Episode 263

In this episode of the Unscripted podcast, host Sarah Nicastro welcomes Alastair Winner, Partner and Co-Founder of Mossrake Group, for an in-depth conversation about what service providers need to consider in successfully positioning outcomes-based services.

Alastair is an entrepreneur, consultant, and business leader with vast experience in enhancing management across the service value chain. Skilled in leveraging best practices, Alastair effectively drives business outcomes through services, digital technology, and strategic management in sales, marketing, and communications.

If you enjoyed this episode, make sure to subscribe, rate, and review on Apple Podcasts, Spotify, and Google Podcasts. Also, subscribe to our newsletter right here.

Watch the Podcast Video here:

Alastair: It's in the service provider's interest to go in with a starting point. And to think also about what we would term a system of record, because typically the outcomes of KPI needs to be reliably measured. And there needs to be a single point where both the customer and the service provider can go to to say, well, we agree that this is actually the outcome and we've measured it in a consistent way. So it's not just about coming up with the outcome KPI itself. It's also about how you're going to measure it.

Sarah: Hello, welcome to the UNSCRIPTED Podcast, where you'll find discussions on what matters most in service, leadership, and business transformation. I'm your host, Sarah Nicastro. Let's jump in. Welcome to the UNSCRIPTED Podcast. I'm your host, Sarah Nicastro. Today, we're going to have a conversation around what savvy consumers of outcomes-based services are seeking. I'm excited to welcome to the podcast today, Alastair Winner, who is the partner and co-founder of Mossrake Group, which is a consulting firm that helps organizations bring advanced services solutions to market. Alastair thank you for joining us today.

Alastair: My pleasure, Sarah. Glad to be with you.

Sarah: Yeah, so before we get into our conversation of the day, just tell everyone a little bit more about yourself.

Alastair: Sure, I'd be glad to. You did a great introduction from a business perspective. Mossrake has been around for six or so years now, and we've had the opportunity to help a number of product technology companies really think about their services business and evolve their thinking around as a service and outcome. So that's really where our specialism lies and where we spend most of our time. Prior to Mossrake, I worked at Hewlett Packard and Hewlett Packard Enterprise, and I had the great opportunity to do a number of roles there at a country, a regional, and a global level, both in technical roles and in management roles. And the role that I ended up doing there was actually services product management at a global level. I spent nine years working in Houston, Texas, doing that. And as part of that journey, we developed a very significant outcomes-based business for HPE, which is now known as HPE GreenLake. So that was a fantastic milestone in my career. And I've really enjoyed being able to take what we've learned from that and apply it to other technology disciplines. So yeah, I'm based in the UK and really looking forward to the discussion.

Sarah: You don't want to stay in Houston.

Alastair: I would have loved to have stayed in Houston, actually. We really enjoyed our time there. We actually went for two years and ended up staying for nine. And we became grandparents. So that was the reason that we came back. It was personal, but we loved the American lifestyle or the Texas lifestyle. It was great.

Sarah: Okay, good. All right. So for the sake of the conversation we're going to have today, can you just share with everyone how you define outcomes-based service?

Alastair: Yes, of course. Thank you for the opportunity to do that. What I would say is this term outcomes or as a service, it's a very popular term that you see cropping up a lot. It's one of those buzzwords that tend to get used a lot. But when but when you actually sort of scratch beneath the surface, very often you'll find quite different experiences and solutions. And in Trudeau consulting style, we decided to define what we meant by outcomes. And that's really the grounding that we give our customers. So there are four really key steps to how we would see outcomes defined. So firstly, it's this combination of products and services that are presented to the customer as a service. That's first and foremost. Secondly, where the value of that outcome is described in a language that the customer really understands. Typically, in technology, there's a technical language that gets used. And that may be something that the customer is very familiar with, and that's fine. Or it may be in business terms, in business language. The third point is that we need to measure the outcome. And there we need what we call an outcomes KPI, something that really describes the outcome in a way that both the service provider and the customer agrees is applicable. And the fourth point is that the service provider is responsible for ensuring that the outcome is delivered over the time specified in the service contract. So essentially, the customer is able to take their hands off the wheel and enable the service provider to essentially manage the how the other service is being provided. And they can focus on maximizing the value, which is ultimately the outcome. So that's how we think about it. Yeah, what we have seen very often is that product companies will sort of take their traditional products and services, combine them together in a similar way, but present that through some sort of leasing mechanism. Which certainly has some value for sure. But in the end, it still has all of the operational overheads and risks that you would associate with any other purchasing model.

Sarah: And I think we could probably have five or 10 different discussions today, you know, about some of the things you just mentioned. And perhaps we'll have another in the future, but... what we're going to kind of focus on today, and I think we'll come back to some of the points you just made, is talking about what savvy consumers of outcomes-based services are looking for. Now... we chatted about this question of, well, how savvy are today's consumers of outcomes-based services? And what has that progression looked like? I have some thoughts, but before I get to those, how would you describe where we are today with the savviness of buyers and what does that mean for our service providers?

Alastair: It's a great question. So, of course, I mean, first and foremost, you'll find varying levels of knowledge and experience in any business domain. And really, this is no different. You have to sort of distil it down to the individual. And what I would say, actually, is that in my experience, it's very often easier for a service provider to work at the extremes of savviness. So either with someone that really has no experience of this at all or someone that has a great deal of experience. With someone with little experience, you can educate and coach them and really inform them around the way that you think about outcomes. And for someone that's got a lot of experience, you can really get down to the details really quickly and shorten the sales cycle. It's the people that are somewhere in the middle who sort of think they know about it, but really don't, that can be the hardest to move. And you have to do some level of recalibration there, which... can be somewhat of a challenge. What I would say is that, and what we do observe, is that different segments are more savvy than others. So maybe I'll give you a couple of examples there. So really this concept of as a service emerged from IT. And in that domain, in that technology domain, this is pervasive really through the introduction of cloud. You know, that business model is very familiar. And IT went through all of the sort of gestation cycles that we would typically expect to see. So infrastructure as a service, platform as a service, software as a service, and ultimately to true and full outcomes. So anybody that operates in that technology domain is very likely to be savvy, to be more on the savvy scale. Other technology segments really haven't moved as fast. And I think that's possibly to do with the technology lifecycle that you see. In IT, things are changing constantly. You buy a server, it's out of date by the time it's delivered. It moves very, very quick. Many other technology sectors don't move as fast. So they've been slower to move, basically. And I've had the opportunity to work with... Secure power and cooling companies, tester measurement companies, and companies that are supplying products into the operational technology space, the OT space. And it's nascent. They're all very early into this concept. And of course, because they're not really adopting, there's people that are much less aware and less savvy. But what we have seen is as these sort of technology sectors converge and certainly IT and OT, we've seen that a lot. You start to get people that are crossing over and companies that are becoming far more curious about this as a concept, how they could apply IT to the solutions that they're using. So if you encounter someone that's maybe come from an IT background that's now working, and they're much more likely to be.

Sarah: I was going to bring that up as a point to be aware of. You see more and more cross-pollination of IT used to be someone started in an industry and pretty much focused on growing their career in that industry. But in services, because these themes and these trends are, you know, becoming more applicable across the board, you have companies that are in all sorts of different manufacturing type environments that will seek service leadership from. The IT space that has more experience with this to bring in to help them on this journey. So you have to kind of also keep in mind the background of whomever IT is you're dealing with as well. So that makes sense. So I think for the purpose of today's conversation, you know, we want to keep in mind that As outcomes-based service takes hold across more and more industries, that savviness is progressing, right? But we're going to kind of talk about these things today from the perspective of if you're working with a savvy customer. Here's what to bear in mind. However, if you're working with someone who isn't, we want to kind of call attention to the opportunity that exists then for service providers to be well-versed and adapt at helping them navigate that journey. Because obviously, doing that well can be a competitive advantage, right? So let's talk first about personas. So what personas are typically part of an outcomes-based service? Purchase. And is there one or that are more likely to be savvy personas versus some that might be more likely to be less so.

Alastair: Yeah, sure. So let me address the second question first. And that is really, in my experience, there isn't really a persona or a stakeholder group that's any more or less savvy than others. Again, it's really based on sort of the individual's level of experience and exposure to the business model. It's really based on the company that you're dealing with and their level of experience, too, as to who you're likely to encounter. I would say most of the work that we've done is where we're introducing this as sort of a new business model, a new concept. And wherever you're introducing something new into a customer. It's going to require you to talk to more people than you would have typically otherwise have done if you were continuing to sell in a more traditional way. And there are five personas that we would typically engage with. And those would be the operational owner, someone that historically has taken responsibility for the technology domain or area that your service is going to address. They'll be overseeing the operation, doing lifecycle management activities, coordination of all that work. So they'll be the primary, I would say, and probably most likely the entry point that most service providers will have to the customer because you have a relationship there. It's a more ongoing type relationship. That would be the first one. Second would be the manager of that individual or manager's manager of that individual. Because again, it's something new, they're going to be likely engaged in the dialogue. And part of the value of these services is to liberate resources. So rather than having your own employees focused on doing some of these activities, the service provider is going to be doing that work. And that releases capacity that can be reused and that manager is likely to benefit from that. And also trying to demonstrate a level of stability. It's going to be a reliable service and the financials are highly predictable too. So that's the second group that you're likely to engage in. Third would be finance. So again, any sort of financial change is going to require finance review. And this is absolutely no different. And in fact, I'm sure as we'll go on to explore. This is one of the stakeholder groups that you really need to get to early because their opinion will matter significantly as to whether or not a company is going to accept this sort of natural shift from CapEx to OpEx. And we've had some experience there where you've gone all the way through the sales cycle, got very excited. You put it in front of finance and they've said, no, we're not doing that. That's the third group. And then sort of on the more periphery, you'd find procurement and legal. Any buying, if a company has a procurement team, they're going to be involved. This will likely be something quite new, so you need to spend some time recalibrating. That group. And legal, of course, this is likely to have a new set of terms and conditions, a new scope of work. Legal departments will have templates typically that they like to use with their suppliers. And I can guarantee that this is likely not to fit with any of the templates that they have today. So procurement and legal will likely be involved in the negotiation and crafting the final terms and conditions. They're the five personas that we would typically encounter in a as a service or outcomes-based deal.

Sarah: Okay, good. So the next thing I want to talk about is if you're dealing with savvy customers, they are going to know that a true outcomes-based service structure is going to require risk sharing. So what should this prompt a service provider to consider and prepare for?

Alastair: It's a great question. And that's what I guess that's one of the big differences between this model and a traditional model. You know, when you sell a customer a product. The accountability and the risk for the value that that product creates immediately transfers to the customer. And in this model, there is an onus on the service provider to deliver that value. So it's probably worthwhile me spending a minute just recapping on the perceived risks and benefits of this model for both parties, because that sort of underpins some of the thinking that we'll go on to explore. So if I think about this from a customer perspective. Some of the risks that they're going to be thinking about are the fact that this is likely going to be a long-term services commitment. So they're going to be signing up to something that's multiple years. They're going to be handing over operational control and that in itself can be quite, people can be quite apprehensive about doing that. And also, because it's a long service agreement, they could feel like they're locked in. And what happens if the business needs change over that long period of time? Can I get out? Can I adapt? Can I change the service? So, then there's sort of the risk things that a customer is likely to be considering. The benefit, of course. Is that they'll get this agreed outcome. It'll liberate some capacity for them. They'll get to work ideally with a trusted brand who are providing this curated experience at a predictable cost. It really simplifies their operation, allows them to go focus on their core activities while the service provider deals with this sort of critical non-core type of work. If I look at it from a service provider perspective, they're likely to have to make some sort of upfront investment in technology, hardware, or software. And probably, they're going to have to think about putting capacity ahead of demand, especially if they're able to provide some level of flexibility to the customer. So the customer is not making an upfront investment, but the service provider is. So that's a risk. And of course, then they've got to think about all of the lifecycle activities to sustain the service and deliver the outcome over the contractual period, which could be many, many years, up to 10 years. So when you think about all of the updates and changes and recalibrations and replacements that have to go on over that period, you've really got to be thinking about what does that look like and costing it accordingly. And of course, the benefits for the service provider are they get a long-term annuity stream with almost certainly a higher rate of return. Over that contractual period, I mean, they're going to get service on everything over a very long time, and they're going to end up with a very loyal customer. So when we think about risks, sort of risk and reward, those are the things that are going through both the customer and the supplier's mind. In terms of preparing for this sort of discussion, really the service provider needs to go into these discussions with... a number of levers that they can use to help balance the risk and reward to ensure it's achieved and both parties feel like they end up in a good place. And in our experience, there are three elements that service providers will typically use. So one will be simply the initial contract term. And so how long are you going to lock a customer in for? And does that give you enough time to recover the upfront investment that you've made? So there's a sort of initial term. There's what we call minimum commitments. So there's the service provider and customer will agree, is there a minimum number of units or services that are going to be consumed over that initial contractual period that will provide the service provider with a guaranteed income? And that's very important. I mean, we have encountered customers who basically would like to be able to flex this outcome-based service to nothing. So if the business ends, I'd like to flex it to nothing. Which is really nice in theory, but doesn't really work in practice. It creates a huge risk to the service provider. And there is a premium. I mean, we always say there's a premium for flexibility. So that would be the building in a minimum commitment. That's an important lever. And then the final one is exit fees. So in the event that a customer chooses to leave the agreement early, or even at the point at which the initial contract term ends, you can build in this concept of... exit fees, which lowers the monthly fee, but leaves the customer with like a balloon payment at the end, should they decide to leave. And ideally, and in most cases, if the service is well designed, they'll just continue, you know, so the balloon payment risk will disappear, will dissipate over time. So those are three key levers I think a service provider needs to consider. I'd also say that one of the other things to consider is the as-is state inside the customer. So it's very, very rare that you're going to encounter a customer which is a complete greenfield. They're going to have some sort of technology either from yourselves or from a competitor that exists today that's somewhere in the lifecycle. And you need to think about how can you ensure the customer maximizes the value from what they've already invested in, because they'll see that as a risk. And if you sort of roll in and say, well, we need to replace everything, everything's going to move to this model. It's likely to create quite a negative reaction. Service providers need to really think about how this is going to be perceived by the customer. Have some levers that you can adjust and tune, some dials that you can tune to ensure the risk reward ends up in. A good place. And I think the other thing is just know your limits. At the end of the day, there will be a point where this won't work for a service. But you need to know where that is, because you do not want to be stuck in a bad deal. If you sign up for a customer for 10 years, and it's 10 years of a bad deal, that's not a good thing.

Sarah: Yeah, those are really good points and a really good sort of analysis of the risk topic. Again, this is an area we could get off into some side conversations and we don't have time. But I think, you know, just to point out a couple of things. You know, we're talking today about navigating these topics with customers, right? So that's operating under the assumption that the company has already decided to offer outcomes-based service, right? But I do want to make sure we call attention to the fact that this topic of sharing risk. Is really the crux between truly offering outcomes-based services and repackaging things in a way that you are saying you are offering outcomes-based services, but it's not true to the model. And so to your point. Maybe that's okay, right? Companies have to make their own decisions. But this is just, I bring this up like there's a huge conversation and decision-making process ahead of anything you're doing externally that has to happen. And this, I think, is the point. That a lot of companies get hung up on, right? Because they panic when they get to the risk sharing piece and then they kind of want to go into outcomes-based services without taking on risk. And it's just not that in its true form. And so I also want to point out, for listeners that are newer to the podcast, we've done some really great episodes with companies that have truly embraced this. And. We've had conversations specifically about why they felt the risk was worth it and how they balanced the risk and how it's paid off. Kaer, K-A-E-R is one, Koolmill, K-O-O-L-M-I-L-L is another, and there are some others. I would go back and listen to those episodes to dive a bit more into this piece. If you are a listener who's still reconciling internally, what does this look like for us? So tied to the risk sharing piece is the development then of the outcomes-based KPIs. So... You mentioned this a bit in your shaping how you define outcomes-based services. But a savvy buyer is going to expect these KPIs be geared toward their business challenges and really developed in their business language, right? So what do they need to consider to create these KPIs well? Because to your point, a lot of companies get stuck in their internal language. And that can be a barrier when you're working with customers who are expecting to create this in their business language.

Alastair: Very often this is one of the hardest. Topics to reconcile both as a service provider trying to come to terms with how do you present what we deliver as an outcome and also actually for a customer to really think about what is it I really do want as an outcome. It can take quite some effort and time. And I think one of the things that's really important, I think, for a service provider is to develop a starting point. At least do some collaboration, co-creation work with some trusted customers, especially in the early stages of service development to really understand. How the customer is thinking about the value of the service, how Key Performance Indicator might emerge from that. As I said in my sort of intro around outcomes, this can very often be described actually in technology language. Many customers are very familiar with and comfortable actually continuing to use technology language. So the unit of measure is in some sort of technology terms, but others are really looking for something that truly aligns with their business. But the point is, it's in the service provider's interest to go in with a starting point. And to think also about what we would term a system of record, because typically the outcomes KPI needs to be reliably measured and there needs to be a single point where both the customer and the service provider can go to to say, well, we agree that this is actually the outcome and we've measured it in a consistent way. So it's not just about coming up with the outcome KPI itself, it's also about how you're going to measure it. And we've done a lot of work to build solutions that enable there to be a single system of record, because then that's almost certainly going to connect in with things like billing, SLAs and billing. So you have a starting point, which is being developed with your early adopter or pilot customers. And then it's really important for that to be the starting point for a discussion. You shouldn't try and impose that on a customer. It's really, in many ways, just an example to get their cogs going. So don't impose it. Use it as a means to help them understand and then refine for the customer to meet their needs. So that would really be my advice. It takes time. And I mean, the whole selling process for a solution like this is going to be longer than a traditional product sale. And this is one of the areas where you're likely to spend maybe a little bit more time than you would typically to get this right. And to ensure that the customer really understands. I think the other thing I would say is that almost in every case, there will be dependencies on the customer in order for the service provider to ultimately deliver. So it's very important that those are understood and called out in the contract. So that's extremely important. And also there is a danger that a service provider can get sort of get pushed into a KPI where they really don't have. Ultimate control. So as a provider, you really need to ensure that you can deliver the outcome that you're agreeing to and that some of these dependencies are so far out of your control that you have no chance of delivering and you can get dinged for something that really wasn't your fault. We've seen this actually in a number of examples, again, in the OT space where the KPIs can be quite advanced and the customer is trying to push the provider to take on some accountability and some liability even and to take on risk that. Really outside the scope of the service that's being provided. So there's a big red flag there. It's great to have the discussion, but again, you've got to know your limits. And it's about managing and balancing risk.

Sarah: That's a good point, kind of coming back to the risk conversation to understand that Shared risk is fundamental to the business model. However, that doesn't mean just signing up for anything and everything that the customer demands. It doesn't mean going beyond your limits. It means finding that mutually beneficial. Balance that everyone can agree is a win-win. And going back to the examples I mentioned, when Companies can reach that point, it really is mutually beneficial. There is risk on both sides, but there is reward on both sides. And you can see that prove out, right? But as you have artfully outlined in our conversation thus far, there's a lot of points where this can go awry and that mutual benefit can get thrown off, right? So these are all things to be aware of. Okay, so can we talk about some of the common objections? That a service provider should be prepared for. And if there are, you know, if these originate with a certain persona, let us know. But basically, when you think about objections in the sales cycle, what comes to mind?

Alastair: Yeah, absolutely. In fact, I would sort of think about this from a persona perspective, because each persona or stakeholder will have a slightly different view of the value and risk for the service, and they'll have their own, typically their own objections. I'd highlight, and sort of going back to that list of five personas that we talked about earlier in our discussion. From an operations perspective, I think one of the big objections and things to watch out for is the fact that very often it's the individual that you're talking to or their team who is going to be disrupted by the introduction of the service. So you could be very eloquently talking about the value proposition of your outcomes-based service to a guy or gal who is thinking, well, this is going to take away my job. So you have to be very conscious of who it is you're talking to and the implications of what it is you're proposing to the individual that you're dealing with. So, you know, pitching it at the right level is often, you know, a good way to avoid that. But ultimately, I would say, look, you just need to reframe that and say, look, this is going to create a unique opportunity for you and your team to go focus on something that's core to the business. It's going to deliver far more business value. That's really the way that you can overcome that. But be very sensitive to what are the implications for the team that you're pitching to, especially operations who are likely to be in some way displaced. I think linked to that, the management team are going to be really trying to understand, help me quantify what this, how many cycles are going to be created? What else can I go focus on? So those two things are somewhat linked. From a finance perspective they're just going to be looking, how is the spend going to change? How do we move potentially from CapEx to OpEx? And is that something that is acceptable and beneficial for the company? As I sort of indicated earlier, we have had some experience of getting to very late stages of trying to position a deal only for the finance team to say, well, this simply won't work because actually, there's some advantage for us holding capital on our balance sheet. It makes our company valuation look more positive. I wouldn't second guess the objections that might emerge from finance. The key is to get it in front of finance as early as you can to seek an opinion. And don't leave it till the last minute because that can be very painful. From a procurement perspective, very often when they're presented with an outcomes-based model, they'll find it hard actually to find alternatives in the market to do their typical comparison, three suppliers, do an RFI, RFP, especially if early into the adoption or positioning of outcomes, this is going to look very confusing and throw the procurement team off, which can create an objection. What I would say there is that it makes sense to build in some headroom for a commercial negotiation, either some level of discount that will pacify procurement, allow them to demonstrate value back to their business and allow you to move on. So that could be a bit of a stumbling block. And the objection there is, well, I can't really follow my process. I haven't got three suppliers that are delivering this. You guys are the only people in the market that are offering it right now. What do I do? That could be challenging. And then as I sort of indicated earlier around legal, the legal team will have some templates and every company will have a scope of work that they've agreed, which is how they would like to buy. Hardware, software, and services, all of the elements typically that you'll find in an outcomes-based model of the bill of materials. Level and they don't work. Well, we've attempted to modify these things to get them to a place where they might work in an outcomes-based model. And there's so much rework that has to be done. It's too hard. So as a service provider, we would encourage them to create their own terms and conditions, scope of work terms and conditions. So it's on the supplier paper, not the customer paper. And just be very clear which of the different sections and clauses are likely to be ones that are in the domain of legal. And again, it's about knowing your limits. To ensure that you end up in a good place as regards to risk and reward. All I'd say is, again, based on the familiarity with the business model and the savviness of the legal representative you might be working with, you just need to be prepared to spend quite a bit of time there and expect there to be some back and forth as the contract ends up taking shape. So those are the sort of the key things I would highlight, Sarah, based on my experience.

Sarah: Yeah. Okay. Okay. So Alastair this has been wonderful. I just want to reiterate for folks in certain industries, in certain situations, you know, you are going to encounter people that have had experience with outcomes that know what they're looking for and you need to be prepared to respond adequately. But for those of you who are in industries where this is newer and you're really helping them navigate these conversations and this journey for the first time, understanding some of these intricacies and doing your homework and preparing for those conversations can really help put you in a position where you're building trust and you're building that relationship because you're helping them work through this and you're being perceived as a knowledgeable partner. So Alastair, any final comments that you would add to the conversation before we conclude?

Alastair: No, I mean, I've really enjoyed the discussion, Sarah. Appreciate the opportunity. I think to summarize, I'd say, look, find a stakeholder in the customer that understands the concept and is prepared to advocate this business model internally. You've got to be prepared to present the solution multiple times before it sticks. So you're going to have to rinse and repeat. Finally, what I would say is that you can invest a lot of time doing this positioning. And in the end, the customer will still decide to buy in a traditional way. And I think that's okay. Don't be disheartened. Talking about this, if you've got the right solution, is always a positive experience. And it will deliver results in the end. That's basically what I'd close with.

Sarah: Very good. Well, I appreciate it. This was a great conversation and really, really, really good insights. So anyone that would like to, you can find Alastair Winner on LinkedIn. And if you have questions or want to connect, you can do so there. You can find more information on outcomes-based service and all sorts of other things by visiting the home of the UNSCRIPTED podcast at futureoffieldservice.com. You can also find UNSCRIPTED on your favorite podcast platform. The podcast is published in partnership with IFS. You can learn more at ifs.com. As always, thank you for listening.