The IT services industry has been evolving continuously over the last three decades. At every step, the underlying ethos has aimed at enabling customer success, which requires the IT industry to keep rediscovering the way it operates. Productization of services is one way to actualize that ethos and is now becoming a focus area for the industry.
What is productization of services?
Productization of services means packaging a technology product with managed services, providing a cohesive and standardized offering to customers to help solve their business problems.
A productized offering comes with definitive product features embellished with services that customers can directly plug into their environments (with little or no customization), offered at certain price points. In essence, the aim is to repurpose a customized services and product bundle that was already provided to a specific customer and turn it into a standard, fully tested, packaged, supported, and marketed product.
The services model is changing from “customization from the beginning” to “customization at the point of consumption.” By avoiding the need to reinvent the wheel for every customer individually, productization of services is a step towards minimizing customization.
Why productization of services?
The IT services industry has always been adept at tapping technology trends and converting them into clear customer value. Productization of services is one such breakthrough, providing not only immense value to the customer, but also supporting a strategic role for service teams and promoting their growth. Here’s how:
- Nonlinear growth: IT services businesses traditionally have linear growth patterns due to resource-based delivery models and time invested in creating solutions for each individual customer. Productized offerings pose better potential to scale by reducing resource dependency because the same solution can be sold to multiple customers with minimum time spent on customization.
- Reduced cost of customer acquisition: Selling a productized offering is a more standardized and repeatable process that significantly reduces the overall cost involved in the sales cycle (widely referred as SG&A), leading to lower customer acquisition cost.
- Better profit margins: Pass-through costs are usually a major deterrent in a customer’s decision around purchasing a technology product from an IT services organization. However, with a productized services offering, customers are exposed only to the ultimate, complete solution. Service providers play a more collaborative role, and as the scale increases, they are better able to make higher margins.
- Faster market penetration: Establishing a product/services offering as an industry standard supports greater penetration and market share.
How to create a “product culture”?
Moving from a talent-focused to a product-driven approach is a long, purposeful journey that needs to be planned and executed meticulously. A product culture requires a different approach and mindset across the entire value chain – sales, presales, marketing, alliances, and delivery. You need to strategically identify the services that can be productized, lay out the trajectory to do so, formulate pricing models, and most importantly, identify the correct target audience from your existing customer base and new prospects. The transformation is incomplete without building delivery competency along with all the above aspects.
Following are some of the key aspects to keep in mind when starting to build a strong product management organization in an IT services setup:
- Set up focus groups: Identify your focus areas for development. A focus group needs to be carved that can research industry and technology trends, identify the right market demand, and build productized offerings that address them. Brainstorming within these groups will also aid in developing product offerings that can add value to the broader industry and the customers therein.
- Devote committed leadership and investments (time and money): Organizations will need to remain patiently invested throughout the transformation journey. Initial phases of research and product development will command a substantial percentage of monetary investment and attention from leadership, while the realizable positive effects will start coming only after a while into this journey. Productization is uncharted territory for IT services providers; hence, it becomes even more crucial for the leadership to closely and continuously monitor the focus groups’ progress and the developed offerings.
- Hire right: Hire service-oriented product managers with an aptitude not just for connecting the dots but also finding the missing pieces of the product-services puzzle. As simple as it may appear, this is one of the more critical facets in setting up the organization for success in the productization journey.
- Establish strategic partnerships: Create strategic partnerships with technology players whose offerings align with your focus areas. Technology partners’ support is required – from the conceptualization of productized offering to designing the go-to-market strategy and even during marketing and branding campaigns.
- Coach and mentor: Transitioning from services to a product-oriented mindset is a huge organizational culture change. It is important for all the groups within the organization, including presales, sales, alliances, and marketing and delivery, to unlearn, relearn, and retrain themselves to adapt to this change. Appropriate coaching and mentoring go a long way in ensuring the desired outcomes.
Remember that it is a gradual process that needs the right blend of research, leadership, vision, investment, and focus.
Evolve, innovate, revamp
Productization of services has always happened in IT services organizations, in some shape and form, to meet client needs. The line between product and services is becoming more blurred than ever, and rightly so. However, to realize its true potential and capitalize on it, organizations today need to make structural changes, develop a “product mindset,” and build internal product organizations to focus on this niche. Yet again, there is a dire need for the IT services industry to evolve, innovate, and revamp, and this is the way to do it.
For more on how IT can help support clients’ needs, see Customer Success Stories: What They’re All About.
Disclaimer: The ideas, views, and opinions expressed in this represent my own views and not those of any of my current or previous employers. Names, logos, and other proprietary information quoted (if any) in this blog are the property of respective companies/owners and are mentioned here for reference purpose only.
This article originally appeared on LinkedIn and is republished by permission.