When explaining solution sales to people unfamiliar with complex deal structuring, I have found the attached model very useful. If a person only knows IT product sales, in the simplest situation they might negotiate on elements like price, warranty, installation costs and possibly third-party integration. In a solution sale, the product is one functional element within the entire deal, with the complete deal comprising positions on asset ownership, ITIL services for the product, penalties and alternative pricing structures such as utility or cloud.
The model below helps explain those dimensions, each being a continuum along which the provider can hold a position. It is a derivation of a model used within Cisco, which I contributed to.
For new business model generation
If you work for a company that is a traditional product reseller who perhaps also provides T&M professional services, and who wants growth, then the model may be helpful to appreciate the kinds of options you have. Providing a deliverable-based statement of work is an easy next step, based on widely-known project management and scoping principles. Alternatively, providing a managed service would bundle the sale of products and services with an SLA and a contract term. Further away still, the reseller could offer hosting on their own or a co-located premise along with remote monitoring.
All these variations can be seen by taking different positions on the deal dimensions.
For sales training
The most common use for this model, though, is as a model for its own sake. When delivering sales training, I have found this model helps explain how a team can stretch beyond existing business-as-usual boundaries and create innovative offers.
How this relates to cloud
Cloud is another commercial model, where the services are billed in a utility-fashion from a remote facility. The client buys a service, rather than a product or software licence. In a cloud service, the billing should be more granular than in a managed service, with lower minimum commitments on spend or volume.
Cloud offers really are an alternative commercial structure, which can map easily onto my model.
Important dimensions the model excludes
For the sake of brevity – simply so the model did not become overly detailed – I excluded a few points which experienced negotiators will notice. Depending on how you’ll use the model, you may want to add them or mention them verbally.
- people transfer, as may happen in an outsourcing arrangement when staff move from the client to the provider,
- process innovation, whether it remains a client responsibility or if the provider is contracted to proactively suggest them,
- price variation, such as a cost of living adjustment clause and foreign exchange risk. These are crucial and need to be included in a negotiation, but effect price squarely as opposed to the overall commercial construct, so I left them off the model,
- duration and minimums, a deal can be struck for years (like a managed service) or months (cloud), and there may be a need for minimum spend or volume for the provider to recoup its capex, or alternatively the provider could hope to recover their costs across multiple future clients, and
- service levels and accountability, SLAs can be not only be measured but also benchmarked. This is related to how risk can be transferred to the provider, going beyond regulated deliverables.