By David Hofferberth, Managing Director Service Performance, LLC
Earlier, we discussed the importance of information visibility in professional services for driving profitability. The importance of information visibility cannot be understated. Information visibility comes from your information infrastructure, which can be both comprehensive and complex. Most of the firms we’ve surveyed in the past eight years use core business applications — either as an integrated suite or as best-of-breed — to capture and access timely information for decision-making. We published a report on project-based ERP for professional services in 2014, which highlights the major solutions and some of the key benefits.
Five business applications that support professional services
We’ve identified and tracked five business applications or solutions used in professional services. They include the following:
1. Financial management or enterprise resource planning. This fundamental solution is required to accurately collect and report financial transactions. Approximately 88 percent of the firms surveyed use a financial management application. Clearly, every organization must track its finances. However, some of the embedded service organizations, such as software and hardware providers, use the corporate financial management or ERP solution as opposed to owning and maintaining a departmental PSA or accounting system.
2. Client relationship management. The automation of client relationship processes improves sales and marketing efficiency and effectiveness. Of the organizations we’ve surveyed, 83 percent use CRM. It’s almost as important in professional services organizations as ERP is.
3. Professional services automation. PSA helps PSOs with initiation, planning, execution, close and control of projects and services through the management and scheduling of resources that include people (both internal and partners), materials and equipment. Approximately 63 percent of surveyed organizations use PSA. It’s a critical application because it manages the resources and work done, which ultimately is the PSO’s revenue and profit generator.
4. Human capital management. Talent management solutions help with recruiting, hiring, compensation, goal-setting and career and performance management. Such solutions need to be integrated with the employee database. About 47 percent of the organizations use HCM especially PSOs with more than 200 employees.
5. Business intelligence. With 36 percent of the surveyed firms using BI, it’s an up-and-coming application. Its job is to assemble and use information to improve decision-making. Like HCM, as PSOs grow in size, so does the need for a BI solution.
No doubt, other applications such as social, knowledge management and remote service delivery tools have grown in importance in such a collaborative environment. However, the five primary applications focus on automating core PS business processes. Our numbers might be slightly higher than the true industry averages, as surveyed firms tend to be more technology-savvy, and have a greater appreciation for the value of using such applications to better run the business.
Diving deeper into the applications
Financial management or enterprise resource planning (ERP) is the primary accounting solution required to accurately collect, bill, and report financial transactions. ERP provides the master general ledger database for accounts payable, billing, revenue and cash management. It sets the foundation for budgeting, revenue planning and forecasting by collecting and managing both revenue and cost information.
The ERP system provisions PSA and HCM applications with client, employee and cost information. Billing can occur either within the PSA or the ERP application. Once bills are generated, collection and revenue accounting occurs within the ERP.
Client relationship management supports the management of client relationships to improve sales and marketing effectiveness. Based on a master client database, it records and manages the client opportunity lifecycle. CRM automates lead, contact and campaign management, sales pipeline forecasting and territory management. Opportunities are tracked through sales stages in which leads are converted into closed deals.
CRM may include marketing automation software to capture and automate customer touch points from inbound marketing activities and outbound lead generation campaigns. Organizations can track clients throughout the sales lifecycle, and target specific customer segments by understanding details of the relationship. Table 1 shows that the value of a CRM investment is multiplied when it’s integrated with the core ERP application.
Professional service automation manages the initiation, planning, resource management, scheduling, execution, close and control of projects and services. PSA includes a resource and project dashboard and demand forecast. It helps manage service delivery by overseeing opportunities, staffing, project management and collaboration, combined with accurate and timely expense and time capture.
PSA manages all aspects of service and project delivery and resource management based on project data. Table 2 shows the value of a PSA investment is amplified when integrated with the core ERP application.
Human capital management, also known as talent management solutions, give employers the tools to effectively recruit, manage, evaluate and compensate employees. By tracking performance, skills and career progression, HCM helps companies develop and maintain a high-performance workforce. Software modules may include the employee database or employee database extract, payroll, benefits, recruiting, employee learning, skills, compensation, performance management, career and succession planning. HCM helps organizations manage personnel growth and development.
Table 3 shows the value of HCM solutions burgeons when the HCM solution is integrated with ERP. Management span of control expands. The time it takes to staff projects decreases due to better visibility to in-demand skills, allowing firms to synchronize their recruiting based on demand.
Business Intelligence, also known as reporting and analysis, aggregates information from primary business applications to improve reporting and analysis, demand and capacity planning, budgeting, forecasting and financial planning. Adoption of BI solutions continues to grow with the advent of powerful graphical reporting and analysis tools.
As organizations mature, BI becomes a more critical tool to provide real-time visibility to all aspects of the operation allowing executives to spot trends and take corrective action early. Trend and what-if analysis, and scenario and capacity planning help increase the accuracy of forecasting, planning and budgeting. Refer to Table 4 to see the effectiveness of integrating BI with ERP.
The movement to software-as-a-service applications
The evidence shows that SaaS solutions have taken over in services organizations. Cloud-based applications are a natural fit for the virtual, mobile world of professional services. Some of the pure SaaS application providers no longer support an on-premise offering. Yet many of the more mature application providers still offer both SaaS and on-premise solutions. But make no mistake about it: SaaS solutions outsell on-premise applications by a factor of roughly five to one.
The winner: Integration
Departments purchase applications to fulfill the need to improve internal operations. The process to speed time between quote and money in the bank is the most important business process in professional services. It requires integrated information across the core CRM, PSA, ERP and sometimes HCM solutions. With this information, sales and marketing better understand the resources available, while service delivery understands the time and cost required to deliver services.
The information helps leaders better price engagements that meet margin and time requirements, which in-turn improve client satisfaction because expectations are properly set and deliverables and timelines are met. Human resources can access this information in the HCM solution to ensure the organization has the correct mix of personnel to meet current and future requirements. For a market like professional services, this real-time information is critical as it could take up to six months to find, hire and train the right resources.
As employees deliver the work, the integration of PSA and ERP provides leaders with the visibility to ensure resources are highly utilized, work is completed on-time and on-budget, revenue and profit goals are maximized, and the organization meets its cash flow needs.
In the past eight years of surveying professional services, we’ve seen a gradual rise in the adoption of information-based tools for real-time visibility and better decision-making.
Because these tools have shown proof that integration pays dividends, the integration of these tools also continues to rise.
Merely purchasing these tools is not enough. PSOs must use the tools extensively to maximize benefits. The time and effort to deploy, train and use the information is worth it. The numbers reveal that professional services organizations using these tools almost always improve performance and profit.