How IT Applications help Professional Services Firms Maximize Profits

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:

5FO1. 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.

 

 

2CR2. 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.

 

 

4SE3. 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.

 

3HC4. 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.

 

1LE5. 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.

Table 1Professional 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.
Table 2
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.
Table 3Business 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.
Table 4
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.

2015 Professional Service Maturity Benchmark Preview

By Dave Hofferberth, Managing Director, Service Performance Insight
Get a Peek into How the Professional Services Market Is Performing

We’re currently collecting surveys for the 2015 Professional Services Maturity Benchmark. The early results are in, and professional services growth is slightly above 10 percent year-over-year. This preview is based on almost 40 completed surveys, a nice chunk of the 250 surveys expected by December.Look into the future

While the results are not final, they shed some light into the overall health of the professional services market and what we might expect in 2015. Read on to get a glimpse into the future.

Five performance drivers
Before highlighting the latest findings, let’s review the key functional areas that we call pillars. Our hypothesis is that professional services organizations consist of five pillars or business functions, which drive organizational performance.

The core tenet of the model is professional services organizations achieve success by optimizing the following five Service Performance Pillars:

1. Leadership. Represents a unique view of the future and the role the services organization will play in shaping it. Leaders develop a clear and compelling strategy, providing a focus for the organization to spur action. They also set the tone and direction for the organization.
2. Client relationships. Includes sales, marketing and partner relationships and sales effectiveness.
3. Human capital alignment. Focuses on recruiting, hiring, retaining and motivating a high-quality consulting staff.
4. Service execution. Represents all aspects of project execution: resource management, project management, knowledge management and delivery methods and tools.
5. Finance and operations. The financial backbone of a services firm that addresses planning, revenue, margin, billing, collections and IT infrastructure.

Five levels of maturity are defined to show progression for each pillar. It starts with Level 1, where processes are immature and employee roles are broad, and progresses up to Level 5 where the organization, methodologies, tools and governance are synchronized and structured. Organizations at Level 5 optimize and align all elements of the PSO for continuous improvement. On average, only 5 percent of PS organizations achieve Level 5 performance.

Each Service Performance Pillar has guidelines and key performance measurements that correspond to levels of maturity, which provide a roadmap to services performance excellence.2015Quest

Client relationships: New clients still drive the market forward
For the past five years, professional services organizations have averaged between 30 to 40 percent of total revenue from new clients. Unfortunately, that number currently hovers around 30 percent, well down from its high of almost 40 percent just a few years ago.

New client revenue as a percent of total revenue, is an excellent barometer of year-over-year growth, and is highlighted by the roughly 10 percent annual growth the market is currently experiencing. Although 10 percent growth is positive, we would prefer to see it average around 15 percent signifying significant market growth.

Human capital alignment: Billable utilization drops
Professional services organizations that have completed the survey average 67 percent billable utilization, which translates to 1,340 billable hours out of a 2,000-hour year. Ideally, they should average 75 percent (1,500 billable hours per year).

This difference of 160 annual billable hours reflects an approximate $32,000 loss in billings per consultant. Much of this comes from the low billable utilization of the embedded services organizations — primarily software and hardware providers — who average roughly 60 percent billable utilization.

Service execution: Larger projects, better on-time delivery
In terms of man-months, the organizations that have completed this year’s survey show longer project durations, with 24 man-months in 2014, up from 19 in 2013. The number of staff on a project has increased significantly, while the length of the projects is slightly down.

Also, 80 percent of the projects have been completed on time, the highest level we have seen in the past five years. This KPI bodes well for quality project delivery and ultimately project margins going forward.

Finance and operations: Financial success yet to be determined
With the exception of revenue per employee, which highlights the effectiveness of the overall organization, most of the financial key performance indicators are down from last year. However, there is one notable exception: organizational profitability. That’s gone up.

Our analysis of this area shows that organizations have reduced non-administrative costs and, thus, improved overall profitability. The surveys to date indicate a concern that margins are slightly lower, and therefore despite all the success in delivering projects, there’s room for improvement.

Finalize plans for 2015
As professional services organizations enter the final quarter of the calendar year, it is imperative they start the annual planning process to create an effective and executable business plan. It should highlight strengths and weakness, and enable everyone to focus on service areas where they can deliver the highest growth and profitability.

Many executives will use their services portfolio management — such as professional services automation or project portfolio management — solution to understand their most strategic services, along with their best strategies for growth and profit. Armed with this information, they can determine adequate staffing and support levels in order to meet their projections.

They should also create a budget highlighting the costs and revenues associated with the services they forecast to deliver. Obviously, change is continual, and this budget should be reevaluated on a quarterly basis, at a minimum. Leading firms use their IT infrastructure to continually monitor performance and make adjustments as necessary in real time, rather than waiting an additional month or quarter which may be too late.

Professional services performance to be continued …
The net result of the surveying so far has shown professional services organizations have weathered the uncertainty of the economy over the past year, but are still not out of the woods completely. It will take significant effort to improve operational efficiency and organizational productivity. Thus far, an emphasis should be placed on sales and new client penetration.

These organizations must also continue to deliver projects more efficiently and effectively, focused on on-time delivery and overall project margin. The year is not up yet, and we have surveys coming in every day. So far, the glimpse shows some promise for the following year.

We expect 2015 to be another solid year in the professional services market despite global uncertainty and the talent cliff negatively impacting the future growth for many PSOs with increasing attrition. Count on seeing changes in the next year with the need for mergers and acquisitions to grow firms. Stay tuned.

Cover_2014PSMB_smTo receive a free copy of the detailed benchmark report when it’s completed, please take the PS benchmark survey now. (Valued at $995.) For seven years, PS executives have gained insight and comparative statistics into how PSOs operate. They use the groundbreaking research to chart their course to service excellence. Don’t let your organization fall behind. Complete the survey by December 1 to get a free copy of the results that will help you grow your business.

How to Speed up the time between Quote and Money in the Bank

By Jeanne Urich, Managing Director, Service Performance Insight

Drive profitability for your professional service firm

This is the second of a two-part series. Part one of this two-part series explores breakdowns in the quote-to-cash process for service organizations. This article provides recommendations for integrated business applications to streamline and automate the quote-to-cash process.

moneyIn today’s economy, cash flow rules. Every organization must focus on cash flow to maintain a solid financial position and maximize profitability and liquidity. In professional service organizations, this process begins with a client quote and ends when payment is received and the money is in the bank. This macro process of converting sales opportunities into paying customers is often referred to as quote-to-cash. Its optimization is essential for financial well-being.

Application integration improves cash flow
To improve the quote-to-cash process, PS executives turn to core business application integration to provide visibility, transparency and control. The three primary business applications used to improve and automate the quote-to-cash process include the following:

• Client relationship management supports the management of client relationships with improved visibility to lead generation, contact management, deal capture and pipeline management with the goal of enhancing sales and marketing effectiveness. CRM allows PSOs to track clients throughout the sales lifecycle, and to specifically target customer segments and offers by understanding details of the relationship.

• Professional service automation solutions provide the systems basis for initiation, planning, execution, close and control of projects, resources and services. PSA improves service delivery, resource management, project management and collaboration. It ensures accurate and timely time and expense capture. Over the past decade, PSA solutions have become more popular as a means for improving resource management and service delivery effectiveness, while the applications have matured to become easy to use and implement.

• Financial management is the primary solution required to accurately capture, bill and report financial transactions. It collects and manages all financial information — time and expense, invoices, procurement, etc. — to provide visibility and determine service cost and profitability. Every firm surveyed uses some financial management solution.

Benefits of integrated service resource planning

All three primary business applications improve financial performance. Although each individual application is critical to organizational success, it is their integration that offers the greatest benefit.

Figure 1: System Integration Improves Visibility, Productivity and Profits
Figure 1

Source: Service Performance Insight, October 2014

Services delivery and the front office

With this integration, sales and service delivery are aligned, and a smooth hand-off is assured as opportunities are closed and projects are initiated. Trust and cooperation are enhanced when all functions — sales, service delivery and finance — have access to the same single source of customer information.
PS executives can better plan and staff projects within PSA based on a detailed understanding of the time and costs involved, and can accurately forecast resource requirements based on up-to-date sales pipeline information. Cost and revenue data is brought together to show project, resource and client profitability. Visibility, transparency and control are all enhanced through management reporting and real-time dashboards.

The important workflow elements of CRM applications track the progress of leads into prospects, into proposals and into orders, ensuring timely reviews, approvals and hand-offs. CRM applications are typically set up as a single source of the truth for all client-related correspondence, proposals and contracts. Tight integration between PSA, where the project is managed, and CRM, where the client is managed, is critical for keeping the sales and service delivery teams in alignment.

Once a bid is accepted, the order is passed to the PSA solution to build the project and resource plan. Staffing and hiring decisions are expedited while ensuring the best available resources are assigned. The integration of CRM and PSA provides the PSO with visibility into the sales process and client contracts and commitments and allows the PSO to forecast resource and project requirements based on expected deal close dates.

Once work is initiated, PSA provides the necessary visibility to assure schedule and cost compliance. In the event of project changes, the combination of PSA and CRM facilitates sales and services delivery collaboration to generate and secure change orders.

Services delivery and the back office
Tight integration between PSA and the ERP application ensures accurate and timely invoices are generated and sent to the client containing all the necessary detail to expedite payment. Integration between PSA and ERP ensures employee details and costs are continually updated and reflected in the resource management application to guarantee the best, most cost-effective resources are assigned.

PSA and ERP integration virtually eliminates manual data re-entry and associated costly manual errors. Integrated systems provide a better understanding of and visibility into a PSO’s actual costs, project margins and revenues. And as with any automation, administrative overhead is decreased and accuracy is increased across the board. Table 1 depicts the reported 2014 PS Maturity Benchmark level of integration between the core applications used by PSOs and the financial system.

Table 1: Business Applications Integrated with Core Financials
Table 1

Source: Service Performance Insight, October 2014
More than 78 percent of the 238 organizations surveyed use a commercial PSA solution, 89 percent use a commercial CRM solution, and 90 percent use a commercial financial application. CRM and PSA have become increasingly important for success in the professional services sector, and many PS executives now realize that integration adds to potential benefits.

Table 2 highlights the benefits of services resource planning based on integrating PSA and CRM with the core financial application. These results show that in every phase of the quote-to-cash process both operational and financial performance improve because information flows seamlessly from one application to another, empowering executives to make faster and more accurate decisions that ultimately improve project profitability, increase personal productivity and increase bottom-line profit and cash flow.

Table 2: The Benefits of PSA and CRM Integrated with Financials
Table 2

Source: Service Performance Insight, October 2014

Ensure your professional services firm’s highest profitability
To drive profitability levels higher, PS executives are taking a more holistic approach to the quote-to-cash process, perhaps the most critical of all PS processes. Delivering services efficiently and effectively is just one area of importance in improving profit margins. Ensuring the organization is focused from the beginning on selling, delivering and collecting from the best clients who buy and use the most profitable services is paramount to success.

While there are many collaborative tools organizations can use to inform and educate their employees on which clients to target, what services to sell and at what level of expected return, the use of client relationship management in conjunction with professional services automation, each integrated with the core financial solution, offers the best chance of improving profitability.
________________________________________

Get a Free Copy of the 2015 PS Maturity Benchmark Report!
Take the survey!
It’s that time of year again — time for the 8th annual Professional Services Maturity Benchmark! More than 1,500 professional services organizations have participated in this important research in the past eight years.

If you are running a service organization:
• Do you know how your organization stacks up against industry metrics?
• Do you have the industry data you need to support your strategy?
• Can you objectively quantify your organization’s strengths and weaknesses to create an actionable business plan?
• Do you know where you should invest to yield the highest impact?

The 2015 report promises more insight and analysis into the market with a view of the key success factors that drive exceptional performance.

Click here to take the survey.

Complete the survey by Dec. 1, 2014 to get a free copy of the 2015 PS Maturity Benchmark Report ($995 retail) when it is published in February 2015.

About Service Performance Insight
Over the past seven years, more than 10,000 PSOs have used the concepts and KPIs from SPI’s PS Maturity Model to pinpoint their organizations’ current maturity and develop improvement plans to advance in lagging areas.
SPI Research works with PS firms to create a maturity scorecard to compare to the benchmark maturity definitions. It analyzes current performance and helps prioritize future improvement initiatives. At the end of the project, leaders not only understand the maturity model, but also have the tools to identify, frame and prioritize strategic improvement priorities required to accelerate performance.

To learn more about SPI Research services and how SPI can help your company, please contact Jeanne Urich at jeanne.urich@spiresearch.com or phone (650) 342-4690.

Streamline Your Professional Services Firm’s Quote-to-Cash Process

By Jeanne Urich, Managing Director, Service Performance Insight
Speed up the time between quote to money in the bank

This is the first of a two-part series. This article explores breakdowns in the quote-to-cash process for services organizations and how to fix them. Part two will provide recommendations for integrated business applications to streamline and automate the quote-to-cash process.

cashIn today’s economy, cash flow rules. To maintain a solid financial position and maximize profitability and liquidity, every organization must focus on cash flow. In professional services organizations (PSOs), this process begins with a client quote and ends when payment is received, and the money is in the bank.

This macro process of converting sales opportunities into paying customers is often referred to as quote-to-cash, and its optimization is essential for financial well-being.
Many PSOs emphasize the collection process once an invoice is generated and the work has been delivered. They specifically target DSO (days sales outstanding) as a key metric of financial hygiene. DSO is actually the “tail of the dog” that represents the final process of a progression of steps to convert opportunities into cash.

In reality, quote-to-cash is a series of interrelated processes that include:
• Sales pipeline and forecasting.
• Project scoping and estimation.
• Proposals and approvals.
• Contract negotiation and acceptance.
• Project staffing.
• Project execution.
• Consultant time and expense capture.
• Project completion and acceptance.
• Invoicing.
• Collection.

As shown in Figure 1, to optimize these fundamental business processes, many professional services executives rely on the integration of core business applications to provide visibility, transparency and control. These applications include client relationship management (CRM), professional services automation (PSA) and the core financial management application, enterprise resource planning (ERP).
Figure 1: Quote-to-Cash ProcessFigure 1

Source: Service Performance Insight, September 2014

Each manages aspects of the quote-to-cash process. Although these applications are offered on a stand-alone basis, the true power of streamlining the entire quote-to-profit business cycle is best accomplished by an integrated suite of applications, commonly referred to as Project-Based ERP or service resource planning (SRP).
Services challenges

The pressures facing the professional services sector are similar to those in other markets:
• Generate high-quality leads and qualify prospects.
• Win competitive bids.
• Book and schedule orders.
• Deliver high-quality services, products or both in an efficient and profitable manner.
• Collect time and expense efficiently throughout the life of the project.
• Invoice in an accurate and timely manner and expedite the collection of money.
• Maintain and grow existing client relationships to sell additional products and services.

Product-oriented organizations must consider product availability and the efficiency of the supply chain. For professional services, however, the real concern involves people and the interrelationship of different functions: marketing, sales, service delivery, finance and account management. These groups often have competing goals and priorities as companies identify, price, bid, win, perform, collect and expand services projects.

High-performing services organizations develop clear roles and responsibilities, combined with congruent measurements and supported by integrated systems, to effectively manage the quote-to-cash process.

As shown in Figure 2, the services quote-to-cash process begins with the development of winnable proposals that meet or exceed the PSO’s financial requirements. Once won, the PSO schedules the project and staffs it with appropriately skilled resources who can deliver quality services on-time and on-budget. As project delivery proceeds, the PSO closely monitors progress to ensure the project meets the client’s requirements and remains profitable while collecting consultant time and expense.
Figure 2: Service Quote-to-Cash ProcessFigure 2
Source: Service Performance Insight, September 2014

Finally, at various milestones during project delivery, and at the end of the project, accurate and timely invoices must be generated that clearly reflect the work provided and the time and expenses incurred, so that they can be expeditiously approved and paid by the client.

The problem for many PSOs

As in most businesses, without effective leadership and collaboration, PSOs operate in silos, or on a department-by-department basis. They are narrowly focused on succeeding in their given tasks. For organizations to succeed, they must work in partnership, with support across all functions. PSOs will only prosper if business processes are aligned across all departments, teamwork is pervasive, and visibility exists company-wide.

Common breakdowns in quote-to-cash business processes

The underlying cause of poor financial performance often stems from organizational and functional process breakdowns in the quote-to-cash process:
1. Quote (presales). Poor lead qualification contributes to a high cost of sales and a lack of alignment between opportunities and service capabilities.
2. Sell, negotiate and get order (sales). Inability to articulate the service value proposition inhibits calling on the real decision-makers. This can lengthen the sales cycle and may force acceptance of unfavorable contract terms or excessive discounts.
3. Staff (initiate project execution). Inefficient resource management and poor or nonexistent skills tracking can lead to assigning the wrong resources on projects resulting in delays and overruns.
4. Delivery (project execution). Poor alignment and handoffs between services sales and delivery lead to miss-set client expectations and acceptance of unrealistic timelines and/or deliverables.
5. Invoice and collect (billing and reconciliation). The lack of alignment across contracts, statements of work, project plans and time and expense collection can trigger invoicing errors which lead to lengthy collection cycles, rework and lost revenue.

Clients, understandably so, hate repeating discussions, requirements and agreements to disconnected sales, service delivery and finance representatives. Messy handoffs between functions inevitably cause project overruns and lengthy collection cycles which compromise client satisfaction, referrals and future business.

These organizational and process breakdowns are exacerbated by poor or non-existent systems, manual processes and data re-entry caused by a lack of integration between CRM, PSA and ERP applications. The final coup de grâce in a broken quote-to -cash process is the lack of management reporting and visibility to be able to spot problems and fix them before they spin out of control.

How to fix a broken quote-to-cash process

When the quote-to-cash process is broken, the best place to start is with an assessment. Some of the areas that are effective improvement steps include:

• Comparison to industry benchmarks shows the revenue and profit potential if improvements are made and provides the business justification for making an investment.
• Assess competing functional roles, responsibilities, goals and measurements to reveal the underlying causes of friction and misunderstanding.
• Conduct RACI analysis to clarify roles, goals and lines of authority to pinpoint processes where clear ownership, accountability, measurement and rewards are missing.
• Model “as is” and “to be” business processes to lay the foundation for change and clarify roles, responsibilities and handoffs between functions.
• Based on objective analysis, align leadership priorities.
• Develop an actionable business plan which includes budget for new systems and applications.
• Empower project teams to focus on the top improvement initiatives, which will likely include selecting and implementing new systems and business controls with appropriate metrics.

What it takes to get results

To drive profitability levels higher, PS executives are taking a more holistic approach to the quote-to-cash process, perhaps the most critical of all PS processes. Delivering services efficiently and effectively is just one area of importance in improving profit margins. Ensuring the organization is focused from the beginning on selling, delivering and collecting from the best clients who will continue to buy and use the most profitable services is paramount to success.

While there are many collaborative tools organizations can use to inform and educate their employees on which clients to target, what services to sell and at what level of expected return, the use of CRM in conjunction with PSA, each integrated with the core financial solution, offers the best chance of improving profitability.

This article explores breakdowns in the quote-to-cash process for services organizations and how to fix them. Part two will provide recommendations for integrated business applications to streamline and automate the quote-to-cash process.

Get a Free Copy of the 2015 PS Maturity Model Report
Take the survey!
It’s that time of year again – time for the 8th annual Professional Services Maturity Benchmark! More than 1,500 professional services organizations have participated in this important research over the past eight years.

If you are running a service organization:
• Do you know how your organization stacks up against industry metrics?
• Do you have the industry data you need to support your strategy?
• Can you objectively quantify your organization’s strengths and weaknesses to create an actionable business plan?
• Do you know where you should invest to yield the highest impact?

The 2015 report promises more insight and analysis into the market with a view of the key success factors that drive exceptional performance.
Click here to take the survey

Complete the survey by Dec. 1, 2014 to get a free copy of the 2015 PS Maturity Benchmark Report ($995 retail) when it is published in February 2015.

The Struggle to Align Human Capital in Professional Services

Successful professional services executives know employees are the most critical asset. Finding great employees, hiring them and helping them grow, work and stay engaged largely affects the organization’s long-term success.

employeesIt has become increasingly difficult to find new employees with the requisite science, technology, engineering and math skills the technology consulting industry needs. The problems this situation has created have become more apparent in the last year. For instance, professional services industry growth shows signs of slowing since its five-year peak two years ago, as firms struggle to find the right people to sustain momentum. In a market accustomed to annual revenue growth rates higher than 15 percent, slowing growth puts additional pressure on the organization. The industry feels the impact, but it shows up most in dramatically lower net profit.

Table 1. The Effects of Attrition on Delivering Work on Time
Table 1
In the past year, annual attrition has also increased, placing more pressure on the professional services organization’s ability to grow and prosper. Table 1 highlights some of the critical issues facing professional services organizations due to increased attrition. As attrition rises in professional services, the ability to deliver work on-time and on-budget declines.

Mergers and acquisitions are taking place at a near-record pace. Why? They have become one of the best avenues for expansion while also augmenting the skills and talent of the workforce. However, unless the acquirer can find a way to keep talented employees, M&A does not necessarily guarantee future growth and success. Mismatched skills and nervous employees tend to leave the newly combined organization.

Billable utilization declines
The 2014 PS Maturity Benchmark shows that billable utilization has dropped for the first time in five years. This decrease, while not significant, mirrors some of the issues associated with lower profit margins. Professional services organizations should strive for at least 75 percent billable utilization.

Table 2 highlights the correlation between billable utilization and other key performance indicators. It reveals that organizations increase billable utilization to achieve higher revenue per billable consultant. While this correlation might seem obvious, it provides professional services executives with a clearer understanding of just how important focusing on billable utilization is for the firm. The table also shows how billable utilization impacts the professional services organization’s ability to meet both revenue and margin targets, which fuel future growth.

Table 2. Connection Between Billable Utilization and Other KPIs
Table 2Source: Service Performance Insight, June 2014

What should PS executives do?
To optimize human capital, PS executives must focus on several key areas:

1. Focus on employee acquisition and retention. Understanding the organization’s strategic and tactical goals enables the entire organization to focus on hiring the right type of individuals with the right skills to drive the organization forward. Once on board, retention is critical. PS executives must balance utilization and revenue targets with training and career development to ensure employees stay and prosper with the firm. As the economy has grown in the past three years, professional services attrition has risen with it, making it one of the most critical issues facing PS executives. Watch for burnout. Due to senior-level employees spending more time on client interaction and business development, younger consultants are required to deliver much higher billable utilization than their more experienced peers. They can burn out easily if they work too many hours. You don’t want to better prepare them to work at their next company. Your goal is to keep them employed at yours.

2. Balance revenue versus cost for each employee. Having good people is one thing, having people with the necessary skills that are offset by their ability to generate revenue is another. Individuals with high price tags need to bill at high rates. Individual productivity and margin are important to understand to ensure each consultant generates sufficient profit to help the firm grow and prosper.

3. Provide the right tools and infrastructure. Employees who have access to specialized tools and training are less apt to move on. They see an investment in tools as an investment in them and their productivity. Employees’ ability to gain expertise in the tool not only makes them more valuable to the PSO, but also provides them with a higher degree of self-confidence.

4. Training is worth the cost. Younger employees are happier if their organization invests in the training necessary to make them more valuable. Organizations that don’t invest in training often show much higher attrition rates. Training doesn’t have to occur during working hours. It could be on nights and weekends, which won’t affect potential billable hours. Consultants are continuous learners, they are motivated by knowledge and skill development.

Looking ahead
In the next decade, the professional services market must do a top-to-bottom analysis of how it builds and maintains a high-caliber workforce. Changes in the educational system and lifestyle preferences of younger employees will determine how PSOs go to market. Devoting more attention to recruitment, training and retention processes goes a long way to determining the success of the organization.

Times have changed, the employees coming out of college just a decade or two ago are different than those of today. Understanding and meeting the needs of the new workforce, how they are developed and how they are motivated will be a big factor in the overall success and prosperity of the Professional Service industry.

The PS Maturity Scorecard – your prescription for success by Jeanne Urich

Keyboard with Improve Your Performance Button.For seven years, we at SPI Research have been benchmarking various levels of operational control and process maturity to determine the characteristics and appropriate behaviors for professional services organizations based on their organizational lifecycle stage. The primary questions we sought to answer when we first conceived the PS Maturity Benchmark in 2007 remain our primary focus today:

  • What are the most important focus areas for PSOs as their businesses mature?
  • What is the optimum level of maturity or control at each phase of an organization’s lifecycle?
  • Is it possible to build diagnostic tools for assessing and determining the health of key business processes?
  • Are there key business characteristics and behaviors that spell the difference between success and failure?

What it takes to become a high-performing Professional Service organization

Iss1205SPIimage

The original concept behind our PS Maturity Model was to investigate whether increasing levels of standardization in operating processes and management controls improves financial performance. The benchmark demonstrates that increasing levels of business process maturity do result in significant performance improvements as shown in Table 1.

In fact, we found that high levels of performance have more to do with leadership focus, organizational alignment, effective business processes and disciplined execution than “time in grade.” Relatively young and fast-growing organizations can and do demonstrate surprisingly high levels of maturity and performance excellence if their charters are clear. Further improvements accrue when an organization’s goals and measurements align with its mission, and investments are made in talent and systems to provide visibility and appropriate levels of business control. Of course, it helps if it’s well-positioned within a fast-growing market.

The core tenet of the PS Maturity Model is that services- and project-oriented organizations achieve success through the optimization of five pillars:

  1. Leadership: vision, strategy and culture.
  2. Client relationships.
  3. Human capital alignment.
  4. Service execution.
  5. Finance and operations.

The PS Maturity Model describes maturity guidelines and key performance measurements at each performance level. These guidelines illustrate examples of business process maturity while providing directional advice to move to the next level. This study measures the correlation between process maturity, key performance measurements and service performance excellence.

Taking the first step toward recovery

We’ve all heard about recovery programs. The funny thing is that they all start with you realizing you have a problem, and you’re sincerely interested in doing something to fix it. Recovery is a process that involves several steps. You can’t get to the next one without taking the first one.

The formula for improving professional services business performance has a lot in common with health improvement plans, weight loss plans and alcohol recovery programs — they all rely on an accurate diagnosis of the underlying issues that led to the problem in the first place. Lasting recovery depends on taking measurable steps toward an improvement goal, typically with the help of an expert coach.

One of my favorite expressions comes from Lewis Carroll’s “Alice in Wonderland.” “If you don’t know where you’re going, any road will take you there.” Here’s the conversation between Alice and the Cheshire Cat.

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where —” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“— so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”

Obviously businesses have more important things to do than wander aimlessly to prove they’re going somewhere. Having a destination and a route in mind is a much better recipe for success.

Building an improvement roadmap

To create lasting PS business performance improvement, here are five simple steps to follow:

1. Realize you have a problem.

Denial is one of the dominant attributes of lackluster business performance. Acknowledging there is a problem is the first step to recovery. The problem may lie in new, fierce competitors who have changed the playing field. It can be rooted in technology shifts which have commoditized cash cow services. The inability to see or seize new market opportunities may be another cause. Or the heart of performance issues may be due to dysfunctional executive relationships and lack of alignment.

You can create an improvement plan after you’ve first assessed the root causes of the problem. Benchmarks are a powerful tool for problem identification. A good benchmark provides an apples-to-apples comparison to other professional services organizations in the same business.

2. Learn about recovery.

Finding a solution is the next step toward solving a problem. In this case, the solution involves learning about possible ways to advance. Diagnostic tools like the PS Maturity Scorecard help firms understand where they are now and what it will take to move up to the next level of maturity as shown in Figure 1. Each firm’s improvement path will be unique, but visualizing the road peers have taken and the timeframes and investments they have made helps chart an improvement roadmap. Processes like the the PS Maturity Scorecard program help organizations avoid unnecessary potholes while focusing on the highest impact strategies.

Figure 1. PS Maturity Levels

Levels

Source:  Service Performance Insight, May 2014

3. Seek expert advice.

Enrolling in any improvement program involves discipline and determination. Expert coaching and advice reinforce positive steps while preventing back-sliding. Having an impartial yet knowledgeable business adviser can help reduce the emotional stress of change.

Organizations are best served by seeking expert advice to develop valuable new growth opportunities before competition or lack of alignment has cornered the firm into a death spiral. Here again, having an empirical benchmark standard provides a fact-based reality check and objective yardstick of the value of improvement. A scorecard like the one shown in Figure 2 is one way to do it.

Figure 2. Measure Service Performance Progress with a Scorecard

Measure-service-preformance

Source:  Service Performance Insight, May 2014

4. Prevent relapse.

As with all programs that require change, participants often don’t allocate the time, money or attention to fully develop and fund improvement priorities. Day-to-day business and tactical issues get in the way of long-term growth strategies.

Let’s face it. It’s hard to change old habits, so the temptation to resume business-as-usual behaviors is strong. This is a crucial stage for long-term, sustainable business enhancement because it defines the future path, whether change is possible and if the executive team is willing to see it through. Cement and reinforce improvement plans with quarterly check-ins and annual check-ups with the help of a coach and roadmap.

5. Maintain business improvement efforts.

Developing a lasting, sustainable growth strategy is hard especially when it involves change and building new management disciplines. The thirst for continuous improvement must become part of the organization’s DNA. Progressing through maturity levels depends on adopting repeatable and sustainable methods, tools and measurement systems.

Permanent business improvement does not happen overnight. The maturity model is not static as it reflects the dynamic and ever-changing PS industry and emerging best practices. Each year, the bar has been raised. Best-in-class performance five years ago may now be considered average. Maturity advancement requires continuous effort to take advantage of changing market dynamics. Preventing business setbacks requires maintaining healthy business measurements and controls.

About Service Performance Insight

Over the past seven years, more than 10,000 PSOs have used the concepts and KPIs from SPI’s PS Maturity Model to pinpoint their organizations’ current maturity and develop improvement plans to advance in lagging areas.

SPI Research works with PS firms to create a maturity scorecard to compare to the benchmark maturity definitions. It analyzes current performance and helps prioritize future improvement initiatives. At the end of the project, leaders not only understand the maturity model, but also have the tools to identify, frame and prioritize strategic improvement priorities required to accelerate performance.

To learn more about SPI Research services and how SPI can help your company, please contact Jeanne Urich at jeanne.urich@spiresearch.com or phone (650) 342-4690

Real-time Visibility is the Secret Sauce for Professional Service organizations

Data proves real-time visibility works
by David Hofferberth, Service Performance Insight

For decades, information technology providers have touted the benefits of how their solutions improve real-time visibility. They say their solutions access data faster to improve decision-making. But talk is cheap. While few would argue with this construct, the question is, “How much more efficiency does real-time visibility provide?” We’ve explored this question for the past seven years in our annual Professional Services Maturity Benchmark. Now we can quantify the advantages of real-time visibility.

Cover_2014PSMB_smIn the latest benchmark, 238 professional services executives shared the level of information visibility they had across their organization. The figure shows that approximately 10 percent said they had complete information visibility for making decisions in real time. Still, what does this do to improve the bottom line in professional services?  Level of visibilityWe decided to consider only those 10 percent of the organizations (about 30 firms) who said they had complete information visibility and compare them to the rest. Table 1 highlights a few differences.

The data shows that organizations with high levels of visibility grew and expanded their client base much faster. They accomplished this feat by having a better win-to-bid ratio. This means that for every 10 bids they submitted, they won about one more bid because of a more efficient and effective bidding process.

Real-time visibility comparisonWhen an organization grows and expands the client base faster, it also improves in other aspects. Employees want to work for fast-growing organizations because they feel secure in their jobs, and they should be able to take on more responsibility, learn more and get paid more as they move up within a growing organization. Because these organizations expand faster, there’s less time for administrative overhead. As a result, the percentage of billable time increases significantly. This leads to a much higher revenue yield per employee of over $25K annually. Higher per person revenue helps the organization expand and grow profitably. No one wants to work for an organization that faces financial challenges or loses market share.

The table also shows professional services organizations (PSOs) with high levels of visibility wasted less money on overhead because they stayed aligned and focused. Employee attrition went down significantly for these organizations. And we all know that knowledge workers are the true assets of a PSO. The net effect is a much more efficient organization, resulting in fewer cost overruns and 3 to 5 percent more in net earnings.

How to improve real-time information visibility

What is the potential for information visibility within professional services? Most departments have their own solutions which offer real-time visibility for particular tasks. For instance, sales and marketing personnel use client relationship management (CRM) solutions to manage the pipeline and better understand the services being sold and the price.

Likewise, those responsible for delivering services use professional services automation (PSA) solutions in order to better manage resources and service delivery. It ensures they meet timelines and project profit margins.

The problem is that PSOs only operate at maximum efficiency and effectiveness if the information available to one department — such as sales, marketing or services delivery — is also available to others. This helps departments work together to make sure the entire organization realizes more success.

No doubt, the department responsible for services delivery and human resources would prefer to see what deals are in the pipeline and what their potential bid price is. This information helps ensure they have trained resources available at the right cost to deliver the services. If this information isn’t available at a detailed level, the organization can’t efficiently build its bench in order to start work on time.

Likewise, the sales organization must have visibility into the resources available so it can focus sales efforts on selling projects that best match resource capabilities. Therefore, profits go up.

The impact of real-time information on goals

Having real-time information helps PSOs react faster and make the necessary changes to succeed. It also allows them to more accurately plan long-term initiatives based on the latest information. For example, executives typically look back a quarter or two to determine where they have or haven’t been successful and where they should invest.

Many organizations, however, struggle to look at the prior quarters because the information may not be available for several months. Thus, the lack of real-time information hampers the ability to accurately spot marketplace trends that might impact service strategy. Real-time information prevents surprises. Executives can compare information taken from this week, last week and several prior weeks to precisely determine where to focus future efforts.

Take advantage of the information infrastructure

We believe that using an integrated information infrastructure improves organizational visibility across the entire PSO. It becomes more relevant in light of all the new technologies, such as smart phones and tablets, which provide information access from almost anywhere and at any time. Now, executives, project managers and employees who deliver services have immediate access to any project-related data or changes in priority. They can immediately shift their focus to the most critical issues facing the organization.

No longer do employees have to make multiple phone calls to multiple people to get the message out. The results speak for themselves in Table 2. It reveals a few of the benefits of using integrated solutions.

Integration Drives PerformanceNotice that PSOs without a CRM solution have a deal pipeline of approximately 161 percent of the current quarter forecast. This means they have slightly more than 60 percent more work proposed than is expected to be completed in the quarter. Unfortunately, most of the work in the pipeline won’t be won or will have a start date much later than the current quarter. Therefore, PSOs should have a pipeline of at least 200 percent. This is double the amount of work that could be completed in the quarter.

Those organizations with CRM solutions have a pipeline of 216 percent. But if an organization integrates CRM with a core financial management solution such as enterprise resource planning (ERP), this jumps to 230 percent. It gives the organization a greater confidence margin, which allows the team to craft better proposals.

This analysis applies to PSA solutions in terms of how having integrated solutions further improves the benefits as opposed to having a non-integrated solution. Integrated human capital management (HCM) solutions also yield similar results. The outcome is that this increase in broad, real-time visibility across the PSO helps everyone work with the same information and, therefore, align resources to achieve optimal results.

The proof is in the real-time pudding

Few people doubt the importance of real-time visibility, but they want to see theory backed up by fact before pursuing it. We have monitored this key performance indicator for seven years. All the numbers prove real-time visibility improves performance.

PS executives who want to expand the organization rapidly and operate at high levels of both project margin and organizational profitability will want to do everything within their power and budget to provide the needed visibility to collaborate effectively.

To accomplish this feat, PSOs must use their information infrastructure to their fullest advantage. It’s a powerful tool that lets them adapt to current conditions as quickly as possible to reach and exceed their organizations’ goals.