What's the problem? Why now?

In short, many providers of portfolio accounting systems, like all public companies, are under severe pressure to sustain financial results that are difficult under even the best of conditions. Operating margins of over thirty percent are, for example, an oft-proclaimed badge of honor that VC types and other money people like to see, and the sales people will even boast of it in their presentations to you - but at what price? All too often the answer to that question is Client Support.

Take A Closer Look At That Portfolio System Contract
Before You Sign It...

...you may be getting set up for failure.  A bold warning, yes, but not without a solid basis.  In striving for financial performance many suppliers of portfolio management and accounting systems and services - as well as other verticals - have faced difficult decisions.  How does a software company continue to gain revenue while also achieving sterling operating margins?  The answer, all too often, is by investing heavily in revenue-generating marketing and sales resources while trimming other professional services staff.  Implementation and ongoing client support are often the heaviest hit areas.  In extreme cases, entire client support departments are being wiped out.  Amazing short-term operating margin improvements can be realized through these tactics. 

Meanwhile, surviving employees in areas such as product development and product management, already overloaded, fill the gaps - which eventually results in poor servicing of clients and weakened performance in other areas as a result of people being spread paper thin.  In this briefing I'll offer tips on uncovering these situations and protecting your firm from them but let's first look at why this is happening.

What's Goin' On? 

Mergers, acquisitions, and private equity - that's what!  The money people see significant opportunities to work their proven formulas on some privately held companies which results in an alchemy that medieval magicians would envy.  Base metal becomes gold - but unlike real gold, this stuff can and often does tarnish.  Systems begin to receive minimal enhancements - regulatory-driven changes being the only required area of R&D spending.  Professional services staff and client services organizations are stripped to skeletal levels, client support suffers and, all the while, PowerPoint presentations, slick system demonstrations and glitzy sales literature production is increased.  And, of course, the phrase "a leading provider" is bandied about at, well, industry leading frequencies.

Recognizing The Signs

Sure, any obvious public announcement of corporate changes will be helpful in identifying a company that may ultimately be less than a great partner, but the real insight will seldom be that obvious.  To gain the additional perspective needed, watch for signs like the following:

• "Elevation" of the client servicing function  - Cleverly spinning the reduction of client services staff, you’re told that client support responsibilities are being elevated to more senior people.  The claim is that these senior people are more experienced, can better understand the client's issues, and can attain resolution more quickly and effectively.  Sounds good, right?   It would probably be true, too, if that were all these people had on their plates.  Problem is, they've still got their regular jobs to do and they were already overloaded with those responsibilities.  Now, they have to find time to deal with client problems as well as plan their product’s future, oversee the development and maintenance of the product, manage staff, assist sales people with prospect presentations and other high-priority sales support activities - which can be a huge time commitment - and still try to get their vacation days in.  What's a manager to do?

• Specific limitations on client support "allowances" - Even though a client will be paying the provider an annual support and maintenance fee of 15% to 25% of the original product license fee (20% is typical) many of these companies are now limiting the number of remote client support hours (via phone, email, or website) that a client may receive without incurring additional fees.  In fact, this has unfortunately just about become an industry standard. 

• Avoidance of fixed-pricing the implementation - On the surface, this common position is easily defensible, but it may really be symptomatic of other issues.  Most notably, it can reflect the unwillingness of the provider to commit the necessary staff to do the homework required to understand the client's situation and needs associated with an implementation effort.  The exclusion of custom development and customized reporting is usually sacrosanct since, as they will argue, how is the supplier to know what your custom requirements will ultimately turn out to be?  By spending the time to understand them and document them, that's how!  But that requires the availability of experienced professionals who may be overloaded with other responsibilities, like filling in for those missing client services people that used to handle client calls.  So, the easy answer is to unbundle the implementation estimates, exclude all variable tasks, and let the client bear the risk of cost overruns.  Book the license revenue, make the money people happy, and worry about the future in the future.  

Some Helpful Advice

Hopefully, the information above will help you recognize a prospective system provider who is likely to disappoint you.  Additionally, a firm can consider the following steps to avoid making a mistake:

• Visit the company and see their client services department.  Identify how many people are assigned exclusively, full time, to client services.  How many clients do they support?  How many, on average, is each client services representative assigned to?  Be wary of double-counting here; is Tom really a dedicated CSR or is he also a product developer, and an implementation consultant?

• Visit or call at least two, preferably three, existing clients of the provider similar to your firm.  Ask them not only about their general satisfaction with the supplier's client support but also some real specifics: Who is their CSR?  How long has that person been assigned to them?  What is the supplier’s issue escalation process?  Has there been much turnover in the client services area?  Do clients ever receive an actual visit from the client support rep or manager (not the sales or relationship manager)?  What is the turn-around time for the provider to handle most of their reported issues?

• Insist on contractual service level provisions – and be specific.  Be generous (but not too generous) on the minor, nuisance items, and make sure there is a defined, acceptable timeframe for the provider’s response (eight hours would be a reasonable expectation). Conversely, hold to your guns on the more critical issues - not just the showstoppers, but all crippling failures.  For these types of problems insist on an initial response time of no greater than two hours and an all-hands-on-deck approach regardless of time of day.  Now, having said this, remember that it’s a lot easier to agree to these provisions than it is to actually deliver on them, so, as noted above, do your homework to confirm that the provider has a dedicated, sufficiently-staffed servicing department that can actually meet these commitments. If Tom’s involvement is crucial, what good can he do if he’s on the road helping with a new client implementation in California?

• Insist on unlimited remote support from the provider.  There should not be a charge, beyond the basic annual software maintenance fee or the monthly base ASP fee, for unlimited support.  You don’t want your “partner” starting the meter every time you have a question and, make no mistake about it, this literally occurs in many software companies.

• Try to get a commitment for a level of annually recurring face-to-face time with the client service rep or manager - at no additional fee. Some firms will agree to this, some will not.  The response you receive will speak volumes.

• Tougher yet, try to get some recurring custom development (reports or system functionality) included within your annual support and maintenance agreement or ASP agreement.  Otherwise, what are you actually receiving for your annual 15% - 25% maintenance fee?

• Drill down on the provider's stated and proven R&D commitment.  R&D is often very misleading by being expressed as a total R&D commitment rather than the R&D for the specific product that you're interested in.  It does you little good to walk away thinking they're re-investing 15% of revenues back into system X when they're actually spreading that 15% across ten or more products and the legacy portfolio management system you're thinking of buying is getting only a 2% reinvestment each year for bug fixes and minimal regulatory updates.  The supplier will NOT volunteer this information - you are going to have to dig, and dig deep, to get the facts but get to them you must. 

• Understand the provider’s corporate structure.  Are they a public corporation or privately held?  If private, is the original owner/founder still a majority shareholder and in control of the company’s direction?  Is there venture capital or private equity involved in the ownership?  If so, what is their track record in working with other companies in the same or similar space?  What are their business drivers and incentives? 

Summary

It's a tough market out there and everyone's trying to get by with less. True enough, but don't let that fact put your project at risk.  Be informed and make your decisions with full knowledge by being aware of the hidden agendas I've addressed here.  Remember, too, that once you've signed the deal, the real work begins and you'll want a provider who acts as a true partner even when the going gets rough.