World-class PSO: Governance

PSO governance is a hot topic in my world these days. As more reps are getting involved in selling PS and we build out packages and offerings designed to give the sales reps the ability to sell PS without direct involvement from a consultant who sells, how do we ensure that expectations are set properly and that projects can be delivered to ensure a high-level of customer satisfaction AND on-time/on-budget deliver (ie, a profitable PS practice)?

The evolution of a PSO in this direction means implementing standards and processes for governing the practice and ensuring that goals are met, projects are consistently sold and delivered, and customers are getting what they need . This is "PSO Governance."

So what does governance mean for a PSO, anyway? A quick Google search produced a number of results with regard to "IT Governance", but little was found on governance for a World-class PSO. In a lot of ways, its not that different. A PSO, like any business or business unit, needs:

• A defined set of KPIs and SLAs that are measured regularly and on an ongoing basis
• A clear set of goals toward which to work
• A set of processes, tools, and templates to use to ensure success
  

While the leadership team is responsible for defining the strategy and the requirements for governance, all members must provide input, and be held accountable to the KPIs, goals, and their roles in achieving a successful outcome.

In the coming weeks, I will investigate PSO Governance throughout all components of a PSO (sales, marketing, delivery, etc.). As always, I welcome our stories, ideas, and experiences.

World Class PSO: Daily Thought

I'm back!!!! I hope you had a great week. I sure did. The skiiing at Squaw Valley was great. Visits with family and friends were also great.

While I was away, I was able to watch the movie "Waiting for Superman." (Thanks American Airlines for showing it on the flight!!) This movie was very eye-opening for me. I don't have children in the public school system, and, therefore, don't have current, first-hand experiences. This documentary had very strong views on why our public schools are failing. If 1/2 of what they said are true...we should all be outraged!!

You may be wondering why I am bringing this up...it doesn't really have anything do to with World-class PSO stuff...You're right. (If I had my laptop with me on this trip (yes, I go on vacation without my laptop most of the time), I would have blogged on the subject last week.). Since I have a bit of a captive audience, I wanted a chance to encourage all of you to watch this film and get involved in what is happening in our public schools. Here are a few piece of data that were shared:

• According to the film, there are schools in CA with 75% drop-out rates - teachers and administrators know that only 25% of all incoming freshman will graduate. There are schools all over the US just like these schools; they are a called "drop out factories."
• The city of New York spends $100 million per year on a "rubber room" program for suspended teachers. Teachers under investigate show up to "work" each day, reading the newspaper, books, playing cards, sleeping, and surfing the web, getting paid full salaries and collecting full benefits...even earning pension vesting. It takes 3.5 years for a teacher to complete the process.
• Philadelphia (or was it Pittsburg) spends more per capita on a 4 year prison sentence than for four years of schooling for a student.
• One school system (can't remember which) in the Mid-Atlantic states spends enough time moving bad teachers from school to school that they have given the process a name: The Dance of The Lemons. The hope is that the principle of school A will replace his worst teacher with some "less worst" since he knows he is getting someone else's worst teacher.
• The US is ranked 28th out of the top 30 developed nations in the world for public education. We are following behind!!

Now the tie back to what we do...for a PSO to be truly World-class, it needs to put the needs and interest of its customers first. (This is the first statement in our PS Values or Gomez PS.) That does not mean ignoring the needs of the practice, by any stretch...its a balancing act for sure. I firmly believe that, while the best and even the good teachers work tirelessly for their students, aka their customers, there are all too many bad, or not so good, teachers, bureaucrats, and politicians who put the objectives of the unions and the individual teachers ahead of our students and, therefore, the future of our country. The United States cannot have world-class students, schools, or workforce if we continue to de-prioritize the needs of the students over the needs. We will not have a world-class future.

I am officially stepping off my sandbox and will return to regularly scheduled World-class PSO programming tomorrow. As always, I look forward to your comments.

World Class PSO: Daily Thought

We've started to move to a "Packaged Offering" model, which is designed to allow the Sales team to sell PS - at least to some degree - without the help of the PS team. This means that we on the PS team will have less control of expectation setting both in terms of the offering and schedules. The PS team will need to work harder at the beginning and throughout each project to ensure that the customer is aware of the details of the project, what is expected of them, and what they can expect from us.

Additionally, the PS team needs to be prepared for those occasions when the packaged offering doesn't truly meet all of the needs the client has. The consultants will have to have confidence in the scope of work and the Change Request process to manage through those potentially difficult situations.

I am heading out on vacation..."see" you the week of February 28!!

Managing Non-Billable Work Effectively, Part 5 of 5

I reached out to my colleagues at PS Village last year and reviewed a number of posts on the LinkedIn group, and SaaS Professional Services Executive Forum to inquire about how others deal with give-away work. It seems that many respondents experience the same challenges. The trend across all of the proposed approaches to dealing with this situation is that the solution will work if, and only if, executive management places value on the work of the PS team and on the importance of managing projects properly.

Here, then, is a summary of some of the best suggestions that came across the PSVillage and Linked In Discussion Boards:

1. Manage non-billable, client projects like a billable project by involving PS resources in the discovery and scoping discussions early and using the SOW and CR process to manage the agreement and work effort.
2. Tracking non-billable work in a number of categories. For instance, one may consider tracking and reporting the percentage of PS time spent on
   
   a. Non-billable commitments made by management (PS, Sales, and Executives)
   b. Project overruns due to missed estimates on fixed-bid projects
   c. Project Management approved no-cost CRs.
   
   
3. Charge back systems can be used to highlight the amount of non-billable work delivered (and on behalf of whom). For instance, if a sales manager commits to including five days of PS work at no additional cost in order to close a larger product deal, the Sales budget pays for the PS time. PS reports the booking and revenue like any other, but Sales takes a hit on its budget. In this model, Sales would be very aware of the value of the no-charge work and would understand the deal size that would need to be closed to make the goodwill PS work worthwhile.
4. Financial Reporting can be used to highlight the amount of non-billable PS work delivered to customers. One member of the PSVillage worked directly with the head of finance to change the way non-billable PS work is reported on the company’s financial statements. With this change, the financial statements reported both the “Gross PS Revenue,” the discount rate for the period, and the Actual PS Revenue. Gross PS Revenue equaled all time spent by PS on client projects at the normal billing rate (whether billable or not). The discount rate represented the value of the lost revenue of the hours that were discounted or given away. The Actual PS revenue is the difference between the two. This type of reporting put a spotlight on the value of the no-charge PS work that was being delivered.
5. A formal approval process ensures that all parties are aware of the need for and agrees to the no-charge work before the commitment is made to the customer. This approval should include the CFO, VP of PSO, and VP of Sales. The process should be well defined, and all parties in a position to give away PS work should be required to follow it. I would say that approval should be required before any agreements on schedules and work effort are verbalized to the customer and should require an initial discovery by a qualified PS consultant or manager.
6. VSOE, or Vendor Specific Object Evidence, is what determines how a business can recognize the revenue associated with a deliverable or work effort based on the fair market value of that work effort when sold as a stand-alone item. Some members of the Discussion Groups suggested that VSOE can be used as a baseline to which discounts are compared. Any discounts that bring the deal size below the VSOE would be flagged for review by finance before there is a contractual agreement between your company and your customer.
7. Where the primary contributor to non-billable customer work is the Sales department (and assuming reps are paid a higher rate on product sales than PS sales), some suggested that the value of the discount come out of the license cost, in turn reducing the commission to the rep. It is thought that if the rep. feels the loss in his commission check, he will think twice about making the promise in the future. This often happens when VSOE is in place.
8. In most cases, participants in the discussions felt that executive-level support and structuring the PSO as a profit center are the two primary drivers for reducing the pain associated with unmanaged “give away” commitments. With both in place PS managers can reduce the number and frequency of those commitments and ensuring that proper project management processes are followed in the pre- and post-sales efforts. Additionally, many thought that determining a budget for non-billable client work was important to ensure that these opportunities were scrutinized appropriately during the review and approval process.

Conclusion

PSO managers need to expect that non-billable work is a nature of the business in an embedded PSO. Personally, I am OK with goodwill work, as long as the customer understands that they are being granted a one-time discount for a specific reason and the business model for the company and PSO support some amount of goodwill work. Getting agreement from the top with regard to how and when work will be given away is critical. Showing executive and sales management how unplanned, non-billable work - without PS involvement - disrupts the apple cart, including short-term and long-term effects, is critical. Solutions for managing non-billable work exist, but they work best when supported by the executives.

World Class PSO: Daily Thought

Happy Valentine's Day!!!

(I know it's a Hallmark holiday...but it's a fun day just the same.)

As you move through the day, I am sure that you, too, have many meetings and things to do that require you to interact with others. Be sure to take stock of all of your relationships. We tend to focus today on our relationship with our significant other (I hate that term, BTW), but what the heck, why not use today to practice building relationships in other parts of your life.

Today, I am committed to thinking about the relationships across my life, focusing first on what the other person (whoever that is) needs from me, and trying to have conversations and interactions that improves and builds relationships.

World Class PSO: Daily Thought

Change only happens when the pain of not changing is greater than the pain of changing!!

I don't know who I heard saying it first, but whoever it was is right...it doesn't matter if it is organizational change, personal change, or professional change...Change is hard!!! Think about how many of us made New Year's resolutions this year...how are you doing with that? I know that the huge surge in attendance at my gym has slowed down...Change is hard!!!

So what does it take to make a successful change? That's easy:

1. A solid plan

2. Confidence and strength that your decision is right, even in the face of adversity

OK...saying it out loud is easy. Doing it is another matter. One thing that I find helpful is to state my goal, which represents a change, out loud and often to anyone who will listen. I take this so seriously that people who have traveled with me know that at the end of the night, I will tell whomever is on the elevator with me that "I am going to the gym in the morning." I don't say this because I think these people care or to brag about my own awesomeness. Rather, I say it because inevitably someone will ask me over breakfast, "Did you go to the gym?" The last thing I want to say is, "no."

Organizational change is no different. Business managers need to state the goal and the time frame for achieving it. They need to make all stakeholders clearly aware of what is coming and the role each plays in making the change. They need to stand by their decision if they truly believe it is right - even when some stakeholders don't understand or try to influence the decision in his or her favor. My advice: Be flexible in terms of how you accomplish the goal - you have a smart team who can help with that, but don't be flexible on what the goal is if you really believe in it.

Managing Non-Billable Work Effectively, Part 4 of 5

In parts 1-3, we defined the different types of non-billable work, who often "gives away" this type of PS work, and some of the challenges the PSO experiences when work is given away without the PS team's involvement. In this and the final post on this subject, I will discuss some of the ways in which non-billable work - and the chance that it will occur - can be managed.

How to Manage Non-Billable Projects and Commitments?
As I mentioned in earlier posts, most PSO managers with whom I have talked have, at one point in his or her career, had to find the balance between meeting revenue, bookings, and profitability targets with the need to support product sales or generate customer goodwill by providing customers with non-billable projects. While non-billable work can be managed in such a way to avoid the pain associated with missed expectations and missed KPIs, it often isn’t. My research shows problems arise most often when:

1. The PSO is not viewed as a profit center.
2. Sales does not truly understand the value the PSO provides
3. There is no agreement at an executive level of the amount of non-billable work that can be given away in a given quarter or year

So, how do you ensure that your non-billable workload does not become a problem for you or your customers? To start, there needs to be agreement at all levels of the organization that all projects are created equal. The PSO should be involved early to scope any PS project, even when a decision is made to deliver the project at no cost to the customer. In order to treat all projects equally, the following rules should apply:

• Non-billable projects need to be properly scoped by the PS team, just like billable projects.
• Even when a project is a no-cost project, an SOW is required - the customer and the PSO must sign the SOW representing the agreement. (This is the only way of which I know to effectively manage scope.)
• Customers only value those things for which they pay. If a decision is made to give work away, the value must be spelled out. The true cost of the project must be spelled out in the SOW as well as the discounted price and percent. (The value of this project is $50,000 USD, discounted 100% for a cost to Customer of $0.00 USD.) Showing the discount rate up front makes it clear what the customer is likely to pay next time.
• No scheduling of billable resources is confirmed until the SOW is signed.

This is all great on paper, but this process still has gaps. It says nothing with regard to how much no-cost work can be given away each quarter or year. It also says nothing with regard to who can agree to non-billable work or how non-billable work is approved. While it does, however, indicate that scheduling does not happen until the SOW is signed and that the PS team is responsible for scoping the work, it does not prevent individuals from outside the PSO from making commitments on schedules, even when they have no real sense of how much time is needed and when resources are available to begin work. Lastly, it does not provide a provision for the PS team to get “credit” for this work against key metrics like revenue, bookings, and profit margins. (The PSO's ability to achieve annual goals and get compensated for doing so is diminished without such provisions.)

I'll talk next week about how to close the gaps and what the eight (8) other components of a "give away work" process should be.

World Class PSO: Daily Thought

Building on yesterday's post...while one cannot truly hold another person accountable for the things s/he must do, there are steps that one can take to motivate people to do what they need to do. A couple of these things were discussed yesterday:

1. Be explicit about expectations

2. Ask the individual to confirm what s/he can and cannot get done

3. Be clear about the implications if the work isn't completed on time and to acceptable quality standards

Like I so very often say to my team, "If you don't tell me that you can't get something done...then you must get it done." The two items above can assist in ensuring that people do what they say what they will do and give you room to discuss and push them when they don't.

Additionally, a manager can use the following tools to promote the behavior and accomplishments that are required for the successful development of the team and the individual:

1. Develop a compensation structure that promotes results (individual and team),

2. Publicly reward those for their accomplishments; those who aren't getting rewarded will feel the pressure to be part of the recognized group, and

3. Review individual accomplishments and ideas with the team, particularly when those accomplishments could result in a process, tool, or template improvement within the business. Allow the team to provide input to key changes based on these successes - be careful not to manage by committee, though.

I still believe that only the individual can truly hold himself accountable, but it is your job as a manager to set proper expectations and set the individual up for success. That includes giving them a forum to discuss challenges and negotiate deliverables and deadlines, and reinforcing the implications when the work isn't getting done as expected.

World Class PSO: Daily Thought

I have been in conversations recently about "accountability." These conversations have gone something like this:

Sue said, "I asked Jane to get the integration work completed by Friday, and she didn't complete the work on time...again. This is the third time she has missed a deadline without telling me. I am the project manager! I can't manage expectations if the team isn't communicating and doing what they say they will do. How can I hold her accountable for getting her work done?"

I said in reply, "You know, at the end of the day, only Jane can hold herself accountable. You can give her all the information she needs to make good decisions, and you can provide an environment in which Sue is comfortable asking for help, but you can't make her do the work. When it comes right down to it, its the old adage, 'you can bring the horse to water, but you can't make it drink.' Have you clearly explained to Jane what is needed and when, asked her to confirm that she understands what is required and that she can complete the work on time, and explained the consequences to her, the team, the project, and the client if she does not do what is needed?"

In reality, most people don't really spell "it" out in that way. We assume that the other person can read between the lines, understand the urgency and the implications if the work isn't done, and can make the right decisions about prioritizing his/her time. As a project manager, or even as a staff-level manager, your job is to NOT ASSUME. Be clear, spell it out - whether to a client, a partner, or a team member. Be crystal clear about what is needed, by whom and when, and what will happen if the requirements are not met. Be sure to get the other person to confirm that he understands and is on board with getting done what is needed. Only then do you really have a leg to stand on if the work is not done on time. If the others don't get what is needed, you need to follow through on the consequences, which may be escalating to a staff manager, reassigning the individual less mission critical (and interesting work) or removing the person from the project.

Managing Non-Billable Work Effectively, Part 3 of 5

Last week (and the week before) I talked about work given away by project managers and work given away by PSO management. Those types of non-billable work are, in the grand scheme of things, easy to manage. As the PM or PSO manager you can decide how much to give away and can manage expectations accordingly.

In the next couple of weeks, I will share my views on the purpose and challenges associated with work given away by non-PS resources, such as Sales, Sales Management, and Executives. Additionally, I will share many of the ways a PSO manager can manage the often unexpected give-away work that gets promised.

This week, I'll start with a summary of what give away work - given away by non-PS resources, managers, and executives - looks like. Next week, I will start to delve into how you can manage non-billable work more effectively.

Work Given Away by Sales, Sales Management, and Executives
The nature of give-away work from Sales, Sales Managers, and Executives are really the same. So while I called them out separately in Part 1 of this blog series, it makes more sense to discuss the nature of this work from all these sources as one.

In talking with my peers on the PS Village forum, it is clear that embedded PSOs often struggle with managing the non-billable commitments made by individuals outside the PSO. The nature of these commitments tends to fall into two categories:

1. Using PS efforts to “sweeten” a product deal
2. Using PS efforts to gain goodwill with a customer when things go wrong with the product or with services delivered by other departments (such as tech support or customer care)
   

While I agree that there are legitimate reasons for providing PS services to a customer at no additional costs, my research shows that, like non-billable work agreed to by the project team or PS Management, these non-billable commitments are most successful when the PS team is brought in early to conduct proper discovery and scoping just like they would for a billable project. When the PSO is involved in the early discussions, applying their best practices for scoping and delivering a project just like they would for a for-fee project, the customer needs are met at a lower cost to the company and with higher-levels of customer satisfaction.

Problems do arise when commitments are made without the knowledge of the experts who need to deliver against the commitments. Often times, what seems like a "simple" project to a sales manager or executive is really a project measured in months and hundreds of thousands of dollars. When these commitments are made "unexpectedly" the disruptions can cause pain to other projects, the sales pipeline, and the morale of the team.

Additionally, without a proper SOW, managing scope is nearly impossible.

Tune in next week for my thoughts on how to manage give-away work more effectively.

Managing Non-Billable Work Effectively, Part 2 of 5

Last week, I talked about work given away by the project team and the various situations when it might make sense to do so. Also, I talked a bit about how to manage non-billable change requests (CR) from within the project team.

As a reminder, non-billable CRs are often issued by the project team as mea culpa when a mistake is made by the team. The non-billable CR can help get the team back in good graces with the client. Additionally, project managers may use the non-billable CR to build goodwill with a customer when s/he knows a hard discussion or larger CR is about to present themselves.

In this post, I will talk about work that is given away by the PSO management

Work Given Away by PSO Management
While it is rare, there are times when the PSO delivers complete engagements at no cost to the customer. Admittedly, most times these no-cost projects are usually initiated by sales and executive management, but there are times when PSO management agrees to a no-cost SOW.

In the case when one of the PSO's primary objectives is to support product sales, PSO management may defined small, promotional projects designed to highlight the benefits of the product while also promoting the value of the consulting team. For instance, I recently put together a program that I called (internally) the "Golden Ticket" program.

Each account manager is given one (1) Golden Ticket. S/he has the option to give away a single two-day engagement during which the PS team will audit the customer’s use of our products. The client deliverable is a 30-40 slide Power Point presentation that summarizes gaps in the customer’s methodology and a summary of apparent Web Application performance issues. Our analysis is limited by time, and we do not talk directly with the client until the analysis was complete. This allows us to complete the engagement quickly, highlighting the value of our best practices (the value proposition being: “We saw all of this without even talking to you”), and indicating where we could go deeper in a "real" engagement.

As a result of this offering, the PSO has engaged in a handful of these projects. In one case, the Account Manager was able to grow the size of the account with the customer in the same quarter the Golden Ticket was delivered. We are also in early discussions with this customer about a potential larger (billable) PS engagement down the road.

These programs tend to be well defined and well managed because they are driven by PS management, who understands best what it takes to do the work. That said, there should be close collaboration with sales management to ensure that the program is designed to meet the objectives – help the sales reps sell more product and services.

Managing Non-Billable Work Effectively, Part 1 of 5

In my experience, non-billable work can be categorized in four ways:

1. Work given away by the project team

2. Work given away by PSO management

3. Work given away by the sales team and/or sales management

4. Work given away by the executive team

Regardless of where the ‘give away’ originates, a PSO must have policies and processes for managing and tracking what work is given away (and in what situations) and how the non-billable work is managed with the client.

Work Given Away by the Project Team

Project teams rely on the Project Manager to manage scope. Technical leads, business analysts, and other team members should never have sideline agreements with members of the client team to do work that is not clearly specified in the SOW. While the SOW defines the guiding principles – or project charter - for the project team, it is unlikely that every detail of every requirement will be uncovered during the pre-sales process. Therefore, an effective change control process should be implemented to allow the consulting and client teams to work together to change the scope of work as needed.

Many change requests are designed to increase or reduce scope, requiring the project budget to increase or decrease in kind. The consulting team needs to evaluate the change request and inform the client of the effect that the change will have on the project schedule and cost. (In my experience, many change requests that must be added to the project, are not so important when the customer learns what the added cost will be.)

At my core, I believe that all work performed by the consulting team should be paid for by the customer. However, having spent the majority of my career in project management roles, I have learned that the no-charge Change Request (CR) is a very powerful tool – allowing the team to give a little to get a little (or a lot). The no-charge CR allows the consulting team to develop goodwill with the customer. Issuing these change requests allows the team to approach the relationship with the client from the position of “partnership.”

So, there are times when a Project Manager may chose to write a no-charge CR. In addition to the opportunity to develop goodwill, as discussed above, there are times when the change does not add any additional consulting time to the project. This can be the case when the customer wants to change a requirement on which the consulting team has not worked and the change represents the same level of effort as the original requirement. Even when there is no change in the level of effort or cost to the project, the Project Manager should issue a Change Request to document the new agreement between teams, allowing all parties to understand the differences between the original agreement and the ultimate deliverable.

However, Project Managers should also be empowered to issue a no-charge change even when the change requires more work. This may happen if the consulting team has made a mistake that caused some amount of pain on the part of the customer. The no-charge CR may rebuild a, potentially, damaged relationship. It may also be advantageous to issue a no-charge CR when the project team knows of a larger request that is coming down the road - bigger changes result in larger bookings and revenues. The smaller no-charge CR may leave customers feeling like “this” team is willing to work with me. The customer doesn’t feel “nickelled and dimed” and the larger, billable CR, may be easier to get executed. A good project manager understands when it is appropriate to issue a no-charge CR versus one for which the client must pay.

That said, PSO management must provide project managers with a process for managing give away work:

1. All changes must be documented, even when the change will not result in additional charges for the customer.

2. Only the project manager can agree to a change, although s/he should solicit input from the rest of the team.

3. Only small changes can be provided as non-billable. Anything that puts the schedule at risk should be billable.

4. You may want to set a cap on the size of the non-billable CR to which a project manager can agree without management approval.

5. A Change Request Board (CRB) must approve all CRs, even the non-billable CRs. The CRB includes representatives from the client and consulting teams. You may want to have PS management on the board, particularly when your less senior project managers are running projects.

The next post will discuss non-billable work given away by PSO management.

Revisiting Non-Billable Work

Earlier in 2010, I started a series discussing the role of non-billable work. I wanted to revisit that series in the next couple of weeks. The first posts, starting today, will be a repeat from that series. Keep reading, though...more will come.

Thanks,

A