How Does Your Service Organization Compare?

By Dave Hofferberth

Find out the latest trends in the professional services industry

figure-1SPI Research just completed the 2016 Professional Services Maturity Benchmark. This report is based on a survey of the professional services industry. More than 500 firms from around the world participated, representing virtually every PS vertical except legal. This year’s survey provides significant insight into the current state of the professional services market and gives a glimpse of what to expect in the upcoming year.

Market dynamics

In 2015, the professional services market was under pressure due to global economic conditions and the difficulties in finding and retaining talent. These factors led to modest growth, slightly higher than in 2014. Perhaps growth could have been higher, but the year proved to be a little more difficult in terms of finding and adding headcount — professional services’ most critical asset.

Because the professional service market tends to grow at least 10 percent annually, employee attrition, either voluntary or involuntary, is a critical factor in terms of growing revenue. In this year’s benchmark, SPI Research decided to divide attrition between voluntary and involuntary. The sum of these two was nearly 13 percent.

Survey results

2016psmb_cover
http://www.spiresearch.com/spi-research/reports/2016psmb.html

The organizations in the latest benchmark are more than twice the size they have been in the past five years. Professional services organizations have an average of 637 employees and approximately $81 million in annual PS revenue. These numbers are significant in helping analyze and compare the largest PSOs with those in the mid- and boutique-markets.

Interesting trends in sales and marketing processes have popped up. One is a downward trend in terms of winning new business. In 2015, firms won fewer than 50 percent of the bids they submitted. The time, expense and focus required to market and sell require organizations to improve this percentage to a minimum of 60 percent.

Likewise, because of the issues associated with sales, the deal pipeline — as related to the quarterly bookings forecast — was at its lowest level (172 percent) since the first year of the survey. This issue is worrisome as it may force professional services organizations to discount more in order to build the pipeline to an acceptable level of at least 200 percent. This isn’t acceptable as discounting negatively affects project margins, which lowers bottom-line profitability.

Service on-time delivery fell in 2015 compared to 2014 — 76.1 percent and 78.3 percent respectively — and the cancellation rate of projects rose significantly to 2.6 percent. In professional services, this figure is critical as it disrupts the organization. The average project overrun also increased to 10 percent, which is the highest in five years.

Much of these lower results could be attributed to a slight reduction in the use of standardized delivery methodologies. A standardized delivery methodology enables PSOs to more efficiently deliver services on time and on budget, and at a higher level of quality and client satisfaction. All of these factors have a strong correlation with revenue growth and profitability.

Many of the financial metrics are under pressure this year. However, the most important metric, profitability, showed a 17 percent relative increase from last year’s benchmark. SPI Research believes that this increase in profitability will yield greater results for professional services organizations in upcoming years as profit is the fuel for growth. This increase will allow them to invest more heavily in their workforce and global expansion.

Looking forward

The beginning of 2016 has been difficult for the economy, which puts pressure on professional services organizations to streamline operations and cut costs. While there are always performance demands in PSOs, an uncertain economy will make these demands more difficult.

The elections in the U.S., still the world’s largest economy, add to this uncertainty. Clearly, there’s frustration with government spending, but the winner of the 2016 elections will have an impact on the future of the economy on a global basis.

Despite the rough start of 2016, the professional services market remains upbeat. The demand for professional services continues to rise. And employees, whose salaries and bill rates have risen, will be excited about the challenges they face this year.

New technologies continue to transform the professional services market. Nowhere is this more evident than in the social, mobile, analytics and collaboration, or SMAC, space. These solutions, many of which are embedded in core business suites such as enterprise resource planning (ERP), client relationship management (CRM), professional services automation (PSA) and human capital management (HCM), are becoming increasingly critical to the success and growth in professional services.

Professional services is an employee-driven market. Providing employees with the best tools improves their ability to perform at a high level.

For more insights

PSOs that use the 2016 Professional Services Maturity Benchmark will see how they’re performing in comparison to their competitors. It can also guide them in their transformation and growth initiatives.

We wish everyone the best of luck for a successful and profitable 2016.