The Effect of Culture on Performance – Part 2

The development and maturity of cultures in professional services
by Dave Hofferberth and Jeanne Urich, SPI Research

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In Part 1 of this two-part series, we introduced the concept of organizational culture and defined the four dominant types found in professional service organizations (collaborative, creative, competitive and controlled). Part 2 shows how these organizations fared in our 2012 Professional Services Maturity Benchmark published in February.

Professional services (PS) firms want to know which type of culture produces the best results. The following sections highlight each cultural type and the results based on the survey of 216 PS organizations conducted in November, 2011.

Collaborative (57 percent of survey respondents)

In this year’s benchmark, organizations stating they have a collaborative culture were in the majority. Collaborative organizations grew faster than those that defined themselves as creative, competitive or controlled. Based on their ability to successfully market and sell services, their key performance measurements were solid, but not the best in the client relationships pillar. For instance, organizations with a collaborative culture had the second-highest win to bid ratio, pipeline to bookings and percentage of referenceable clients.

Organizations with a collaborative culture had the second-highest billable utilization and on-time project delivery, yet they displayed the highest revenue per billable employee. They didn’t achieve the highest project margins or the highest levels of profitability. Those accomplishments came from organizations with a creative culture.

The dominant culture based on responses from 216 PS Maturity Benchmark participants is collaborative. In general, it yields good, but not great, levels of financial performance.

Creative (19 percent)

The creative culture, the second most prevalent, showed impressive results in the following areas:

  • Second-highest year-over-year revenue growth.
  • Highest win-to-bid ratios.
  • Highest percentage of referenceable clients.
  • Delivered the most projects on-time.
  • Highest net profit.

With the exception of billable utilization, there were no key performance areas in which organizations with a creative culture did not excel.

So how can you develop a more creative culture? The primary impediment is hierarchical management and control. Managing an organization with a creative culture is sometimes like herding cats, meaning it is difficult to plan, schedule and execute when working with creative types. Many PS executives are comfortable with creative people in marketing or user interface design. But, not so much when it comes to management controls, rigorous business processes and compliance with standards that require consistently delivering client results.

Many organizations fear the term creative because it sounds unstructured and lacking in discipline. SPI Research believes that with the right infrastructure — processes, standards and measurements — organizations with creative cultures can thrive while still fostering personal and organizational innovation.

Competitive (13 percent)

One-eighth of the respondents reported competitive as their predominant culture. Given the competitive cultural stereotype as primarily sales oriented and aggressive, it was somewhat surprising to see a lack of performance in client relationship metrics. Competitive was the second lowest in bid-to-win ratios with 4.6 bids won for every 10 submitted.

The competitive culture fared well in pipeline development and billable utilization. However, this culture produced only 12 percent in net profit, placing their average net profit third out of the four cultures.

Controlled (10 percent)

The one culture that displayed the worst metrics in the 2012 benchmark (and for every year this question was asked in the survey) was controlled. These organizations grew the least in year over year revenue, and had the lowest key performance metrics in all service performance pillars with the exception of revenue per billable employee.

By virtue of its name, one might think that this type of environment does not encourage individuals to think out-of-the-box, to do what it takes to succeed or take risks. This cultural stereotype tends to be more structured than the others where individuals must adhere to more strict or rigorous standards.

The negative connotation of controlled cultures – the antithesis of team-oriented professional service organizations — is hierarchical, top-down decision-making. Effective PS organizations require self-organizing teams who are able to come together quickly to solve specific client business problems. There’s simply no time on the PS battlefield for decisions to come from on high.

Which culture works best?

As the survey results show for each culture, no one culture is superior. Each has strengths and weaknesses. Overall, it appears that creative, competitive and collaborative cultures work well for professional services. The only cultural type that consistently produced the poorest results was controlled. It makes sense when the elements of control come from hierarchy, bureaucracy, red tape or excessive micro-management.

By nature, PS organizations are creative and collaborative based on the fluid creation of high-performance work teams who rapidly come together to solve customer problems. If the predominant cultural style of the organization is competitive or controlled, the PS leadership team needs to ensure employees are free to make decisions and empowered to quickly solve problems.

Table 1 and Table 2 highlight the most critical key performance indicators (KPIs), and how each culture fared.

Table 1 Organizational Culture KPIs – Client Relationships    

 

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Source: Service Performance Insight, April 2012

Table 2 Organizational Culture KPIs – Service Execution and Finance and Operations

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Source: Service Performance Insight, April 2012

Creating cultural balance is key

The take-away from the PS Benchmark is that it’s important to discuss culture to ensure the cultural dynamics of organization structure, power, decision-making and rewards best support the goals of the organization.

Larger firms with multiple functions and complex organization structures may have many cultures, and these sub-cultures might overlap and contradict each other. For example, corporate finance and accounting is a naturally controlling function focused primarily on clear goals and metrics, whereas professional service tends to be more creative and customer support is more collaborative.

The key to cultural effectiveness is to make sure that whatever the dominant style, the culture is flexible enough to accept and assimilate different ideas, personality types and views to best adapt to changing market dynamics.

The maturation of an organizational culture

Every PS organization has its own unique culture, typically reflecting executive leadership style and values. As the organization matures, employees take on aspects of the culture and accept it as the standard. Effective leaders model the values and behavior they expect from their employees. They work with their cross-functional counterparts to develop a shared vision of the future and the role the service organization will play in achieving that vision.

Then, they create clear goals and measurements that drive alignment and empower employees to act and make decisions. Finally, they provide clear and open communication to encourage employees to become part of the solution rather than the problem. Effective leaders create an environment of continual learning and celebrate both individual and team success. They empower their workforce by encouraging subjective and objective decisions.

Most professional service organizations do not overtly define their culture, but it lies below the surface. This goes back to the question of whether organizational culture predetermines performance. The answer is most likely no, but with a caveat. Leaders should consider culture as they build the organization, and foster an environment where different personality types can flourish as long as they respect the organization’s intrinsic values.

No organization consists of individuals who are carbon copies of each other, and this approach would not be healthy anyway. To succeed in professional services, organizations need people with a variety of skills and approaches to successfully sell and execute work. A defined organizational culture can help everyone understand why they need to follow policies and procedures, and how it affects decision-making and power.

It’s unlikely you’ll find a written description of your corporate culture. Instead, you’ll find some level of platitudes and values. It is helpful to understand the real rules of the game and what behaviors will and won’t be accepted. If this survey were to show which culture drove the highest overall performance, it would probably be the creative culture. Those representing the fastest growing organizations said they operated within a creative culture, which represented 20 percent of the organizations surveyed.

The evolution of culture in young organizations

It just so happens that the cloud service providers represented the hottest and fastest growing sector within our 2012 Professional Services Maturity Benchmark. Most are up and comers experiencing tremendous growth. One-third of the cloud service organizations described their cultures as creative. Because they’re young in their organizational lives, they tend to be creative as they’re rewriting IT and business application rules.

At this stage, they need and attract creative leaders and employees who can solve first-of-their-kind problems on the fly. However, as all organizations and markets mature, over time they may find they need to give way to the “98 percent” who characterize themselves as collaborative.

The Effect of Culture on Performance – Part 1

Exploring the four cultural types
by Dave Hofferberth and Jeanne Urich, SPI Research

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This is the first article in a two-part series. This article introduces the concept of organizational culture and defines the four dominant cultural types found in professional service organizations. Part two discusses the effect of culture on performance by reviewing results from the 2012 Professional Services Maturity Model™ Benchmark, published in February.

Many professional services organizations (PSOs) begin with a couple of founders, a great idea and an initial strategy on how to capitalize on it. They add a few qualified people, core business processes and enough money to get started. They may even have potential clients lined up based on their past work or partnerships, so they can generate revenue while they chart their course over the first year. The initial group of employees understands what they need to do and how to perform because they’ve worked with the leader elsewhere.

Defining organizational culture

Few young professional service organizations have predefined the type of organizational culture they want to build. Nonetheless, early-stage culture is strong and usually models the founder’s individual personality and decision-making style.

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

With a strong organizational culture, employees do things because they believe it’s the right thing to do and feel they’ll be rewarded for their actions. However, if the leadership team lacks integrity or squelches diversity, powerful cultures can morph into cults, cliques, castes and insider clubs.

Does the type of culture affect the level, or potential level, of performance? Does culture set up PSOs to succeed or to fail? SPI Research continues to investigate the impact of leadership and culture on performance based on responses from 216 professional service organizations surveyed in the 2012 PS Maturity™ Benchmark survey.

Which term best describes your organization’s culture?

To simplify the PS Maturity™ Benchmark research, SPI created four cultural types based on two primary dimensions — is the reward system primarily focused on individual or group achievement? Is decision-making primarily based on subjective intuition or do decisions require objective proof?

Figure 1 outlines these dimensions and the corresponding cultural definitions.

Figure 1. Culture Types 0312 2

  1. Creative. (Leadership example: Steve Jobs, Apple.) In creative cultures, the primary driver is self-expression. Leaders focus on creative brilliance and celebrate individuals and teams who break the mold with new innovations. The fluid organization structure typically contains self-organizing work teams and collaborative project groups. Creative cultures foster an environment where discontinuous innovation is possible. For instance, Apple’s move from PCs to the more successful iPod. The unbalanced form of power in creative cultures can be like cults, fashioned after a dynamic and visionary leader who can inspire the team to drink the Kool-Aid regardless of the consequences. Their favored functions are research and development and professional services.
  2. Collaborative. (Leadership example: Dave Packard, HP.) In collaborative cultures, the primary driver is teamwork and building consensus. Leaders tend to base decision-making on building a shared view of desired results. The negative aspects of collaborative cultures can be slow decision-making and excessive time to evaluate alternatives. They value trustworthiness and teamwork above creativity and aggressiveness. Collaborative companies seek to develop deep, long-lasting relationships with their clients and often use customer satisfaction as a metric for the organization. Typical collaborative companies use matrix management and complex double and triple line reporting structures. The unbalanced form of a collaborative culture can be insider clubs and analysis paralysis where the company invests unwarranted time and effort to reach group consensus. Their favored functions are marketing and customer service.
  3. Competitive. (Leadership example: Scott McNealy, Sun and Larry Ellison, Oracle.) In competitive cultures, the primary driver is personal and team achievement, often defined as winning. Leaders concentrate on beating the competition and often create quarterly competitive hit lists to squash the competitive enemy of the month. They value personal knowledge and killer instincts. Competitive cultures celebrate individual achievement more than teamwork. This culture and its leaders love management dashboards, which show competitive trends and market-share gains. The organization structure usually develops tiger teams tasked to achieve specific, measurable goals. Companies that want to win at any cost are an unbalanced form of the competitive culture. Overly competitive cultures often blur the line between competing and cheating with personal value based on unnatural competitive wins and compensation. Barry Bonds is one example. Overly competitive cultures may form cliques organized around sales superstars. Their favored functions are sales and product development.
  4. Controlled. (Leadership example: Lou Gerstner, IBM) In controlled cultures, the primary driver is order and alignment based on clear goals and objectives. Leaders create hierarchical reporting structures where power and authority are vested at the top. They value quarterly improvement metrics and benchmarks to determine operational excellence. The organization highly values annual and quarterly business plans and key performance measurements. Overly controlled cultures can lead to excessive bureaucracy, red tape and rules. Employees may feel un-empowered to make decisions without management review and approval. In the unbalanced form, controlled cultures may morph into a caste system where individual competency and achievement take a backseat in favor of maintaining order and status quo. The worst form of an unbalanced, controlling culture develops into a Mafia mentality where loyalty and direction from the top-level Godfather overrules personal morals and convictions. Their favored functions are finance and manufacturing or supply chain.

The good and bad of organizational culture

On the upside, organizational culture helps team members prioritize activities and make decisions by way of the unwritten code of behavior. The downside of culture comes from unbalanced forms of power, which exclude individuals and teams from decision-making. The majority in an unbalanced culture may reject minority employees or groups who challenge group norms or shun them as a negative influence. They believe the challengers upset the status quo. Unbalanced cultures may develop characteristics of cults, cliques, castes or insider clubs.

If you follow SPI and its PS Maturity Model™, you’ll see that organizational culture appears in the leadership pillar. This function sets the direction and tone for the PSO. The decisions made in the leadership pillar affect every other service performance pillar (function) because it determines the mission, goals and objectives for the organization. Leadership also identifies the types of clients to pursue, the types of services to offer and the interrelationship among other groups and functions.

The 2012 PS Maturity Model™ survey asked the participating companies to identify their culture. The following shows the results:

  • Collaborative culture: 60 percent.
  • Creative culture: 20 percent.
  • Competitive culture: 10 percent.
  • Controlled culture: 10 percent.

These results highlight the nature of professional services as being one primarily driven by teamwork and on-the-spot subjective decision-making.

In part two, SPI Research looks at how each type of organizational culture affects service performance.

How to Create a Billable Consulting Culture

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

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

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

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

Why change?

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

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

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

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

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

Creating a billable consulting culture

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

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

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

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

Defining the transformation vision

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

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

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

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

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

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

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

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

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

Driving behavioral change

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

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

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

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

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

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

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

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

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

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

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

Fostering a billable consultant culture

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

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

Sales and Service: Separated by More than Just Culture

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

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

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

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

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

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

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

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

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

Client generation takes center stage

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

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

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

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

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

Lack of communication creates a cycle of inefficiency

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

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

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

Apply a holistic approach to the information infrastructure

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

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

CRM and PSA integration drives performance

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

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

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

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

Add CRM and PSA to your repertoire

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

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

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

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

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