How to be the “best” instead of the “rest”
by Jeanne Urich and Dave Hofferberth of SPI Research
In the 2009 professional services maturity model benchmark, out of 170 participating organizations, seven firms significantly outperformed the benchmark average by scoring 4’s and 5’s (on a scale of 1 to 5 with 5 being the most mature) in most service performance pillar dimensions.
We interviewed the top seven (we call “Best of the Best”) firms to discover their best practices and reasons for their superlative performance. Although each firm has a different business model and operates in different industries, we discovered fascinating similarities in several key areas:
- PS maturity excellence starts with leadership – The leaders of the top seven firms had significant prior experience creating and running PS organizations. Many of them started as consultants with the Big 5 or within PS for large technology companies. Based on years of experience, they bring to their current leadership role deep business process and consulting domain knowledge. A clear differentiator between the “best” and the “rest” organizations is that professional services has a seat at the executive table. PS is an integral part of the company’s strategy, regardless whether the PS organization is embedded within a product company or run as an independent service business. For the embedded PS organizations, the PS executive has moved into a quasi-COO role and takes on additional responsibilities for support, engineering or alliances.
- Finance and operations – Each of the top seven organizations have made investments in integrated front and back-office applications. They all have a dedicated professional service automation (PSA) application integrated with their core financial systems for time, expense and billing. The majority of the top seven are independent systems integrators that depend on PS revenue and margin. Integrated PSA with their core financial applications provides the lifeblood accounting and control for their business.
- Human capital alignment – The top firms reported very low attrition, despite the fact their employees average over 1,400 billable hours (and higher) per year. They focus on hiring “A” players and pay significantly more in base and leveraged compensation than the benchmark average.Because of their staff quality, they are able to command higher bill rates, resulting in much higher revenue and margin per consultant. Leveraged compensation provides consultants with a vested economic incentive for their own revenue generation and up-selling. Most of the firms provide at least one week of training and skill development every year.
- Service execution – The leading firms invest in methods and tools. They have made a significant investment in a consistent, published methodology. Many of them provide published best practices, tools and templates for both their consultants and clients. They have a constant focus on quality service execution and delivering projects on-time and on-budget, and follow-up each engagement with a satisfaction survey. They use their back-office and PSA systems to help reinforce service execution consistency.
- CRM – The most dramatic difference between the “best” and the “rest” is the focus on a dedicated solution-selling force. The top firms reinvest almost 20 percent of their service revenue in sales and marketing. The embedded service organizations use the product for lead generation, and invest in dedicated PS business development experts, and arm them with effective estimating and contract tools. The significant investment in sales and marketing pays off with an almost 40 percent better bid-to-win ratio (7.43 wins per 10 bids) compared to the average.
Characteristics of the top seven service organizations
The following table shows how the top seven organizations perform compared to the benchmark average. Top-performing firms excel in all key performance areas. Alignment around the service organization mission and charter translates into sales and marketing investments to properly position the firm to capture business.
Combining solution sales with a high-quality motivated consulting delivery staff ensures high bill rates, high utilization and high levels of client satisfaction, which lead to references and repeat sales. The best firms create a virtuous circle of alignment to outdistance their rivals.
Table 1: Leading Firms Perform Exceptionally
Source: Service Performance Insight, September, 2009
Does professional service maturity matter?
The original concept behind the PS maturity model was to investigate whether increasing levels of standardization in operating processes and management controls improves financial performance.
The PS Maturity Benchmark 2009 results, based on in-depth surveys of 170 service organizations, demonstrate that increasing levels of business process maturity result in significant performance improvements!
In fact, we have found that high levels of performance have far more to do with leadership focus, organizational alignment and effective business processes and disciplined execution than “time in grade.”
Relatively young and fast-growing organizations can demonstrate surprisingly high levels of maturity and performance excellence if they have a clear charter. Furthermore, their goals and measurements also align with their mission, and they make the investments they need in systems to provide visibility and appropriate levels of business control. Of course, it certainly helps if they are also well-positioned within a fast-growing market.
As Table 2 shows, the payoff from investing in a program to assess current maturity and prioritize maturity improvements can be substantial. Based on the 2009 PS maturity benchmark of 170 service organizations, 66 percent performed at maturity levels 1 and 2, 16 percent at level 3 and 18 percent performed at maturity levels 4 and 5. The 30 level 4 and 5 organizations significantly outperformed their peers by generating almost double the net contribution margin and $82K more revenue per billable consultant.
Table 2: Maturity Matters
Source: Service Performance Insight, September, 2009
How do firms reach level 5 performance?
If you don’t know where you are going, any road will get you there. To reach level 5 performance and measure their relative performance compared to the benchmark, PS executives must first understand their current base level of maturity by analyzing key performance indicators within each pillar.
An objective assessment of the organization’s strengths and weaknesses helps build alignment and a shared view of the priority improvement areas. Our belief is organizations will be most successful if they build a strategic annual business plan with focus on a limited set of core improvement initiatives — ideally no more than three major initiatives. The key to long-term superlative performance is to ensure the PSO owns, supports, communicates and measures the business plan and core improvement initiatives.
Gaining a competitive edge
Organizations fortunate enough to reach these levels have a competitive advantage in the marketplace that helps them weather the economy when times are difficult, as well as excel more rapidly when times are good. PS executives who embark on initiatives to reach level 5 will reap significant benefits.
The devil is in the details, and executives should seriously consider developing teams that can quickly assess the organizational maturity in each pillar, and develop specific plans to address improvement. The journey will not be easy, but in the end, it will better position the organization to compete and thrive.