lower cost of sales
CONCLUSION
However, realizing the benefits of service delivery innovation
requires a comprehensive and rich set of technology functionality
that supports a networked organization, flexible workflows, global
sourcing, increased collaboration, and continuous innovation.
With enabling technology, a professional services firm can sharpen
its focus on managing resources, pricing, costs, and client relationships,
and ultimately increase its competitive advantage and
boost its bottom line.
To learn more about the SAP® for Professional Services solution
portfolio, please visit www.sap.com/professionalservices.
Driven by demanding clients, intense competition, globalization,
emerging technologies, and modularization, professional services
firms are turning toward service delivery innovation as a way to
deliver high-value services at competitive prices to their target
clients. With service delivery innovation, firms evaluate and offer
profitable new services to existing clients. They identify ways to
serve client segments more effectively and profitably, and recommend
novel pricing models or structures to attract new clients.
Innovating on service delivery also requires that firms bring
together resources in new ways and package services into repeatable
offerings so that they can capitalize on efficiencies and staffing
predictability. Finally, leading professional services firms recognize
the value of moving beyond a commoditized relationship by
collaborating with clients to cocreate value.
Firms that can excel at service delivery innovation will reap substantial
benefits. Innovative partnering arrangements improve
resource utilization and client service. Effective packaging makes
services easier to buy and sell and increases speed to market. In
addition, collaborative client relationships drive greater differen tiation
and increase client loyalty.
ABOUT THE AUTHORS
Ross Dawson, CEO of Advanced Human Technologies, is the
author of the books Developing Knowledge-Based Client Relation ships
and Living Networks: Leading Your Company, Customers, and Partners
in the Hyper-Connected Economy.
Matthew Horenkamp, Industry Principal, Professional Services,
SAP America Inc., has over 12 years of experience in software,
consulting, and high-tech organizations. During this time, he
has defined and delivered value-added business solutions for
consult ing, IT services, outsourcing, legal, and staffing firms.
Mr. Horenkamp holds an MBA from Georgetown University
and a BA in international business from Gettysburg College.