Change Management: An Internal Affair

How professional services organizations can apply change management internally
by Carey Bettencourt, David Hofferberth and Jeanne Urich, SPI Research

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The one certainty in business is change. In fact, the velocity of change is increasing, requiring businesses to invest in programs to gain or maintain competitive advantage. The good news for every professional services organization (PSO) is that the industry annual revenue growth rate has exceeded 13 percent, per our “2012 Professional Services Maturity Model™ Benchmark”.

Unfortunately, according to multiple analysts, organizations are not successful in achieving their goals in most programs because of a failure to manage the people side of change. To help manage this risk, a growing number of PSOs have a change management practice, a capability embedded in their project management methodology and client engagement approach or both.

But do these PSOs apply the change management discipline and capabilities when undertaking their own programs? If not, the likelihood of achieving goals and sustaining results is no better.

Keys to effective change management

For those firms that consistently apply change management to internal improvement programs with perfect results, congratulations! For those PSOs with change management knowledge and skills that are internally inconsistent, this will reinforce the importance of this discipline. And for PSOs that are new to change management, this will help you internally and compel you to consider adding change management capabilities to your services portfolio.

First, the mission of change management is to create authentic buy-in to increase the likelihood that all key stakeholders support the program’s aims and make a commitment to its success. This means the stakeholders understand how the program affects them and the role that they need to play.

Second, the scope and scale of change management efforts must effectively align with the nature of the program’s change and company culture. Its complexity, organizational impact, considerations, strategic importance and visibility should determine the change management approach and activities. The greater the program’s impact, the more rigorous the change management efforts must be. And don’t overestimate the power of project management to override the need for change management. These efforts must be synchronized.

Third, we believe there are five key activities organizations must do to succeed in change management:

1. Gain visible and active executive sponsorship.

The key to any successful transformation starts and ends with leadership. The goal of leadership is to articulate the need for change, establish the future state and ensure that key leaders are aligned, in the know and supportive. The lack of strong leadership and vision will result in confusion within the organization and derail the change program.

2. Communicate!

We cannot underscore the importance of a robust and well-planned communication effort for any change program. The goals of a communication strategy are to effectively position the program as an enabler to the business and a catalyst for improved client experience.

As we know, communication voids often fill with negativity. Communication must be frequent and consistent to foster dialogue in the organization. Cater messaging to distinct stakeholders groups as necessary because one size does not fit all.

When facing change, people generally have five questions they need answered before they can understand and accept the change. Here are the fundamental questions that any change program must answer in order to be successful and move individuals along the personal commitment curve.

  1. Why are we doing this?
  2. Why now?
  3. How will this affect me?
  4. How will we work together?
  5. What do I need to do to be prepared?

The commitment curve pictured in Figure 1 depicts the behavioral stages individuals go through over time as they make their way to the ultimate goal of internalization and commitment to the program.

Figure 1. Behavioral Stages of How People Respond to Change Over Time

CM Behavior Graph

Companies today have many communication vehicles available for broadcasting messages. Most people use emails, postings, blog posts and in-person meetings. But they should also look into social media, webinars and surveys to garner two-way dialogue. Look to past communications as your guideline on which channels to use for communications.

3. Involve stakeholders.

Engaging key stakeholders not only helps move the program forward but also serves to create advocates who will influence broader organizational perception and adoption of the program. Sometimes a key stakeholder may also be a change resister. Ownership is a powerful incentive, so make that stakeholder responsible for an activity or deliverable to accelerate acceptance and adoption.

Here are recommendations to successfully integrate stakeholders to ensure business needs are identified and potential advocates have a say and vested interest in the success of the program.

  • Treat key stakeholders and potential advocates as program team members.
  • Educate stakeholders about the program and the role they will play.
  • Empower stakeholders to act as change champions and advocates.
  • Convey the importance of stakeholders’ opinions.
  • Contact key stakeholders to garner feedback and document issues and enhancement recommendations throughout the program.
  • Recognize their efforts through premium items, letters of recognition and so on.

4. Align the organization.

Change programs can be transformative. Reporting relationships, roles, responsibilities, required skills and stakeholder expectations will change. Implementing these organizational changes to support the program’s objectives may also require developing skills and changing the incentive plans.

To be successful, PSOs must be aligned to ensure that each relevant function understands its role and obligations. Organizational alignment includes role design, organizational impact assessment, and skills and training assessment and results in the creation of a transition plan to overcome resistance and accelerate adoption of the program and processes. In particular, aligning incentives to program goals will build a sense of urgency and help foster belief in the change while reinforcing the benefits of the desired state.

5. Enable stakeholders and the organization.

Successful program deployment requires organizational readiness to integrate change. Training on the new processes, skills, behaviors, systems and methods required by the program must be addressed. Training must be tailored to stakeholder groups to be effective. Effective methods for training include classroom instruction, one-on-one coaching, self-paced and web-based training, hands-on training, and job aids.

Gaining change management acceptance

So, if your organization has proven change management skills and capabilities, unleash your talent internally. If this discipline is new to your organization, embrace it. It can be the difference between program success and failure. Consider developing it as a services capability. You will be able to credibly sell your change management expertise by telling a successfully change story: yours.

How to Create a Billable Consulting Culture

What makes service transformations succeed?
by Jeanne Urich and Dave Hofferberth of Service Performance Insight

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One of the hardest, but most rewarding change efforts, is building a “billable consulting culture.” Sure, every professional service (PS) firm wants to increase the number of billable consultants, the number of billable hours and the consultant’s hourly rate. But how do PS firms build a culture so these behaviors are intrinsic?

According to a McKinsey 2010 survey of 2,512 executives, successful organizational transformations share the following characteristics:

  • Clear, measurable and aspirational targets to guide the transformation plan and initiatives.
  • A clear transformation structure or plan based on a thorough current-state assessment.
  • Employees engaged in the “need for change” and involved in identifying detrimental underlying mind-sets; employees empowered to develop and participate in the change effort.
  • Clear leadership focus on building capabilities while changing mind-sets and culture.
  • A sense of urgency maintained through clear, positive communication.

Why change?

Every PSO has a unique culture, typically reflecting executive leadership style and values. As the organization matures, people who stay take on aspects of the culture and accept it as the standard. If the current culture isn’t fostering company growth and encouraging employees to reach “billable” goals, the culture may need a renovation.

In our experience, there are three primary levels of service organization transformation or change, and each level represents significantly greater complexity and organizational culture change:

  1. Straightforward performance improvement. This typically involves maturing business processes and systems to improve repeatability and scalability while reducing costs. It does not require significant change in the business model or the way people work; instead, it focuses on streamlining and improving core business processes and systems.
  2. Significant new growth. At the next level of complexity, the organization seeks to expand into new service lines, geographies or capabilities, either organically or in combination with acquisitions. This transformation involves developing a growth strategy and adding new skills and capabilities along with new business processes and systems to accommodate and accelerate growth.The hardest part of this type of transformation is developing a clear and compelling strategy. If the strategy is sound, execution will be exhilarating and will continually build momentum.
  3. Organizational cultural change. Service organizations undertake a major transformation when the current business model no longer fits the required new business model or when dissatisfaction with current sub-par performance starts to reach crisis proportions. PS organizations undertake this type of transformation when they move from cost centers to profit centers or from on-premise to software as a service (SaaS) business models.

The company’s original staffing model may be changing to become a high-value consulting model. Or perhaps the embedded PS organization started as an adjunct to product development and is morphing into a true billable PS model. Or maybe the organization began as a sales enabler or customer support organization and is now becoming a profitable billable consulting organization.

Whatever the reason for the change, one of the most difficult and rewarding service transformation efforts is shifting the way people behave and work. To undertake a significant transformation effort, the amount of pain from continuing with the status quo must be substantial enough to warrant and drive a cultural change effort.

Creating a billable consulting culture

Leaders of most PS firms know that the most powerful predictors of overall PS success are not bill rates, discount levels or utilization. In fact, the SPI PS Maturity Benchmark results prove it is “confidence in leadership,” “strategic alignment of goals and measurements,” “ease of getting things done” and a culture that empowers creativity and collaboration that marks the difference in high-performing organizations.

Organizational culture is the unwritten customs, behaviors and beliefs that determine the “rules of the game” for decision-making, structure and power. Culture is based on the shared history and traditions of the organization combined with current leadership values. In effect, culture dictates “the way we do business here” and models the organizational survival tactics that facilitate assimilation and personal success.

When organizational culture is strong, employees do things because they believe it is the right thing to do and the company will reward them for their actions. However, if the current culture was developed to support an anachronistic business model, which must be changed, getting at and changing the underlying employee mind-set can be a daunting task.

Because service organizations are 100 percent people-based, creating a billable consulting culture in sync with the new mission and charter of the service organization is of paramount importance in any change effort. Successful service transformations engage the workforce in defining issues and creating and enacting improvement initiatives. “Top-down” improvement programs rarely work in PS organizations unless they engage leaders throughout the organization to define problems and participate in the solutions.

Defining the transformation vision

Humans don’t like change, and the older we get, the more stuck in our ways we become. PS employees are human beings first and billable consultants a distant second or third. They are only willing to alter their mind-sets if they see the point of the change and can envision why it might be good for them and how they might benefit from growing or adapting to take on the change.

Why change? Develop a sense of urgency by confronting reality and realizing the status quo is no longer an alternative. The “why now” must include the benefits of success as well as the penalty for failure.

Leadership must come clean with the sins of the past, which led to the current crisis. If the service organization was originally created to do something different — staffing, adjunct to engineering, sales or partner enablement — and is now aspiring to become a high-value consultancy, transformation leaders should acknowledge the past and explain why it no longer works for the future.

Frankly, too many successful, billable PS organizations delight clients and achieve respectable financial results to operate a money-losing, client-dissatisfying organization. If this is the status quo, the organization must face the very real possibility of going out of business or being replaced.

Where to? This involves painting a clear and compelling vision of the future. If employees cannot visualize the new “promised land,” they will not be willing to undergo the terrors of the journey.

Here, using industry examples and benchmarks help define the possibilities for the future. But, at the heart of every successful service transformation, the organization paints a new and unique future state business model.

Examples include unique partner enablement advisory consulting services to ensure vendor involvement and oversight for partner-led projects; first-mover migration strategies with unique “centers of excellence;” “two-in-a-box” onshore/offshore models to provide the best of on-site accountability and control with the cost advantages of near-shore or offshore resources or leading product sales with strategic business value analysis capabilities.

What’s in it for me? Leaders must translate the “need for change” and the “benefits of change” into a personal and compelling picture of the new work required. This is a typical failure point for many change efforts because employees are not engaged in defining the change or the role they will play in making it happen.

Often, consultants battle a losing product quality war. They face working obscene hours to overcome product defects or to hide missing product functionality. If a not-yet-ready-for-primetime product is the root cause of runaway projects, employee attrition and lackluster financial results, a key transformation initiative may involve creating interlock between services and engineering. In this scenario, senior solution architects may become the core change initiative owners to provide feedback to engineering. As a result, additional investments in pre-release quality assurance or train-the-trainer programs led by consulting experts may produce real change and improvement in both the product and consulting engagements.

Driving behavioral change

Once employees understand what’s in it for them, multiple interlocking elements and structures must all be in sync to drive and support the new behavior of creating a billable consulting culture. PS leaders must:

Empower action. Here is where the rubber hits the road. Employees must be enfranchised in both defining the reasons for change and the scope and impact of the change itself. For change to happen, employees must have the opportunity to practice the new work and see role models of the new behaviors. Employees need to experience and internalize the change personally.

A good example of moving toward a billable consulting culture is for senior project managers from around the world to be part of a service transformation focused on improving repeatability and scalability. This initiative team may be responsible for creating and rolling out a consistent, global methodology or defining how employees will store, share and use knowledge. If the transformation involves moving to a streamlined, centralized resource management model, core managers may own the selection and roll-out of the new resource management application including local training and consistent adoption.

Create pilot wins. Significant and lasting change will not happen overnight, nor do organizations have the luxury of abandoning their current business processes in favor of a new model. This is why successful transformations focus only on a few, critical initiatives.

If a catalyst for the transformation is poor client satisfaction and runaway projects, key solution architects and program managers can become the owners of creating a project management office (PMO) charged with improving quality initially on the largest, highest-risk projects. Once the pilot is successful, the core transformation initiative team can turn the PMO pilot into a new way of doing business to ensure quality and repeatability across all projects.

Communicate constantly. Significant change initiatives run the risk of starting strong, filled with passion but losing steam or dying completely over time. For a transformation to a billable consulting culture to succeed, the reasons for the transformation must be clear, and the PS firm must reward and celebrate consistent progress towards the new state and desired billable consulting behavior.

Quarterly global calls allow staff to review transformation initiative progress and reconfirm why the transformation is critical. Transformation plans and time for initiative teams to accomplish transformation tasks become part of the organization’s fabric. Field rotational assignments are the norm to ensure widespread leadership of key transformation initiatives and projects.

Implement broadly. Companies should only undertake transformations if senior leadership is committed to making significant and lasting change. Once the transformation occurs, engaging employees throughout the organization in understanding, defining and driving change is the only way for a service transformation to succeed. The focus must be on big issues:

  • Lackluster financial performance.
  • Dissatisfied clients.
  • Failure to achieve growth objectives.
  • Ineffective systems, tools and processes inhibiting growth and scalability.
  • Transitioning to a billable consulting culture.

Only a few (no more than three), broad, well-supported transformation initiatives should be part of the first year plan. After defining the key attributes of the new billable consulting culture, the company must support them with reward, recognition and compensation systems as well as recruiting and on-boarding practices.

For the new billable consulting culture to become “the way we do business here,” all of the human capital processes must support and reward the new desired behavior. Managers must give change-resistant employees an opportunity to understand the requirements of becoming billable consultants and enable skill training and mentoring. Celebration and reward for highly billable consultants must become the norm.

Fostering a billable consultant culture

Effective leaders model the values and behavior they expect from their employees. They work with their cross-functional counterparts to develop a shared vision of the future and the role the service organization will play in achieving that vision. They then create clear goals and measurements that drive alignment and empower employees to act and make decisions.

Management must provide clear and open communication to enfranchise employees to become part of the solution rather than the problem. Because employees emulate leaders, it is critical for them to demonstrate and reward a billable consultant culture. That way the culture will not be top-down, it will flourish organization-wide.

Sales and Service: Separated by More than Just Culture

Boosting sales, profits and performance with automation
by Jeanne Urich and Dave Hofferberth, SPI Research

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In many professional services organizations (PSOs), the sales force appears to operate on an island, with a go-go-go attitude and minimal communication as to what each salesperson is selling, to whom and at what price.

During times of economic uncertainty, many professional services executives focus on two core areas of business:

  1. Increasing revenue generation by adding more sales personnel and bidding on more work.
  2. Reducing headcount in non-billable overhead to meet future margin requirements.

SPI Research’s 2102 Professional Services Maturity Model Benchmark shows that most executives spend more time on the former — working to increase sales.

Service tends to react to sales, but unfortunately cannot optimally staff and execute because it doesn’t fully understand the personnel requirements, time commitments and costs until sales officially sells the work.

While there tends to be executive-level communication between sales and service delivery, the sales force is just so busy, and with so much uncertainty, continual communication generally suffers.

To improve communication and sales visibility, many professional services (PS) executives invest in client relationship management (CRM) solutions to provide some level of visibility to executives. However, SPI Research found that very few of these organizations actually integrate the CRM solution with core financials, or the professional services automation (PSA) solution. This lack of integration creates inefficiency within the PSO, as resource managers and consultants alike do not have the visibility into future work in the skills required to assure they can deliver quality services on a timely basis.

For PSOs that do integrate both CRM and PSA with the core financial solution, the benefits are both quantifiable and lucrative. Taking an integrated strategic approach to core information systems within professional services organizations benefits both the PSOs and their clients.

Client generation takes center stage

During economic uncertainty, PS executives increase their emphasis on client retention and new client generation. They typically expand their services offerings to expand billing opportunities. Even when times are good, these executives spend a good deal of time wining and dining existing and potential clients.

New client generation — and its overall importance to organizational growth — is a main driver of client relationship management becoming widespread in the professional services sector. CRM is the second-most popular business application behind core financial accounting in PSOs.

Client generation is just the beginning of the professional services lifecycle. As a PSO finds new prospects and subsequently generates new bids for work, the PSO must plan for potential project execution if the client accepts the bid. Staff with the specific skill sets necessary to complete the work must be available and ready to go. If resource unavailability delays project initiation, the work might go to another firm, or go away.

A smooth transition between winning a bid and beginning the work is paramount in the development of long-term client relations. Ideally, the PS sales force works closely with the service organization. The communication between the two organizations must involve sharing client information that will help improve the odds of a successful engagement.

As the PSO initiates work and begins invoicing, the project scope must be well-defined and approved by both the client and the PSO. This communication increases the assurance that the client will pay invoices in a timely manner.

Lack of communication creates a cycle of inefficiency

Informal lines of communication have existed within the professional services market for decades. In smaller firms, this communication usually does not cause any major issues. However, as a firm grows, SPI Research sees “cracks in the armor” of communication as the PSO bids with greater numbers of people on more projects.

At a certain point in time, inevitably the PSO makes a mistake, and with too few or too many resources available, projects start off on the “wrong foot” and never seem to get on track. This scenario creates unnecessary tension between the PSO and clients. Unfortunately, having projects not run efficiently usually shows up in reduced future business opportunities with the client.

Ideally, both the sales organization and the service delivery organization see the same information and, therefore, understand the resource requirements and timelines for new service projects. If not, the potential for under-staffing, confusion and ultimately frustration tends to lead to employee attrition.

Apply a holistic approach to the information infrastructure

Professional services executives continue to look at their information infrastructure to determine if their application strategy meets the needs of the organization in terms of improving the core business processes, and offering greater visibility and transparency across the organization, along with information that will hold up under the scrutiny of regulatory audits.

Ideally, information flow mirrors that of the organization’s business processes, beginning with client prospecting and going through the subsequent business processes from bid through sale, resources, execution, invoicing and project close. It is critical during each of these project lifecycle phases that the PSO tracks information associated with costs, time and quality, and flags and moves any projects with issues to a higher level of visibility.

CRM and PSA integration drives performance

Over half the PSOs surveyed by SPI Research use both CRM and PSA solutions. However, fewer than 10 percent actually integrate both with their core financial solution. To better understand how the integration of CRM and PSA increases organizational performance, SPI Research analyzed 118 billable service organizations with between 30 and 700 employees. These PSOs are large enough to need CRM and PSA technology, but not so large as to deploy it selectively across different regions and practices.

When comparing those organizations that had both CRM and PSA but did not integrate them, versus those that did, SPI Research found significant improvements in overall performance, including:

  • Annual revenue from new clients: 49 percent with integrated CRM and PSA, 41 percent without integration — meaning the firm sells to a larger client base.
  • Bid-to-win ratio: 6.19 (integrated CRM and PSA) vs. 5.25 (no integration) — meaning a greater win ratio.
  • Billable utilization: 81.4 percent (integrated CRM and PSA) vs. 70.2 percent (no integration) — meaning more hours billed and subsequently greater revenue.
  • Earnings before income taxes, depreciation and amortization (EBITDA): 28.2 percent (integrated CRM and PSA) vs. 26.9 percent (no integration) — meaning increased profitability.

These results, and many others, show the integration of both CRM and PSA makes a dramatic impact to bottom-line operational and financial results.

Add CRM and PSA to your repertoire

Connecting sales and service makes sense, but unfortunately rarely happens due to cultural and incentive clashes. While direct communication is desirable, in many cases, PSOs have little time to provide sufficient information to accurately convey potential project needs and personnel.

At a high level, PS executives should answer important questions associated with sales and service, some of which include:

  • What is the expected of margin of the work?
  • How long will it take to complete the work, and at what points will the firm generate invoices?
  • Is the work on time, and is the client happy with its progress?

Executives and other relevant personnel should track the information from the initial bid through the project completion and invoicing. With this information, both management and consultants can monitor the projects to assure high levels of client satisfaction with acceptable profit margins.

The integration of CRM and PSA has created a channel of communication where both entities can stay informed and up-to-date on potential and current work. This direct communication not only yields higher productivity, but also shows up in higher profits, a more satisfied workforce and content clients

Resource Renaissance

Resource management matters to sustain growth and profitability
by Jeanne Urich and Dave Hofferberth, SPI Research

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No one disputes the fact that people are the most important asset in the services industry. In the highly billable professional services (PS) sector, where many people charge between $250 and $500 per hour, how companies hire, train and compensate specific skills goes a long way to determining an organization’s long-term viability and success.

Recent trends in resource management demonstrate the balance professional services executives are finding between tactical and strategic resource usage, and how they are increasing the emphasis on building a workforce that optimizes growth and profitability both in the short and long-term.

Strategic, tactical resource management

Like most investments, human resources have both their strategic and tactical characteristics. In professional services, people are essentially “the brand,” and how an organization markets them goes far in meeting the organization’s financial objectives.

The hiring and retention practices of professional services organizations (PSOs) must mirror its strategic goals. The firm’s human capital management strategy should outline the types of people needed, their corresponding skills, their cost and subsequently their revenue potential.

Once the PSO develops its human capital management strategy and hires the resources necessary to carry out its strategy, it must then use the resources in a way that is tactical, as well as strategic. PS executives work to staff projects with people who can adequately meet the needs of the client, but do so at a cost that maximizes profitability.

However, there are cases in which a PSO should not maximize short-term profits due to the strategic nature of the client-consultant relationship. By placing the desired consultant on an engagement (even if it isn’t the most financially desirable alternative) can further build a long-term, profitable relationship, and therefore resource management must play both a tactical and strategic function.

Regardless of economic conditions, optimize resources

PS executives, like their manufacturing counterparts, must optimize resources in a way that maintains utilization levels that meet financial goals. These executives must ensure that their staff’s skills align with the short and long-term work to be completed.

While many PSOs strive to ensure they have adequate staff on-board to meet the needs of their client base, many have either too few or too many people. Neither situation is advantageous. Having too many people on-board limits profitability as well as introduces boredom into the equation. Consultants with low levels of utilization tend to feel underutilized and know they are not generating sufficient profit to warrant their long-term tenure with the company. They might also feel underappreciated and with the extra time, begin to look elsewhere for future work.

Consultants with high levels of utilization, while appreciative of their perceived impression that the organization really needs them, begin to suffer burnout, which manifests itself in other areas not related to their day-to-day activities. Many of these individuals enjoy the work as well as the long hours (if adequately compensated), but suffer outside of work, which in turn causes stress and eventual turnover in the organization.

Neither of these situations is ideal for the PSO. Communicating to staff a stated utilization goal will help them understand the PSO’s expectations. However, no consultant is utilized to a constant percentage as work fluctuations occur. The goal of PS executives is to keep their consultants on a utilization percentage with minimal variance to assure consistency and long-term employment.

Change happens: How you handle it determines success or failure

Regardless of economic conditions, the professional services marketplace continues to evolve. PSOs will offer new services and initiate new geographies, and turnover will occur within the organization. Even in leading PSOs, these phenomena occur every day. PSO executives must build a workforce consisting of people who can handle change in a positive, productive way.

Most people don’t like change, even if they say they do. If they succeed at one type of work, they will become less likely to aggressively pursue new ventures, preferring to continue on a path in which they have flourished. The PSO must work to continually develop attributes that make individuals less susceptible to problems as change occurs. Some PSOs initiate programs that continually have their people working on new initiatives outside of their area of comfort, or do training in areas where their skills and qualities might be a long-term asset to the company.

Initiate processes to optimize resource management

Many leading professional services organizations have implemented automated resource management capabilities that allow practice leaders and resource managers to efficiently deploy their workforce. These tools, in conjunction with project management tools, allow PS management to efficiently deploy the workforce to meet profitability, timeline and utilization targets.

They allow management to look beyond the four walls of their office, and to reach out to other areas within their organization — enabling the PSO to maintain a smaller, yet more nimble workforce. This situation allows staff to work with other people outside their office, creating a more unified and consistent service offering — all of which builds the brand.

Resource management tools let executives continually monitor projects to make sure both costs and revenue are in-line with project objectives. In cases where the project scope changes, PS management can use the resource management tool to realign the workforce to ensure other projects and their revenue goals are not negatively impacted.

Maximizing your unique resources

With changing client demands, PSOs must build a workforce that is intelligent, hard-working and adaptable. Every employee builds both the firm’s corporate brand and his or her own. Firms must utilize employees in a way that optimizes their unique skills while meeting the financial directives of the organization. To account for both the strategic and tactical attributes of each resource, many PS executives turn to integrated resource management solutions to keep utilization consistent while meeting client needs.

For numerous organizations, resource management has been more art than science. With the changing demands placed on PSOs to meet client objectives and profitability goals, it has become increasingly clear that more sophisticated resource management is required for long-term organizational success. PS executives who commit to such tools enable their organization to optimize levels of employee skills, while meeting the demands of their clients.

Resource management tools offer PSOs the ability to accurately look at their workforce to determine skill gaps as well as compensation inconsistencies. Resource management should be at the heart of a human capital alignment strategy that allows executives to more accurately predict and hire individuals who possess the skills necessary for long-term client satisfaction and financial viability.

Accelerate Professional Service Maturity through Transformation

Success beyond change management or re-engineering
by Jeanne Urich and Dave Hofferberth, SPI Research, and Michael Kanazawa, Dissero Partners

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Professional service organizations (PSOs) provide one of the highest leverage business models to quickly grow revenues and profits, but can be the most difficult organizations to transform and change.

Learn from history

Think about the once great dot.com eBusiness integrators (Scient, Viant and Sapient) who launched new methodologies and penetrated the Fortune 50 almost overnight. Don’t forget IBM’s massive strategic shift into IT services and consulting, and the rapid dominance of Tata in IT outsourcing.

Now, consider the cold, hard facts. Over 70% of major change programs fail to achieve their desired results.

Why? One major barrier to success: leaders often underestimate the magnitude of change, the need to fully engage the entire organization and the requirement for leadership focus and follow through. By managing change in a more complete way, as a business transformation, the odds of success are greatly increased.

Organizations begin a service transformation because they want to:

  • Accelerate revenue and margin growth either through mergers and acquisitions or internal process improvements.
  • Drive alignment between the service organization and other departments, or improve internal service organization alignment.
  • Assimilate new groups, companies or functions.
  • Capitalize on new markets and create new solution offers.
  • Implement new systems and processes to improve effectiveness and efficiency.
  • Improve quality and client satisfaction.
  • Optimize sales and marketing effectiveness.

In today’s marketplace, the term transformation describes everything from high-risk complete business overhauls to tactical changes in IT systems. For PSOs, transformation often focuses on a wide variety of actions and opportunities required to drive continuous business growth. The reasons for this change may be one of many:

  • Realigning as a new leader “takes charge.”
  • Launching a new phase in the organization’s maturity.
  • Entering new markets.
  • Integrating acquisitions.
  • Breaking down organizational silos.

Put simply, transformation means opening up new possibilities for growth and moving from one state to another. It is tough work, and many change initiatives fall short, or end up as “flavors-of-the-month.” To prevent that from happening, PSOs need to understand the difference between transforming the organization and changing hastily as a reactionary measure to internal or external drivers.

Differentiating Transformation, Re-engineering and Change Management

Failure to differentiate between change management, process re-engineering and business transformation often leads to using the wrong tools at the wrong time. The table below shows how the goals differ among these three types of change.

Table 1: Transformation, Re-engineering & Change Management 0309 1Source: Dissero Partners, March 2009

Typical change efforts that focus primarily on change management and process re-engineering often fall short and do not include two important factors in a successful professional service transformation project:

  1. Benchmarking and using best-practices data to drive fact-based decisions
  2. Following a complete and proven business transformation process that engages the leadership team and cascades input and commitment throughout the organization.

To deliver a comprehensive service assessment and transformation solution, the following framework is essential Figure 1 indicates the scope of this transformation solution and how it compares to typically under-scoped efforts to drive change.

Figure 1: PS Transformation Framework 0309 2

Source: Dissero Partners, March 2009

Often what seems to management as a minor tweak in business process is a major shift disruptive to daily sales, service delivery and operations. Much more preparation and consideration is required for success. Typical service transformation gaps include:

  • Absence of executive alignment and leadership, due to the project being viewed as only tactical.
  • No market, benchmark or customer fact-based data to substantiate decisions on priorities or to describe why the rationale behind the changes. Lack of meaningful engagement of business operations and employees until it is too late for them to have input, investment or engagement in the process.
  • No ongoing process for strategy execution and follow-through, resulting in lack of sustained focus and follow-through.

Leadership and strategic focus make a big difference in bottom line performance. This is especially true in the case of PSOs, which are people-oriented businesses and have the flexibility to become highly fragmented without clear strategic focus. Specifically, Table 2 shows 40 percent faster revenue growth and more than double the profitability when the  team has high confidence in its leadership.

Table 2: Confidence in PS Leadership 0309 3Source: Service Performance Insight, March 2009

Table 3 shows that PSOs with better clarity of vision and mission and strategic alignment drive over 50 percent faster revenue growth and 65 percent greater profit margins. In addition with improved leadership focus the PSO lees less staff turnover and improved on-time delivery performance.

Table 3: Organizational Vision, Mission and Strategy Clarity0309 4Source: Service Performance Insight, March 2009 

A solution that works

Combining a benchmark with a proven process for transformation provides a recipe for success in driving increased revenue, profitability, human capital alignment, and delivery quality.  That’s PS Transformation!

The transformation process consists of three phases:

1.  Launch: A compressed launch phase focuses the organization, aligns staff and gets them fully engaged in driving the changes.

2.  Execute: Having a specific process to cascade the plans puts leaders at each level in a role of re-setting priorities and making firm commitments to action at each level. This is followed by quarterly checkpoints to drive best-practices learning and to serve as waypoints to test the strategic direction.

3.  Extend: Once the PSO has launched and executed full performance for a year, to extend its efforts, the organization must confront reality, focus and continue to align and engage employees (see Figure 2).

Figure 2: PS Transformation Timeline

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Source: Service Performance Insight, March 2009

Confront reality and focus on the highest impact initiatives for improvement is the next step. Through qualitative and quantitative techniques(1), a comprehensive review and assessment begins and includes:

  • Vision, Strategy, Leadership & Culture; Finance & Operations; Human Capital Alignment; Service Execution; and Client Relationships
  • High-level analysis of business plans, goals and reports
  • Key leadership interviews for all major business functions
  • Targeted customer and non-customer interviews to provide an “outside-in” perspective of the company’s strengths and challenges.

With this information, the leadership team can have an effective and fact-based conversation about priorities for strategic change and improvement. This information provides the catalyst for performance change that is executed through the transformation process.

What are the Financial Results?

Improvements for improvements 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 and the financial demands of the business. PS 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. The results in the following example are for a small PSO, but are scalable to larger organizations and based on the following assumptions:

  • Number of PS employees:  130
  • Number of Billable PS employees:  100
  • Annual PS Billings:  $20.0mm
  • Revenue Leakage:  4.0%
  • Utilization:  68.0%

While PSOs can make literally hundreds of potential improvements  PS firms can target key performance measurements. Small improvements can yield significant results (Table 4).

Table 4: Service Transformation Quantifiable Business Benefits0309 6Source: Service Performance Insight, March 2009

A PSO with $20 million in revenue can improve profitability by a significant percentage. These improvements are realistic if the PS firm follows a proven business transformation process. Change initiatives with full executive team commitment and alignment that incorporate employee input can succeed in driving bottom-line profits.

Effective Professional Services Transformations

Knowing the common causes of failure is the first step to success.   Effective change initiatives have the following in common:

  • The ability of the leadership team to effectively confront the reality of the current business environment with a realistic fact base (and database) and competitive benchmarks.
  • Clear focus (limiting the focus on a few key initiatives without competing or overlapping priorities).
  • Alignment of all parts of the organization around a core set of improvement initiatives.
  • The ability to rapidly engage the full organization in translating improvement plans into operational tactics and job-level objectives.
  • The follow-through necessary to accelerate the learning and performing cycle while creating committed leaders at all levels of the organization.

By leveraging the structure of benchmarks [2] and following a process that keeps the responsibility for leading the transformation squarely in the hands of business leaders, the result is not only quantum improvement in targeted initiatives in a shorter-than-expected period of time, but also a fundamental improvement in leadership acumen from top to bottom. There is no reason that 70 percent of transformation and change efforts should fall short of financial expectations. The tools for success are available and the rewards are great for those who learn to capture that value.

Footnotes

[1] Service Performance Insight (SPI): PS Maturity Model 2009 Benchmark Study provides current and reliable benchmark data from over 200 PSOs.

[2] Dissero Partners: More than 25 years ago, groups of CEOs, division presidents and their executive teams participated in an innovative program at Harvard Business School chaired by one of the founding partners at Dissero Partners, Dr. Robert Miles. The executives worked collaboratively on their top business challenges with peers and key faculty. The biggest and most common problem facing executives was how to generate a tough confrontation of external realities and then fully engage their organization in executing business changes. Now captured in the book, BIG Ideas to BIG Results (FT Press 2008, Michael T. Kanazawa and Robert H. Miles), the process was built on the best practices that surfaced through that program and many years of refinement and streamlining.