What Professional Services Must Do to Capitalize on Talent

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By Dave Hofferberth

How Professional Service organizations can staff projects with the right talent

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

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

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

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

Why HCM?
HCMPS begins with people, and therefore, on the technology front, we predict HCM systems will increase in importance and usage across the services industry. HCM solutions — also known as talent management solutions — give employers the tools to effectively recruit, manage, evaluate and compensate employees.

By tracking performance, skills and career progression, HCM helps PSOs create a high-performance workforce. Key software modules include employee learning, skills tracking, compensation, performance management, policy compliance and succession planning. Each of these applications helps organizations manage personnel growth and development.

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

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

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

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

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

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

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

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

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

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

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

The Struggle to Align Human Capital in Professional Services

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Announcing the 2014 Best-of-the-Best Professional Service Organizations

What Does It Take for Professional Services to Excel in 2014?

By Jeanne Urich, Managing Director, Service Performance Insight

Learn from the Best-of-the-Best

For the past five years, Service Performance Insight has conducted in-depth analyses of the top 5 percent of PS Maturity™ benchmark participants to uncover the reasons for their superlative performance. After a careful audit of their survey responses and in-depth interviews with lead service executives, the top performing organizations have been named “Best-of-the-Best.” The top 5 percent of firms scored 20 or higher on a scale of 25 on the PS Maturity Model™.

BestoftheBest2014

According to “The 2014 Professional Services Maturity Benchmark,” out of 238 participating organizations, 13 firms significantly outperformed the benchmark average by excelling in all five service performance dimensions: leadership, client relationships, human capital alignment, service execution and finance and operations. With much higher profits and more satisfied clients, these firms outperformed their peers and the benchmark average.

Meet the 2014 top performers:

  1. Campus Management provides robust, elegant and cost-effective software solutions for higher education institutions. Campus Management is a four-time winner.
  2. TOP Step Consulting provides consulting, implementation and training for Professional Service operations and software. TOP Step Consulting is a five-time winner.
  3. Logical Design Solutions, Inc is a strategy and business solutions consulting firm that envisions and designs emerging business ecosystems. LDS is a five-time winner.
  4. TopDown Consulting is a leader in designing, implementing, and deploying EPM solutions.
  5. SmartERP provides innovative, cost-effective, and configurable solutions and services to common business problems on the Oracle PeopleSoft platform.  Two-time winner.
  6. e4 Services, LLC is a healthcare information technology consulting firm specializing in clinical, hospital information management and revenue cycle services.
  7. Agencyport Software builds software solutions that the world’s top insurance carriers use to engage with their product distribution channels and technology partners.
  8. Charles River provides an end-to-end solution to automate front- and middle-office investment management functions across asset classes on a single platform.
  9. EAC Product Development Solutions  provides tools and services to help companies get products to market faster.
  10. Varrow provides technology solutions for virtualization, storage, managed services and disaster recovery through advanced consulting and design services.
  11. The New Office is a leading NetSuite solution provider specializing in helping businesses improve processes and collaboration.
  12. Informatica Corporation is a leading independent provider of data integration, data quality, and big data software and solutions.  Two-time winner.
  13. Trimble creates unique products and solutions incorporating positioning technologies that help customers streamline workflows and analyze complex information.

2014BoBComp

The table compares the 13 Best-of-the-Best performing professional services organizations to the other 225 in this year’s survey. The size of the Best-of-the-Best organizations is much smaller than the average firm in the benchmark. Six are embedded PS organizations within software or software as a service companies, five are IT consultancies and two are management consultancies. Several of the IT consultancies derive a substantial portion of revenue from the resale of hardware and software products in addition to high value consulting.

Unlike previous years, only three of the top firms grew PS revenue more than 25 percent in 2013. One surprising finding is that three top performers grew annual revenue less than five percent and two actually experienced a decline in PS revenue. Yet all of the best delivered high levels of profit and client satisfaction. It is interesting to note that not a single winner this year came from an embedded SaaS PSO. Times sure have changed as in past years embedded SaaS PSOs tended to garner top honors. Not this year. This is because SaaS software firms have shifted the charter of their professional service organizations to focus on client adoption regardless of the impact on PS profit.

While the latest Best-of-the-Best were smaller in size, they grew their workforces at a much higher rate than the others. They also had a higher percentage of billable employees, and depended much less on third party resources. These companies prefer to recruit and deploy talented staff without relying on subcontractors. This translated to higher levels of employee and client satisfaction.

One of the more exciting discoveries is that female leaders are at the helm of four of the top performing companies. Female CEOs are disproportionately represented in the Best-of-the-Best compared to the PS industry. Although there are few female PS executives across the industry, they’ve proven they’re capable of turning their companies into high performers.

Summary of PS Maturity™ benchmark results

Unlike prior years, this year’s best had fewer employees than most firms. Despite their size, they’ve become leaders in specialized markets. Because of their market dominance, they spend less on sales and marketing, and invest more in employees and clients. Their reputations for delivering high quality results manifest in repeat business and referrals.

One-quarter of this year’s best have female executives, a trend that should continue with more women joining the professional services ranks. Their people-centered leadership styles work well in the PS sector.

As these organizations grow, it will become more difficult to maintain their collaborative and innovative cultures. Focused organizations with solid leadership, engaged employees and a strong information infrastructure can overcome stiffer market competition and most hurdles they face. Congratulations to the 2014 Best-of-the-Best on delivering outstanding performance in 2013!

How does your organization measure up? Get your copy of the 2014 Professional Services Maturity Benchmark now. Cover_2014PSMB_sm

Are your organization’s numbers moving in the right direction?

2014 Professional Services Maturity benchmark preview
by David Hofferberth, Service Performance Insight

Based on completed Professional Services Maturity benchmark surveys to date, we at SPI Research expect 2014 to be a strong year for professional services growth. So far, year-over-year revenue growth in the market is 12.6 percent, compared to 11.5 percent last year. If this rate holds, it will be the third consecutive year of annual growth in excess of 10 percent, showing the professional services market has fully recovered from the recession and is in the midst of a big growth surge!

The talent factor

profit 12 2013But we wouldn’t say everything is rosy in professional services, as PS executives continue to convey their difficulty in finding, hiring and retaining highly qualified professional services employees. Last year, we identified a talent cliff as a result of the market losing baby boomers and the struggle to replace them with a supply of qualified individuals with the appropriate science, technology, engineering and math (STEM) skills.

We expected this to be an issue for the next five to 10 years, and nothing has changed in last year’s assessment. For years to come, talent management will be the number one issue. In 2011, only 76,376 engineers and 43,072 computer and IT majors graduated from U.S. universities — not nearly enough to fill demand.

So far in this year’s benchmark, the average number of PS employees is 359. This figure is significantly higher than in the last three years, when organizations averaged approximately 220 employees. We haven’t had a higher average professional services size since 2009. All indicators show that PS firms are hiring and growing at an unprecedented rate.

Five Service Performance Pillars

Before digging into 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 that drive organizational performance.

The core tenet of the model is PSOs achieve success by optimizing five Service Performance Pillars:

  1. Leadership. This pillar represents the unique view of the future and the role the service 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. This pillar includes sales, marketing and partner relationships and effectiveness.
  3. Human capital alignment. This pillar focuses on recruiting, hiring, retaining and motivating a high-quality consulting staff.
  4. Service execution. 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. Level 5 optimizes and aligns 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 service performance excellence. The following sections highlight some of the latest survey findings.

Leadership

As expected, the latest scores reveal employees feel more confident about leadership and the PSO’s future. For the past three years, PSOs have shown solid growth, thus increasing confidence and optimism. It’s clear from the higher growth rates that employees feel positive about the direction the leadership has taken to get there.

On the flip side, the talent cliff has yielded two challenges: 1) increasing sales and marketing and 2) meeting financial objectives. PSOs are struggling with finding qualified employees, which could slow growth rates and profits. We expect resource management to play a larger role in 2014, as PS leaders must maximize their resources. Unfortunately, that won’t be enough. They must find, hire, train and retain a qualified workforce. Doing this could be difficult considering the low graduation rates for STEM majors.

Client relationships

For the third consecutive year, PSOs are growing in excess of 10 percent annually. Although we see their sales pipelines increasing to one of the highest levels ever, we also see that it takes almost 10 percent longer — about 105 days — to close deals compared to last year. The bid-to-win ratio, however, remains constant. It measures the number of bids accepted out of every 10 submitted. Currently, the bid-to-win ratio is at five, the same as last year’s.

One change that’s evolving is the movement toward fixed fee engagements as opposed to the more traditional time and materials engagements. The two types of engagement are close to even. Because PS executives demand more and receive greater control over their services spend, we expect fixed fee to be the dominant type soon. This evolution will force PSOs to concentrate on better service delivery and scoping projects properly.

Human capital alignment

Because of the talent cliff, we anticipate PSOs to look at their own employee base, investing in the needed skills for the organization to grow and prosper. Although specialization remains important, PSOs must have more agility and versatility in order to maintain high levels of billable utilization and keep employees motivated. Talent management will become an increasingly important aspect in the marketplace.

Since talent management will be the most important issue for the next decade, we asked questions related to the age and gender of the professional services workforce, as Table 1 shows. Currently, the average employee is 38 years old, and two-thirds of the employees are men, presenting several interesting trends.

First, most might think of someone in professional services as a grey-haired business guru, but the fact is the majority of the workforce is made up of young, energetic professionals, just a few years removed from college. With the average age in professional services approaching 40, it signifies an older employee base than our initial expectations.

Second, not too long ago, men dominated the professional services market. If someone said 90 percent of the workforce was comprised of men, most people would have believed it. Data says this market has changed, and the emergence of women in the consulting ranks has opened up greater opportunities and viewpoints. We doubt the ratio will be 50-50 in the next few years, but it could get there over the next decade as more opportunities evolve for women.

Table 1: Age of Professional Services Workforce

t1 01 2013

 

 

 

 

 

 

Heading into 2013, one area concerned us, and that was employee attrition. So far, the predictions remain accurate, as attrition lingers around 9 percent, when it was only 7.2 percent last year. We’ve seen this rise in the past five years and expect to see the trend continue as the economy improves.

Service execution

PSOs continue to keep average billable utilization at more than 70 percent. This translates to more than 1,400 billable hours per year per consultant. While 75 percent or higher would be better, the past two years have shown the strongest average utilization in the benchmark’s seven years.

On-time project completion may be a potential problem, as it went from nearly 79 percent down to this year’s 75 percent. Considering most of the other services execution metrics have improved, this key performance indicator most likely correlates with the talent cliff. The market cannot afford for on-time completion to go down for it will ultimately reduce growth rates, profitability and client satisfaction.

Finance and operations

We’ve been monitoring two other critical key performance indicators: 1) annual revenue per billable consultant that looks at the efficiency and effectiveness of the consultants delivering services and 2) annual revenue per employee, which highlights the effectiveness of managing the workforce.

To date, revenue per billable consultant sits at $190,000, down from $206,000 in 2012, a notable decrease that needs close monitoring. The good news is that the revenue per employee has risen from $168,000 in 2012 to $178,000 this year, an indicator that PS executives are moving to get their houses in order.

2014 crystal ball

We’re expecting 2014 to be another banner year in the professional services market. Yes, in spite of the talent cliff negatively impacting the future growth for many PSOs and increasing attrition. Count on seeing changes in the next year with the need for mergers and acquisitions to grow firms. Stay tuned.

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.

Warning: Talent Cliff Ahead – Part 2

The looming technology workforce shortage
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, Service Performance Insight

talent hookIn the first of a two-part article on the talent cliff, we presented some of the major talent management issues that professional services executives face. Here, we share insights and preventive actions to consider in avoiding the talent cliff.

As most professional services executives already know, they cannot depend on the U.S. federal government or the education system to bail them out. Washington tends to be short on ideas but long on programs. Generally, the solutions come from businesses working together to increase the pool of talented workers. Therefore, it is imperative that PS executives, and especially their younger workers, stay well connected to the university system in order to recruit talented people.

The new world of work depends on a multilingual, global, technically skilled, project-based workforce. Today’s professional services leaders must squarely confront the realities of attracting and retaining a new generation of consultants against the backdrop of technical labor shortages as skilled baby boomers retire. Globalization has significantly impacted workforce strategies, with many services providers providing hybrid on- and off-site resources through regional and global competency centers.

Engage the changing workforce

Changing workforce dynamics drive PS executives to create a different type of workforce that requires technical and client management competencies with equal parts of flexibility, autonomy and accountability. This change means that one of the most important challenges for leaders is competing for top talent in a level, global, Web-enabled playing field of “digital natives” who value collaboration and cool, new technologies more than security and remuneration.

Today’s human capital alignment challenges include:

  • Attracting, retaining and motivating top talent.
  • Managing through a technical labor shortage.

According to a Towers Watson Global Workforce Study, the top drivers of employee attraction, retention and engagement are competitive base pay, an organization’s reputation as a great place to work and a senior management team that is sincerely interested in employee well-being. Surveys continually show that creating a high-performance employee culture involves leadership, effective teamwork, access to high-quality training and career development plans rather than compensation alone. Table 1 shows the most effective retention strategies by generation.

One of the more interesting aspects of our research is the importance of an integrated human capital strategy. Finding, hiring, motivating and retaining key employees are just the beginning. We found that human capital alignment metrics contain the highest number of performance indicators with extremely strong correlation to success — meaning how employees perform once onboard dictates ultimate success or failure.

Our research shows major growth in the use of flexible scheduling options — 40 percent more organizations now have telecommuting programs than a year ago. And more than half of all companies now offer flex time so that employees can adjust work hours to minimize commutes and accommodate required travel and child care. Remote services delivery has rapidly become standard for professional services organizations, with 40 percent or more of all PS work now delivered virtually from an off-site location.

Table 1 April 2013

Implement innovative talent strategies

To fill the workforce void, more and more PS organizations are developing innovative new talent strategies: close partnerships with local universities; new hire internships; job-sharing programs; flexible work, study and child care options; onboarding programs; and on-the-job training and mentoring combined with extensive onshore assignments for offshore employees.

Increasingly the reputation of the firm as a great place to work is just as important as client referrals. What this all boils down to is that talent is fast becoming the No. 1 make-it-or-break-it element in professional services growth … or even survival.

To meet these demands, top PS organizations are:

  • Focusing on programs to hire and train entry-level talent with skills in science, technology, engineering and math.
  • Investing in internships and college hiring to groom the next generation of consultants.
  • Cross-training current employees who have strong analytic abilities.
  • Sponsoring training and work visas for international workers with strong backgrounds and skills in science, technology, engineering and math.
  • Offering flexible work arrangements: work from home, job sharing, remote services delivery and child care options.
  • Building a culture of excellence. Leading-edge technologies, clients and projects plus a culture that supports collaboration and innovation attract the best and brightest.
  • Paying for performance that links compensation to knowledge and skills growth along with contributions to the practice — not just revenue generation alone.
  • Investing in employee engagement because communication, training and recognition are essential to keep a talented workforce engaged.

Mitigate employee attrition

Table 2 April 2013PS leaders should also closely monitor voluntary attrition. In an industry as highly
specialized as professional services, workers who leave take a great deal of expertise, experience and enthusiasm with them. Our six years of benchmarking have shown that as the attrition rate rises, so do a number of issues negatively impacting organizational performance and profitability.

Table 2 highlights some of these issues. PS organizations with higher levels of attrition tend to be less successful at growing their client bases and struggle to deliver projects on time and within budget. All this translates into slower growth and profitability for the PS organization. At a time when global growth is important, and larger organizations are acquiring smaller ones, it is imperative that PS organizations grow and remain profitable. Without profitable growth their long-term prospects are severely reduced.

STEM-ing the talent cliff

The talent cliff is looming. For professional services organizations, the talent management strategies implemented will be the most critical factor in determining long-term success. Organizations that effectively manage the talent cliff will be positioned for growth and prosperity. But those organizations that fail to understand and manage this burgeoning issue will face increasing business risk and diminishing success.

And one final note for those of you who are parents with children in high school — encourage them to major in science, math, engineering or technology!

 

 

Warning: Talent Cliff Ahead – Part 1

The looming technology workforce shortage
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, Service Performance Insight

tal cliffThis article is the first of a two-part series on the pending “talent cliff,” an important topic to professional services leaders. We discuss why this critical situation exists and provide some related insights from the newly published 2013 PS Maturity Benchmark for professional services.

By now, most professional services executives realize it is increasingly difficult to find, hire and retain an exceptional consulting workforce in a tight global race for talent. The bad news is that it will only get worse in developed countries as workforce demographics change, the educational system continues in disarray and immigration policies remain rigid.

To understand the growing human capital challenges, one must look at the trifecta of external forces that are creating the talent cliff.

It’s the baby boomers!

This year, the average baby boomer (people born between 1946 and 1964, as defined by the United States Census Bureau) will be 58 years old. The graph in Figure 1 shows the impact that aging baby boomers are having on the U.S. workforce. In 2000, the number of older workers was 49.2 million. In 2012, this number increased to 63.1 million. While the number of workers older than 45 has exploded, the number of U.S. workers age 25 to 44 has fallen by 6.8 million. Every day, 10,000 U.S. baby boomers retire, meaning 3.65 million experienced workers exit the workforce every year.

Figure 1. Growth of U.S. workers aged 45 or older

USWHistorically, retirement begins to accelerate when people are in their late 50s. Analysts project that by 2018, there may be more than 5 million unfilled jobs in the U.S. And the number of unfilled jobs requiring STEM skills is projected to be more than 200,000. Unfilled jobs coupled with the loss of baby boomer knowledge, skills and experience could severely impact workforce productivity and the U.S. economy. Furthermore, the shortage of qualified replacement workers makes filling those jobs more difficult.

It’s the schools!

One of the most important and hotly debated topics is the state of the U.S. educational system. Regardless of political perspective, the facts are sobering. On the 2009 Program for International Student Assessment exam, the U.S. ranked 25th in math, 17th in science and 14th in reading among 34 OECD member countries. When the 37 partner countries (including China, Singapore and Taiwan) are incorporated into the list, the U.S. dropped to 31st in math, 23rd in science and 17th in reading. Clearly U.S. K-12 schools lag behind those in other developed countries.

Further, an insufficient number of students who go to college are pursuing STEM disciplines to meet market demands for these skills. Microsoft recently published a report underscoring this labor shortage by citing that the company has 3,400 unfilled research, development and engineering positions in the U.S. And this workforce deficit is not just a U.S. issue, as recent headlines declare a worldwide labor shortage of critical IT skills.

Multiple think tanks and nonprofit organizations have published extensively on this topic. While their proposed solutions for education system reform may differ, they all appear to agree on the future STEM-skilled workforce shortage.

It’s the immigration policies!

Immigration has been a powerful economic engine for the U.S. More than 40 percent of the U.S. Fortune 500 companies were founded by an immigrant or a child of an immigrant. The current immigration policy doesn’t provide the requisite number of visas needed to allow companies to recruit internationally to fill open jobs, specifically those requiring technology skills. Moreover, the worldwide shortage for these skills means U.S. companies hiring for domestic positions are competing against firms in other countries. The immigration policy in many other countries is strategically aligned to the urgent need to globally source these highly skilled workers.

Ironically, many of these foreign workers may have been educated in American colleges and universities. Right now, no targeted immigration program exists to keep foreign students in the U.S. after they earn advanced degrees.

The challenge for 2013

In professional services with IT, software as a service, hardware, networking services and management consultancies depending on individuals with strong technology backgrounds, the talent cliff becomes the most important issue facing the market.

As evidenced in our 2013 PS Maturity Benchmark, talent management is the most important challenge according to 234 companies that completed the survey in the 4th quarter of 2012. The No. 1 challenge in 2011 of “supporting rapid growth and expansion” has been surpassed in 2012 by “talent management,” as outlined in Table 1.

YOY TMTwo years ago, PS executives were mainly concerned with sales, given the prior three years of the economic downturn. Last year, with improved sales and record year-over-year revenue growth of 13.5 percent, the focus turned to service execution. That meant efficiently delivering more projects, which led to higher revenue growth. In 2012, because of the success of the previous two years, the foremost challenge shifted to talent management. The ability to find, hire and engage a high-quality consulting workforce has become the primary concern.

The second-most critical challenge found in this benchmark is improving quality and consistency. Higher-quality services require high-caliber consultants, and generally required skills are based on problem-solving abilities, typically found in individuals with a STEM background.

Populations in the U.S. and other developed nations continue to grow. Educational systems continue to graduate students, and thousands of people immigrate to the U.S. and other developed countries every day. Unfortunately, the balance of supply and demand for individuals with the skills necessary to succeed in technical disciplines is lacking, and without a major commitment from federal, state and local agencies, developed countries, especially the U.S., will suffer over the long-term.

Stay tuned …

This article provides context for the looming talent shortage. Next time, we’ll present some of the innovative methods that PS executives should consider to effectively lead their firms away from the talent cliff.

Your Workforce is Changing

Are you ready for it?
by David Hofferberth and Jeanne Urich, SPI Research

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The professional service industry is in transition. Service Performance Insight’s analysis of over 600 professional services organizations (PSOs) over the past four years has shown significant changes in the market. A handful of Goliath service organizations are no longer the only ones to offer everything from strategy to implementation to business process outsourcing. Now, in addition to the Goliaths, thousands of boutique PS organizations provide a comprehensive portfolio of high-quality services at extremely competitive prices.

Workforce trends

Professional service (PS) clients are changing as well. After years of uncertainty about whether consulting value equaled the money spent, clients now know how to use professional services. They are exerting greater control over consulting projects to ensure high return on their investment dollars. They demand faster response to issues as they arise. Their tolerance for waiting weeks or even days has lessened, leading to immediate problem resolution becoming the norm.

Coupled with industry and client change, the PS workforce is also changing. Employees right out of college or graduate school refuse to work 60 or more hours a week at a remote location with no social benefits. They look for the work type, clients and locations that offer the greatest skill and career potential. They demand a greater say in the type of projects they are assigned to and the amount of travel they will accept.

More experienced consultants look for a work environment that helps them balance career, family and learning objectives. Although consultants generally stay fewer than five years at any given firm, leadership, communication, growth potential, skill-building and long-term benefits are critical for keeping them engaged.

Creating the changing workforce

These changes, as well as many others, drive PSO executives to create a different type of workforce that offers technical and client management competency with equal parts of flexibility, autonomy and accountability. This means one of the most important challenges for today’s PS leaders is competing for top talent in a level, global, web-enabled playing field of “digital natives” who value collaboration and cool, new technologies more than security and remuneration.

Today’s human capital alignment challenges include:

  • Attracting, retaining and motivating top talent.
  • Managing through a technical labor shortage.
  • Managing a global, multi-lingual, multi-cultural workforce.
  • Managing a variable and/or contingent workforce.

Big changes

SPI Research has surveyed 600-plus PS organizations over the past four years and has observed the following:

  • Fewer consultants work from a central headquarters location, mandating the use of technology to support communication, collaboration and knowledge sharing.
  • Every year, a higher percentage of PS employees are billable, which means leaner management and lower administrative overhead.
  • Confidence in leadership and ease of getting things done have declined over the past few years, indicating the recession has had a profound impact on employee trust and confidence.
  • Average time to recruit and ramp a new consultant has increased to over four months, indicating the war for top talent has accelerated.
  • Average guaranteed training days per consultant have increased to five per year.
  • Bill rates for the top PS organizations average 25 percent higher than average rates, indicating clients are willing to pay a premium for superior skills and knowledge.

Some things remain the same

SPI Research notes several areas that should concern PS executives, some of which include:

  • Year-over-year headcount growth is consistently lower than year-over-year revenue growth, which means the PS industry is constantly ratcheting up productivity.
  • Each year, average project staff size and duration continue to decline, mandating effective resource management strategies to rapidly reassign and redeploy consultants.
  • The percentage of work provided by subcontractors and offshore resources has remained constant at 12 percent, which provides insight to the best mix of full-time and subcontract labor.

Effective recruiting, ramping and training make a big difference. Location is no longer as important as finding self-starting employees with good communication and organizational skills. The best firms develop core consultant onboarding and soft skills training to shorten ramp time and ensure consultants are able to listen, communicate and translate client requirements into effective project plans.

This effort helps shorten recruiting and ramping time while providing a sound framework for new hires to rapidly become productive. The best firms require their employees take more than a week of job-related training including a soft skills focus on consulting, communication and negotiating skills.

Happy employees, delighted clients

According to a Towers Watson Global Workforce Study, competitive base pay, an organization’s reputation as a great place to work and a senior management team who is sincerely interested in employee well-being are the top drivers of employee attraction, retention and engagement. Surveys continually show that creating a high-performance employee culture involves leadership, effective teamwork, access to high-quality training and career development plans rather than compensation alone.

One of the more interesting aspects of Service Performance Insight’s most recent research is the importance of an integrated human capital strategy. Finding, hiring, motivating and retaining key employees are just the beginning. SPI Research found human capital alignment metrics contain the highest number of performance indicators with extremely strong correlation to success — meaning how employees perform once onboard dictates ultimate success or failure.

Service Performance Insight’s research shows major growth in the use of flexible scheduling options — 40 percent more organizations have telecommuting programs compared to a year ago. And more than half of all organizations now offer flex-time so employees can adjust work hours to minimize commutes and accommodate required travel and childcare. Remote service delivery has rapidly become standard for PSOs; 40 percent or more of all PS work is now delivered off-site.

Organizations that use offshore resources regularly bring them onshore to accelerate customer knowledge and team communication. Best-in-class PSOs annually bring the global workforce together for training and collaboration-building. Supporting global workforce flexibility comes with a price and makes it impossible to run a PS organization by spreadsheet. Resource management applications are mandatory to accommodate global mobility, staffing and career management.

Take a new approach to workforce management

SPI Research believes you can alter your approach to workforce management in the following ways:

  • Provide career road maps and training to support career progression.
  • Reward beyond individual billable utilization to include “soft skills” like client communication, effective presenting and writing, developing needed methods and tools, contributing to the practice and mentoring.
  • Create balanced employee evaluations and compensation based on a combination of revenue, quality and contributions to improve the practice.
  • Invest in training because training benefits every area of the organization, from reduced attrition and higher growth rates to greater profitability and higher client satisfaction.
  • Invest in remote service delivery. Employees who work remotely, for instance from home, have higher satisfaction levels than employees who are continually on-site.
  • Clients are now acknowledging the benefits of remote service delivery due to the cost, productivity and responsiveness improvements it provides.

You may consider the creation of a “flexibility or adaptability” matrix. This means higher-level skills and openness to engagement options, the greater the potential compensation. This could motivate your workforce to continue personal development, while providing a balance between desire, knowledge and skills, willingness to take on tough assignments and compensation.

The need for change

The industry is changing, your clients are changing, and so is your workforce. Leading firms will adapt to these changes and create an environment where the likelihood of individual and team success is enhanced. The key is to listen to your workforce to understand its demands and make sure they are in alignment with your clients’ needs.

Offering your workforce greater flexibility, access to quality training and a higher variable component of compensation helps keep consultants motivated when the work, clients and location to where they must travel are not ideal. Greater management communication of the strategy and organizational objectives gives employees a context for their work which enhances engagement and commitment to the organization

 

A Comprehensive Human Capital Alignment Strategy

The dollars and cents add up
by Jeanne Urich and Dave Hofferberth, SPI Research

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Most professional services (PS) executives monitor a handful of key performance indicators (KPIs) to determine the success of their organization. Some of these metrics include growth rates, earnings before income taxes, depreciation and amortization (EBITDA) or contribution margins, days sales outstanding (DSO) and client satisfaction. However, these indicators are the tip of the iceberg — they are a result of successful planning, development, sales, service delivery and invoice management. If done well, client satisfaction will also be at an acceptable level.

Popular KPIs are easy to see

To make sure that these, and many other high-level KPIs, meet organizational goals, PS executives must look at the details behind these indicators for the root cause of their success or failure. Across professional service organization (PSOs), indicators appear in each of the five Service Performance Pillars:

  1. Vision and Strategy: A unique view of the future and the role the service organization will play in shaping it. A clear and compelling strategy provides a focus for the organization and galvanizes action.
  2. Finance and Operations: (CFO) The ability to manage services profit and loss — to generate revenue and profit while developing repeatable operating processes. Elements of this pillar provide long-term financial stability.
  3. Human Capital Alignment: The ability to attract, hire, retain and motivate employees. With changing workforce demographics, human capital strategy has increased in importance.
  4. Service Execution: The methodologies, processes and tools to effectively schedule, deploy and measure the quality of the service delivery process.
  5. Client Relationships: The ability to effectively communicate with employees, partners and customers to generate and close business and win deals.

By doing things “right” in each performance pillar, firms can measure PSO success. The impact of activities in one pillar can positively or negatively impact the activities in another. Successful PS executives understand the balance required to achieve their ultimate success.

Profits matter, and they start with people

One of the more interesting aspects of research focused on billable PSOs is the importance of an integrated human capital strategy. Finding, hiring and retaining key employees are just the beginning.

SPI Research has analyzed over 160 performance indicators and correlated them with the leading KPIs used by many PS executives to determine success or failure. The model we built segments organizational maturity into five levels, where Level 1 is the base level for beginning firms or those that do not operate efficiently or effectively. Level 2 is for average performance, and increasing performance continues on to Level 5, where less than 5 percent of the PSOs surveyed meet the stringent criteria to be market leaders. Most of the performance indicators in this study trended up or down, depending on their positive or at negative impact on performance.

We have found that the number of performance indicators with extremely strong correlations to success are within the human capital alignment pillar — meaning, the employees, and how they perform once onboard in the firm (Table 1) dictate ultimate success or failure. The problem is that there are many KPIs associated with human capital. So which ones should PS executives consider?

Table 1: Human Capital Alignment performance indicators tied to performance levels0709 2Source: Service Performance Insight, February 2009

We have learned that some of the more notable performance indicators include:

  • Non-billable project hours: Leading PSOs (Level 5 performers) averaged only 80 hours per year per consultant of non-billable time. Contrast this figure with less mature PSOs that averaged over 300 hours annually! At bill rates of $150/hour this difference is over $33,000 in reduced billings per consultant per year. Therefore, PS executives should strongly encourage non-billable project hours stay under 2 percent.
  • Standard job descriptions exist for all positions: 100 percent of the Level 5 performers had standard job descriptions versus 62.2 percent of Level 1 performing PSOs. The leading performers keep the descriptions “standard,” which makes it easier to recruit and hire. Reducing the hiring and ramping time also shows up in increased financial performance. PS executives should mandate that HR create standard job descriptions to provide clarity in job positions.
  • Skill profiles exist for all employees: Our research shows 100 percent for Level 5 versus 43.2 percent for Level 1. The leading PSOs have skill profiles for their employees and make them visible to other practices within the company. This visibility increases the overall consultant utilization rates and shows executives around the organization which skills are most in demand, and what their appropriate pricing might be. PS executives should mandate that HR create skill profiles to provide individual clarity to keep employees visible and billable.
  • Performance reviews tied to industry benchmarks: 100 percent of the leading firms tied performance reviews to industry benchmarks versus 25.1 percent of Level 1 performing PSOs. Employees who can see what is expected of them compared to their peer group (inside and outside of the organization) perform better knowing they are treated in accordance with industry standards. Obviously, they must believe the standards are unbiased or performance and satisfaction would suffer. PSOs should maintain a database of industry benchmarks and show it to employees when appropriate.
  • A well-understood career path for all employees: The difference here is quite large, 100 percent for Level 5 versus 26.4 percent for Level 1. It makes sense in that employees who lack a clear understanding of their potential within an organization feel less sense of loyalty and therefore will not perform as well as highly motivated individuals. PS executives should mandate a potential career path guide for employees, which shows where people in their position could end up in the next one, two and five years.

It should be noted that these performance indicators are not overly expensive to implement, and leading PSOs consider this necessary in successfully maintaining a high-quality workforce.

Other performance indicators have a strong correlation with organizational performance, these just happen to be in the Human Capital Alignment pillar. Some of the KPIs don’t necessarily optimize success when they grow too large or too small. For instance, information technology spending as a percentage of revenue tends to show the best results when it’s approximately 4 to 6 percent. Obviously, no spending on information technology would severely, negatively impact performance, as would excessive spending, anywhere over 10 to 15 percent.

Consider programs that improve human capital alignment

We recommend PS executives work with their human resource teams to develop a human capital alignment strategy both visible and understandable by the workforce. Employees should understand management’s expectations and how those expectations will drive compensation, promotions and other areas that impact performance.

When employees understand their performance goals, they can work with their managers to make sure they attain them. For instance, most PSOs have utilization targets. The calculation of utilization is usually clear to the employees, and therefore, they understand how they are performing. Employees will meet with greater success if they come into the job with a clear understanding of these requirements and a skill profile that helps them become more visible and billable.

Employees must come into the job with a clear understanding of what their career path could potentially be if they successfully remain with the organization over several years. To keep these employees motivated and challenged, the PSO must offer various education and training programs to keep employees up-to-date on the latest skills required for them to succeed.

“World class” relies on human capital

Many factors go into creating a world-class professional services organization. Fluctuating economic cycles and changing client needs can cause stress and poor performance on the workforce, resulting in turnover and reduced profitability. These external factors can make life difficult in the highly charged and competitive professional services sector.

Greater clarity of expectations for the workforce provides for a work environment that helps reduce many of the issues related to external factors. PS executives must ensure the organizational strategy and directives are clear to the workforce and that their workers understand management’s expectations.

With this type of clarity, workers will feel a greater empowerment to operate in a manner consistent with the needs of their organization. In professional services, it always starts with the workforce. It ends there, too.

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.