Outcome-as-a-Service is the largest growing trend in the Professional Service Industry and it makes total sense. Aligning the incentives of the service provider (PSO) and the customer toward the end result of capturing the ROI of implemented technology makes total sense. So what does this mean for your professional services business?
Customers are changing the way they buy. Rather than buying products and software, they increasingly want outcomes and are willing to invest in the ongoing services that will help them achieve those outcomes. In other words, an outcome-based model means that services compensation is based on the contribution to the outcomes of the client’s business.
Current Business Impacts
For the customer, this type of engagement provides assurance that the professional services firm shares the risk, which provides a better guarantee of the outcome by rewarding the result instead of the effort.
For the professional services firm, an outcome-based engagement provides great incentive to innovate and ensure the customer gets the best out of the deployed technology that goes beyond a successful implementation. It means full and extended adoption and best practices.
Of course, getting to the point where PSOs can actually deliver, control and measure the long-term adoption of technology will require many changes and new capabilities for technology and the organization.
There’s a lot to consider, including the technical requirements like product connectivity and automated response services, as well as the transformational aspects of selling, developing success science and optimization services. These aspects are well covered in extensive publications including TSIA’s B4B book and beyond the scope of this post.
Current System Impacts
So what are the required systems to manage this new approach?
As PSOs continue to evolve and add managed and adoption services to their offering portfolio, they find that beyond the significant service delivery transformation, their underlying processes and systems are not built to support these new services.
CRM systems track initial sales (and commissions related to them) but maintaining and expanding managed and adoption services are more a function of the delivery and support team performance than the initial engagement. PSA systems have to account for traditional implementation projects and for continuous services as long-term projects and opportunities are there for expansion.
ERP/SRP systems now have to manage more complex contracts that include the initial delivery projects, software that is delivered/billed on a SaaS model with variable revenue based on consumption, and additional support and managed services. All of these items have very different billing and revenue recognition schedules. Managing these complex contracts are probably the first system issues for companies evolving towards Outcome-as-a-Service models.
The Need for Contract Management
Based on the new requirements and service offerings, having a robust contract management solution (CMS) is essential to account, bill and recognize multiple service offerings. Beyond the compliance (VSOE) and procedural requirements, it is important for PSOs to start looking at their customers as an account or portfolio of services over time, as opposed to singular projects. This will provide true and full visibility into the financial and customer satisfaction status of the account as well as allow firms to consolidate and forecast the different revenue streams (SaaS, T&M, managed services, etc.) across the company.
At Tribridge, we are focused on providing technology business solutions for the professional services industry including PSA and contract management solutionsintegrated with Microsoft Dynamics ERP.
To learn more about how your organization can benefit from a robust contract management solution (CMS), feel free to contact me directly or view our latest on-demand webinar, Understanding the Complexities of SaaS Revenue Recognition Management.