The services and software worlds are converging—here’s how to think about leadership and hiring at their intersection

There’s a major shift happening in the services and software industries: they are quickly converging with regard to offerings and leadership talent. We think of the trend as a sea change in these sectors, with large implications for whom and how to hire. 

A recent conversation highlights the convergence and what it means for you. We caught up with a C-level executive who has led classic consulting service lines and, more recently, a team building technology products for a major consulting firm. He described how his current (consulting) employer thought it would be “easy” to create a less people-dependent revenue stream by selling technology products directly to clients off the shelf. 

But they soon discovered the sweet spot, for them, was using technology to reduce the cost of delivery to clients, with benefits for client and consultancy alike. For example, applying a tech-based tool to a $1 million-plus risk assessment for a major bank saved the client 40% while increasing the margin significantly because fewer consultants were involved.

That story helps support our strong conviction that it no longer makes sense to think about services and software/technology separately. So it’s critical to know how to capture value at their intersection, largely by hiring the best possible leaders to drive value in this fast-changing landscape. 

In the next section, we go into more detail on why this convergence is happening, but in the big picture, services firms are pushing to disconnect revenue from headcount and hourly/daily rates by monetizing the intellectual property (industry knowledge, frameworks, etc.) they’ve worked hard to build and searching for sources of recurring revenue. Hence the push for productization.

Software firms, meanwhile, see provision of more servicing and advisory as a way to better customize their product offerings for customers and make the relationship longer-lasting and “stickier”—even if this expansion might dilute margins in the short term. As one executive mentioned, “Product firms have often sold multi-year enterprise contracts, but customers don’t understand how to maximize the value of the technology and get the people part right. So, software businesses want to help customers get better results from their products while building the relationship.”

In this article, we’ll consider the nature of this fast-moving convergence between domains, followed by its implications for leadership and hiring, including the types of leadership traits that facilitate the jump. Our perspective is informed by recent conversations with several seasoned executives who have held high-impact leadership roles for both products and services. They tell us the product-to-services and services-to-product transitions can be highly challenging, with many leaders feeling unprepared and even departing the new role within two years, due to a lack of perspective going in. 
We wrote this article to help bridge that gap and foster success.

Fast-moving convergence

Over the past five years, we’ve seen rapid convergence between products and services along two broad trend lines:

• Productization of services: Traditional services businesses are increasingly asked by clients about how to productize/enable business. That means there’s opportunity for services firms to pursue two promising paths: (1) offering leave-behind, high-margin, recurring-revenue items, like digital tools for specific industries or areas (like we ourselves do through the leadership evaluation and other tools Heidrick Digital offers), or a way to monetize intellectual property, as noted in the introduction; (2) using technology to improve the cost and margin of services delivery, as in our opening example, to benefit both clients and consulting firms. Consultancies and other services-focused businesses of all stripes are working hard to understand the most strategic way to play in this space, including how to leverage cutting-edge AI-based technologies like ChatGPT as these same innovations encroach into some consulting domains. 
• Expansion of technology into services: On the software side, we’ve observed that Google, Salesforce, Microsoft, and others are expanding their platforms beyond individual products and suites to offer more advisory services to complement or even go beyond technology-based offerings, as part of a move to ensure customers get the most out of their offerings while cementing the relationship, as noted earlier. So they are recruiting and developing services talent to embed in their go-to-market strategies and effectively wrap advisory around products to drive larger, longer-term value. 

To get at the implications of the services-software convergence, it helps to step back and look at how businesses in each area think about key topics, illuminating potential opportunities and points of conflict.

The table below highlights some of the most important topics to consider, and each area’s perspective. 

Making the transition work

The table above suggests several considerations when moving between services and products, in either direction. Here are the key challenges and success factors for each transition.

From services to product

As the table notes, one of the largest tension points for either type of transition can be culture and mindset. For example, consultants hired into traditional software firms won’t necessarily move and make decisions at “software speed,” but will come in with best-in-class advisory skills and the ability to take a longer-term, more relationship-focused view than those in a traditional software firm might. Finding leaders who can retain those strengths while adapting to the need for speed and performance under pressure is thus critical—as is giving those making the transition some time to find their footing. 

In addition, consultants moving into software and other product-focused businesses must have capabilities or potential for building and operating a science-backed sales machine with a sales funnel and scalable, agile, forecast-driven operations—even if they don’t yet have hands-on experience with such. They will be dealing with a larger breadth of customer base with a different type of P&L and much shorter sales cycle—not months, but weeks or even days—than in their previous domain, and must learn quickly to succeed as hyper-scalers, with less focus on one-off, customized solutions. Put simply, those lacking hustle are unlikely to make it work well, but hiring businesses can help by embedding new leaders into deal flows early to get the hang of it.

On the dimensions of advancement and compensation, a consulting leader moving into this space will have to be accepting of the more ad hoc nature of movement and rewards.

From product to services

We understand the growing motivation to hire product specialists into services firms today. Building software offerings in a services firm is attractive largely because of the passive, recurring revenue they can generate; but it’s a tough business that requires significant investment upfront, and services businesses accustomed to immediate profits will have to take a longer-term view when seeking to move into productized offerings. 

Effective leaders moving from product to services, moreover, must recognize that product-based offerings could cannibalize existing services businesses—fewer hours to deliver the same results, for example—and so they must be able to work with fellow leaders to stand up new businesses strategically to evolve the revenue model without diminishing overall firm performance. Similarly, a leader moving from product to service will have to transition to thinking in terms of more specific, customized solutions that might still be scalable and/or generate recurring revenue.

Even language represents a key, and often overlooked challenge. Some former product leaders, for example, continue to refer to those purchasing services as “customers,” when they are considered “clients” by consultants. It’s a simple but critical distinction that connotes a different approach and relationship and one that a new leader from outside consulting will have to take to heart to succeed. 

Similarly, when it comes to advancement and compensation, consulting firms will have to take a thoughtful approach to bringing in a new leader from software, where movement and rewards are more linear, as noted above. The new executives may not fit neatly into the partner-track system, especially if they retain an individual-contributor mentality from the product space. Ensuring they have roles and decision-making authority on par with those of other partners will help them feel empowered and valued, as will creating robust career paths for non-consultants brought in to lead internal engineering or product development.

As these tips suggest, there’s simply no easy, one-size-fits-all answer to movement in either direction, as one executive who’d made the transition told us; so it will involve looking at the new hire’s potential and expectations and crafting something mutually acceptable and motivating, given what they’ve been brought in to achieve. Start by discerning whether candidates recognize fundamental differences between the product and services spaces and have thought about how they will operate differently—and successfully—in a domain that might be new for them.

Times are changing in software and services as these two areas converge around new ways to create value. Indeed, we believe this isn’t just a time-limited trend but a permanent shift in these industries and their leadership and talent dynamics. We hope the ideas here illuminate key implications for leaders transitioning from one domain to another and for the businesses seeking to hire and benefit from them. 

A thoughtful, informed approach to these transitions will increase the odds of success dramatically for all involved. In a future article, we may explore how best to position and support a recently transitioned leader to make the most of their new role.