How do agencies turn their bread and butter – project-based services – into productised, repeatable and far more profitable offerings? Here are the key takeaways from a compelling event.
Joining host Ingrid Olmesdahl, Strategic Agency Partner lead at Microsoft, was an expert panel comprising:
Magnus Fitchett: “I think the problem at the moment with the service or agency model is it’s predicated on a traditional labour arbitrage model where the more hours you can charge the better. That creates incentive misalignment with clients because what they care about is not the input but outcomes.
“Productization moves you away from that model and better aligns you with client outcomes. You’re could productise different things: the expertise you can bring to bear, your methods and approaches (like accelerators) or it might be your software. It’s about creating repeatable solutions to client problems.”
Buy for business as usual; build for competitive differentiation.
Harpreet Bushell: “It’s important to understand what the customer sees as a commodity – what’s business as usual – because here it’s speed to market that matters.”
Harvest what you have
Magnus Fitchett: “I think the worst thing you can do is start by thinking: ‘what product should I come up with?’ because that’s a solution looking for a problem.
“Instead, do an audit of what you have and harvest it. You might look at the services that you are already creating for clients where you are applying your specialist expertise. Where is the repeatable value? It’s not a quick win, but it’s much better than starting from a clean sheet of paper.”
Embed the IP
Eric Topham: “We look for the opportunity to embed ourselves with the customer as partner, contributing a share of the IP in return for some commercial benefit – generating a recurring revenue from the product rather than simply a fixed fee invoice at the end of the project.
“Protection of algorithms is very difficult. But one of the easy ways to patent an algorithm, for example, is to have it embedded within a piece of hardware where it fundamentally effects the functioning of that hardware. We look at how we can embed something into a product that will afford us some IP protection.”
Path of least resistance
Eric Topham: “We look for opportunities where the partner already has a route to market. The channel already exists. We don’t have to actually contribute that much in that space. So there’s a real path of least resistance for us in terms of maximising our value return from our technical contribution.”
How do you get there?
Magnus Fitchett: You need to look at the steering system: how did you move your agency from traditional model to a product organisation?
At Sapient, we’ve moved from the traditional agency model to being more industry aligned. We’re more specialist and we create specialist products that solve problems. We reoriented around that, shifting from a project mindset (scope, time, price) to a product mindset of ‘how can I help go faster, speed up quality and deliver value?’
We also looked at how we productised all our assets within our business. Where can we find repeatable things that we continually take to clients which deliver better outcomes, align our pricing to it and then work with partners to find the IP within that to add value?”
How do we achieve competitive differentiation?
Harpreet Bushell: “It’s about understanding how we package high-end consultancy to make it really easy for everyone in our organisation to sell without it becoming formulaic or cookie cutter.
“So examples of that will be an innovation workshop or quickstart discovery. It’s about making it easy for people to understand the process and the outcomes that matter to them, rather than making it feel like you’re just gonna run them through the same machine you use for your other clients.”
Benefits management matters
Mateusz Chromiński: “Historically we’ve been very much service oriented. We’ve carried out quite large programmes of work for enterprise customers. Whilst there were some pre-built ‘blocks’ within those, much was bespoke.
“In the last two or three years we have become more willing to productise and create some repeatable products to increase value and reduced costs. But also customers are asking us to work in the product management mindset more, shifting from a model where a customer orders a solution and a company delivers it. Now it’s much more a partnership, working with the customer for the benefit of both parties. So benefits management becomes extremely important.
It’s no longer good business to just think in terms of the revenue of a single project. We need to think long term about the benefit we create and that means mutual benefits should be part of the project development and product development.”
Securing the IP
Eric Topham: “Unless you’re careful you can find yourself unable to use a very useful algorithm for a very common problem because its boxed in with someone else’s IP. So we apply foundational and application IP. Application IP is the IP that we transfer to the customer. That IP is a very specific combination of the building blocks that happened to be used to build that one very specific solution. So if I’m in can manufacturing, for instance, I might use a recurrent neural net to do time to event prediction, but it’s the combination of that recurrent neural net with that particular type of data use, very specifically for can manufacturing, on a very specific can manufacturing machine with a very specific set of backend technologies that is what is passed forward to the customer.
“This means I can’t turn around and build exactly the same thing for their competitor. But we retain the foundational IP which gives us the freedom to recombine these building blocks in slightly different ways. So in another setting I can effectively reuse the same building blocks as long as I’m not producing exactly the same IP in terms of the solution that I’ve developed.”
Challenges of supporting the business through change?
Harpreet Bushell: “If you’re trying to productize in a traditional services company and you haven’t bought people along with you on that journey then you will experience resistance because they’ll see you as commoditizing something that they do which is really highly skilled.
“There’s something in separating out the product teams and the services team and creating that healthy dynamic of challenging from each side. So very much having the end goal in mind in terms of the product but also having the client in mind.”
Cost and pricing
Harpreet Bushell: “It’s about what your end goal is. Do you want to go freemium to create that stickiness – with long term services, customisation and ongoing support or is it more an SaaS type model? Do you want small repeatable revenue coming in all the time?
“It comes down to the business model, and then the pricing to achieve that outcome.”
ROI
Magnus Fitchett: “We’re trying to bring forward the ‘time to cash’, proving the model early and frequently to make sure you got it right. You need to prove it with the senior team so there’s a belief in it because without belief it soon gets killed.”
“Wear your customers’ shoes”
Mateusz Chromiński: “Listen to your offering. Listen to the product. Understand the benefits you are providing and ask: ‘Is that something I would buy too?’”
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