The Future of Services Is Value Orchestration

After a year of interviews and a review of Forrester’s 20-year history of research into professional and technology services — global delivery, cloud integration, asset-based consulting, and digital transformation — we have reached a conclusion: We live in a post-cloud world. When companies can tap the value and innovation of 100,000 business and technology services over the cloud, it’s time to accept that the future is defined by innovation through ecosystems.

And for that, companies need a new kind of service provider. The old plan-build-run model of services with time-and-materials pricing is poorly aligned with innovation through ecosystems and with firms that embrace a future-fit tech strategy, where transformation is continuous, multidimensional, and carries the uncertainty of the unknown. We see a new service paradigm taking shape that we call co-innovation partnership in which service providers:

• Invest in technologies and alliances that accelerate the time-to-business value. Labor is still the foundation of the service provider model, but technology and vendor alliances are the accelerators, building blocks, and best practices captured in code and algorithms.
• Orchestrate the value inherent in a client’s internal and external ecosystems. “Value orchestration” means using packaged software and APIs (and platforms) to rapidly assemble and configure differentiating solutions. The cloud is the rocket fuel behind this orchestration.
• Emphasize trust, transparency, and value alignment. In most of the interviews we had with providers, and in conversations with enterprise customers, the mark of success is trust. Transparency and value alignment are its manifestations.
• Share risks and rewards. Outcome-based pricing and fees at risk characterize the best value alignment. At the heart of the co-innovation partnership is a commitment to work together with a common purpose. Both parties must work differently to fulfill the promise.

The Pivot To Co-Innovation Partnership Hinges On A New Business Model

Service providers are examining their fundamental business models. The threat is existential — fears that fees are under constant downward pressure and that providers could become irrelevant as clients and cloud and software-as-a-service vendors assemble solutions on their own. Much as the software industry moved from licenses to more value-based pricing (subscriptions, consumption, etc.) and hardware providers moved from racks and stacks to pay-for-use cloud computing, the services sector must move from fee-for-service to more value-aligned commercial models (fixed-price, milestones reached, cost or revenue outcome achieved, apps migrated, joint ventures, and subscriptions for assets). We see the co-innovation partnership as a better business model, one in which:

• Platforms and ecosystems drive co-innovation partner investments. Providers have been investing in software accelerators and other assets for decades. They’re now morphing their investment models to prioritize and fund development in assets, alliances, analytics, AI, architectures, and automation.
• Value-based pricing anchors co-innovation commercial models. At the heart of the co-innovation partner value exchange is when a provider puts fees at risk in return for a potential reward. A co-innovation partner operating as a general contractor puts outcomes at the center of the engagement and helps its clients coordinate all the workstreams to achieve the result.
• Client outcomes fuel the co-innovation partner operating model. The best providers are making material changes to their operating models to be more client connected, focusing on client outcomes by using a blend of services and assets assembled into solutions. They focus on key accounts; use their balance sheets to build platforms, take on risk; master account-based marketing and selling; and invest in talent beyond expertise.

What’s Next?

Our first three reports tell three sides of this story: the demand side, leader side, and service provider side. Clients can access them by clicking below. Today, they form the beginning of a new chapter in the future of services. We plan to tackle the elephant in the room next because procurement can make or break your innovation and transformation success.

The original article by Ted Schadler, vice president and principal analyst at Forrester, is here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CDOTrends. Image credit: iStockphoto/alphaspirit