Revenue and Jobs Soar for 2017 Best-of-the-Best Professional Services Organizations

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SPI Research, the leading independent technology services research firm, today named the 2017 Best-of-the-Best professional services organizations (PSO). SPI’s extensive annual survey, the PS Maturity™ Benchmark, revealed top performers grew both revenues and new jobs at more than twice the rate of average firms.  The Best-of-the-Best augmented their consulting workforces by 16.9% compared to 5.9% headcount growth for average firms.

This past year, the top 21 firms out of 416 organizations who participated in the survey, outperformed their peers and the benchmark average with not only significantly higher profits, but also larger projects and more satisfied clients.

The Best-of-the-Best excel across five critical service performance dimensions: leadership, client relationships, human capital alignment, service execution, and finance and operations. The Best-of-the-Best recognition is significant because it measures PSOs not only on bottom line financial results such as profit margins but also on a breadth of leadership metrics to reveal exceptional, holistic performance.

For the past eight years, SPI Research has conducted in-depth analyses of the top five percent of PS Maturity™ benchmark participants to uncover the reasons for their superlative performance. Top performers tend to be more specialized than average firms. They concentrate on high-growth segments (Cloud, Security, Talent and IT) or vertical industries like healthcare where they are often the market leader. Because of their sterling reputations, a significant portion of their business comes through referrals.

Best-of-the Best Comparison to Average Consulting firms:BoB2017TableThe top performers revealed in SPI’s 2017 benchmark study are:  

Fruition Partners, a CSC company, is a global technology-enabled services firm focused on elevating service management to the cloud.

Neueda is a global IT consultancy, training and software development company with specific industry focus on Public Sector, Utilities and Capital Markets.

SaaSfocus Inc. is a customer-centric, high-tech, cloud services consulting company focused on aiding and consulting businesses in their pursuit of cloud and other emerging technology solutions.

CirrusOne specializes in the delivery of complex CPQ, CLM, billing and customer success solutions.

Mason Advisory is a UK-based IT consulting firm that works with clients to solve complex business challenges through the intelligent use of IT.

Centrify secures identities across hybrid, cloud, mobile and on-premises IT environments.

Stoneridge Software draws on years of experience in the Microsoft Dynamics space to provide complex ERP implementation and support.

e4 Services, LLC is a healthcare information technology consulting firm specializing in clinical, hospital information management and revenue cycle services.

Superior Controls, Inc. reliably delivers automation and control systems integration services.

LDS  is a consulting firm that envisions and designs digital solutions for global organizations.

Advoco is a leading Enterprise Asset Management (EAM) consulting services company, focused on Infor EAM solutions.

Collaborative Solutions is a leading global Finance and HR transformation consultancy that leverages world-class cloud solutions.

Pariveda Solutions, Inc. is a leading management consulting firm specializing in performance improvement.

Aspect’s contact center, self-service and workforce solutions work together to deliver better outcomes for those on either side of the conversation.

Jacobus Consulting is a leading healthcare consulting firm focused on improving patient care and quality, system and workflow operations, and financial performance.

Integrated Project Management Company, Inc. (IPM) is a leading project management consulting firm, planning and implementing strategic and critical projects.

AHEAD is a consulting company that helps enterprises transform how and where they run applications and infrastructure.

Box is transforming the way people and organizations work so they can achieve their greatest ambitions.

The annual benchmark from SPI Research draws on a database of over 2,482 PS organizations to provide in-depth analysis of PS metrics and performance. For the 2017 report, 416 companies representing more than 200,000 consultants provided input. The complete 2017 PS Maturity™ Benchmark report is now available for purchase.

Service Performance Insight (SPI) is a global research, consulting and training organization dedicated to helping professional service organizations (PSOs) make quantum improvements in productivity and profit. In 2007, SPI developed the PS Maturity Model™ as a strategic planning and management framework. It is now the industry-leading performance improvement tool used by over 15,000 service and project-oriented organizations to chart their course to service excellence.

Contacts

SPI Research
Jeanne Urich, 650-342-4690
jeanne.urich@spiresearch.com
www.spiresearch.com

2017 PS Maturity Benchmark: Turbulence Hits Technology Professional Services

According to SPI Research, the leading cover2017psmbindependent technology services research firm, the 10th annual Professional Services Maturity™ Benchmark revealed revenue and headcount growth dipped to new seven-year lows, while employee attrition reached a ten-year high. Europe reported improvement while the Americas and Asia-Pacific experienced a decline.  PS industry headcount growth (6.5%) slowed to the lowest level in 7 years while consulting workforce attrition rose to a new high of 13.5%.

The 416 PS organizations represented in this benchmark employ over 200,000 consultants who each produced, on average, $205,000 in annual revenue.  Collectively, these firms generated over $35 billion in PS revenue.

Despite lower revenue growth and profits, many leading indicators improved in 2016. Revenue per consultant, project backlog, the size of the sales pipeline and the number of projects delivered on-time all made positive gains. In the face of turbulence, the overall fundamentals of the Professional Services industry remain strong with PSOs making tremendous strides in improving productivity.  Today far less time and cost are spent on administration and travel as PS-specific business applications have enhanced productivity and virtual consulting delivery has reduced the burden and cost of travel.

Using information that is typically confidential, such as detailed income statements, the 229-page report analyzes 200 key performance metrics and includes 251 supporting charts and graphs. The report contains income statements and expense ratios for fourteen professional service (PS) vertical markets —  including accounting, advertising, engineering, networking, IT consulting, managed services, management consulting, research, software, SaaS, and Value-added resellers. Profiles and success tips from this year’s Best-of-the-Best firms deliver fresh insights.

The tenth annual benchmark from Service Performance Insight draws on a database of 2,482 PS organizations to provide an in-depth analysis of PS metrics and performance. Purchase the report here for $1,295.

About Service Performance Insight

Service Performance Insight is a global research, consulting and training company dedicated to helping professional service organizations make quantum improvements in productivity and profit. In 2007, SPI developed the PS Maturity Model™ as a strategic planning and management framework which has become the industry-leading performance improvement tool used by over 15,000 service and project-oriented organizations to chart their course to services excellence.
Contact:
Jeanne Urich
650.342.4690
jeanne.urich@spiresearch.com

Project-driven services have become both mandatory and a core differentiator in the marketplace

By David Hofferberth, Managing Director Service Performance Insight, LLC

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Introduction

SPI Research has seen a strong trend toward making virtually all work, project-based work.  Companies in every industry have turned their focus toward projects.  A project focus makes sense as organizations plan work with a beginning, an end, and all the steps in between.  The key element of projects is that there are costs and time associated with every phase or task, and there should also be value delivered.  Every dollar spent on an initiative should be tracked to determine whether it was worth the investment.

Projects are easier to qualify and quantify and executives like that

A project-based business environment makes perfect sense to executives. Projects begin neat and orderly, with specific start and stop dates, projected costs and expected value. Leading organizations have also incorporated a structured delivery methodology into their project-based work in order to track everything related to it more closely. This environment helps companies better project a return-on-investment (ROI), which in today’s economy has become essential.

But very few projects go exactly according to plan, as unforeseen circumstances, or changes by the customer impact the project or service to be delivered.  Those organizations that have taken a project-based approach to work can more easily change the scope of what is to be delivered, as well as its cost and expected change in duration. Again, this gives executives greater control over the work being delivered, ensuring the project provides value to both the organization delivering it and its customer.

Better tools are now available for customer and client facing organizations

Project management solutions have been around for a long time. They were initially developed and used in large scale internal projects such as IT, construction, or new programs. With the advent of the Professional Services Automation (PSA) market, project management gained in popularity for client facing, billable organizations.  PSA is best known as a resource management and time and expense management solution, where the goal is to deliver projects at sufficient margin on-time and on-budget and to keep worker time and costs under control.

Typically, PSA solutions did not have the robust project management capabilities of a solution like Microsoft Project, and eventually, many PSA and project management solutions morphed into a supercharged project management solution, called project portfolio management (PPM).  PPM includes additional capabilities that provide visibility to a portfolio of projects including their time and cost commitments and especially their strategic value to the organization so they can be prioritized.  These solutions give organizations greater project visibility and greater project structure through the use of standardized (or structured) delivery methodologies.  Therefore, many PSA solutions are integrated with Microsoft Project when projects become more complex.

Perhaps the most important aspect of these tools is that they provide demonstrable return on investment to the organizations using them. In 20 years of researching the market for tools that improve operational efficiency and effectiveness, solutions in the project management space have more than paid for themselves.  PSA’s benefits have been demonstrated for some time, especially in larger project-based organizations.  SPI Research found that larger organizations increased billable utilization from 71% to over 75% with PSA, meaning roughly 80 additional billable hours annually per consultant.  Even more important, PSA helped increase profitability per consultant by over 200%, from$7,575 to $24,018!

This benefit does not include many others such as increased customer satisfaction as projects are completed more frequently on-time and on-budget, more satisfied employees, as they better understand what is required of them and the value they must deliver, and greater financial governance, tracking all costs associated with project delivery and comparing them to the revenue generated.

Now, new Project Service Automation (PSA) solutions are coming to market specifically designed to help client-facing organizations in all industries focus on completing project-based work.  The functionality of Project Service Automation, does not differ significantly from Professional Services Automation but is built on top of Customer/Client Relationship Management (CRM) solutions to optimize the activities of client-facing organizations such as sales and project/service delivery.

Conclusions

While the global economy is not where most would like it to be, it has “heated up” enough that voluntary employee attrition is on the rise, which negatively impacts profit because it is more expensive to recruit, hire and train employees.  This operating environment calls for greater structure, enabling individuals and teams to better work together, utilizing consistent methodologies in the project-related work they conduct.

This is especially true in the manufacturing sector, where companies have become more dependent on services as a key differentiator.  These product-centric organizations now rely on services as a profit center because manufacturing has become commoditized so customers look for better support to improve the value of their purchase.  It is also very relevant in other industries, such as accounting, Architecture, Engineering and Construction, Advertising and more, as the need to deliver high quality services on-time and on-budget become even more critical in a very competitive global environment.

Taking a project-based approach to work provides executives, employees, customers and clients with greater visibility into work conducted, its cost, revenue, and ultimately value delivered. In an age where more executives demand to see quantifiable value in the work they pay for, companies that take a project-based approach to work have a leg up on the competition.

This just in, “Everything-as-a-Service”

By David Hofferberth, Managing Director Service Performance Insight, LLC

blue-cloud-services
The global economy has been on a wild ride over the past couple years. Uncertainty in all regions, heightened by Britain’s Brexit vote and elections in the United States (the world’s largest economy), show the next few years will be anything but normal. It is during these times of economic uncertainty that organizations in every market must focus on operating at peak levels of efficiency while providing high-quality products and services their customers demand.  Most companies have moved different aspects of their business to the cloud, as it offers greater collaboration, visibility and efficiency, along with lower operational costs.

The cloud was just the beginning

One of the major benefits of cloud-based computing is that everything has become a service. There is software-as-a-service (SaaS), platform-as-a-service (PaaS), infrastructure-as-a-service (IaaS), and others. The fact is, everything has become a service, and organizations have been able to take advantage of this new operational paradigm, not only to save money, but also to drive greater efficiency and better collaboration around the world.  Independent software vendors (ISVs) can develop and run one solution ensuring every organization has the latest version and access from anywhere, anytime.

Everything-as-a-Service (EaaS) enables people and devices to better communicate and therefore keep better informed in terms of changes and challenges in the market. The Internet of things (IoT) is for real. The goal is to provide greater visibility and flexibility, as well as communicating situational change in real-time, so that prescriptive action can be taken.  This paradigm shift impacts everything, from a refrigerator that communicates to the service provider that there are problems with the condenser, to a professional services executive who finds out a major project is about to go over-budget.

Companies in every market look to consolidate their application infrastructure

Years ago most companies built large, costly information technology departments.  It was really their only choice in order to leverage information for competitive advantage. Over the past decade many of these organizations have worked to consolidate the number of applications they use, preferring to run their operations on a single platform.  Obviously, choices narrow as organizations work on “one throat to choke”, meaning the SaaS provider manages the complete customer experience, from deployment through implementation, support and any potential upgrades.  And the benefits are obvious – single platform solutions offer greater integration, which ultimately lowers cost, improves visibility across the organization, and makes employees more productive. Having all of this run in the cloud further lowers cost and provides a safer, more secure infrastructure for an increasingly virtual workforce.   Utilizing a “one-stop-service” provider also includes customer support (self-serve and assisted), field service (break-fix with proactive IoT), project service (for multi-day engagements) and other services, which further reduce time, cost and hassle to the organization.

Conclusions – Let your solution provider partner take care of your technical issues

The movement to an Everything-as-a-Service economy will enable companies to better focus on the products and services they work to develop, deliver and support. The technology infrastructure, and the partner providing it, are critical in any company’s efforts to improve their competitive position.  The need to increase efficiency as well as innovation, communication and collaboration will only succeed through the introduction of information technology, focused on the services sector.

Defining the Professional Services Market

By Jeanne Urich

Insights into the Professional Services Market

2016psmb_coverBased on 10 years of benchmarking the professional services industry, one of the top questions we are asked is how we define the professional services market and the demographics of the thousands of PS organizations that have participated in our research. Although the only company names we reveal each year are the best-of-the-best PS organizations, we want to share some interesting demographic information to show the impressive growth of the professional services market.

Professional Services Highlights in 2016

Based on input from 549 PS firms from around the world, year over year, PS revenue growth has exceeded 10 percent for the fifth year in a row. Strong job growth, with year-over-year headcount expanding by 7.8 percent, proves the vitality of the PS segment. The PS organizations in the 2016 PS Maturity™ benchmark employ more than 350,000 consultants who each produce an average of $198k in annual revenue. Collectively, these firms generated more than $69 billion in PS revenue. What’s more, these firms reported strong earnings growth, with average net profit moving up from 13.2 percent in 2014 to 15.5 percent in 2015.

On the horizon, PS headwinds appear to be picking up momentum. Major leading indicators such as the size of the sales pipeline, bid-to-win ratios and backlog all fell sharply in 2015. At the same time, voluntary and involuntary attrition has risen to the highest level since the recession. And as we have seen for the past nine years, the gap between the best-performing and worst-performing PSOs continues to widen. This year, the 300 (55 percent) lowest-performing firms generated merely 2.1 percent in net profit while the top 100 (20 percent) generated 23.5 percent in net profit.

Professional services industry by the numbers

We use the North American Industry Classification System (NAICS) to analyze the services market as Table 1 shows. The primary professional services designation is NAICS 54xx which defines PS sub-verticals as “Those in this subsector engage in business processes where human capital is the major input. These establishments provide the knowledge and skills of their employees, often on an assignment basis, where an individual or team is responsible for the delivery of high-value services to the client. The individual industries of this subsector are defined on the basis of the particular expertise, training and credentials of the services provider.”

Table 1: Vertical PS Markets — the North American Industry Classification System
table-1

Source: U.S. Census and Service Performance Insight, May 2016

Additional industry segments that generate substantial professional services revenue include software (NAICS 5112), data services (NAICS 5182) and employment services (NAICS 5613). Including these segments, the U.S. professional services industry generated approximately $2 trillion in revenue and employed 12.5 million U.S.-based workers. The U.S. market represents roughly 60 percent of global professional services revenue, which leads to a global revenue estimate of $3.4 trillion and provides employment for 20.8 million professional service workers. These figures exclude revenues and PS employees in telecommunications, financial services and healthcare services.

According to the 2015 U.S. Census, professional, scientific and technical services (NAICS 54xx) revenue was $1.56 trillion, up 4.7 percent from 2014. Across the services industries, the fastest-growing segments in 2015 were employment services (recruiting and staffing), management consulting and accounting. Two segments experienced market contraction from 2014 to 2015. These were specialized design services and architectural, engineering and related services.

Within professional services, the fastest-growing and most-vibrant segment is software and IT services. There are more than 100k software and IT services companies in the U.S., and more than 99 percent are small and medium-sized firms with fewer than 500 employees. This total includes software publishers, suppliers of custom computer programming services, computer systems design firms and facilities management companies. This segment of the PS industry draws on a highly educated and skilled U.S.-based workforce of nearly 2 million people.

Many of the concepts and uses of professional services described in this report also exist within product-driven organizations. As a result, we use the term “services-driven organization” or embedded service organization (ESO) to describe the rapidly expanding market for service organizations within product companies.

PS maturity benchmark vertical market demographics

The 2016 PS Maturity™ Benchmark is a comprehensive global study of the professional services industry based on 549 participating organizations representing more than 350k consultants.

Figure 1: Professional Service Vertical Market Distribution of the 2016 PS Maturity™ Benchmark Participants
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Source: Service Performance Insight, May 2016

Tables 2 and 3 further analyze the survey demographics by vertical market, highlighting the surveyed markets. According to this year’s survey, VARs experienced the greatest year-over-year PS revenue growth, closely followed by software as a service, or SaaS, PS organizations and IT consultancies. Overall, PS revenue grew 10.2 percent, slightly higher than last year’s 10 percent.

Based on completed surveys from 2,066 PS organizations over the past nine years, PS revenue growth for the past five years has averaged 10.9 percent. Over the same five-year period, these firms have increased PS headcount by 8.3 percent. Across the PS industry, annual revenue growth is always higher than PS headcount growth. This means firms become more productive as they scale up while the overall PS industry continues to ratchet up productivity.

Table 2: 2016 PS Maturity™ Benchmark Demographics by Vertical Market
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Source: Service Performance Insight, May 2016

Hardware and networking represented the largest organizations, with a PS headcount of 1,469. Accounting firms reported the smallest average PS headcount at 152 accountants, with PS revenues averaging $24 million. Architectural and engineering firms reported the highest percentage of total revenue from PS at 90.8 percent. For other PS firms and VARs, professional services are a small component of their business. They reported the lowest percentage of total revenue.

SaaS organizations experienced the most mergers and acquisitions while staffing firms experienced the least. According to Equiteq, the consulting market experienced a strong uptick in merger and acquisition activity, with overall deal volume increasing by 13 percent from 2013 to 2014. Thirty-five percent of the more than 2,000 consulting acquisitions reported were under $5 million, and 70 percent were under $40 million. The vast majority of consulting firms are small, with revenues below $100 million.

Table 2: 2016 PS Maturity Benchmark Demographics by Vertical Market Continued
table-3

Source: Service Performance Insight, May 2016

What it takes to be a top PS firm

Going forward, leading-edge firms must continually reinvent themselves. They must always on the prowl for the next big thing while delivering exceptional projects to ensure a rich stream of repeat and referral business. Firms cannot stand still. They must continually stay ahead of the markets they serve while intentionally harvesting and repurposing current consulting assets to be able to deliver future projects better, faster — and, if need be, cheaper.

Get more information about the 2016 PS Maturity Benchmark and purchase it.

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

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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.

Professional Services Maturity™ Benchmark Reveals Stormy Seas Ahead

Find out the latest trends in the professional services industry

2016PSMB_CoverAccording to SPI Research, the leading independent technology services research firm, professional services organizations (PSOs) achieved strong growth in revenue and profits in 2015. The 2016 Professional Services Maturity™ Benchmark revealed industry revenue growth of more than 10 percent for the fifth consecutive year. However, most leading indicators — such as the size of the sales pipeline and backlog — portend stormy seas ahead.

In 2015, PS segment vitality was evidenced by strong job growth, with year-over-year headcount expanding by 7.8%. The 549 PS organizations represented in this benchmark employed over 350,000 consultants who each produced, on average, $198,000 in annual revenue. Collectively, these firms generated over $69 billion in PS revenue. Even better, these firms reported strong earnings, with average net profit of 15.5% in 2015, up from 13.2% in 2014.

On the horizon, PS headwinds signal trouble ahead. Major leading indicators — such as the size of the sales pipeline, win-to-bid ratios and backlog — were all down sharply in 2015. At the same time, voluntary and involuntary attrition rose to 12.9%, the highest level since the recession. The gap between the best performing and worst performing PSOs continued to widen. This past year, the 300 (55%) lowest-performing firms generated merely 2.1% in net profit while the top 100 (20%) generated 23.5% in net profit.

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 revenue growth. In this year’s survey, SPI Research analyzed both voluntary and involuntary attrition. Attrition rose to 12.9% and is bound to continue to increase with consulting demand outstripping the talent supply.

Survey results
The 549 professional services organizations who participated in the benchmark, averaged 637 employees with 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 have popped up. One is a downward trend in terms of winning new business. Firms won fewer than 50 percent of the bids they submitted. The time, expense and focus required to market and sell requires organizations to improve this percentage to a minimum of 60 percent.
Likewise, because of the issues associated with sales, the sales deal pipeline — as related to the quarterly bookings forecast — was at its lowest level at 172 percent. This is the lowest level we have seen over the past nine years of benchmarking. 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 of forecast. If the deal pipeline remains at these anemic levels, firms will be forced to curtail hiring and may even have to consider staff reductions.

On-time service delivery fell in 2015 compared to 2014 — 76.1 percent and 78.3 percent respectively — and the project cancellation rate rose significantly to 2.6 percent. In professional services, any project cancelled, for whatever reason, disrupts the organization. The average project overrun also increased to 10 percent, which is the highest in five years.

Poor service execution results could be attributed to a slight reduction in the use of standardized delivery methodologies. A standardized delivery methodology serves as a blueprint which enables PSOs to more efficiently deliver services on time and on budget. Standardized delivery methods typically result in better project 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 increase relative to last year’s benchmark. Average net profit improved from 13.2% to 15.5% primarily due to reduced overhead and administration costs.

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 them more difficult.

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

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 (SMAC). 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 the best tools that offer the best insight to employees 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 on their transformation and growth initiatives.
We wish everyone the best of luck for a successful and profitable 2016.

Service Delivery Excellence

By Dave Hofferberth

5 KPIs that matter most

picture-1This is the second article in a two-part series on performance improvement in the delivery of services, based on measuring and monitoring five critical key performance indicators. Part one provided insight into why professional services organizations should specifically focus on five performance indicators in order to improve service delivery performance. This article digs more deeply into the KPIs and the value of improving each one.

KPI 1. Project duration
The average project duration in months depicts the effectiveness, or lack thereof, of selling longer-term projects. The average project duration is important in that it shows the average length and scale of today’s projects. Although easier to staff, longer projects are not necessarily more profitable because longer and larger projects may involve significantly more risk and complexity. However, extended projects with large project staffs can yield significant revenue and stability to the organization because there is less consultant churn from project to project.
table-1
Table 1 shows the majority of projects take between one and nine months. Clearly, revenue per project increases as project duration increases; billable utilization also rises as the duration increases. But what is perhaps most important about this table is that organizations with the largest projects tend to grow at a much higher rate than those organizations focused on very small projects.

KPI 2. Standardized delivery methodology
Consistency of service delivery is imperative in order to improve quality and instantiate best practices. While not all work can follow a standardized or structured service delivery methodology, the higher the percentage, the better the firm typically operates.
Mature firms invest significant time and attention to methodology development as a means of standardizing project processes, defining expectations and institutionalizing quality. Using a standardized delivery methodology is a critical component of a services productization strategy. It helps improve project forecasting and resource management by lowering costs while enhancing predictability. PSOs that can accurately plan and execute services in a structured way are more productive and more likely to deliver quality results.
There is significant effort involved in developing, implementing and adhering to standardized delivery methodologies, but the net impact for PSOs is beneficial.

table-2Table 2 compares the percentage of time standardized delivery methodologies are used to other key performance indicators. It shows that PSOs using a standardized delivery methodology have improved on-time project completion, higher revenue per employee and are more likely to achieve their annual revenue targets.

KPI 3. Billable utilization
Employee billable utilization is one of the most heavily tracked and scrutinized KPIs. While there are many definitions of billable utilization, the benchmark’s definition is based on a 2,000 hour per year basis. Employee utilization is calculated by dividing the total annual billable hours by 2,000. This key performance indicator is central to organizational profitability.

To be meaningful, utilization must be examined in conjunction with overall revenue and profit per person along with other leading indicators like backlog and size of the sales pipeline. It is a major indicator of opportunity and workload balance as well as a signal to expand or contract the workforce.

To improve margins, PS executives must continually focus on increasing employee billable utilization, as well as increasing the percentage of billable employees. The primary gain from increased utilization is a significant increase in revenue per employee. Interestingly, PSOs with higher employee utilization also reported more revenue growth, more revenue per consultant, more revenue per employee and larger projects. The dynamic combination of high utilization and a high percentage of billable employees leads to better financial performance.

table-3Table 3 shows the actual benefits this year’s firms experienced from increasing employee utilization. As you might expect, billable utilization is critical in terms of meeting deadlines and profit margin targets. High billable utilization is directly tied to the percentage of employees who are billable. This chart shows that firms with very high utilization are much more likely to meet their margin targets.

KPI 4. On-time delivery

table-4The percentage of projects delivered on time is a measurement determined by dividing the number of projects completed on time by the total number of projects. This KPI is critical for billable services organizations because when it decreases, both profitability and client satisfaction also decreased. The bad news is that the average on-time project delivery rate tends to be less than 80 percent for PSOs.

On-time delivery is an important key performance indicator as it affects client satisfaction and the ability to take on new projects. When projects are delivered late, client satisfaction suffers. It also causes new projects to be delayed. When planned resources are still working on the late project, they are unable to start another project. PS executives strive to keep employees utilized. However, when they cannot start work because prior projects are late, it affects everyone. The effectiveness of quality and knowledge management processes correlate highly with on-time delivery and, ultimately, help drive revenue per employee upward.

KPI 5. Project overruns
table-5Project overrun is the percentage that actual costs exceed budgeted costs or it is the percentage actual effort (time) exceeds the budgeted time. Project overruns may be expressed in actual time versus plan, actual cost versus plan or both. PSOs want to track this KPI because whenever a project goes over budget in either time or cost, it cuts directly into profitability.

Project overruns, like projects not delivered on time, limit future work and client satisfaction. In many instances, project overruns indicate a lack of project governance, which hurts project quality. Table 5 highlights how average project overruns influence on-time completion, annual revenue and margin target attainment. Obviously, project overruns are negatively correlated with on-time completion, as one increases while the other decreases.

What’s most important — as shown in the table — is that PSOs with high levels of project overruns yield poorer revenue and margin performance. Focusing on why projects run over is a critical step in performance and profitability improvement.

Using information wisely

These key performance indicators for services delivery, and many more like them, can be tracked through an organization’s Professional Services Automation (PSA). PSA is used specifically for improving services delivery and all five of these key performance indicators. PSA helps PS executives plan, sell, deliver and collect for work that meets targeted delivery dates and margins.

PSA solutions manage resources and projects, which helps improve billable utilization and bottom-line results. Twenty years of research have shown that those using PSA see a 5 to 7 percent improvement in billable utilization. That translates into an additional 100 to 140 hours billed annually per consultant. As you can imagine, the dollar value and profit associated with these hours are significant.

How these KPIs can help PS firms grow
To compete successfully today, professional services executives need to optimize every aspect of their organization – from the creation of a solid strategy and accompanying business plan to the sale of services that offer the greatest potential for growth and profit. It also requires a staff of high-quality talent.

Regardless of all of the other areas of the PSO, delivering services is where money is made in professional services. Achieving organizational growth and profit begins with project profit margin. Therefore, for PSOs to grow and prosper, they must be astute in terms of how they deliver services. The five key performance indicators discussed here are a good place to start.

Five KPIs for Service Delivery Excellence

By Dave Hofferberth

Valuable insights from the latest professional services benchmark

This is the first article in a two-part series on performance improvement in service delivery based on measuring and monitoring five critical key performance indicators. It provides background to this initiative, highlighting early results from the 2016 Professional Services Maturity™ Benchmark study. Part two will provide more details regarding why these five key performance indicators should be measured and monitored and the impact of poor performance.
kpis

What the latest benchmark reveals about professional services

With the economy still showing sluggish growth and competition growing, professional services executives must double-down their efforts to improve service delivery effectiveness. Otherwise, they won’t attain high quality, high levels of client satisfaction and high project profit margins. Service delivery excellence is imperative in order to achieve these goals.

Each year, market dynamics change, new technology is introduced, new regulations are enacted, and business priorities shift. As a result, professional services executives must continue to monitor the business environment to make the best investments possible to grow and prosper.

While the results of SPI Research’s 2016 Professional Services Maturity™ Benchmark have yet to be published, more than 550 professional services organizations have completed the survey, yielding tremendous insight into the market. For instance, professional services year-over-year revenue growth stands at 10.2 percent, up slightly from last year’s 10 percent. This indicates that the market continues to improve. Much of this growth has been fueled through new client acquisition, whether it is new logo clients or additional services offered to different departments within the existing client base.

However, the size of the sales pipeline in comparison to the quarterly forecast is down to 172 percent compared to 199 percent last year. This translates to fewer available deals, making it increasingly difficult to sell services. PSOs have had to increase discounts in order to win more work. Also, employee satisfaction is down, which is probably a result of higher levels of attrition due to pressure to work more hours than ever before.

Perhaps the most disturbing early result is that both project margin and organizational net profit are down from last year’s benchmark. SPI Research believes profit is the fuel for growth in professional services. And if there is so much pressure to discount services — especially at very low rates — the growth of the market could suffer.

Every professional services executive knows there are good times and bad. SPI Research expects a bright future in the professional services market. To achieve their desired financial goals, PS executives must continually evaluate all aspects of their organization, from their personnel to the services developed and to target markets and clients. SPI’s Professional Services Maturity Model™ is designed to help PSOs improve organizational performance, beginning with those areas with substandard performance.

To help organizations focus on service delivery excellence, the following highlights some of the key performance indicators that should be continually monitored and measured.

Why focus on KPIs?

Understanding when and how to start a performance improvement initiative can be difficult in any organization. Some key questions include:
• Are we achieving high levels of client satisfaction?
• Is our work delivered on time and on budget?
• Does each project meet its desired margin and completion goals?
• Based on the current project, will the client continue to buy and refer our solution?

Most executives have a solid understanding of their areas of weakness but too many and conflicting priorities get in the way. A good place to start is by focusing on key performance indicators, how they are trending, how they compare to peers and the steps required to improve them.

SPI Research tracks over 200 KPIs across professional services organizations. Each KPI is important by itself. However, tracking too many can be a burden. Many PS executives have neither the time nor the resources to track them all. Yet department heads might be required to focus on 10 to 20 key measurements. The point is to track those relevant to your organization and understand how they impact overall growth, client satisfaction and profit.

Five KPIs to measure and improve service delivery

Service delivery is where PSOs plan, estimate, propose, staff, execute and invoice for work. Service delivery is where money is made in professional services as people and projects are the revenue-generating and profit machines of the organization.

Professional services executives, project managers and engagement managers have more than 30 service delivery metrics they use to measure service execution. These five above are among the most important when considering organizational improvements:

1. Project duration in months. The length of time it takes to deliver projects.
2. Methodology use. The use of standardized or structured delivery methodologies.
3. Employee billable utilization. The percentage of available employee work hours that are billable.
4. On-time, on-budget project delivery. The percentage of projects delivered on time and within budget.
5. Project overrun. Overruns in terms of costs or hours compared to the estimate and budget.

Why these five? Stay tuned for part two to see an analysis of these five KPIs and how to quantify their value for your organization. Over the past nine years of benchmarking nearly 2,500 professional services organizations, SPI Research has found these metrics are critical for performance and profit improvement.

A Smarter Way to Create the Annual PS Business Plan and Budget

A proven way to effectively build your business plan

Planning Pyramid
As 2016 approaches, it is time for professional services executives to begin the planning process. This process typically takes one to two months and sets the tone for the year to come. It’s a great time to assess overall corporate strategy in order to determine whether the organization should continue on its current course or make changes to grow faster and more profitably.

Certain components of a strategy generally do not change from year to year, such as the organizational vision, mission, values and culture. Still, professional services organizations should review their charter and associated business model each year to determine whether they align with changing market conditions, competition and employee capabilities. The best PSOs take both a top-down and a bottom-up approach to business planning, and to developing the budget.

Plan by department, build up to organization

Departmental planning allows each group to set its strategy to ensure it meets overall strategic priorities and goals. Here is a list of questions each group needs to address:

Executive (Leadership)
Leaders in successful PSOs first develop and then communicate the charter and vision throughout the organization. Target markets and go-to market strategies help define a portfolio of services that align to achieve financial objectives. And then — by aligning the workforce around its strategy — PS executives can ensure everyone on board is focused to deliver solid financial results.
Questions for executive leadership:
• Do we have the right strategy, and if not, how should we change it to capitalize on our markets?
• How is our strategy going to change over the next year?
• What types of services, geographies and clients should we concentrate on?

Marketing and sales (Client relationships)
Embedded in the business plan will be a strategy that differentiates the services sold from those of the competition. The less they are differentiated, the more susceptible they are to pricing pressure. To be effective, people responsible for selling services need to be able to communicate the value the organization provides to potential clients. Proper expectation setting through requirements and contracts ensures prospects become satisfied clients.
Questions for sales and marketing:
• What services should we sell that generate the highest growth and profit potential?
• Do we have the right marketing and sales personnel to achieve our corporate goals?
• What other services do we see being offered in the field that we could also begin to sell, and how should we price them?
• Will we focus more on new client acquisition or selling services within our current client base?

Human resources (Human capital alignment)
Employee cost is typically the single largest line item in a professional services budget. Research has shown that it is increasingly difficult for PSOs to find, hire and retain talent. If the PSO is well-aligned, it will know what skills are required to meet growth and profit objectives. The organization will also be in a better position to compensate employees for the value they deliver.
And don’t forget training! It makes the workforce more valuable, and employees appreciate the investment in them. As a result, it leads to lower voluntary attrition rates.
Questions for HR:
• What skill sets will be important in the upcoming year, and do we have the necessary personnel in house?
• How much and what types of investments will we make in recruiting?
• What type of training should we offer in order to prepare our employees for the work ahead as well as ensure they stay with our firm?
• How has compensation changed over the past year, and what should we do to motivate and retain a highly qualified workforce?
• Do we need to consider third-party resources, and how much do they cost?
• How do we measure and improve employee engagement?

Service delivery (Service execution)
When it comes time to service delivery, PSOs need to pay attention to service delivery costs. Furthermore, they need to check for quality and ability to deliver the value clients expect.
Since service delivery is where money is made in professional services, the ability to balance project margin with client satisfaction will go a long way to helping the PSO grow and prosper.
Questions for service delivery:
• How can we improve our estimates and on-time, on-budget delivery?
• Do we have the right resources available to meet the plan?
• What tools and investments do we need to meet our plan?
• How can we deliver with higher levels of quality and at higher margins?

Finance and operations
Professional services organizations pay close attention to the margins of the services they deliver. Executives are responsible for figuring out how to deliver higher-quality services at higher margins. They also need to continually analyze the entire organization to find ways to improve operational capabilities that will result in higher levels of profit.
Questions for finance and operations:
• What are our revenue objectives, and how do they tie in with the sales plan?
• What profit do we want to achieve by geography, by line of business, by consultant?
• How will we manage cash flow?

Uncertainty exists
The fact is, there are many things occurring in the marketplace that are beyond a PSO’s control. Issues such as global growth, competition, new technologies, government intervention and even mergers and acquisitions among the competition or internally can alter the strategy going forward.

And as it happens every year, PS executives should consider new service offerings to take advantage of changing industry dynamics. A host of internal and external factors impact the business plan and the budget.

Your five-step process to build a budgetbudget
SPI Research has created the following five-step process for PSOs to follow in building a budget:
1. Review last year’s successes and failures to figure out where to start.
2. Analyze where revenue and profits came from last year and get into specific details. Are these growth areas for the following year?
3. Identify the key assets and look to see what is needed to round out the organization.
4. Define the service portfolio, which helps determine what areas to invest in that will generate both the best short- and long-term growth and profitability.
5. Determine the key performance indicators that show how the organization is performing.
Review past successes and failures

The first step is to review last year’s budget and analyze the successes and failures of the organization. Of course, no one wants to repeat last year’s mistakes. A frank assessment helps refocus on strengths while shoring up weaknesses. What type of expansion is planned? Services, regions, clients?

Analyze last year’s revenues and profits
Look at the organization and dig deep into the details to identify organizational costs. This requires analyzing the cost structure in four different areas:
1. Core costs focus more on service delivery, what it takes to deliver services, what tools are required, what the service portfolio looks like and what it might cost to add more services.
2. What types of skills are required, and where are they located? How much do they cost? Based on our current rate and cost structure, can we operate at acceptable margins? This area in conjunction with core costs represent all of the field costs necessary to efficiently and effectively deliver services.
3. Here, analyze supporting costs. Everything associated with marketing and sales, facilities, IT, overhead and all other costs necessary to make sufficient profit.
4. Analyze capital costs, the costs necessary to build and grow the organization.
Identify assets

Once the four areas of cost have been identified, take stock of your assets. What are the key assets of your organization?
1. First and foremost, it’s people. While manufacturing organizations have all types of equipment and materials, the success of PSOs ultimately depends on the caliber of people they hire. Executives should identify people who generate the most revenue and profit and also have the highest billable utilization levels. This will help executives clone them by hiring or training similar superior talent.
2. Second is the service portfolio. What services are offered and where? Are they strategic to growth or tactical? How do we harvest the maximum profit from our cash cows to invest in new growth areas?
3. Third is clients. Who are they, and where are they? Are they happy with the services offered and delivered? Do they want more types of services? And if so, will these services be profitable? What are their payment policies?
4. Finally, finances. What capital is required to expand? What is the projected cash flow and profit? These must be compared to the budget. At the end of the day, the PSO is probably in business to make money, so it is critical finances are managed closely.
The secret is to capitalize on information within the core business solutions to better understand the true value of each of your assets.

Define the service portfolio
The next step is to look at the service portfolio. This exercise enables PS executives to look at the long-term future of the organization. There may be very profitable services, but they may have a limited time horizon. For instance, at the end of the last century, Y2K initiatives were all the rage. But they were not going to last past the year 2000.

Therefore, analyze the service offerings to determine which ones are more strategic and provide long-term benefit to the organization as opposed to short-term tactical solutions. Both are important, but the long-term strategic initiatives will help the PSO build its brand.

Determine the key performance indicators
Finally, which key performance indicators should the PSO monitor? Every department should have three to five major KPIs to monitor in real time and watch for positive and negative trends. Real-time monitoring allows them to make modifications to help maintain positive growth and profitability.

Common causes of a failed business plan
These are the most common reasons business plans fail:
• Leadership team’s inability to effectively confront the reality of the current business environment with a realistic fact base and competitive benchmarks.
• Focused on too many — sometimes competing and overlapping — priorities.
• Lack of alignment across all parts of the organization around a core set of measurable improvement initiatives.
• Inability to rapidly engage the entire organization in translating improvement plans into operational tactics and job-level objectives.
• No follow-through to accelerate the learning and performing cycle while creating committed leaders at all levels of the organization.

Bringing it all together
Most executives probably have their vision, mission and values in place, and have had them for several years now. Before a PSO can prepare a budget, it needs a business plan to provide organizational direction. The business plan will guide the budget.

Most organizations conduct planning and budgeting on an annual basis. While modifying the strategic vision might be a yearly process, organizational planning and budgeting are living documents, which should be evaluated quarterly, at the very least. Economic conditions change as do competition, technologies and regulations.
The plan and budget put together a few months ago may not be relevant today. Therefore, PS executives need to stay current with economic changes as new developments could change the organization’s focus.
Lastly, and most importantly, focus on growth!

There is still time to complete the PS Maturity benchmark survey! Participants will receive a FREE copy of the 2016 PS Maturity Benchmark when it is published in February, 2016. Cover2015PSMB