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.