Microsoft smoothes out Services

On July 1, 2002, Microsoft made some substantial changes to its services business to ensure it did not impede the businesses of its partners. Five months on and Microsoft Services director Kevin Ackhurst offered to update ARN readers on the progress of the restructure. Brett Winterford reports.

Microsoft Services provides consulting and support services to very large customers deploying bleeding-edge, high-risk technology. This pitches the division into the same territory as Microsoft’s largest and most important partners -- but coming up with a formula that works for all parties is rife with politics.

Kevin Ackhurst recently took on this role and is determined to prove that the vendor’s direct services business can work in harmony with business partners. A recent restructure of the services company saw services staff aligned to key industry verticals rather than geographic regions, and the objectives were adjusted to include non-financial criteria such as “partner satisfaction” rather than pure services revenue.

“Previously there was no consistency in the way services staff and partners were goaled,” Ackhurst says.

Microsoft Australia has since transferred one of its senior sales staff, Kevin Rodrigo, into the services division, specifically to smooth out partner relations.

Ackhurst has given Rodrigo the task of formulating standard “teaming” agreements with large partners, which specify exactly the terms through which the two parties will engage with joint customers on issues such as rates, liability, and who owns what IP (intellectual property). “We now have the account planning in place and it gives partners a clear understanding of what responsibility they have,” Ackhurst says.

According to Ackhurst, the lion’s share of large Microsoft projects is actually primed by partners. “It is only when a customer wants us to take primary responsibility for a deal that we do that -- but these are far less frequent than partner-primed deals,” he says.

Nevertheless, there are occasions when customers demand Microsoft’s “skin in the game”. With numerous examples of failed projects floating around the market (company X wastes $Y million on a failed ERP project, for example), customers are demanding a level of assurance that a bleeding-edge project will work. “They want to know where they stand and what we will do if there are problems,” Ackhurst says. “At the moment, customers are seeking formal letters of assurance when signing on to a deal. It is on the edge of being contractual assurance, and I think we’ll see that become a standard part of any proposal in the future.”

Playing politics

The politics of running Microsoft Services are far from being predictable. The most common complaint that large channel partners lodge against IT vendors is favouritism when it comes to distributing sales leads. Ackhurst says the companies with which Microsoft has a “global services alliance” (tier-one players such as Accenture, Avanade, HP and EDS) normally get the first call from Microsoft to get involved with bidding for business. But typically, a large Microsoft project involves a consortium of service providers -- including Microsoft Services, a tier-one or account-managed partner, and one or more smaller providers that have niche skills in particular technologies or verticals. “There is a place for all of our partners to play,” Ackhurst says.

In the current economic environment, it is actually Microsoft’s account-managed partners (middle-tier services companies such as Aspect/KAZ and Dimension Data) that are winning more bids than their larger competitors.

Ackhurst no longer sees favouritism as a problem for business partners, at least not in the Microsoft channel. Prior to the restructure, all Microsoft partners received the same level of support and resources to take part in a bid for a large tender. “But while it sounds democratic and fair, the partners gave us feedback that they wanted the opposite,” he says. “They actually want us to pick a winner.”

The partners found that when Microsoft gave them everyone the same efforts and resources, the potential customer could not differentiate the bids on anything except price. And nothing bugs a services company more than competing purely on price. In the last two months, Microsoft has instead been selecting a “primary partner” to work closely with to respond to any tender proposal. “We thought it might be political, but there have been no major conflicts so far,” Ackhurst says. “There is potential for conflict in the future, but the partners actually seem to prefer this approach.”

Ackhurst says there is a cultural maturity occurring in the IT services channel where, rather than competing on price, partners are learning how to differentiate themselves according to their skills, and they are equally as willing to work with other partners (including their biggest competitors) to win deals.

Measuring success

While Microsoft once envisioned that its services business would be profitable in its own right, under the new restructure this if far from being the measure of the division’s success. While the division is asked to ensure that it always breaks even, its focus is on promoting the sale of Microsoft products, most of which are sold through business partners.

Bonuses were once paid to Microsoft Services staff purely on financial goals, but they are now based on a balanced scorecard of customer satisfaction, partner satisfaction, product pull-through, organisational health and the usual financial metrics.

“Our feedback from customers is that there has been a significant improvement, around about 10 per cent, in their satisfaction in little over four months,” Ackhurst says.

He is now anticipating similar improvement in the responses from Microsoft’s partner satisfaction survey, which is currently being circulated.

In terms of server sales generated for Microsoft and its partners, the numbers are hard to quantify, Ackhurst says. “For development projects it has been more about raising the credibility of .Net rather than driving revenue.”

And by the financial metrics, Ackhurst is confident the division will continue to “achieve plan”. “The real measure of our value is when you look at the enterprise accounts in which we are engaged. Between October 2001 and October 2002, any account we were involved in had far greater penetration of Microsoft products.

“Microsoft’s own salespeople and the incumbent partners in several large accounts are now asking for more of our involvement, knowing that it will push more sales of Microsoft product through their account.”