Business Intelligence — A smart move for PSOs
by Jeanne Urich and Dave Hofferberth, SPI Research
Professional service executives keep looking for a magic bullet to improve performance and profit. They invest in:
- Sales and marketing to properly position and sell their services.
- Finance and operations to capture time and manage resources.
- Effective recruiting, compensation and training to create a competitive workforce.
However, they often don’t realize the full benefit of these investments because they lack visibility and actionable reports to measure progress.
In a recent study, Service Performance Insight (SPI) tracked over 165 key performance indicators and correlated them with organizational performance. Obviously, indicators such as project margins; earnings before income taxes, depreciation and amortization (EBITDA); and client satisfaction and projects delivered on-time and on-budget go a long way toward pointing the professional service organization (PSO) in the right direction. We have found that the level of business intelligence (aka actionable management reporting) just might be the magic bullet service executives have been looking for. The findings from our study strongly support the adage, “You can’t fix what you can’t measure” or the corollary, “You don’t get what you want; you get what you measure.”
Many of the 170 organizations we surveyed have turned to integrated business solutions to provide real-time visibility into the business. We’ve discovered organizations that invested in integrated business intelligence (BI) solutions experience significant improvements in organizational performance.
When we correlate performance indicators with organizational success (defined by high revenue and margin growth with high levels of client satisfaction), an integrated BI infrastructure shows the highest correlation with organizational success (see table below). Other performance indicators that highly correlate to success include: average project overrun, confidence in leadership, ease of getting things done and a well understood vision, mission and strategy. However, even these other leading indicators still have a lower correlation to performance (i.e., average performance has a correlation that is 82 percent of BI).
BI – the icing on the cake
PS executives have invested in a number of information-based tools to drive people, processes and capital in the right direction. Many of them have used departmental rather than company-wide solutions, such as professional services automation (PSA) for managing resources and projects, and client relationship management (CRM) for improving sales. Our study shows that performance improves based on the level of application integration, and overall performance continues to improve when PSOs integrate BI with other business applications. This provides the PSO with an additional level of knowledge to make real-time management decisions and detect potential problems before they become insurmountable. BI takes information from all existing applications and creates a clearer picture of organizational performance.
It also helps PSOs manage the assembly and use of information to improve decision-making — leading to improved profitability, management control and faster growth. Our recent study found PSOs who use a BI solution showed significantly improved results compared to those that did not. Some of the improvements include:
- Contribution margin: 23.9 percent vs. 20.5 percent for PSOs that use BI versus those that do not.
- Project gross margin: 35.3 percent vs. 31.9 percent.
- Project on-time delivery: 75.9 percent vs. 71.1 percent.
- Billable utilization: 66.3 percent vs. 62.2 percent.
We don’t have visibility into the full extent to which these organizations use BI, but it is important to note that those that do show impressive overall results. As PS organizations mature, BI provides real-time visibility into all facets of the operation — allowing executives to spot trends and take corrective action immediately.
Our study found 70 percent of the PSOs surveyed do not use a formal BI solution. Many use Microsoft Excel, which is still the most popular, albeit informal, BI tool on the market. Microsoft does not market Excel as a BI tool; however, its power, flexibility and ease of use make it a natural for helping PSOs extract, analyze and report data. Most of the BI tools reported in the survey were provided by the enterprise resource planning vendors. BI is rapidly becoming an integral part of their product portfolio.
Use intelligence intelligently
Most BI solutions provide graphical executive dashboards to keep PS leaders informed of the status of deals, resources, projects and customers. Dashboards have been a boon for BI sales, and we believe dashboards should be available for employees throughout the PSO — not just executives. Project managers can use dashboards to monitor every aspect of their projects to make sure the work is high quality and on time, while staff members can use dashboards to make sure they are working on the right projects at the right time with the right skills.
Dashboards provide employees with an understanding of how they are personally performing and can alert them when certain areas of their performance require attention. For instance, consultants can see when their utilization drops to a below-bonus level, meaning they may want to find more work, or when their training and skills fall below the threshold for that promotion they covet.
Survey responses combined with on-time, on-budget project delivery performance and timely invoice payment can trigger real-time client-satisfaction dashboards. These account management dashboards track overall client satisfaction, revenue and margin by product line along with client referral possibilities.
Consider a BI czar
Gone are the days when a PS executive could run the business with one gargantuan spreadsheet. A critical investment every PS executive should make is in a senior financial analyst to drive the budgeting and forecasting process; track utilization, revenue and margin; and design actionable reports.
Information does not magically appear in a BI solution; it comes from understanding the relationship between business applications and designing inputs for timely analysis. Many PSOs have a chief operating officer (and sometimes a chief quality officer) responsible for improving overall efficiency and effectiveness within the PSO. We believe the addition of a senior financial analyst is a critical success factor to improve all facets of operation.
Learn from the software vendors
The BI market is relatively new compared to other core business application solutions. Yet, it is rapidly gaining acceptance in the marketplace. In 2007, the largest independent BI providers — Cognos, Business Objects and Hyperion — were acquired by IBM, SAP and Oracle respectively, signaling a new era of strong business intelligence and analytics as part of most major financial applications.
Perhaps each of these independent software vendors is onto something. With the vast amount of data collected by their applications, it is critical that executives and line managers have the ability to cull the information to help their organizations perform better.
BI’s role in PSOs
PSOs continue to look for new ways to increase performance in every facet of their organization. With the availability of new information applications, many executives are adding business intelligence to their toolkit. Without a lot of statistical mumbo-jumbo, our latest study correlates highly the use of BI tools with better performance in every key PS performance indicator.
BI solutions have emerged as the next “killer app” and may be the answer executives have been looking for to dramatically improve performance. Beyond all the hype, our research into this rapidly emerging market shows BI solutions in PSOs demonstrate significant value and warrant serious consideration to help improve every aspect of the organization.