Microsoft Consulting Services: Putting Partners Ahead of Profits

REDMOND, Wash., June 9, 1999 — When Satish Shah sat down with executives from the Robert Mondavi Winery at a conference last year, the Microsoft consultant quickly recognized that the company needed assistance in deploying Microsoft technologies. Although it is the largest exporter of wines from California, Mondavi, located in the Napa Valley, is considered a mid-sized company. With most of the world’s largest enterprises scrambling to successfully negotiate the rapidly shifting technology landscape — and paying huge sums for guidance — Mondavi’s modest size and relatively inconvenient location has made it difficult for the winery to retain high-quality consultants.

Mondavi alone may not offer a business opportunity large enough to attract the interest of the top technology consulting groups. But Shah realized that as a Microsoft consultant, he needed to take the time to assess the winery’s technology needs and offer cost-effective solutions. This meant proposing a strategic solution to Mondavi that would satisfy their needs. Shah knew that if he could help Mondavi, it might create opportunities at other wineries, not only in Napa Valley but also in other wine-producing regions around the globe.

Armed with the belief that success with Mondavi could open the door to other opportunities in the wine industry, Shah sat down with Aram Akopyan, vice president for network integration and consulting at Wang Global. The top maker of word processors and minicomputers in the 1980s, Wang Global, which used to be known as Wang Laboratories, has transformed itself into a leading international provider of network technology services. Last year, when Wang Global established a West Coast consulting practice, the Mondavi opportunity fit squarely with the company’s plans for growth in the region. Shah suggested that Akopyan approach Mondavi with a proposal for a comprehensive intranet solution.

It might seem strange that Shah would direct such a potentially profitable piece of business to Wang Global instead of his own employer. But while Shah may be a Microsoft employee, his primary responsibility is helping Wang Global succeed. The reason: Shah is a Partner Program Manager (PPM) at Microsoft Consulting Services (MCS), currently assigned to Wang Global. Microsoft Consulting Services’ mission is to assist customers by taking the time to assess their technology needs and offer cost-effective solutions. During his one-year stint with Wang Global, Shah’s job is to help the company build its solutions business, both by sharing his expertise about Microsoft technologies and by playing a lead role in business development for Wang Global.

“When I was assigned to Wang Global they were just starting on the West Coast,”
says Shah.
“My goal is to help them expand their services portfolio, raise their skill level, and set up best practices for business development. It’s more than just technology transfer; it includes helping them understand the markets and the needs of their customers, and making sure they have the expertise they need to be successful.”

Shah is one of eight PPMs assigned to Wang Global by MCS. Their contributions have helped Wang Global develop a competitive advantage that has made the company an important player in the highly competitive technology consulting field, according to Wang Global executives.
“Wang Global finds its PPMs invaluable in planning and executing a strategy for high-value consulting and project services for delivery to a worldwide customer base,”
says Keith Stanton, director of the Wang Global/Microsoft alliance.

Profits From Products, Not Services

During the last decade, digital technologies have transformed the way companies do business. The proliferation of personal computers linked together in enterprise networks and the rise of the Internet have helped to create a true worldwide economy in which information travels around the globe in the blink of an eye. In this new business climate, the ability to take full advantage of the power of information systems is a prerequisite for success. But as the rate of technology advancement continues to accelerate, complexity also increases. More and more, companies are relying on outside help for advice on which technologies to deploy and how to use them most effectively.

As a result, consulting is one of the fastest growing sectors of the information technology industry, and an increasingly important source of revenue at most of the world’s leading software vendors. According to a recent report published by the Information Technology Services Marketing Association (ITSMA), in 1998 consulting accounted for better than one-third of IBM’s revenue. At Oracle, consulting contributed more money to the bottom line than actual sales of Oracle products: 56 percent of the company’s revenue came from services, compared to 44 percent from products.

While most major software companies look at consulting and support services as a vast opportunity with almost limitless potential for growth, Microsoft has taken an entirely different approach. Instead of recruiting an army of consultants (IBM, for example, has more than 120,000 service and support employees), Microsoft has approximately 8,000 service and support employees, with 2,200 of those dedicated to consulting services. At Microsoft, only 2 percent of the company’s revenue comes from consulting and support services.

More important, the goal of Microsoft Consulting Services is not to generate earnings for the company. Rather, MCS aims to drive sales of Microsoft products by working with large enterprise customers to help them adopt and deploy Microsoft products, and with technology solution providers to make sure they can offer a wide range of Microsoft-product related services backed by the highest level of technical skill and knowledge.

“While the focus of the majority of IT companies today is . . . on developing a profitable services business, Microsoft has declared ‘loud and clear’ that services support the sale of product through enhanced customer satisfaction,”
reads the ITSMA report. The result is
“an organization with a clear sense of purpose, enabling the company to execute a services strategy that fully complements the corporate vision: ensuring customers’ success with Microsoft products.”

To underscore the emphasis on customer satisfaction rather than profits, Microsoft has made MCS a cost center. While the group charges market rates for its services, it plows all of the profits it generates back into training, tools, marketing and other programs that benefit partners and customers.

According to Robert McDowell, Microsoft’s vice president for enterprise business relations, that approach is unique in the industry.
“I don’t know of any other company that does it this way,”
he says.

Building a

Full-Service Market

Microsoft Consulting Services hasn’t always been quite so unusual. When McDowell joined Microsoft in 1990, he was brought on board to create a traditional profit-based consulting business that would provide technical support to corporate customers interested in moving to the Microsoft platform. The new group, called Information Technology Integration Services, or ITIS, opened its doors in July 1990 with offices in North America, Europe and Australia. One year later, the group changed its name to Microsoft Consulting Services.

“A lot of our early work centered on helping customers implement local area networks,”
says McDowell.
“At the end of year two we were breaking even, as planned.”

By 1993, MCS had reached a crossroads. Although it was generating a profit, it was also treading a very fine line with its channel partners, who were already offering many of the same services that corporate customers were asking MCS to provide. As the group became more and more successful, there was a growing danger that it would become a threat to the companies that helped Microsoft sell its products.

After a great deal of soul searching, MCS adopted an entirely new business model in 1994, forgoing profit for partnership.
“There was a great deal of internal debate,”
McDowell remembers.
“We could have really ratcheted up the drive for profitability and just decided to build up the consulting business as quickly as possible. But from the beginning, our intent had been to complement our channel partners. We wanted to build something that wouldn’t be seen as competition.”

The new approach offered a number of significant benefits for Microsoft. It allowed the company to maintain its focus on technology and software, and on selling products rather than services. It turned companies that might have been competitors into allies. And it allowed Microsoft to use its service organization as a tool for driving product improvement.

“When a product company relies on services for profit, an increased focus on services can easily hide a product deficiency such as installation difficulty,”
says the ITSMA.
“Even more seriously, any profits lost from poor product quality may be recouped – or more – by increased profits in the services area.”

At Microsoft, the cost of support is charged back to individual product groups. That gives the product developers a significant financial incentive to pay close attention to customer feedback and focus on resolving service issues that are problems for end users. Meanwhile, a strong partner focus from Microsoft Consulting Services helps consolidate technology requirements from a variety of enterprise service organizations to improve the effectiveness of the products that Microsoft delivers.

In the five years since MCS abandoned the old profit-driven model, the group has significantly fine-tuned its approach. At the core of the group’s strategy is the creation of what it calls a
“service market”
rather than a
“service business.”
In other words, no matter what business a potential customer is in, there will be someone with deep knowledge of Microsoft products who can help that customer meet its technology needs.

To achieve that, Microsoft has invested deeply in building the technical expertise of its technology partners and fostering their business success. While MCS itself may number only about 2,200 consultants, the combination of Microsoft’s 15 largest technology partners forms an army of consultants and service representatives that is nearly 160,000 strong.

“Microsoft partners with enterprise service organizations that already have existing customer relationships, competencies, business models, and geographic scope,”
says Enterprise Services general manager Ian Rogoff.
“Our own consulting organization provides a direct service relationship with our customers and complements our partners with high-end technology skills and solution frameworks. Together with our partners, Microsoft offers an end-to-end service portfolio, a choice in service providers, and a dynamic services capability that keeps up with changing customer requirements.”

Related Posts