Author: Editor

Embedded PS: How to Transition the Staffing Model for Greater Growth and Impact

In our last blog, we discussed that while embedded Professional Services businesses are being asked to do more, solve more, and grow more, there are impediments to these corporate mandates. Embedded product-attached PS businesses often have diamond-shaped staffing models that primarily employ skilled and tenured SMEs. As a result, the business model can be high-cost, difficult to scale, and higher-risk than necessary.

Therefore, solving the growth curve mandate often requires embedded PS businesses to shift their staffing models to a pyramid – or leveraged – model. This transition requires deliberation and education.

What is needed to make this transition?

As you know, a PS talent base requires a mix of skills to yield a well-rounded team to drive success. Therefore, a tailored, PS-specific talent development program can serve as the foundational mechanism for driving movement to the future state and enabling PS to play its strategic role in meeting corporate growth goals. This occurs by:

  • Transitioning the current staffing modelto one that is more flexible and scalable.
  • Cementing a culture of encouraging and enabling internal knowledge transfer, thereby reducing longer term business risk of having all core knowledge in the minds of a handful of Subject Matter Experts (SMEs).​
  • Building and enhancing the team’s soft and advisory skills.
  • Decentralizing day-to-day decision-makingto those closest to the client.
  • Instilling a growth-oriented​
  • Hiring additional capacity to fit the future state model; Updating the sourcing, interviewing, and onboarding​
  • Focusing more leadership time on being “player coaches” and less on resource management (i.e. scheduling and allocating), problem resolution, and client management.​

 

This program must be well-rounded and incorporate technical skills and domain knowledge training, while focusing on developing the often-overlooked PS skills:

 

A well-designed talent development program enables the staffing model transition by focusing on developing PS skills that are crucial for achieving high growth and penetrating new accounts in new segments.

 


Read more about building an effective talent development program to foster the advisory skills and customer intimacy necessary to drive embedded PS success.

Written by: Mark Slotnik and Sarah Cushman

About the Authors:

Mark Slotnik has spent nearly 20+ years advising clients in the areas of designing and taking to market high-value business solutions, solution portfolio management, talent development, resource management, business process re-engineering and commercial software.  

Sarah Cushman is a Senior Consultant with McMann & Ransford and has experience working with Fortune 500 companies to solve complex challenges, drive differentiation, and create long-term value.

PS Acquisition Model: Targeting Firms

In the last blog in this series, we outlined a deliberate process to help Professional Services firms make the best business acquisitions based on their strategic, financial, and growth goals. Targeting potential acquisitions is the first step in the process.

The objective of this phase is to create broad list of possible targets that fit the strategic criteria and narrow the list to a “short list” of prospects that will be contacted to begin mutual evaluation.

First, the targeting criteria for strategic fit are developed. Depending on your needs, each criterion may require a unique acquisition, or one target may meet multiple needs.  (This situation is further considered as you narrow the prospects.) When determining the criteria for strategic fit, consider the following as it relates to your portfolio strategy:

  • What capability and intellectual property (IP) gaps do you want to fill?
  • What are the greatest challenges facing your customers that want to help solve?
  • What capabilities or IP do we currently have that we want to augment?
  • What new markets and/or customers are you trying to enter?
  • If applicable, what gaps in technology are you looking to fill?
  • Which executive buyers do you want to have greater intimacy with or greater access to?

After defining the criteria, you can build a list of possible acquisition targets. This step often entails:

  • Researching potential targets in trade publications, professional organizations, and online,
  • Leveraging team knowledge and referrals, and
  • Engaging clients to help identify targets.

At this point, you will want to think very broadly about potential targets to ensure sufficient options are available and opportunities are not missed.

Finally, you will narrow the targets to a viable list of prospects for more detailed evaluation.  Placing the targets on a “Targeting Matrix” will assist you to visualize the relative merits and challenges across the full range of targets. Often this exercise will further clarify your priorities.

Typically, a basic 2×2 of what you believe are the most important strategic criteria the best starting point for the matrix.  Additional criteria (such as size, breadth of the target’s portfolio, industry or segment focus, or complementary non-PS offerings) can be captured visually by size, color, shape etc. of the icons in the matrix. Targets that meet multiple criteria are often a better “fit” in the Target Phase.

In this example, companies 2 and 7 have a strong fit for both primary criteria.  Size and color of the icons would provide further insight.  Additionally, depending on the importance of the criteria A and B, other targets may prove attractive or be ruled out.  In a recent client example, one axis represented exclusive focus on an industry segment and the other axis represented exclusive topical focus. After seeing the matrix, the client determined that the industry segment focus was essential, thereby eliminating a substantial number of targets from consideration.

After using the Targeting Matrix to hone your criteria and narrow the target list, you are ready to move to the Evaluate Phase.

 

Written by: Doug Long and Sarah Cushman

About the Authors:

Doug Long is a Partner with McMann & Ransford and has more than 26 years of experience in consulting across various industries, topics, and client challenges. Prior firms include Deloitte and GE. He currently leads our Healthcare Practice.

Sarah Cushman is a Senior Consultant with McMann & Ransford and has experience working with Fortune 500 companies to solve complex challenges, drive differentiation, and create long-term value.

PS Acquisition Model: Process Overview

Our recent blog explored some of the unique dynamics in acquiring Professional Services (PS) firms to expand the portfolio and enable an existing PS business to make a greater impact on the customer and the overall business. While the principles discussed apply to any growth-oriented PS business, they are particularly important for embedded PS businesses making the transition from product attached to outcome-based.

The challenges of finding acquisitions that fit your portfolio strategy, work in the correct segment(s), provide differentiated IP, contribute materially to critical mass, and are available/interested in selling combine to create a constant tension between finding the best option and finding a “good enough” option. Therefore, whether your intent is to make a single acquisition or several, you must consider a broad range of options and manage this complex process holistically and dynamically – each step with one prospective acquisition may impact the attractiveness or viability of other targets.


The four-phase process shown below takes you deliberately through finding targets that fit with your strategic objectives, evaluating candidates to build a robust business case, negotiating a mutually beneficial deal structure, and finalizing the deal while mitigating critical risk factors. Following this process will help ensure that the acquired firms will propel the growth engine for your business by:
• Achieving customer outcomes,
• Building greater customer intimacy,
• Introducing you into new market spaces,
• Pulling through other services, and
• Enhancing brand credibility with executive buyers.

Additional blogs in this series will delve into the detailed steps for each of these phases.

Written by: Doug Long

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About the Author: Doug Long is a Partner with McMann & Ransford and has more than 26 years of experience in consulting across various industries, topics, and client challenges. Prior firms include Deloitte and GE. He currently leads our Healthcare Practice.

Elevating your Portfolio through XaaS

Many clients ask us to help them re-engage their customers in a more meaningful way.  They successfully engineered, operationalized, and commercialized a set of products or services that created or met a market need and have enjoyed the success of growth, market share and the financial rewards that accompany both.  However, through our understanding of the commoditization curve, we know these successes have a finite timeline.  Regulations, extreme capital requirements, supply chain limitations, or any of the other factors that can insulate a product’s market and profit only protect markets for so long; they are eventually overcome, and the market share, revenue, and profit erode.  We have found that in many cases, these factors can be thwarted and delayed through adjustments to your commercial and business model, extending the lifecycle of the product and its financial impact to your business.

This is true for all products, but especially for the stars of your portfolio – margin-rich goods that provide much of the leverage for your organization, creating access to clients and funding needed investment for new products and services.  These stars are the natural targets for your competition, both seen and unseen.  Known competitors want to capture your clients and market share to be the dominant player and compound their capability to invest and engage new customers.  Start-ups and other small unknown players are seeking access to these margin-rich opportunities by engaging with transformative technology, first eroding the market and then siphoning clients, and ultimately changing the entire competitive landscape.

To fend off this competition and lengthen the commoditization curve, we help our customers create more value for their products and services and extend their lifecycle.  To start the process, we work with the client to understand their customers’ strategies so they can begin to extend the value they create further downstream.  Doing this effectively multiplies the value you create for your customer, building a tighter, more partner-focused relationship that is difficult to sever.

An example of this is a banking technology company we worked with that, as we described above, identified a margin rich market segment (small to medium sized banks) that they wanted to protect and expand.  The market segment was very profitable but not as large as the market the core business addressed (large mega banks) so posed an interesting opportunity for the client.  After investigating the market, it was discovered that the small/ medium banks’ customers wanted the same services and solutions in their typical remote/ rural locations that were more commonly provided by the large banks in the city centers.  The smaller regional banks were anxious to close the gap and provide these services.  Doing this would protect their customer base from being acquired by the big banks who were looking to engage this market with expanded capabilities – investing in easy access facilities and remote technology capabilities.

Our client felt their technology could assist these small/ medium sized banks in bridging this gap but knew there would be challenges to the investment model if they approached it as a large bank might – investing to deploy more expensive technology and develop storefronts.   An alternative way to bridge the gap would be to develop and deploy a Technology-as-a-Service (XaaS) business model with their current client base. There are many advantages to the XaaS model, but the one the that most appealed to our client was the potential to position and invest in new services and solutions to augment their existing technology, while minimizing the the capital outlay and providing a more robust revenue stream moving forward.

Instead of investing in specific technology for the market segment, they would invest in supportive offerings and services to better allow their current technology to engage with the clients. Identifying what specific services and needs your customer requires takes some time and investment; additionally, there might be upfront investment if these offerings and services do not fall within their current skillset and capabilities. However, with careful selection and understanding of your client’s overall value proposition, you can identify economic opportunities to transform your revenue profile (recurring revenue streams and subscription services) and expand the barriers to entry for less sophisticated competitors.

In our banking example, one of the options they explored was to develop a more robust professional services organization to help the small/ medium market segment clients implement more sophisticated transaction and business processing practices.  This was coupled with technology services that expanded the quality of high-touch interactions with their remote customers.  By introducing new revenue streams (consulting) and subscription services (remote accessing software), they both improved the financial profile and created a more partner-focused relationship. They were able to engage with strategic client and business issues – not only technology opportunities.

A XaaS business has the potential to help your clients develop better insight into their customers’ needs, expand their portfolio beyond products into business and strategy-oriented solutions and offerings, and create recurring revenue streams.   This is just the tip of the iceberg – there are other benefits to this game-changing business model that we will explore in future blogs.

 

Written by: Marc Cottle

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About the Author: Marc Cottle is an experienced sales leader with 15 years of experience; he is a Principal with McMann & Ransford and leads the Commercial Practice at the company.

The Guide to Moving the Business from Capabilities to Outcomes: Service Chains

 

Service ChainsSM (a tool set created by McMann & Ransford) were created to carry much of the effort to sell and deliver outcome-based offers to clients.  Service ChainsSM  place, in one integrated toolkit, all items necessary to:

Let’s expand on a few of these ideas to assist in understanding the power of the Service ChainSM tool set.

  • Selling the Way Buyers Buy – buyers progress through a three-step decision-making process:
    • Whether to Act – the first thing the buyer considers is whether to take action. This includes understanding the opportunity, likelihood of success, and the investment required. The Service ChainSM provides an Entry Project, a short-term and lower-budget introductory engagement, to evaluate that topic. Therefore, it allows the buyer and selling organization to move forward with little risk to answer whether to take action or further investigate the topic. Today too often, selling organizations fall into one of two situations:
  1. The buyer has already determined whether to act and how to act, and they are looking for a vendor to perform. This is a competition (maybe RPF) with focus on the wrong things like price.
  2. The selling organization is earlier in the buying process. The whether-to-act process is a long journey (resulting in a long sales cycles) with the selling organization investing significant time and effort with little reward for the investment.

The Entry Project moves the ball forward in a selling organization-controlled environment, gets the buyer writing checks, and provides valuable input to reduce the risk of the large deal for both buyer and seller.

  • How to Act – The next key decision for the buyer is how does their company goes about solving this issue or taking advantage of this opportunity. Again, the Service ChainSM takes this thought process into account.  The next project in the chain is the Proof Project.  This project requires greater investment (still much smaller than the large deal) and proves that the Idea will work in the buyer’s environment.  This project could be a pilot of the Idea, or a detailed plan etc.  The Proof Project again provides a structured way to move forward and additional information crucial to being successful in the large implementation project.
  • Work Above the Safety LineSM – One important goal for most firms today is to become more important and intimate with their key customers and segments. This requires addressing issues and opportunities that executives care about.  This combined with the fact that most sales efforts (and related talent) are geared to technical buyers and procurement makes dealing with executives a significant change in the selling motion. The Service ChainSM frees the organization to go directly to the executive because it is geared to how they think.  Working Above the Safety LineSM is both an offensive and defensive strategy.  It allows protection from competitors because the selling organization now has higher value and greater intimacy.  And, offensively, it provides a road to pull through the products and services that are more commoditized.  Finally, the Service ChainSM provides a mechanism for many existing sales resources to work with executives without having to replace the sales force.

We did not the take the time here to explain all the advantages of leveraging Service Chains,SM but I hope these examples help to demonstrate the power of the tool set.

 

Written by: Dean McMann

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About the Author: Dean McMann is a Founding Partner at McMann & Ransford with 35+ years of experience in consulting and professional services.  He is a sought-after expert and speaker on topics of: B2B differentiation, professional services best practices, and overcoming commoditization.  In addition to his extensive experience in the Professional Services space, Dean also serves on the board of various non-profit organizations.

Embedded PS: Transitioning the Staffing Model for Greater Growth and Impact

In previous blogs, we have discussed the rising demands of PS businesses embedded in large companies. They are being asked to do more, solve more client problems, and provide material growth. When optimized, PS can drive differentiation and intimacy for the greater business. However, there are two primary challenges that can occur when growing an embedded PS business:

Challenge 1: Many embedded PS businesses historically grew to size and scale through product-attached services and solutions such as installation, implementation, and product optimization services. The staffing model therefore is often comprised primarily of technology Subject Matter Experts (SMEs).

Challenge 2: As PS businesses are asked to do more, the staffing model falls out of synch. The talent often lacks the soft, advisory skills and industry and market knowledge necessary to drive PS growth.

As a result, product-attached PS businesses often have diamond-shaped staffing models that primarily employ skilled and tenured product-based SMEs. While not inherently a bad thing, it can present challenges to achieving the “new” PS business’s growth goals such as:

  • Higher Cost: Due to current employees’ experience level and niche expertise, they command high salaries.
  • Harder to Scale: Hiring more individual contributor SMEs does not readily allow for transferring specialized skillsets to other less experienced employees, thereby constraining team leverage across more clients.
  • Higher Business Risk: Lack of knowledge transfer may result in experienced SMEs holding the business “hostage,” as they independently possess unique skills and knowledge integral to business operations.

Therefore, solving the growth curve and corporate mandate often requires embedded PS businesses to shift their staffing models.

Transitioning to a pyramid – or leveraged – staffing model can benefit the business in a few key ways as it grows:

  • Margin Enhancement: In a PS pyramid staffing model, leverage is created by having lower-cost employees doing most of the work that is led and reviewed by more senior talent that can then be more available to support additional client accounts.
  • Scalable: SMEs serve as guides, sharing their insights with less experienced employees. The pyramid facilitates (and requires) knowledge transfer and normalized resource allocation.
  • Risk Reduction: Because knowledge and skills are transferred throughout the organization, the business reduces the risk of “being held hostage” by any individuals; individual knowledge becomes team knowledge.

Changing the skills and staffing mix over time lays a new foundation that allows the embedded PS business to better achieve its updated strategic mission. In the next blog, we will describe the factors necessary to transition the staffing model.

 

Written by: Mark Slotnik

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About the Author: Mark Slotnik has spent nearly 20+ years advising clients in the areas of designing and taking to market high-value business solutions, solution portfolio management, talent development, resource management, business process re-engineering and commercial software.  

Growing the PS Business through Acquisitions

This blog series deals with growing a Professional Services (PS) business through acquisition.  It will specifically walk you through how to use acquisitions to expand your portfolio of offers and/or get to critical mass in a multi-offer PS business.  This blog does not discuss using acquisitions to merely obtain staff to increase the size of a product-attached implementation business. That said, most PS businesses that launch as product-attached want to expand their offerings and move to outcome-based. This blog will explain how to do so through making the right PS acquisitions.

As we all know, PS is a unique business that works differently than other businesses in a large company.  The PS business requires different structures, rules of operation, talent management, etc. Acquisitions are no exception – acquiring companies works differently with PS than it does with other businesses.

When acquiring a company, we are trying to increase the portfolio to allow the PS business to make a greater impact on the customer and the overall business.  This requires offers that solve more important business problems than product-attached businesses can do in isolation.

Most acquisition groups in your company believe in larger acquisitions because the cost of the acquisition is similar for large and small deals.  However, what you need usually isn’t size – it’s IP and a little know-how.  There are few large PS businesses that will address your needs. Two exceptions to this rule were IBM’s acquisition of Price Waterhouse consulting and Korn Ferry’s purchase of the Hay Group.  In both cases these were well-managed and disciplined firms that met their growth and strategic requirements.  In most cases, however, this type of large acquisition is not an option.

The normal PS opportunity is to acquire a small or mid-size firm that works in the area you want to get in to.  When evaluating these opportunities, there are a few things you will have to understand or accept:

  1. The target firms will not necessarily be managed well. That does not mean they are not successful in their space – it means they were likely created by an innovative person and built around an idea or two. What you want is their IP and a few people who know how to sell and implement the idea. They most likely will not have experienced how to work in a multi-offer business or pull through the rest of your company’s products or offers.  Therefore, size works in an inverse relationship.  Why buy more than you need? The uniqueness of the IP matters most.
  2. It’s important to develop that methods and processes you want the acquisition to adopt. This includes:
  • Offer structure – Tighten and restructure their offers so that they’re more repeatable and less dependent upon the founder(s)
  • Selling – Understand how the sales assets will be enabled to sell this more impactful offer and how the talent from the acquisition will participate in that process
  • Portfolio – Have a clear position on how this offer fits into the larger portfolio of the PS business and the broader company
  • Talent Strategy – As the acquisition grows, define where the talent will come from and how are they going to be trained on PS and this offer

Therefore, it’s best to find a small PS business that fulfills your needs with very differentiated IP.  While this is the ideal situation, there are other criteria to consider:

  1. Principal’s Intent to Sell: First, it is best to acquire a firm where the principal has a reason to sell. For example, she/he wants to find a way to retire over time or is tired of running a small firm.
  2. Payment Structure: Second, small PS businesses are rarely worth what the selling needs to accomplish their financial goals. We have participated in roughly 100 of these acquisitions, and we believe the best practice approach is to provide them a payment up front and then tie a significant amount to your joint ability to grow the business. This two-stage payment structure will allow them (if they believe in you) to sell the business and have an opportunity reach their goals while you have their IP and some related talent.

Simplified Example: Illustrative

2 million annual revenue firm

Pay 1 million at closing

At 5 million in revenue (and related gross contribution) pay 1 million

At 10 million in revenue (and related gross contribution) pay 2 million

At 15 million in revenue (and related gross contribution) pay 3 million

They receive 7 million

Let’s assume this occurred over 3 years

You would have received 22 million in revenue

And 55% (gross contribution from projects) of 22 million – 12.1 Million in gross contribution

Also, if you have purchased solid IP and placed them into a strong system, (applying the methods and processes described above) then you would have also been able to acquire new accounts and have significant pull-through of other PS projects and products. In following blogs, we will discuss how to manage an acquisition strategy for several acquisitions.

 

 

Written by: Dean McMann

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About the Author: Dean McMann is a Founding Partner at McMann & Ransford with 35+ years of experience in consulting and professional services.  He is a sought-after expert and speaker on topics of: B2B differentiation, professional services best practices, and overcoming commoditization.  In addition to his extensive experience in the Professional Services space, Dean also serves on the board of various non-profit organizations.

Stakeholder Interaction Matrix

How to Build a Client Communication Plan

When working in a project-based environment, your client stakeholders hold the keys to success. Key stakeholders set the direction and tone for the organization. Therefore, ensuring they understand and are bought into the vision should be a continuous effort focused on building lasting relationships with players both above and below the line of safety.

Obtaining buy-in and support requires a deliberate plan and an understanding of each stakeholder’s position and attitude so we can meet them where they’re at. Obtaining buy-in and support ensures that we know how to effectively communicate with clients whose attitudes toward PPP may significantly range. The first step is acknowledging the key stakeholders and identifying how they feel about our organization and/or the project. Stakeholders often fall into four key categories that inform how we interact with them:

  • Neutralize: A stakeholder who is against our organization or the project
  • Educate: A stakeholder who is neutral or positive but cannot be a supporter because of lack of understanding
  • Update: Supporter who needs a heads up and can be used for information
  • Sponsor: Key sponsor who supports the initiative and/or can approve the next deal

After evaluating the stakeholders’ attitudes, it’s important to consider their role as it relates to our organization and the project to formulate a comprehensive communication plan (as shown below).  In the example below, we see that CEO Sally Sales is the decision-maker. She is an above-the-line-of-safety buyer who will play a critical role in the current project, however, she needs more information to fully support the initiative. Building a plan that provides Sally with an ongoing high-level summary will help her understand, and therefore buy into, our objectives. Don Delivery, on the other hand, will help us work through project challenges and move forward to the next deal.  He is a vocal proponent of our work. To ensure he remains involved and interested, he desires regular project updates. As CFO, Nancy Numbers determines the financial feasibility of the next deal. Coming from a strictly numbers perspective, she is hesitant to approve the organization and the project, so the communication plan should demonstrate the ROI through a factual, transparent tone to build trust. Finally, Michael Medical has a strong voice on the steering committee. With regular updates delivered in a friendly, relaxed tone, he too can transform into a big project supporter.

Combining Stakeholder Roles with Interaction Objectives enables you to create an informed communication plan. Some other Client Communication Best Practices include:

Client Communication Plan Best Practices:

  • Ensure the plan is detailed and tactical
    • Include internal owners and participants, deadlines, objectives, etc.
  • Ensure each meeting with key stakeholders adds value and advances the relationship
    • Only a finite number of opportunities to capitalize on meetings with key stakeholders
    • Leave them willing to meet with you again
    • Use the natural rhythm of the project to time meetings for maximum value-add, e.g., link to key junctures and deliverables in the work plan

 

What is a Solutions Portfolio, and Why Is it the Answer to Corporate Success?

When I Say Portfolio…

When many people think of Portfolio, one of the first examples that comes to mind is a Financial Portfolio, a summary of someone’s financial assets (stocks, bonds, mutual funds, etc.).  It makes sense as to why that is the case – this notion of a Financial Portfolio has been ingrained in us. You don’t have to look far to hear or see an ad from some financial management company pitching the latest buzz-words about how your portfolio needs to be “actively managed”.  You might hear things like “we need to diversify your portfolio”, or “our firm offers automatic portfolio rebalancing” – they will argue that what is inside the portfolio is just as important as the process of making sure that what is inside the portfolio remains able to continue to fulfill its purpose or strategy.

Interestingly enough, in the corporate world, when the term portfolio comes up, it tends to refer to a ‘static snapshot’ of a company’s products and services, which we refer to here as solutions.  Instead of actions like “re-balancing, and diversifying” being tied to the corporate portfolio, discussions tend to revolve around the questions: what is in my portfolio, and how does it compare to what my competitor has in their portfolio?  It is static, and whenever an action is tied to portfolio, it is always about “adding to the portfolio”.  At the end of the day, building a corporate portfolio of solutions is treated like a numbers game – if I have more and better stuff to offer than the competition does, I will win more often than not.

Almost everybody has some form of Financial Portfolio management strategy in place, whether they are working with someone from Charles Schwab, leveraging a robo-advisor, or doing it themselves. Yet very few companies have ongoing portfolio management.  Why does your neighbor, with $100k in his brokerage account know the name, phone number, and kid’s name of his portfolio manager, when most businesses with a portfolio of solutions capable of generating hundreds of millions of dollars per year can’t even identify who within their organization owns the portfolio’s strategy and its sustainable success? A Financial Portfolio and a Solutions Portfolio aren’t so different from one another. In fact, I will make the case in this blog that:

1) They are very similar;

2) Managing a Solutions Portfolio is more important than managing a Financial Portfolio; and

3) It is easier to do than you think.

So why does the Solution Portfolio get sub-optimal attention?

Spoiler Alert – it’s because nobody is really talking about it.

Earlier in my career, I did some personal financial planning, and all the time, people would come to me and ask a seemingly simple question, “how does my portfolio look?” expecting an equally simple answer. Of course, the answer is not simple. In reality, it’s unanswerable without first diving into some of the questions buried beneath it.  When someone is asking that question, there are actually wondering:

  • Does my portfolio strategy align to my current goals and objectives?
  • Do the things in my portfolio align to my portfolio strategy?
  • Knowing what there is to know about the market, should I adjust my portfolio strategy to better meet my goals/objectives?

As you might expect at this point, analyzing a corporation’s Solutions Portfolio is based on those exact same questions, and answering them requires us to clearly define and understand the strategy. While you might end up with an effective portfolio without first defining your goals, objectives, and strategies, that luck will eventually run out.  You wouldn’t give a 25-year-old starting his or her retirement account and a 75-year-old who is dependent on social security income the same portfolio strategy, but if the market performs well over the right time horizon, it may not matter. That is not an excuse to ignore the strategic elements of the question – strategy always matters and the performance against the strategy is a greater long-term measurement of success.  Therefore, when we want to define a Solution Portfolio and the role it plays in the Operating Model, we must begin by looking at the Portfolio Strategy and what it entails.

What is a Portfolio? It’s All About the Strategy!

Before we get into breaking down the answer to “how does my Portfolio look?”, we must start at the beginning. At its most basic level, the portfolio is the compilation of all products and services the business has to offer to the market, but as previously mentioned, a portfolio should be the embodiment of the portfolio strategy, which leads us to a more important question – what is a portfolio strategy? The portfolio strategy defines how your organization is going to fulfill the market’s needs. It is primarily informed by:

  • The markets you want to play in,
  • The buying personas you want to engage, and
  • What those markets & buyers need.

Notice anything interesting about that list? All the key inputs are about the market, not about existing products and services. If you are like most organizations, you may be wanting to begin the portfolio process by asking the question “what do we have, and how do we sell more of it?” It’s an understandable mistake.  The belief is, that since the portfolio is a collection of the things the business has available to sell, the portfolio strategy should, at the very least, include the current solution set. It is right to believe that the organization is constrained by its existing capabilities and its strategic objectives, but if you are focusing on inward-looking elements as the foundation of your strategy, you have lost the single most important component of the portfolio & its strategy: the fact that it needs to be market-back.

The simplest way to build your portfolio strategy is to begin with a portfolio strategy blueprint, that incorporates all the key inputs, beginning with those that are market-back.  Once complete, the portfolio strategy blueprint will be a visual representation of where opportunities exist, and what your organization needs to do, from a portfolio standpoint, to capture them.

Market Back Portfolio Strategy Blueprint

Once you have considered the market-back elements required of an effective portfolio strategy, you can look into the organization and ask yourself, how do my broader strategic imperatives align with or impact this?  Up to this point, the portfolio strategy blueprint will look like other companies that serve the same key market segments as you have identified to focus on, it is now, when the organization’s strategic imperatives are incorporated, that the portfolio blueprint, and ultimately the portfolio strategy, becomes unique to you. The concept is similar to the financial portfolio example – the stocks/bonds that are available and how they are performing serve as critical inputs into the strategy, but eventually each strategy needs to be different because everybody has different goals/objectives.  Strategic imperatives could come from of a variety of sources (corporate or BU driven) and may have varying degrees of specificity, and at some organizations, there could be dozens of them, the goal will be to pick a few that your portfolio could/should impact.

For example, strategic imperatives could include: increase intimacy with existing customers; get “above the line of safety” at specific accounts; drive material recurring revenue growth; etc.

Finally, to know how to get to your destination, you must first understand where you are starting.  This is when the current capabilities/offerings are incorporated into the portfolio strategy blueprint.

Completed Portfolio Strategy Blueprint

Now, with a clearly defined portfolio strategy blueprint, simply glancing at the visual representation of our portfolio, we can begin answering all of the sub-questions related to“how is does my portfolio look?”:

  • Does my portfolio strategy align to my current goals and objectives?
  • Do the things in my portfolio align to my portfolio strategy?
  • Knowing what there is to know about the market, should I adjust my portfolio strategy to better meet my goals/objectives?

Getting to the complete answer of those questions will require us taking the portfolio strategy blueprint and actually doing something about it – it is at this point where the true value of focusing on the portfolio is revealed.

What Makes the Portfolio So Important?

Now that we have a portfolio strategy blueprint as an artifact, we can use that and our understanding of it to serve the portfolio’s primary purpose – drive the organization’s economic model.  The solutions’ portfolio affects the corporate economic model in two ways:

  1. Informs the investment & product lifecycle strategy for the organization; and
  2. Enables go-to-market’s success.

The investment and product lifecycle strategy can be derived by looking at the significant “gaps” in the portfolio blueprint.

The first gap to analyze, are the column gaps in the market opportunities/challenges section of the blueprint – these will tell you where your portfolio is unable to meet the needs of the market.  These gaps are often the ones that require further investment, either to round out an existing solution in the portfolio or to create a net-new product or service.  Not all portfolio gaps warrant investment – market analysis needs to be conducted to determine the cost/benefit of creating/updating a solution.

Notice, in the below example, the market challenge highlighted is not met by anything in the current portfolio.

After determining the need for new solutions and new investment, another element that the portfolio blueprint informs is which solutions no longer warrant investment or maintenance. This is either informed by financial performance of the product/service/solution or because of its lack of relevance in the portfolio. Since managing the portfolio is a dynamic process, the market segments the business wants to focus on, the needs of those segments, and the strategic imperatives will change over time, and as they do, elements of the portfolio that historically had relevance and potentially played a significant role, may no longer align with the portfolio strategy, and may need to be phased out so that the appropriate focus and future investment can be applied to those solutions that are best aligned with the needs of the business.

Notice, in the below example, the solution highlighted no longer aligns with any market opportunities or strategic imperatives.

The decisions and implications that result from analyzing the “gaps” in the portfolio blueprint become the portfolio strategy.  We now understand 1) which offers; 2) are going to serve which markets & buyers; and, 3) where to round out or parse down the existing portfolio.

Finally, the go-to-market strategy gets informed by the portfolio blueprint and strategy, this occurs in several ways:

  • Clarifies the key market segments and key opportunities to discuss during sales discussions
  • Ensures the portfolio investments are made in solutions that will have market applicability
  • Informs which offers to “lead with”, or focus on, depending on the segment and buyer

The portfolio is also a critical input into the structuring of Offers and Account Pathways which ultimately have a significant impact into the go-to-market team’s ability to open up new opportunities, up-sell, build intimacy, and much more.

Key Takeaways

  • Strategy is everything, without building your portfolio strategy, you might have success, but it will only be short-lived since eventually your differential in the marketplace will run out.
  • Because your strategy for each market in which you play is different, each market has its own unique portfolio.

Detailed How-To Guide

  1. Analyze the market(s) your portfolio addresses.
    • What are the high-value sub-segments within the market?
    • What are the key topics/opportunities/challenges facing those sub-segments?
    • What is the competitive landscape look like?
  2. Evaluate current portfolio against desired outcomes and overall business strategy.
    • Are your products and services meeting the needs of your market?
      • What topics/opportunities/challenges does your portfolio address?
      • Where are the gaps?
    • Are you achieving the desired financial returns in the market?
      • Which sub-segments (if any) are underserved?
    • Form a cohesive portfolio strategy for a market.
      • What topics do you want to own and how?
  3. Create a plan for “version 1” portfolio.
    • Which gaps are strategically important to fill quickly? Which ones are “low hanging fruit”?
    • How will you fill high-priority gaps?
      • Acquire new capabilities
      • Develop new capabilities
      • Reframe current capabilities around a new topic
    • Who will own the portfolio strategy and manage the lifecycle of the portfolio?
  4. Establish portfolio management function.

 

Written by: Anthony Paluska

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About the Author: Anthony Paluska is a Partner at McMann & Ransford with experience helping organizations overcome commoditization by developing stronger, more intimate, relationships with their customers. He has leveraged his management consulting, problem-solving, and change management skills to support 15+ Fortune 1000 organizations, across a multitude of industries.

The Guide to Moving the Business from Capabilities to Outcomes: Outcomes-Based Offers

 

One of the first steps in becoming an outcomes-based Professional Service (PS) business is to have at least one outcomes-based offer that drives customer change and results.  These offers can range from enhancing the use of a product to a higher-level business outcome – lower costs, improved market presence, revenue increase, or improved customer penetration.  There is a natural hierarchy of solutions:

It is often difficult to move immediately to the top right and achieve the highest impact outcomes right away. It is a gradual process, but eventually, the most valuable PS businesses perform at the top level.

However, it is important to start with an offer that you feel comfortable the organization can perform.  It is also important that there is customer demand for the offer. Too often we see PS groups select something they want to do and have the capabilities to do that is of little value to the customer. These offers never materialize as meaningful because few customers will buy them.  Additionally, the offer must be something that your channel (sales organization etc. can and will sell).  This blog is not focused on enabling the sales organization to sell outcomes-based offers – but there is real work required for that capability to be created. Not to mention, sales must be motivated to sell therefore, they must understand the compensation benefits or have line of sight to bigger deals.

A couple of important considerations for the selecting and creating an outcomes-based offer include:

Deals: These offers position the business higher in the buyer’s organization.  We use the Line-of -SafetySM, the line that divides those senior executives who set budgets and direction for a client from those that manage to a budget they are given, as a tool for thinking about this.

An ideal outcomes-based offer allows the buyer to hold conversations that place them above the Line-of-SafetySM.  This changes the relationship between your organization and the buyer’s organization. No longer are you a product vendor (fighting through technical buyers and procurement). Working above the Line-of-Safety provides a mechanism for going directly to the people who can act outside of budgeting cycles and create situations that matter to the buyer organization.  This does not mean that the offer has to be overly large and expensive; rather, the offer just needs to meet the needs of one or more of the executives that work above the line.  Further, it allows the leverage of those relationships to pull-through products or larger deals for your company, either directly or through the halo-effect.SM Again, you must choose things you can do, that buyers will buy, and that sales can sell.  This new process may involve people who are not normally dealt with in your company’s normal sales process, therefore sales enablement and motivation become important.

Offer Structure: Another important aspect of a high-quality outcomes-based offer is the offer structure.  Many companies sell into demand and do not create demand.  A good outcomes-based offer creates demand and meets buyers where they are – intersecting them at the stage of the “whether to act” on an idea.

The offer should create conversations that have not already moved to the “With Whom to Act” stage. Once an idea has progressed to that stage, much of the value has already been extracted from the process.  Also, your ability to impact the direction of the buying cycle has dissipated, and the executive team is usually no longer involved.  The “Whether to Act” stage is very powerful.  It can help place you above the Line-of-SafetySM and will arm your sales organization with provocative conversations.

Identifying these offers may not be as difficult as it first sounds – you know more than you think.  You have expertise around why people need your products and the impact they can make. Focus on the underlying business issues that your customers have – then put the offer and related messaging into their language: what do they need to know, understand, and act upon to focus on the business benefits that making a change to their business will provide?

Once you have the proper area determined, build a Service ChainSM structured offer.  This will assure that you are meeting the buyers where they are and taking them on the “Whether to Act” and “How to Act” journey.  We will explore Service ChainsSM in more detail in a later blog.

In summary, use these tools as guides in identifying and building a meaningful outcome offer.

 

Written by: Dean McMann

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About the Author: Dean McMann is a Founding Partner at McMann & Ransford with 35+ years of experience in consulting and professional services.  He is a sought-after expert and speaker on topics of: B2B differentiation, professional services best practices, and overcoming commoditization.  In addition to his extensive experience in the Professional Services space, Dean also serves on the board of various non-profit organizations.