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.

What Professional Services Must Do to Capitalize on Talent

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By Dave Hofferberth

How Professional Service organizations can staff projects with the right talent

Last month, SPI Research discussed the importance of talent in 2015. This issue will not go away. To improve their talent management strategies, professional services executives have increased the use of human capital management (HCM) solutions. Some of this change is due to the numbers of mergers and acquisitions in the industry — creating larger firms that must invest in HCM — along with the rapid growth of consulting firms in general.

talentThe other change is due to the advent of the cloud and how the new breed of HCM solutions enables PS executives to more efficiently track, monitor and control all aspects of talent management. As the cost of recruitment continues to rise, the ability to better search, find, hire and train the right resources becomes increasingly important.

The need for human capital management
Politicians continue to grapple with employment visas just as universities and K-12 educational organizations endeavor to increase students’ interest in the scientific fields. The lack of sufficient talent with strong analytic backgrounds in science, technology, engineering and math will be the professional service industry’s greatest challenge for the foreseeable future, and of course, it affects other areas of the economy as well. Professional services organizations have a natural advantage in the recruitment of highly skilled individuals, as most offer challenging work in exciting places at high levels of compensation and skill building.

Professional services executives must take advantage of every tool at their disposal in order to drive performance, productivity and satisfaction in the workforce. Many look to information-based tools such as HCM, along with professional services automation (PSA), as well as other social collaborative tools. These solutions offer PS executives greater structure and stability in terms of the quality and timeliness of the work offered, as well as better management of the workforce, which drive higher levels of both employee and client satisfaction.

Why HCM?
HCMPS begins with people, and therefore, on the technology front, we predict HCM systems will increase in importance and usage across the services industry. HCM solutions — 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 PSOs create a high-performance workforce. Key software modules include employee learning, skills tracking, compensation, performance management, policy compliance and succession planning. Each of these applications helps organizations manage personnel growth and development.

HCM benefits the PSO by maintaining a database of skills, benefits and pay rate information that is used for resource scheduling, recruiting and performance and career management. Effective HCM solutions provide rich applications that allow consultants to manage their own careers and skill development (training) and to bid on the projects of greatest interest to them.

HCM solutions provide greater visibility into employee skills, preferences, training and career advancement. They ensure equitable compensation and are an integral component of pay-for-performance and reward systems. Talent management is central to PS performance as the skills and attitudes of the consulting workforce provide tangible evidence of consulting value. And with better management of personnel, a PSO can ensure talent is on staff and available when needed, which helps the organization grow faster. HCM solutions, in conjunction with PSA, drive greater billable utilization, which ultimately results in higher revenue per employee and profitability.

Table 1 shows the results from the past three years of benchmarking professional services organizations. While HCM does not directly impact the sale and delivery of professional services, it does empower the organization to operate more efficiently with the right resources on board, enabling PS executives to focus on clients, service delivery quality, and profit.TAble2

What’s driving HCM’s leap?
Traditional HCM applications for recruiting, performance, learning and compensation are moving to the cloud with new social functionality, combined with employee access for self-managing careers, skills and preferences. The training industry has exploded with innovation, merging learning and skill-building with online video and gaming. In the people-based business of professional services, it is only a matter of time before talent management (HCM) and resource management (PSA) functionalities become intertwined.

Already exciting, new solutions have emerged to seamlessly post job requisitions and skill profiles based on resource demand. Soon vendors and consulting firms will make employees central to their value proposition by designing systems that mirror and automate all facets of the employee lifecycle from recruitment to retirement.

Supporting global workforce flexibility comes with a price and makes it impossible to run a PS organization by spreadsheet. Resource management and HCM applications are mandatory to accommodate global mobility, staffing and career management.

Going mobile
No longer do employers need offices and laptops to stay abreast of their employees. Now, a smartphone or another device is all they need. This tool permits them to be better connected with the recruiting processes and employees’ activities, training and compensation, especially in a dynamic environment such as professional services.

HCM use will increase significantly in the coming years with new cloud-based solutions coming to market that specifically target the management of human capital paired with the need to better manage resources from recruitment and hiring through training and retention. Of the solutions highlighted in the 2015 Professional Services Maturity Benchmark, ADP and Oracle’s Taleo are the two leaders. However, SAP Successfactors, Workday and Microsoft Dynamics are not far behind. These cloud-based solutions are beginning to gain acceptance as professional services organizations realize talent is their most valuable asset.

Recommendations for finding required talent
In order for the professional services market to grow and prosper, it needs more people. While machines may be scalable, people are not. Companies can add capacity by building or purchasing more machinery, but cloning personnel is just not possible — yet. There will be changes to the educational system to provide students with greater skills in the science, technology, engineering and mathematics disciplines, but it might not be enough people to replace the retiring baby boomers.

Human capital management solutions will become a vital part of professional services operations. They have been for some time in larger PSOs, but now have reached the midmarket and even smaller organizations as the needs of PS executives to manage talent increase.

The recruiting process is under the microscope, and PS executives must work more efficiently to improve it. It’s not just about finding the right people. It’s also about ensuring the organization is more targeted in its approach to human capital management. Enlightened firms are building their brands around the unique cultures, competencies and opportunities they provide.  Brand, culture and employee engagement are becoming intertwined and interdependent, mandating increased emphasis on deploying flexible, people-centric human capital management solutions.

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.

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.
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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.

Professional Services Business Applications

Survey reveals growing interest in business solutions
by Jeanne Urich and Dave Hofferberth, SPI Research

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Business application adoption by all sizes and types of billable service organizations has steadily gained momentum since professional services (PS) industry-specific business applications came to market over a decade ago. While every billable service organization uses some type of system (albeit manual spreadsheets) to capture costs, bill for time and account for revenue, many do not take advantage of the available business solutions that could help them improve operational performance.

In May 2010, 244 billable professional service organizations (PSOs) representing a variety of PS disciplines and organization sizes responded to SPI Research’s business application survey. Respondents include PS business executives and CEOs of independent firms.

The report provides PS executives and software application providers insight into the level of market adoption, integration and satisfaction with core PS business applications. The report also examines which PS industry sectors and applications are moving to the cloud and how soon.

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Market adoption is improving

SPI Research found varied levels of application adoption, with ERP or “Financials” most prevalent, CRM second and remote service delivery third. Reported market adoption of PSA, HCM and BI was lower than anticipated.

Professional service software providers break down their applications into a variety of core product modules that emphasize the management of costs, clients and resources. The three most commonly used applications include:

∆        Financial management (ERP) is the primary application required to accurately collect, bill and report financial transactions. Traditional ERP providers dominate the PS financial application segment. Intuit’s QuickBooks is the overall leading platform, particularly for PSOs with fewer than 100 employees. Microsoft, Sage, Deltek and NetSuite are the primary ERP providers for mid-size organizations, and Oracle and SAP are the dominant ERP suppliers for large organizations.

Although Oracle and SAP supply core financial functionality, their PS clients are increasingly using dedicated cloud-based CRM and PSA applications. These traditional vendors should take note of the erosion of their service industry client base toward easier-to-use, cheaper-to-deploy, PS-specific business applications. As the PS business gains stature and prominence within traditional technology manufacturing companies, PS executives are likely to defect toward more PS-specific, cloud-based applications.

∆        Client relationship management (CRM) supports the management of client relationships and is designed to improve sales and marketing effectiveness. In terms of PS adoption, surprisingly, commercial CRM adoption at 86 percent is rapidly closing in on ERP adoption (94 percent). This surge in service industry CRM adoption underscores the increased emphasis service organizations are placing on service selling and marketing.

Approximately 14 percent of respondents reported the use of “none or homegrown,” and 22 percent use “other” CRM applications, which means 64 percent use a CRM solution from an industry-recognized software provider. Salesforce.com is the most dominant application provider in the study with 34 percent market share. No other vendor in any category comes close to this commanding market share.

∆        Professional service automation (PSA) solutions provide the systems basis for initiation, planning, execution, close and control of projects and resource management. Unexpectedly, 44 percent of respondents reported using “none or homegrown” as their PSA solution; an additional 21 percent reported “other” while only 35 percent use a solution from an industry-recognized software provider. This lack of PSA penetration represents significant market opportunity for both ERP and PSA-specific providers.

NetSuite, having acquired OpenAir and QuickArrow, is the PSA market-share leader with over 16 percent of the market.

Other applications gaining momentum in the PS sector are outlined below. While not as commonly used as the three mentioned previously, more sophisticated PS operations are starting to deploy HCM, BI and remote service delivery tools.

∆        Remote service delivery and collaboration tools allow staff to conduct Web-based meetings and collaborate from anywhere. According to the survey, 81 percent of respondents use remote service delivery and Web-based conferencing solutions, which demonstrates a high rate of user adoption. The survey indicates the use of these tools has rapidly become the “ante to play” for service providers, and the tools will soon be as ubiquitous and necessary as office and email productivity tools. Webex and Citrix are the market-share leaders in remote service delivery and collaboration tools.

∆        Human capital management (HCM) covers payroll, time and labor tracking, tax and benefits. Most ERP applications provide some level of human resource management, but a new breed of human capital management applications is coming to the fore to offer recruiting, skill tracking and training, performance, career and compensation management from recruitment through termination.

Only 30 percent of respondents use dedicated HCM solutions from either their ERP provider or from specialized HCM providers, which signifies extremely low HCM service sector penetration. ADP, a traditional payroll outsourcing firm, garnered top market-share honors in the HCM category. SPI Research predicts HCM adoption will rapidly improve as new cloud-based tools become an essential ingredient for turbo-charging the people-based service business.

∆        Business intelligence (BI) is the integration, management, use, analysis and reporting of business information to improve decision-making. BI service industry penetration has continued to grow and now stands at 43 percent. Primary providers are the market-share leader SAP, having acquired Business Objects, closely followed by IBM, Microsoft, Oracle and Informatica.

PS industry moves to cloud solutions

One of the most interesting trends is the service sector movement toward cloud-based solutions. Both large and small organizations demonstrate a strong preference for software-as-a-service (SaaS) solutions with 46 percent of the organizations expressing a preference for SaaS, as compared to 25 percent that prefer on-premise applications.

For firms planning to move their applications to the cloud, most plan to do so within three years, which means the SaaS sector will continue its double-digit revenue and market-share growth.

SaaS considerations

The roots of SaaS actually go back to timesharing in the 1980s. When re-envisioned a decade ago as a means of providing “browser-based” or “thin-client” application access, it would have been hard to predict the sweeping changes cloud-based computing would make on both the software industry and application users.

This study shows the service industry overwhelmingly endorses SaaS, and many firms are transitioning to it. Cloud-adoption has been greatest for PSA, closely followed by CRM, HCM and BI. ERP is the only application segment where the majority of organizations have and plan to maintain an on-premise solution.

The promise of SaaS

So what’s behind the service industry stampede to cloud-based applications? Several factors make SaaS a perfect fit for the service industry, but one the most important considerations is that service providers are increasingly operating virtual organizations.

The days of hiring by geography and dispatching hordes of consultants to work for months or years on a client site are gone. Project team size and duration continue to decline, and engagements are becoming smaller and more iterative, making flexible staffing and virtual deployment a necessity.

A growing phenomenon has been less work performed on the client site, not only to minimize travel and facility costs, but also because virtual projects are proving to be more successful and take advantage of the best available resources, regardless of location. Cloud computing is clearly the best solution for virtual organizations and reflects and supports their Internet-intensive work style.

The second important consideration is that most service organizations do not have numerous or, in many cases any, IT staff. This makes the prospect of running a large on-premise data center with a robust IT staff and support for loads of customizations an investment many service executives abhor. In most service executive’s minds, headcount represents revenue, not a cost, so the idea of turning responsibility for application development and maintenance over to a cloud-based vendor makes a lot of sense.

Cloud computing offers the big advantage of requiring limited to no IT staff, and installations typically take weeks instead of the months or years required by on-premise solutions. Cloud computing allows service executives to do what they do best — solve complex business problems for clients, without having to worry about a lot of IT staff.

Another straw tipping the balance toward SaaS is the applications themselves. The leading service industry SaaS providers have done a superb job of focusing on the business processes essential to the service industry. As SaaS applications have matured, the vendors have focused great attention on ease-of-use, powerful business process workflow tools and the ability to easily modify screens, forms and reports to reflect unique business requirements.

All of this adds up to service-specific applications, which reflect and represent best practices. Since services are people-based businesses, service executives are more than willing to change business processes if they see a better way to run the business. Most service-specific cloud solutions offer excellent out-of-the-box support for core business processes like quote-to-cash, prospect-to-project, time and expense capture, and billing and project accounting.

Lastly, beyond all the hype, the economics of SaaS are compelling. SaaS applications outshine on-premise applications in terms of upfront cost, deployment time and total cost of ownership.

Just like outsourcing, the allure of lower cost was the initial reason organizations started to shift to SaaS, but the reason they stay with SaaS is because it gives them greater control over their business with less hassle at a predictable cost. SaaS may not be right for the largest and most complex service organizations, but it is a solution worth considering for the majority of PSOs.

The allure of business solutions 

The PS sector has developed quite an appetite for business solutions in the past decade. From the smallest PSOs to the largest, the sector continues to increase its use of information as a competitive, productivity tool to increase performance.

The market is changing, with new solution providers and different deployment options available, making it much easier and more cost-effective to implement business applications.

The Best Service Firms Invest in Sales and Marketing

The proof is in the margins
by Jeanne Urich and Dave Hofferberth, SPI Research

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At this year’s Oracle OpenWorld, the shift from a product-driven to a service-driven world was evident. Each year over 60,000 aficionados flock to San Francisco to hear about the latest Oracle developments. In the central exhibit areas, the product-oriented tech titans of the past — Sun, PeopleSoft, JD Edwards, Retek, Siebel, Agile, Hyperion and Primavera —have been gobbled up by Oracle’s voracious acquisitiveness. In their place, the new tech titans — Tata, Infosys, Wipro, Deloitte, CSC, Accenture, Cap Gemini, Cognizant, PWC and KPMG — have raised their banners. The numbers of product-oriented platinum sponsors, including HP, Dell, NetApp, Cisco, EMC, Fujitsu, Motorola and Brocade, have diminished year over year and the remaining product-oriented firms are scrambling to add services and solution selling capabilities.

Companies move from products to services

Due to shrinking profit margins and product commoditization, product-focused firms are emphasizing services and starting to acquire their way to solution-provider status. HP and Dell are recent examples of product-oriented organizations grasping for some of that tantalizing service gold with their acquisitions of EDS and Perot. According to the September 22nd Wall Street Journal, “The deal is Dell’s biggest ever and the most striking move beyond its core personal-computer business, where profits have dwindled. Combining Perot with Dell’s existing services would bring Dell an $8 billion a year tech-services business and a shot at competing better with IBM, Hewlett-Packard Co. and others in selling services …”

As service has emerged as a differentiator and predictable source of revenue and margin, product and service-oriented firms alike have been forced to invest in solution selling and service marketing.  They have found that marketing and selling services is far more difficult than selling products.  Buyers “experience” services and buy based on reputation and relationships.  Product buyers buy based on features, functionality and direct price comparisons.  The product buying relationship ends with acquisition of the product while the service buying relationship really only begins once the sale has been made.  The bottom-line business impact of services is measured after the service has been consumed or the project has ended.

Oracle’s dominance underscores the power of sales, marketing and service. Arguably the ever-vanishing list of tech titans had as good if not better products than Oracle’s, yet they are gone while Oracle thrives. Oracle’s never-ending focus on sales and marketing coupled with over 50 acquisitions has been a constant differentiator. Years ago Oracle made the decision to become a market-maker and forced industry consolidation leaving SAP, its closest rival, in the dust. Oracle invests 20 percent of every revenue dollar in sales and marketing and derives 80 percent of its revenues from support and professional services.  Although Oracle still emphasizes horizontal products it is increasingly going to market by vertical industry and leading with industry-specific business process domain knowledge.

Dedicated solution sales

In the 2009 Professional Services Maturity Model benchmark, out of 170 participating organizations, seven firms significantly outperformed the benchmark average by scoring 4’s and 5’s (on a scale of 1 to 5 with 5 being the most mature) in most service performance pillar dimensions.

The most dramatic difference between the “best” and the “rest” is the focus on a dedicated solution-selling force. The top firms reinvest almost 20 percent of their professional service revenue in sales and marketing. Embedded service organizations (the service arm of product companies) use the product sales force for lead generation, and invest in dedicated professional service (PS) business development experts, arming them with pricing, estimating, proposal generation and contract management tools. The significant investment in sales and marketing pays off with an almost 40 percent better bid-to-win ratio (7.43 wins per 10 bids) compared to the average.

The “best” lead with paid pre-sales engagements – assessments, site surveys, proof of concepts and conference room pilots which reduce their cost of sale while enhancing their understanding of client requirements.

The “best” invest in marketing to establish their thought leadership and domain knowledge and expertise.  They also understand the value of direct marketing and use events, webcasts,  white papers and tele-sales to generate qualified leads.

Benefits of integrated customer relationship management

As we dug deeper into the effect of sales and marketing on professional service organization (PSO) performance, we found 92 percent of the organizations in the study invested in client relationship management (CRM) ) applications. CRM is second only to core financial applications, such as enterprise resource planning (ERP) as a primary IT focus for PSOs. Although most firms recognize the importance of CRM to gauge sales and marketing effectiveness, they predominantly deploy their CRM applications as stand-alone applications, with only 24 percent reporting integration between their CRM application and their core financial applications. For those few firms that have integrated CRM with their core financial system, the performance rewards have been significant.

The effect of a focus on sales and marketing becomes even more apparent as we examine the differences between the firms that have not deployed CRM compared to those that have. The statistics show both the benefits of purchasing and deploying CRM, and more importantly highlight the increased benefits of integrating it with the core financial solution. For example, firms that do not use CRM showed a respectable bid-to-win ratio (number of winning bids out of 10 submitted) of 5. This figure increased to 5.3 when firms deployed CRM, and when they integrated it with their core financial solution, this figure jumped to 5.5.

Priming the pipeline

The performance improvements become even more profound when examining the impact of CRM on pipeline-to-booking percentage. (This is a measure of the size of the qualified deal pipeline to the current quarter bookings forecast.) The recession has caused the pipeline-to-booking benchmark to steadily decline over the past three years, from 240 percent in 2008, to 190 percent in 2009, to 170 percent in our current survey.

PSOs that don’t use a CRM showed the lowest pipeline-to-booking percentage of 100 percent. This figure means the PSO must close and deliver every engagement in the pipeline to hit the current quarter booking forecast. A poor sales pipeline leaves the firm no cushion for error — the organization must win and deliver every single deal in the forecast.

Based on a poor sales pipeline, desperation to achieve the revenue forecast causes firms to commit unnatural acts to win every deal including excessive discounts, concessions and acceptance of unfavorable terms. If the firm is unable to close enough deals, the PSO won’t have enough work to fully engage the staff, which leads to utilization reductions and causes layoffs, poor morale and reduced profits. Firms that purchased CRM showed significant improvement in pipeline-to-booking percentage, with an increase in the size of the pipeline from 100 percent up to 193 percent. This figure climbs to over 200 percent for PSOs that integrate CRM with core financials.

The effect of CRM on margins

Another net effect of purchasing and integrating CRM with core financials is an improvement in overall margins. Research shows that both project gross margins (from 23 to 30 to 37 percent) and contribution margins (from 15 to 22 to 25 percent) appreciate substantially as PSOs purchase and integrate CRM. Integrated CRM and PS applications facilitate the overall business planning process, ensuring opportunities don’t slip through the cracks, and the “right” resources are ready to start the project so firms can generate revenue as soon as possible.

These applications are invaluable for codifying a consistent approach to business development and provide visibility into sales and marketing effectiveness. Enhanced visibility to the number and nature of deals provides a powerful planning tool for service execution. By providing “one source of the truth” about client demand (the types of leads and clients and type of work in the pipeline), the service supply (execution) side of the organization can plan for skills, and engagement location and duration.

Moving beyond seat-of-the-pants selling

The days of solo ‘partner or ‘rainmaker’ seat-of-the-pants selling for complex projects are over. A team approach and well-defined sales methodology are now of paramount importance. Firms consistently report their number-one priority is improving sales and marketing effectiveness to enhance revenue. While cutting costs will never go out of style, the best firms continually expand their service portfolio and constantly add new clients.

The Darwinian pressures of technology consolidation favor PSOs that embrace solution selling. The only survival option for PS firms is to invest in sales and marketing. If one doubts the power of sales and marketing, just look at Oracle’s climb to the top.

There is no time like the present to begin building the pipeline of the future.  Our research shows investments in sales, marketing and CRM provide handsome returns and are a necessary foundation for professional service firm growth and prosperity.