As we enter 2017, the term "Service Provider" is becoming harder and harder to define. For the firms in this space, it's not a self-identity crisis, but an exercise in reassessing competition and target markets, forcing them to explore and adopt new business models. They are now not only selling their time, but introducing new streams of revenue by delivering hosted services, hardware and subscriptions. Some organizations are better prepared to adapt and take advantage of these new business models and others have already begun. What’s clear is that services providers are facing new challenges in the coming year that they will need to act on.
The following are what we believe to be the five most important trends for service providers in 2017.
Mainstreaming of the Hybrid Business Model
Changing business and pricing models is an ongoing challenge, however, we believe there will continue to be a growing number of service providers that adopt software and hardware into their solution offering during 2017. Likewise, many independent software providers (ISVs) and other product companies will continue to introduce professional services to their business model as a way to differentiate and create partnerships with their customer base. In order to maximize margins in both product sales and project delivery, a platform to manage both organizations will be critical.
Fending Off the Productivity Paradox
For those that are already starting 2017 with a new line of business, it’s important not to lose perspective on your internal processes and your target market. You may have made the jump and successfully “implemented” new processes to accommodate the revenue stream changes, but how are you measuring success? New technology is a necessary but insufficient condition for growth and improved productivity. Take a look at the early 20th century when humans started replacing steam engine factories with electrical motors. Infrastructure was replaced 1:1, wires were put down where pipes once were, etc. There was an expectation for productivity growth and it took several decades before we realized that it wasn’t about making the technology fit, but HOW we could make it fit so that people and processes could be more efficient. As companies quickly adopt new business models, they will need new IT infrastructure to support growth. Choosing one that is mature but scalable and flexible is paramount in today’s competitive and consolidating environment.
FASB 606 for Professional Services
A good example of an independent variable that service providers (new or old) need to consider are the Financial Accounting Standards Board (FASB) changes on revenue recognition for public companies in 2017 and for private ones in 2018. The new regulation has predominately been focused on how ISVs will manage licenses and subscriptions, which is not surprising. However, the regulations will not be irrelevant for services providers growing into new business models, and even for pure-play service firms; the new standards will apply toward traditional services delivery. Taken from one of its 700 pages of text, “revenue is recognized when a company satisfies a performance obligation by transferring a promised good or service to a customer.” In other words, any professional service firms that “sells” labor will be subject to FASB 606.
Human Capital Optimization – Bridging HCM and Resource Management
The core of any organization is its people, but it just so happens that they are the ONLY thing that matters in a service organization. For better or for worse, the market for skilled consulting resources will never be more competitive than it will be in 2017. To hire and retain the best performers, services organizations must know in advance the skills they’ll need, where they’ll need them, and when. On the other side of the table, employees will assess their job and their environment based on expectations they formed at the outset including what the trajectory of their career looks like. In order to optimize your human capital, you need a system that not only tells you what you need from an employee, but what they need from you.
Business Intelligence: Data in Context:
In today’s environment of price compression and with an expanding number of service providers, topline visibility through automated reporting will be a must have in 2017. Having a data repository where all of your data is confined is one step, but being able to report and execute on it is another. It will no longer suffice to rely solely on ad-hoc spreadsheet analysis when your competitors have one system that automatically consolidates data from the transactional level up to graphical representations on a dashboard.
If you’re a Service Provider, changes are coming in 2017. What better time than now to think conceptually about how your business operates and how it fits into your marketplace? Visit NetSuite’s professional services industry page to learn more about how NetSuite can help.
