A Look Ahead for Professional Services Firms

How to ensure a strong new year
by Jeanne Urich and Dave Hofferberth, SPI Research

0111 1

Things are looking up.

SPI Research is in the final weeks of collecting data for its fourth-annual professional services (PS) maturity benchmark report. Each year, we analyze the professional services market and look at market trends while assessing overall market health. When we first created the benchmark in 2007, the professional services market was at the tail end of a long, prosperous growth cycle. The results from our first benchmark (published in 2008) reflected the strength of the overall market.

In the next two years, we saw the beginning of the global recession and a much tighter PS market, even though most PS organizations continued to grow. Profit margins were squeezed and staffing levels grew minimally.

Professional services executives of both embedded service providers (such as those within hardware and software suppliers), as well as independents realized they were no longer experiencing double-digit growth rates. The 2010 PS Maturity benchmark report published in January 2010 showed flat to negative growth for most PS organizations.

Now, as we wrap up the 2010 survey and compile the 2011 benchmark report, it’s becoming apparent that the PS market is once again gaining momentum. We’re seeing growth rates three to four times higher than just a year ago. And while most PS executives remain cautiously optimistic, they do predict better things to come over the next year. Many have begun hiring again.

Over half of the organizations we’ve surveyed are engaged in technology-driven initiatives. For over a decade, technology has been the main driver of economic growth, not only in the U.S., but around the world. Changes in the technology landscape, a plethora of mergers and acquisitions and the need to implement upgrades to enterprise hardware and software applications mandate that 2011 will be a good year for technology service providers.

Consider which services are hot, and which are not 

The recent market slowdown has propelled executives from every industry to reevaluate both their technology and their service-provider strategies. During this period, large corporations have continued to eliminate or outsource non-core business functions, preferring to focus on strategic areas that offer the greatest potential for differentiation and growth.

Now, they are looking for technologies and consultants who can lead them into the next phase of growth. These executives demand services and service providers that can demonstrate value for their organizations.

Currently, services offering the greatest impact to client organizations include:

  • SaaS. Momentum continues to build for cloud-based solutions, which presents new opportunities and challenges for service providers.
  • Business process outsourcing. Elimination of non-core business processes enabling the organization to focus on strategic revenue-generating initiatives while minimizing administrative and overhead costs.
  • Business optimization. Service providers that help corporations understand and develop “best practices” to streamline their businesses and eliminate redundancies, bottlenecks and workarounds.
  • Organizational transformation. A significant change including mergers and acquisitions and significant technology investments to prepare for future growth.
  • Managed services. Out-tasking desktop, IT support and technology hosting.
  • Reporting and analytics.Specialized service firms that can help corporations mine their huge data farms and provide unique insights and business intelligence.
  • Social networking. Small and large corporations are struggling with how to harness the Internet for marketing, recruiting and collaboration. iPhone developers are in short supply as are consultants who can help companies take advantage of Web 2.0 and beyond.

Client organizations will continue to acquire other services to help them survive a changing economy. Some services, including staff augmentation and straightforward technology implementation, will continue to be in demand but do not offer the long-term strategic value executives seek to support future growth.

Evaluate your portfolio 

Many PS executives have spent the past two years in survival mode, causing them to evaluate their organizational portfolio including their people, service offerings, clients and infrastructure (particularly technology-related). From an economic perspective, “Scarcity is the mother of invention.” Recession-caused austerity has been a powerful catalyst for eliminating “nice-to-haves” in favor of “must-haves.”

Surviving PS organizations have eliminated waste and are poised to start to grow again, but this time without unnecessary frills, costs, perks and systems of little value. It turns out client relationships, quality and integrity are the values that helped service organizations weather the storm. New investments must focus on providing better client visibility, service execution, quality and consistency.

The interrelationship between staff, services and clients has no simple starting point. Staff on-hand (like inventory) dictates the services offering, which translates into client problems that they can solve immediately.

However, during this time of growth evaluation, PS executives should determine if they have the right type of clients to help them move forward. If not, a change in the type of client dictates the type of service offerings, which dictates the type of professional employee needed.

It is doubtful that many organizations will make drastic changes to their portfolio in the short-term, but PS executives are very mindful that the market has changed, and they must be prepared to change as well.

At the core of today’s professional services firm is the technology infrastructure, which should support the organization’s people and core processes — all to manage capital and improve cash flow. Greater visibility into both current and longer-term activities enables the organization to improve utilization rates and become more profitable.

Coming out of the recession, every PS executive should ask whether he or she has the right information-based tools in place. Now is the time to address disconnected legacy applications, unreliable spreadsheets and endless phone calls in favor of applications that can boost productivity and improve quality and consistency.

Prepare for a happy new year 

The past few years have been difficult. The year 2011 should show improvement over the prior few years, but that doesn’t suggest reckless spending. Understanding which services your firm should offer, and to which clients, will help you with this transition.

Building a workforce ready to meet the needs of clients and prospects in the upcoming few years is always a good place to start. Replacing legacy applications and disconnected spreadsheets with cloud-based productivity systems is another good place to invest.