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.

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.

What Are the Essential KPIs for Professional Services Organizations?

How to pick the right ones out of hundreds of possibilities
by Jeanne Urich, Service Performance Insight

With the growing contribution and significance of services to circlekpithe bottom line, effectively monitoring, measuring and managing the services business has become critical. But with more than 200 metrics to choose from, where does an executive start?

Running a professional services organization (PSO) is complex. It’s a game that must be won with singles and doubles, not home runs. Thus, it’s imperative to know which key performance indicators are essential, the ones PSOs must continually measure, and the ones that are nice to have but not essential. Figure 1 shows the essential key performance indicators and Table 1 defines each KPI.

Figure 1: Key Performance Indicators — the Essentials

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The challenge for services executives is how to balance customers, employees, partners and operations. Excellent services leaders spend 50 percent of their time with customers, partners and the sales organization and 50 percent with employees and operations.

Table 1: Standard Key Performance Indicator Definitions

KPI Table

The challenge comes in continually capturing new business while ensuring revenues and costs remain aligned, all while providing consultants with the tools they need to deliver high-quality projects. Service is a balancing act requiring effective selling and quality project delivery at the same time.

These are definitions and descriptions for the most important levers that organizations can pull to improve professional service revenue, margin and customer satisfaction.

Revenue: Revenue starts with services sales or bookings, which convert to clean backlog once all required contracts, master service agreements and statements of work have been completed, signed and approved. Resources are then applied to work the services backlog. Billings occur based on contract terms: time and materials, fixed price, milestone, deliverables, etc.

The ability to recognize revenue will be determined by the firm’s accounting practices. The Sarbanes-Oxley anti-fraud law has imposed a complex set of accounting rules on organizations, requiring executives to understand contract obligations upfront to avoid revenue recognition problems later.

Gross margin: Margin must be measured at several levels. Most organizations use subcontractors and lower-cost offshore resources for services delivery. Subcontractors provide a lower-cost variable workforce and provide a rich source of margin. Systems integrators must closely monitor hardware and software pass-through revenue and margin. And finally, since PS is based on applying highly skilled professionals to deliver project revenue, the most important measure is direct labor margin.

Subcontractor margin, hardware and software pass-through margin, and direct labor margin all add up to produce gross margin. For even the best-run PSOs that command high bill rates and high billable utilization, it is difficult to consistently sustain a services gross margin greater than 50 percent.

Regional margin: Most services organizations measure regional and line-of-business profit and loss in addition to the global PS income statement. Depending on a company’s accounting practices, corporate overhead costs may be apportioned to the region or line of business or kept in a corporate overhead cost center.

For example, if a company requires a 20 percent PS net contribution margin and its corporate overhead is 20 percent, it will need regions to produce a 40 percent margin.

Services margins are typically lower in EMEA than in the U.S. due to the increased cost of the following:

  • Fringe benefits: Employee fringe benefit costs for health and benefits range from 22 to 25 percent in the U.S. but may be as high as 40 percent in EMEA, plus many countries include an expensive car allowance.
  • Vacations and company holidays: In EMEA, typically four weeks’ vacation and 12 or more holidays compared to two weeks’ vacation and 10 company holidays in the U.S. This extra non-billable time is somewhat offset by an expectation of higher billable utilization in EMEA.

Net contribution margin: The true differentiator for professional services profitability is how the practice manages below-the-line costs. Embedded PSOs within product companies typically produce a net services contribution margin between 10 and 40 percent. According to the Service Performance Insight 2013 PS Maturity benchmark, average reported net margin (EBITDA) for independent firms was 15.6 percent and for embedded PSOs, it was 23 percent.

Typical overhead expenses (as a percent of total PS revenue) include:

  • Direct labor expense (40 to 50 percent): Direct labor cost as a percent of total revenue.
  • Fringe benefit expense (6 to 10 percent): Fringe benefit expense as a percent of total revenue.
  • Subcontractor expense (7 to 15 percent): Subcontractor cost as a percent of total revenue.
  • Sales (2 to 20 percent): Includes all direct sales headcount and fringe benefits plus non-billable business development travel and expense, commissions, incentives, and sales training.
  • PS engineering and PMO (1 to 2 percent): This includes all PS engineering and PMO headcount; fringe benefits; and expenses such as labs, tools, delivery training and project reviews.
  • Marketing (1 to 2 percent): This encompasses all services marketing headcount and marketing expenses, such as Web, PR, advertising, trade shows, sales training, customer satisfaction survey, references and services packaging.
  • IT (1 to 2 percent): Comprises all IT capital expense, depreciation and headcount costs.
  • General and administrative (5 to 20 percent): This includes PS corporate management, facilities and non-billable travel.

Most PS organizations underinvest in PS engineering and services marketing and overinvest in non-billable management overhead and non-billable travel. Sales expenses may be hidden as non-billable time for key managers and solution architects. As a PS firm grows and matures, investments in dedicated services engineering, project management office, knowledge management, marketing and sales can pay huge dividends by making services delivery more repeatable and efficient and services sales more effective.

Customer satisfaction: For product companies, one of the primary raison d’etres for a professional services business is to produce reference customers. This is a crucial measurement area, yet it’s often overlooked. Unless the organization is very large, typical customer satisfaction loyalty surveys are not granular enough to showcase delivery problems.

No matter how small the organization, executives should create a global project dashboard to continually monitor project health. SPI Research recommends at least quarterly project reviews with defined criteria for red, amber and green, plus ongoing knowledge sharing to continue to improve intellectual property and standardize the project delivery life-cycle methodology.

Workforce plan: The lowest common denominator is the health of the services delivery organization. Billable headcount represents an organization’s brand and reputation and its services delivery capability and revenue potential. From inception, executives need to quote tiered bill rates by skill level and measure employee utilization — both billable and non-billable.

SPI Research recommends creating an organizational stack ranking showing profit and loss by person. Executives may find 80 percent of company revenue and profit is produced by 20 percent of the workforce, which means it is imperative to identify the top revenue producers and ensure they are recognized and rewarded!

Resource ownership: An interesting dilemma arises when regions or practices own the fully loaded cost of consultants. This produces a disincentive to resource sharing. Methods to overcome resource hoarding include central resource management and cost or revenue sharing for loaned consultants.

Utilization: Organizations calculate utilization in many different ways. In the U.S., the standard definition is based on 2,080 available work hours per year — this translates to 260 available workdays per year in EMEA. Most standard utilization measurements subtract company holidays (10 in the U.S. and 12 or more in EMEA). The standard available starting-hour calculation in the U.S. is 2,000 and the standard available days in EMEA is about 240.

Primary differences in utilization definitions emanate from the varying treatment of non-billable hours for internal projects, customer satisfaction issues or business development (in the numerator) and whether non-billable personal time off is excluded from the denominator. Some organizations measure billable utilization as the actual number of billed hours divided by the total available hours (including non-billable roles), while other organizations report billable utilization based only on their billable roles and exclude all of the hours of their non-billable staff.

Regardless of a specific utilization formula, it is important to develop a standard utilization definition and to publicize and consistently measure it throughout the organization.

Recommendations for improving financial performance

With increased global competition for business and resources, consulting organizations must continually improve. These improvements cut across every aspect of the organization, and all departments must work together to achieve services performance excellence. Executives need key performance measurements, integrated business applications and a plan for continual advancement.

In sum, there are many levers for improving financial performance. Thus, executives should pick three to five key metrics to improve each year and watch the money grow!

The 2014 Professional Services Maturity Benchmark

Review 2013 to prepare for 2014
by Dave Hofferberth, Service Performance Insight

We are preparing to begin our seventh annual Professional Services Maturity Benchmark survey. Much has changed in seven years, as the economy went from boom times to bust almost overnight. In the past two years, we have seen the professional services market regain momentum to traditional 10 percent-plus annual growth. While on the surface this growth gives many PS executives optimism about the economy’s future, it comes with a few caveats.

Dealing with lackluster results

2013Review.gifWhile the professional services market has grown more than 10 percent annually for the past two years, many professional services organizations still experience lackluster results. Professional services growth tends to be a leading indicator of the health of the overall economy because PS experts help organizations navigate change and growth while improving efficiency.

Although a long time coming, the North American market is finally stabilizing and recovering while the Europe, Middle East and Africa regions continue to traverse its sovereign debt crisis and China’s turbulent growth slows. Uneven market expansion combined with increased pricing and regulatory pressures have upped the ante regarding PSO efficiency and effectiveness.

Facing the talent cliff

Second, the professional services market is at an interesting juncture in terms of talent. The looming “talent cliff,” in particular. Research shows that professional services organizations are finding it increasingly difficult to find, hire and retain highly qualified staff with the skills necessary to succeed in a demanding market. In the U.S. and other developed countries, workers with requisite science, technology, engineering and math education and skills are becoming increasingly scarce. Furthermore, older workers with these skills are retiring at a never-seen-before pace.

With immigration being a sensitive topic for politicians and business leaders alike, many PSOs are going offshore to less developed regions to find personnel with adequate skills. Regardless, for the professional services market to grow, it will need to incorporate a more active role in the development and retention of its talent. In the upcoming survey, we will closely explore this topic, as it can affect the future of the overall economy.

The combination of a talent shortage and return to double-digit revenue growth have driven both billable utilization and the percentage of employees who are billable to higher levels than the past six years have seen. While these results show PS executives are more focused on eliminating overhead and non-billable staff time, there is a point at which voluntary employee attrition due to burnout and demand for higher compensation and benefits will begin to hurt these organizations.

Packaging services

Another perennial area of concern and attention are all of the activities associated with the marketing, packaging and selling of services. Independent and embedded PSOs constantly look for rainmakers who combine industry and domain knowledge with the ability to grow business relationships and a book of business. These rare individuals are not made overnight. Drive and innate business acumen must be cultivated over years, if not decades, to produce consulting leaders who can effectively develop new business.

While the ability to find and retain qualified consultants is still of primary concern, all PS executives must constantly keep their eye on sales. Their focus is to create services that clearly demonstrate value to their clients, and to do it repeatedly. This evolution has given rise to the demand for packaged services, which our research began to discuss a few years ago. The alignment between marketing, sales and services has never been more important.

Conducting business planning

Another area of concern is professional services business planning. Typically, at this time of year, PS executives begin their focus on next year’s goal setting. While the organizational charter might not change from year to year, each year brings new challenges and opportunities in the professional services industry. Clients combine our annual benchmark with their own assessments of strengths, weaknesses and opportunities. The net result is the creation of a strategic and tactical plan for growth and improvement.

A look at the Professional Services Maturity Model

The core tenet of the PS Maturity Model is that service- and project-oriented organizations achieve success through the optimization of five Service Performance Pillars:

  1. Leadership. Based on vision, strategy and culture, this looks at how executives create a vision and supporting strategy and lead the organization to achieve.
  2. Client relationships. This area is based on how the organization markets and sells services while focused on growth and client retention.
  3. Human capital alignment. This area looks at how the organization hires, develops, manages and retains its workforce.
  4. Services execution. This area considers how the organization delivers services efficiency and quality at the forefront.
  5. Finance and operations. This area is based on how the firm manages itself from a financial perspective, as well as on its reliance on information technology to support all operations.

Within each of the pillars are guidelines and key performance maturity measurements. These guidelines cut across the five service dimensions, or pillars, to illustrate the benefits of business process maturity. This study measures the correlation between process maturity, key performance measurements and service performance excellence.

The Professional Services Maturity Model is specifically targeted toward billable PSOs that either exclusively sell and execute professional services or complement the sale of products with services.

The difference between maturity levels

The model has five levels of maturity. It begins with level one, where the organization operates in a heroic manner. And it goes up to level five, where the organization operates in a structured and repeatable mode of continuous improvement, eliminating much of the uncertainty and waste that negatively impacts other firms. Level five performance is very difficult to attain, as it should be. However, it’s generally worth the effort as highlighted in organizational profitability.

Organizations that operate at levels one and two average approximately 6.7 percent net profit, whereas those operating at levels four and five average almost 30 percent. The difference is significant. Higher levels of profitability naturally allow the firm to hire and retain the highest-quality employees, command the highest billable rates, and have money left to invest in growth, which in professional services is critically important to long-term survival.

Maturity is determined through alignment and focus both within and across functions. For example, although financial measurements are of primary importance, they are equally weighted and correlated with leadership and sales and quality measurements to ensure organizations improve across all dimensions, not just in terms of financial performance. However, if the organization is profit-motivated, as most are, increasing maturity levels do show up in significant bottom-line profit.

The formula for sustainable success

Six years of results and insights gained have confirmed the original hypothesis that services organizations must develop a balanced and holistic approach to improving all aspects of their business as they mature. The emphasis on individual service pillar performance shifts as organizations mature. Excellence in only one particular service performance pillar does not create overall organizational success. Rather, it’s the appropriate balance and alignment within and across performance pillars that ultimately leads to sustainable success.

More than 1,500 firms have participated in the PS Maturity Model Benchmark since its first year. These organizations are global and come in all sizes and shapes. However, the consistency that exists among all of them is their focus on delivering project-based services, and generally all are for-profit or part of a profit-driven product organization.

Many of the firms, especially in the consulting sector, are heavily focused on growth and organizational profitability. But many of the embedded services organizations, such as those responsible for implementing hardware and software sold by the parent company, are more focused on areas such as sales, client retention and expansion. In other words, their mission is not necessarily to drive margin.

Pick up a copy of the survey

For many organizations, completing the annual benchmark is a rite of passage. These organizations’ executives understand the value they gain from its insight. It helps them better prepare their organizations for the challenges that lie ahead. Please take the time to download a copy of the benchmark survey so you can better understand the value this research could bring your organization.

Annual Planning: Empty Ritual or Executable Plan? Part 3

Make the most of your strategic plan throughout the year
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, SPI Researchcalendar calc pen

In the first article of a three-part series on the annual business planning process, we covered the typical challenges and failure points companies encounter. We also provided a successful approach to planning that is fact-based, encourages robust dialogue and compels the executive team to create a realistic and measurable plan. In the second article, we covered the essential elements of a successful plan rollout to the next levels of leadership and the entire company. The last step? Effectively monitoring, measuring, managing and adjusting actions in order to achieve the targeted company goals and organizational objectives.

“Nice try!” “Great effort!” “Maybe next year!” These words of encouragement are often heard at sporting events — perhaps primarily amateur, organized sports for children. While appropriate in a skills-building environment, imagine a CEO or board broadcasting these words to a company that boldly missed its annual targets, fell short of profit numbers and lost market share. Yes, it would have to be a very cold day. The point? When it comes to business planning and achieving goals, it’s about results rather than effort. To be sure, the outcomes are the final arbiters of business success.

So given that a company has diligently followed a proven approach for planning and rolling out the annual business plan, how will it execute to meet its goals and objectives? What should be done if a department, organization or company misses targets during the year?

Based on our experience, as well as our work with organizations of all sizes, we believe that three critical strategies keep a company on track to meet its annual business plan:

  1. Active performance management.
  2. Consistent communication.
  3. Action plan and behavior reinforcement.

Read on for details behind each of these key strategies.

1. Active performance management

Performance management includes activities that ensure that goals and objectives are consistently being achieved in an effective and efficient manner. Performance management can focus on the performance of individuals, departments, organizations, processes and the entire company.

We underscore the word “active” because we find that many companies or organizations spend time and energy implementing systems and reporting that provide performance information, but they do not consistently incorporate them into their management and review processes. Monitoring, measuring and managing performance must be a priority to prevent latent identification — and resolution — of a financial or operational problem.

In part 2, we recommended 6 steps that should be incorporated into annual planning:

  1. Confirm company goals and establish specific organizational objectives.
  2. Create measurable milestones.
  3. Develop a detailed plan and detailed tasks.
  4. Identify job-level changes.
  5. Identify which key performance indicators will measure progress.
  6. Prepare for company and organizational communications.

Steps 2, 4 and 5, in particular, form the foundation for tracking progress against the plan. The milestones, key tasks and KPIs should not only be reviewed frequently but also be priority topics in departmental, organizational and company meetings, as appropriate. This review reinforces the focus on the business plan and goals. Further, the faster issues are identified, the faster they can be resolved.

The challenge, however, might be rapidly translating these issues into actions that can actually improve performance. Leaders must analyze identified issues, determine what actions need to be taken and then communicate those actions to the appropriate people and organizations.

Realigning resources, eliminating barriers to key tasks and repurposing action plans as necessary to improve performance can provide desired results as long as the leaders are not the bottleneck to timely performance management. When instituting a performance management framework to enable rapid problem analysis, solution identification and communication, companies should include:

  • Issue ownership and an escalation path.
  • Issue impact assessment and prioritization.
  • A corrective action implementation time frame.
  • Communication protocols and a tree (distribution) based on problem and corrective action.

With a sound performance management foundation and framework, issues can be analyzed in a timely manner and recommended actions can be rapidly and effectively communicated to the right people. As a result, the department, organization and company can get back on track to meet the plan and goals.

Many companies leverage software to manage employee performance and automate tracking key metrics and measures for company performance. Properly implemented and broadly leveraged systems allow the company to get near-real-time indicators of key metrics, thus facilitating the effective delivery of strategic and operational goals.

Studies indicate that there’s a clear and immediate correlation between using performance management programs or software and improved business and organizational results. Regardless, companies must embrace monitoring, measuring and managing performance and making necessary adjustments to meet their business goals.

2. Consistent communication

Productive employees are essential to a high-performing company that tracks to its plan. Employee motivation is key to maintaining productivity. And a critical component of that is communication — consistent communication. In fact, they’re most motivated when management delivers consistent briefings on all company news with an open door for questions and more information.

So how does a company effectively communicate with its employees? And how does the company make it consistent?

No matter a company’s size or culture, a void in communication can breed rumors that are an unnecessary distraction from a positive, productive workplace. Setting up a consistent communication plan will eliminate these rumors and positively impact productivity and morale. Here are some communication forums to consider:

  • Create an official annual company communication plan.

Develop a communication schedule that includes weekly, monthly and quarterly meetings and communications that align messaging for departments, organizations and the company to communicate progress against the plan. Share the communication schedule and expected topics with the entire company so everyone knows these communications will occur.

  • Establish an internal leadership blog.

An internal, private blog lets leaders communicate freely with employees without blasting news to everyone on the Internet. Create a schedule for leaders to communicate their department and overall company performance news. Allow comments to build a more open and transparent community.

  • Use alternative communication channels.

With many communication options available, it is wise to consider multiple channels to reach today’s virtual workforce. Add webinars (record them and make them internally available on demand), video-recorded meetings (also make them available on demand) and social enterprise software for chatting and other collaborative forums. Keep doing in-person meetings, blogs and emails.

  • Host informal gatherings.

Whether it’s a new-hire meet and greet, lunch and learn, or staff meeting, leaders at different levels can rotate on a monthly basis to review what’s been posted on the blog with any new updates. Face time with employees is always meaningful, reassuring and morale-boosting.

Whatever the communication channel, the bottom line is that consistent, open dialogue shows that the company values employees, which motivates them.

3.  Action plan and behavior reinforcement

Our third strategy for keeping a company on track to meet its annual business plan is the use of reinforcement to stress the importance of the action plan and influence employee behavior. We hope that reinforcement is primarily in the form of publicly recognizing and rewarding accomplishments that are key to achieving the annual plan. However, sometimes it is necessary to hold employees accountable for issues that arise. Both forms of reinforcement align the organization and actions to support the plan.

Other forms of reinforcement include optimizing incentive plans to specific goals for over achievement, not just business as usual. This tactic also improves employee engagement because employees understand how they directly contribute to the organizational and company goals. Reinforcement serves to create transparency in the business plan and achievement of goals.

Time to celebrate!

A company’s development, rollout and achievement of a solid business plan and goals warrant a celebration. Too often company leaders are so focused on pushing their teams and themselves to meet business targets that they don’t take time to celebrate successes. Celebrate when meeting major milestones and annual goals and making significant achievements. It reinforces the importance of the plan and motivates employees.

Barring macroeconomic situations that the business cannot control, our three-part series on annual planning provides the planning, rollout and management strategies to position a company to create and meet its business goals. And even in the face of significant global changes, company leaders who actively manage performance are in the best position to make the right adjustments to shift company resources and re-prioritize actions for the health of the organization.

Annual Planning: Empty Ritual or Executable Plan? Part 2

Make the most of your strategic plan throughout the year
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, SPI Research

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In the first of a three-part series on the annual business planning process, we covered the typical challenges and failure points companies encounter. We also provided a successful approach to planning that is fact-based, encourages robust dialogue, and compels the executive team to create a realistic and measurable plan. The next step? Successfully rolling out the plan to the next levels of leadership and the entire company.

The first article of this series began with a story about a former colleague reluctantly traveling to his company’s annual executive team off-site. This professional services executive complained that the team’s energy and cohesiveness around its annual plans would quickly evaporate and the same organizational behaviors — working in silos and dealing with unnecessary conflict — would re-emerge.

Imagine if this executive team had gone through the facilitated process we described in last month’s article. These executives would have concluded the planning session not only with the energy and cohesiveness experienced in the past, but also with a realistic and executable business plan with clear goals. This team would be in the position to successfully roll out a sound plan to the entire company.

So, armed with a sound plan, how does the executive team effectively communicate and align the organization to successfully execute the plan?

Successful business plan rollout

Based on more than 30 years of facilitating change, we’ve found three strategies to be the critical success factors to organizational alignment:

  1. Gain next-level leadership and management buy-in.
  2. Create organizational action plans and key performance indicators that support the executive team’s business plan.
  3. Communicate the business plan and align organizational actions to the entire company.

These in-depth strategies will help your business rollout succeed.

1. Gain next-level leadership and management buy-in.

As part of the planning discussion, the executive team should outline and agree on the cascading communication and subsequent organizational leadership meetings that each executive will conduct to begin the rollout process. The purpose of these meetings is to have the executives present the business plan to their respective organizations, allow the next level of leaders or managers to openly discuss any concerns and ask questions, and coalesce the organization around a set of key actions that staff must perform to support the company plan.

In addition, each executive must share the basis for the plan, the compelling reason for the list of strategic initiatives and the importance of his or her organization’s performance in contributing to company goals. “Telling the story” will accelerate others’ understanding and acceptance of the plan and continue the development of a common understanding of the business and opportunities.

Each executive must not only actively demonstrate support for the plan but maintain a solution-focused approach when leading the leadership team through the organizational plan. It is important that the next level of leadership actively participates in the development of this plan and that individuals take ownership of assigned actions, agree on financial targets and key performance measures, and understand how the organizational objectives tie back to company goals. A collaborative approach to the organizational plan will yield the best results because the individuals and, collectively, the team will buy into the overarching company business plan.

Further, these leaders must be able to speak fluently about the company goals and how their organizations will contribute to overall company success. As the broader communication about the plan begins, alignment is critical.

2. Create organizational action plans and key performance indicators that support the executive team’s business plan.

In last month’s article, we stated that a common reason for business plan failure is notrapidly engaging the full organization in translating improvement plans into operational tactics and job-level objectives. So, whether yours is an embedded professional services organization in a software company or a stand-alone consultancy, establishing these specific organizational action plans and key performance indicators is critical to executing the overall plan.

So, how does the organization’s leadership create an effective action plan? Here is a recommended set of six steps to incorporate into the planning session.

(1) Confirm company goals and establish specific organizational objectives. Successful leaders and professionals understand a simple core concept: If you don’t know where you’re going, you’re likely to wind up anywhere. Your goal must be specific, and you must create a specific intention as well as very specific tasks or steps that will move you toward goal completion.

(2) Create measurable milestones. Once you have a clear picture of what you want to accomplish, as well as which targets you will need to hit throughout the time span of the project or period, the next step is to create measurable milestones.

(3) Develop detailed plan and tasks. Create the action items, supporting tasks and timelines to meet the milestones. Make the action plan doable by validating that all items support the overarching company goals; remembering that less is more; and breaking down larger tasks into small, manageable chunks. Assign one owner to each task and action — having multiple owners can be as disastrous as having no owner. Once you create the action plan, plot it visually and reconfirm with the group that each task has an owner to ensure someone has ownership and no one forgets it.

(4) Identify job-level changes. Review the organizational structure and each role to identify any potential performance barriers as well as optimization opportunities. Look at the job descriptions, performance criteria and compensation incentives, and identify any misalignment with company goals or organizational objectives. Ensure that the action plan incorporates the required changes.

(5) Identify which key performance indicators will measure progress. With the business targets set, the team must identify which KPIs it will use to measure progress. For most professional services organizations, typical financial KPIs will be revenue, profit and margins. However, if improving customer satisfaction is a goal, then include measuring satisfaction in the list. The satisfaction rating obviously varies based on the firm’s methodology. Also, growth metrics for key targets may be valuable. Translate these KPIs into group and individual levels. Include utilization metrics and billable revenue metrics to support overall PS financial metrics.

(6) Prepare for company and organizational communications. Develop a consolidated plan and presentation for the entire company so that management can broadly communicate it. An overall company presentation at an annual kickoff meeting is highly recommended to effectively launch the plan.

3. Communicate the business plan and aligned organizational actions to the entire company.

Now it is time to bring everyone in the company into the fold and present the annual plan, initiatives and organizational impact. As stated already, we recommend conducting an annual kickoff meeting to communicate the plan. At this kickoff, the company leader should present the overall company plan followed by each organizational leader’s supporting plan. To make the most impact on the organization, make sure that the goals and plans are clear and that an individual contributor can easily link his or her efforts to these goals.

After all, the question that each person will ask is, “What’s in it for me?” The presentation must be easy to follow, and the business plan and goals must be compelling and motivating for everyone.

After the kickoff event, we highly recommend distributing a monthly company communication in some form to maintain consistent communication and report progress against the plan.

Outcome of a successful business plan rollout

Alignment and communication are the cornerstones of a successful business plan rollout. When the executives are aligned and actively support the plan, the next level of leadership and management is engaged in plan development and communication, the entire staff is presented with a clear business target and road map, and the company is well-positioned to achieve its business goals.

In Part 3 of this series, we will discuss monitoring, measuring, managing and adjusting the plan to achieve the targeted company goals and organizational objectives.

Annual Planning: Empty Ritual or Executable Plan? Part 1

Make the most of your strategic plan throughout the year
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, SPI Research

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While heading to my gate at an airport, I ran into a former colleague. “I’m on my way to our annual executive team off-site,” he said. “It wouldn’t be so bad, but we work hard for three days to identify our strategy, initiatives, and financial and operational plans, and somehow the team’s energy and cohesiveness evaporates quickly when we return to our day jobs.”

It was surprising to hear this professional services executive’s perspective on the annual planning process. He’s part of a young and rapidly growing technology company’s credentialed leadership team with respected industry standing based on their performance and promising future. “I know it might seem ridiculous for me to be cynical given our growth, but we fall into familiar behaviors once we return to the business and become myopically focused on numbers, much to the neglect of more strategic initiatives,” he said. “And worse, sometimes this focus creates unnecessary conflict between our respective organizations.”

Unfortunately, his organization isn’t unique in returning to familiar behaviors when business pressures increase. Many firms go through rigorous annual planning processes, create comprehensive plans, and gain executive commitment to goals and objectives, but they’re not successful in execution. So what’s the problem? And more important, how can organizations solve this problem?

The annual planning process — regardless of the agenda, framework or method subscribed — is not only essential for running the business, but is also an opportunity for reflection and a powerful catalyst for change. If an executive team is failing at execution, the root cause resides in conversations not had, topics not addressed and, subsequently, actions not taken. Failing to execute is the symptom; diagnosis is key to solving the problem.

Business plan failure

Based on more than 30 years of facilitating meaningful and lasting change, we have found the most common reasons business plans fail because of the following:

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

Business planning goals

When creating a business plan, applying the following goals leads to an effective and executable plan:

  • Establish a strategic foundation for the business plan.
  • Develop a common understanding of your business and opportunity.
  • Define success.
  • Create a road map — short-term and long-term — to achieve your goals.
  • Identify a few but high impact action plans. Apply appropriate monitoring and measurement.

Figure 1 is an example of a structure for business planning.Pillars_Plan

Figure 1. Service Performance Insight Business Plan Development Structure

We recommend capitalizing on the annual planning process to incorporate three critical actions that will position the team for a more successful and sustaining rollout and accomplishment of the company’s strategy and plan.

1.  Conduct a pre-planning fact-based assessment. Perform both a quantitative and qualitative assessment of the business prior to the meeting.

2.  Establish the business plan: less is more. Galvanize the executive team around a realistic and measurable plan. To be successful, the plan should be grounded with at least three, but no more than five, overarching priorities. Gain commitment to maintaining an open, honest dialogue throughout the year to establish accountability to the team, company and strategy.

3.  Set up business plan essentials. Create an environment and a set of ground rules for planning meetings that promote and maintain robust dialogue, realism and clarity.

So, what are the details behind these activities and how do they position the team and company for success?

1. Conduct a pre-planning fact-based assessment.

Gaining executive team alignment around the organization’s current state and future vision is a critical first step in developing a plan that aligns with overall company objectives and drives sustained business performance. Many organizations enlist an outside consulting firm to conduct both quantitative and qualitative assessments of the business.

A quantitative appraisal involves benchmarking the firm against industry peers to gain an objective evaluation of strengths and weaknesses. This step, based on fact-based analysis, helps defuse internal factions, rivalries and biases that may mask underlying deficiencies, while exposing new growth opportunities. It provides a realistic view of the current state and improvement potential to determine growth priorities.

Many organizations augment the annual benchmark review with confidential leadership interviews to elicit frank feedback and measure executive team alignment and commitment to the current direction. They also uncover themes to be incorporated into the go-forward plan.

Other excellent pre-planning tools include client satisfaction and employee engagement surveys and feedback to ensure that the voice of the customer and workforce is heard and integrated into the planning process.

Of course, all executive team members need to come to the business planning meeting with an impartial view of past performance. They review why the organization met some targets and goals and failed to meet others. Critical data include client, product and service revenue and margin contribution showing trends. A ranking of the company’s products and services by revenue and profit helps the team concentrate on the most important business priorities while establishing realistic growth objectives.

2. Set up business plan essentials.

A key component of all business plans is to build a shared vision of the future and define success. The organization won’t have an ultimate destination or aspirational target to shoot for when it doesn’t have a clear success vision.

The annual planning process must support robust, honest dialogue and promote it. The executive team needs a level of trust and must feel that the planning sessions are a safe place where they can constructively challenge, be challenged, be thoughtful and pull for the company.

Discussions and decisions must be rooted in reality, yet they should favor strengths and opportunities over weaknesses.

The business plan encompasses three areas:

1.  Strategy. Strategic challenges are indicated by a slowing of top-line revenue growth or failure to gain market share vis-a-vis competitors. If revenue growth is failing to meet expectations, it’s time to re-evaluate strategic alternatives. The annual business planning meeting is not the time to determine, evaluate or reset strategy. Those important decisions are best made by a strategic planning team in advance of annual business planning.

However, the business planning team needs to review and clarify the strategy to ensure that everyone is on the same page. All business planning decisions must be tested against the strategy to support execution.

2.  Execution. One of the most important questions to ask when determining key strategic initiatives and business goals is “Can we execute?” Signs of execution failure manifest in below-target profits or employee burnout. Both of these danger signs point to poor processes and systems or cumbersome or haphazard ways of doing business.

If poor systems and processes are the root cause of execution challenges, then key initiatives must address improvements. Do we have the people, systems and processes to deliver? If the answer is yes, great. Move on. If the answer is no, the team collectively determines the actions that must be taken to improve execution.

3.  Alignment. Easy to say, hard to do. Lack of supporting and congruent goals is at the heart of business plan failure. Too often, the mission and charter of the professional services organization are not clear or not universally supported by the entire leadership team. Fundamental decisions around the primary charter must be made to propel execution.

In reality, there are four fundamental but somewhat mutually exclusive charters for a professional services organization:

  • Customer satisfaction.
  • Revenue.
  • Profit.
  • Driving market share growth.

Establishing a clear charter and mission for the professional services organization ensures that all future decisions support the strategy and implementation.

3. Establish the business plan: less is more.

The hardest part of the planning process is narrowing the list of possible alternatives. Competing priorities are a natural order of business, but they must be rationalized into a short list of “must dos” as opposed to “nice to haves” in order to drive execution. Organizations will fail if they emerge from planning meetings with a laundry list of tasks.

Improvements for improvement’s sake aren’t very interesting. And often, incremental baseline trending of budgets and sales forecasts isn’t enough to keep pace with fast-changing markets or the financial demands of the business. Executives need to show demonstrable benefits from any investments they make. By focusing on the highest-leverage areas first, the financial benefits can drive quick wins and solidify support for larger scale changes over time.

Figure 2 is an example of a planning tool that helps teams prioritize decisions by evaluating potential initiatives in regard to business impact and implementation complexity.

Figure 2. Priority Initiatives: Evaluate Implementation Ease Versus Impact

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If the core vision and charter have been established, selecting a succinct, impactful set of overarching improvement initiatives can be a source of empowerment. By involving emerging leaders throughout the organization, powerful new self-governing work teams will emerge.

By leveraging a structure and following a process that keep the responsibility for leading business planning in the hands of business leaders, the result is quantum improvement in targeted initiatives in a shorter time and a fundamental improvement in leadership acumen from top to bottom.

Outcome of solid business planning

Done right, annual business planning can be transformed from a necessary evil to a powerful catalyst for change. Incorporating a comprehensive business assessment; establishing a planning foundation based on strategic clarity, bias for action and alignment; and focusing on a succinct, measurable set of improvement priorities can empower and fire up emerging leaders throughout the organization.

Business planning can deliver exceptional financial results while yielding transformative improvement. The tools for success are available and the rewards are great for those who learn to capture that value.

This is the first article in a three-part series on developing a meaningful annual business planning process that’s effective in driving results. In Part 2 we will discuss rolling out the annual plan to the company.

A Look Ahead for Professional Services Firms

How to ensure a strong new year
by Jeanne Urich and Dave Hofferberth, SPI Research

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Things are looking up.

SPI Research is in the final weeks of collecting data for its fourth-annual professional services (PS) maturity benchmark report. Each year, we analyze the professional services market and look at market trends while assessing overall market health. When we first created the benchmark in 2007, the professional services market was at the tail end of a long, prosperous growth cycle. The results from our first benchmark (published in 2008) reflected the strength of the overall market.

In the next two years, we saw the beginning of the global recession and a much tighter PS market, even though most PS organizations continued to grow. Profit margins were squeezed and staffing levels grew minimally.

Professional services executives of both embedded service providers (such as those within hardware and software suppliers), as well as independents realized they were no longer experiencing double-digit growth rates. The 2010 PS Maturity benchmark report published in January 2010 showed flat to negative growth for most PS organizations.

Now, as we wrap up the 2010 survey and compile the 2011 benchmark report, it’s becoming apparent that the PS market is once again gaining momentum. We’re seeing growth rates three to four times higher than just a year ago. And while most PS executives remain cautiously optimistic, they do predict better things to come over the next year. Many have begun hiring again.

Over half of the organizations we’ve surveyed are engaged in technology-driven initiatives. For over a decade, technology has been the main driver of economic growth, not only in the U.S., but around the world. Changes in the technology landscape, a plethora of mergers and acquisitions and the need to implement upgrades to enterprise hardware and software applications mandate that 2011 will be a good year for technology service providers.

Consider which services are hot, and which are not 

The recent market slowdown has propelled executives from every industry to reevaluate both their technology and their service-provider strategies. During this period, large corporations have continued to eliminate or outsource non-core business functions, preferring to focus on strategic areas that offer the greatest potential for differentiation and growth.

Now, they are looking for technologies and consultants who can lead them into the next phase of growth. These executives demand services and service providers that can demonstrate value for their organizations.

Currently, services offering the greatest impact to client organizations include:

  • SaaS. Momentum continues to build for cloud-based solutions, which presents new opportunities and challenges for service providers.
  • Business process outsourcing. Elimination of non-core business processes enabling the organization to focus on strategic revenue-generating initiatives while minimizing administrative and overhead costs.
  • Business optimization. Service providers that help corporations understand and develop “best practices” to streamline their businesses and eliminate redundancies, bottlenecks and workarounds.
  • Organizational transformation. A significant change including mergers and acquisitions and significant technology investments to prepare for future growth.
  • Managed services. Out-tasking desktop, IT support and technology hosting.
  • Reporting and analytics.Specialized service firms that can help corporations mine their huge data farms and provide unique insights and business intelligence.
  • Social networking. Small and large corporations are struggling with how to harness the Internet for marketing, recruiting and collaboration. iPhone developers are in short supply as are consultants who can help companies take advantage of Web 2.0 and beyond.

Client organizations will continue to acquire other services to help them survive a changing economy. Some services, including staff augmentation and straightforward technology implementation, will continue to be in demand but do not offer the long-term strategic value executives seek to support future growth.

Evaluate your portfolio 

Many PS executives have spent the past two years in survival mode, causing them to evaluate their organizational portfolio including their people, service offerings, clients and infrastructure (particularly technology-related). From an economic perspective, “Scarcity is the mother of invention.” Recession-caused austerity has been a powerful catalyst for eliminating “nice-to-haves” in favor of “must-haves.”

Surviving PS organizations have eliminated waste and are poised to start to grow again, but this time without unnecessary frills, costs, perks and systems of little value. It turns out client relationships, quality and integrity are the values that helped service organizations weather the storm. New investments must focus on providing better client visibility, service execution, quality and consistency.

The interrelationship between staff, services and clients has no simple starting point. Staff on-hand (like inventory) dictates the services offering, which translates into client problems that they can solve immediately.

However, during this time of growth evaluation, PS executives should determine if they have the right type of clients to help them move forward. If not, a change in the type of client dictates the type of service offerings, which dictates the type of professional employee needed.

It is doubtful that many organizations will make drastic changes to their portfolio in the short-term, but PS executives are very mindful that the market has changed, and they must be prepared to change as well.

At the core of today’s professional services firm is the technology infrastructure, which should support the organization’s people and core processes — all to manage capital and improve cash flow. Greater visibility into both current and longer-term activities enables the organization to improve utilization rates and become more profitable.

Coming out of the recession, every PS executive should ask whether he or she has the right information-based tools in place. Now is the time to address disconnected legacy applications, unreliable spreadsheets and endless phone calls in favor of applications that can boost productivity and improve quality and consistency.

Prepare for a happy new year 

The past few years have been difficult. The year 2011 should show improvement over the prior few years, but that doesn’t suggest reckless spending. Understanding which services your firm should offer, and to which clients, will help you with this transition.

Building a workforce ready to meet the needs of clients and prospects in the upcoming few years is always a good place to start. Replacing legacy applications and disconnected spreadsheets with cloud-based productivity systems is another good place to invest.

The End Is in Sight – Now What?

Preparing for economic growth and decline
by Jeanne Urich and Dave Hofferberth, SPI Research

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The economy is showing signs of life. The stock market has jumped about 50 percent since the market bottom in early 2009. If you’re like most businesses, you have lowered headcount, cut costs and worked harder than ever in your marketing and sales efforts in the past year.

You know that this economy will rebound eventually, but you’re not positive when it will happen and how long it will last. The professional services (PS) sector tends to be made up of long-term optimists with the means to create innovative products and services that will help their clients increase their potential for success — ultimately helping economic conditions improve everywhere.

While it is impossible to determine whether the economy truly reached rock bottom earlier this year and is improving, PS executives should embark on initiatives sooner, rather than later, to prepare for its eventual turnaround.

These are exciting times in the market, but they also contain increased levels of uncertainty. Market leaders will be the first to capitalize on new markets and new services offerings, while laggards will fall further behind and ultimately fail.

Should we pursue things we haven’t done?

Did you want to do some things while the market was down but didn’t do them? Should you do them now?

It seems executives should spend more time planning when the work slows down, but we don’t. Human nature can’t help but dwell on the negative. As we see some light at the end of the proverbial tunnel, it’s a perfect time to do everything we didn’t do during slow times.

Don’t wait because the economy and your competitors are planning diligently for the future, and you should be prepared to out-maneuver them as business improves.

Things to consider

Your to-do list might be extensive, but don’t try and bite off too much. Now is the time to plan, prioritize and perform. From discussions with our peer network, we have pulled together suggestions that might help your organization as the transition to a better economy begins.

We bet you can add more to the list of four action items below.

1. Business planning

For some reason, when the economy tanks, many executives fail to take a hard look at their business plans. Yet, as the economy improves, they find they must rapidly create new business plans based on the new economic reality. Several executives have told us that their organizations create three business plans:

A. Aggressive — The economy will rebound rapidly; therefore, the organization will take additional action to boost headcount and secure the capital necessary to fund new and expanded operations.

B. Most likely — The organization assumes slow but steady growth and manages resources and capital in a conservative way to ensure profitability and long-term viability.

C. Downturn — Perhaps the economy is not rebounding as projected, and the organization must make further cuts to ensure viability until the true recession end is in sight.

No matter whether management dusts off or creates the plan from scratch, they must act with a sense of urgency to get their hands around their plans and budgets for the next several periods. The PS organization can no longer run in a month-to-month mode.

It is also a great time to shed practices that don’t offer long-term strategic value or are ready for retirement. Each recession brings new opportunities but tends to shrink the need for products and services in demand just a few years ago.

Stock your service portfolio with solid investments in the future, and communicate your strategic direction out of the recession throughout the PS ranks.

2. Watch for employee turnover

Over this prolonged recession, very few employees have left a company on a voluntary basis. As the economy picks up, firms target employees for recruitment, or employees decide that it’s the right time to try something new. This increased turnover can disrupt operational processes and negatively impact client satisfaction and profitability.

During this time, PS executives should consider initiatives to maintain a manageable attrition rate. These initiatives could include offering the ability to make additional money, additional vacation time or pay for some type of training that would appeal to the employees.

Regardless of which action executives take, they must seriously manage attrition as the company goes back into growth mode.

3. Cash for clunkers

It’s not just automobiles that need recycling. During periods of economic downturn, smaller services firms (and sometimes larger ones) reach a point where they no longer have sufficient long-term viability.

Now is an excellent time to engage in merger and acquisition (M&A) activity as the industry realigns itself and firms can garner economies of scale as they rapidly grow in size through M&A. This activity can add people, practices and geographic coverage to firms — making them more appealing in the global economy.

4. Make sure your information systems stay in alignment

When economic conditions deteriorate, many PS organizations cut costs across the board. One of the first cuts tends to be new information systems and upgrades. Unfortunately, as the economy improves, this area tends to impede growth if firms do not manage it correctly.

To increase operational excellence, PS organizations must implement projects or upgrades that take advantage of new technologies or business processes soon. Many organizations get behind the curve, and struggle to catch up, which shows up poorly in the bottom line.

Companies in every industry realize the importance of information systems and keeping up with the benefits of greater integration and business intelligence.

What’s next?

Despite whether or not the economy has turned the corner, every PS executive must plan for its eventual turnaround. This time might be different. Economists are split on how soon the rebound will occur, but PS executives who don’t prepare for its eventual recovery will put their organization at a competitive disadvantage. This could lead to failure for the next economic boom.

No one wants to be the first to call an economic bottom, but those who fail to prepare for it will ultimately fail to benefit from it. So now is the time to take that first step toward future success.

You Can’t Fix What You Can’t Measure

Business Intelligence — A smart move for PSOs
by Jeanne Urich and Dave Hofferberth, SPI Research

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Professional service executives keep looking for a magic bullet to improve performance and profit. They invest in:

  • Sales and marketing to properly position and sell their services.
  • Finance and operations to capture time and manage resources.
  • Effective recruiting, compensation and training to create a competitive workforce.

However, they often don’t realize the full benefit of these investments because they lack visibility and actionable reports to measure progress.

In a recent study, Service Performance Insight (SPI) tracked over 165 key performance indicators and correlated them with organizational performance. Obviously, indicators such as project margins; earnings before income taxes, depreciation and amortization (EBITDA); and client satisfaction and projects delivered on-time and on-budget go a long way toward pointing the professional service organization (PSO) in the right direction. We have found that the level of business intelligence (aka actionable management reporting) just might be the magic bullet service executives have been looking for. The findings from our study strongly support the adage, “You can’t fix what you can’t measure” or the corollary, “You don’t get what you want; you get what you measure.” 

Many of the 170 organizations we surveyed have turned to integrated business solutions to provide real-time visibility into the business. We’ve discovered organizations that invested in integrated business intelligence (BI) solutions experience significant improvements in organizational performance.

When we correlate performance indicators with organizational success (defined by high revenue and margin growth with high levels of client satisfaction), an integrated BI infrastructure shows the highest correlation with organizational success (see table below). Other performance indicators that highly correlate to success include: average project overrun, confidence in leadership, ease of getting things done and a well understood vision, mission and strategy. However, even these other leading indicators still have a lower correlation to performance (i.e., average performance has a correlation that is 82 percent of BI).

BI – the icing on the cake

PS executives have invested in a number of information-based tools to drive people, processes and capital in the right direction. Many of them have used departmental rather than company-wide solutions, such as professional services automation (PSA) for managing resources and projects, and client relationship management (CRM) for improving sales. Our study shows that performance improves based on the level of application integration, and overall performance continues to improve when PSOs integrate BI with other business applications. This provides the PSO with an additional level of knowledge to make real-time management decisions and detect potential problems before they become insurmountable. BI takes information from all existing applications and creates a clearer picture of organizational performance.

It also helps PSOs manage the assembly and use of information to improve decision-making — leading to improved profitability, management control and faster growth. Our recent study found PSOs who use a BI solution showed significantly improved results compared to those that did not. Some of the improvements include:

  • Contribution margin: 23.9 percent vs. 20.5 percent for PSOs that use BI versus those that do not.
  • Project gross margin: 35.3 percent vs. 31.9 percent.
  • Project on-time delivery: 75.9 percent vs. 71.1 percent.
  • Billable utilization: 66.3 percent vs. 62.2 percent.

We don’t have visibility into the full extent to which these organizations use BI, but it is important to note that those that do show impressive overall results. As PS organizations mature, BI provides real-time visibility into all facets of the operation — allowing executives to spot trends and take corrective action immediately.

Our study found 70 percent of the PSOs surveyed do not use a formal BI solution. Many use Microsoft Excel, which is still the most popular, albeit informal, BI tool on the market. Microsoft does not market Excel as a BI tool; however, its power, flexibility and ease of use make it a natural for helping PSOs extract, analyze and report data. Most of the BI tools reported in the survey were provided by the enterprise resource planning vendors. BI is rapidly becoming an integral part of their product portfolio.

Use intelligence intelligently

Most BI solutions provide graphical executive dashboards to keep PS leaders informed of the status of deals, resources, projects and customers. Dashboards have been a boon for BI sales, and we believe dashboards should be available for employees throughout the PSO — not just executives. Project managers can use dashboards to monitor every aspect of their projects to make sure the work is high quality and on time, while staff members can use dashboards to make sure they are working on the right projects at the right time with the right skills.

Dashboards provide employees with an understanding of how they are personally performing and can alert them when certain areas of their performance require attention. For instance, consultants can see when their utilization drops to a below-bonus level, meaning they may want to find more work, or when their training and skills fall below the threshold for that promotion they covet.

Survey responses combined with on-time, on-budget project delivery performance and timely invoice payment can trigger real-time client-satisfaction dashboards. These account management dashboards track overall client satisfaction, revenue and margin by product line along with client referral possibilities.

Consider a BI czar

Gone are the days when a PS executive could run the business with one gargantuan spreadsheet. A critical investment every PS executive should make is in a senior financial analyst to drive the budgeting and forecasting process; track utilization, revenue and margin; and design actionable reports.

Information does not magically appear in a BI solution; it comes from understanding the relationship between business applications and designing inputs for timely analysis. Many PSOs have a chief operating officer (and sometimes a chief quality officer) responsible for improving overall efficiency and effectiveness within the PSO. We believe the addition of a senior financial analyst is a critical success factor to improve all facets of operation.

Learn from the software vendors

The BI market is relatively new compared to other core business application solutions. Yet, it is rapidly gaining acceptance in the marketplace. In 2007, the largest independent BI providers — Cognos, Business Objects and Hyperion — were acquired by IBM, SAP and Oracle respectively, signaling a new era of strong business intelligence and analytics as part of most major financial applications.

Perhaps each of these independent software vendors is onto something. With the vast amount of data collected by their applications, it is critical that executives and line managers have the ability to cull the information to help their organizations perform better.

BI’s role in PSOs

PSOs continue to look for new ways to increase performance in every facet of their organization. With the availability of new information applications, many executives are adding business intelligence to their toolkit. Without a lot of statistical mumbo-jumbo, our latest study correlates highly the use of BI tools with better performance in every key PS performance indicator.

BI solutions have emerged as the next “killer app” and may be the answer executives have been looking for to dramatically improve performance. Beyond all the hype, our research into this rapidly emerging market shows BI solutions in PSOs demonstrate significant value and warrant serious consideration to help improve every aspect of the organization.