The 2014 Professional Services Maturity Benchmark

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

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

Dealing with lackluster results

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

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

Facing the talent cliff

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

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

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

Packaging services

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

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

Conducting business planning

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

A look at the Professional Services Maturity Model

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

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

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

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

The difference between maturity levels

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

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

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

The formula for sustainable success

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

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

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

Pick up a copy of the survey

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

Annual Planning: Empty Ritual or Executable Plan? Part 3

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

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

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

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

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

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

Read on for details behind each of these key strategies.

1. Active performance management

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

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

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

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

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

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

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

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

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

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

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

2. Consistent communication

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

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

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

  • Create an official annual company communication plan.

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

  • Establish an internal leadership blog.

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

  • Use alternative communication channels.

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

  • Host informal gatherings.

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

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

3.  Action plan and behavior reinforcement

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

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

Time to celebrate!

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

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