Professional services from IT vendors

The success of IBMIBM Global Services has served as an example of how an equipment vendor can effectively build a services competency. However, IBM Global Services is an exception to the rule, in that its success appears to be impossible to emulate, with many vendors failing to create viable services businesses. Alles zu IBM auf CIO.de

Most of the work Frost & Sullivan has undertaken in this field has been for vendors looking to mitigate risk. The downturn in the ICT market has impacted revenues and consequently margins have been forced down. In order to maintain margins, vendors are looking at services, which they perceive to have higher margin opportunities.

Vendors fail to understand how and why customers purchase services

In many cases, equipment vendors believe that their services value proposition lies in the fact that they know their customers and understand their needs. These value propositions however, disguise some large assumptions that if go unchecked can threaten vendors' attempts to build a viable services business. The first assumption for vendors to address is that they know their market. Although they know or should know the market for their products very well, our experience shows that they rarely know how their customers buy services.

In most cases, vendors have difficulties in proving they can be accountable for projects and in demonstrating its understanding of competitors equipment. Indeed, our research shows that clients in some industries are more predisposed to employing an equipment vendor to offer project management services if their equipment forms the majority of the project. Equally, end-users are less likely to require the services of an equipment vendor if their equipment forms a minor part of an implementation. In these cases, they will prefer to use an independent third party with specialist knowledge of their industry. The interesting point to come from this research was that a significant proportion of companies acquire services (either from equipment vendors or professional services organisations) in order to learn the skills themselves.

This suggests a well-defined window of opportunity for equipment vendors to successfully develop services as a revenue generating operation. By actively targeting opportunities where it meets these requirements, an equipment vendor may see its bid conversion rates improve. At the same time however, vendors must be aware of perceptions its target market hold of its capabilities and therefore value it is perceived to offer the market. This is not to say that the vendor cannot challenge these perceptions. However, to develop the capabilities and a track record in higher value services offerings, it must make money in the short term through focusing on quick wins based on services their customers expect of them.