The PS Maturity Scorecard – your prescription for success by Jeanne Urich

Keyboard with Improve Your Performance Button.For seven years, we at SPI Research have been benchmarking various levels of operational control and process maturity to determine the characteristics and appropriate behaviors for professional services organizations based on their organizational lifecycle stage. The primary questions we sought to answer when we first conceived the PS Maturity Benchmark in 2007 remain our primary focus today:

  • What are the most important focus areas for PSOs as their businesses mature?
  • What is the optimum level of maturity or control at each phase of an organization’s lifecycle?
  • Is it possible to build diagnostic tools for assessing and determining the health of key business processes?
  • Are there key business characteristics and behaviors that spell the difference between success and failure?

What it takes to become a high-performing Professional Service organization


The original concept behind our PS Maturity Model was to investigate whether increasing levels of standardization in operating processes and management controls improves financial performance. The benchmark demonstrates that increasing levels of business process maturity do result in significant performance improvements as shown in Table 1.

In fact, we found that high levels of performance have more to do with leadership focus, organizational alignment, effective business processes and disciplined execution than “time in grade.” Relatively young and fast-growing organizations can and do demonstrate surprisingly high levels of maturity and performance excellence if their charters are clear. Further improvements accrue when an organization’s goals and measurements align with its mission, and investments are made in talent and systems to provide visibility and appropriate levels of business control. Of course, it helps if it’s well-positioned within a fast-growing market.

The core tenet of the PS Maturity Model is that services- and project-oriented organizations achieve success through the optimization of five pillars:

  1. Leadership: vision, strategy and culture.
  2. Client relationships.
  3. Human capital alignment.
  4. Service execution.
  5. Finance and operations.

The PS Maturity Model describes maturity guidelines and key performance measurements at each performance level. These guidelines illustrate examples of business process maturity while providing directional advice to move to the next level. This study measures the correlation between process maturity, key performance measurements and service performance excellence.

Taking the first step toward recovery

We’ve all heard about recovery programs. The funny thing is that they all start with you realizing you have a problem, and you’re sincerely interested in doing something to fix it. Recovery is a process that involves several steps. You can’t get to the next one without taking the first one.

The formula for improving professional services business performance has a lot in common with health improvement plans, weight loss plans and alcohol recovery programs — they all rely on an accurate diagnosis of the underlying issues that led to the problem in the first place. Lasting recovery depends on taking measurable steps toward an improvement goal, typically with the help of an expert coach.

One of my favorite expressions comes from Lewis Carroll’s “Alice in Wonderland.” “If you don’t know where you’re going, any road will take you there.” Here’s the conversation between Alice and the Cheshire Cat.

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where —” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“— so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”

Obviously businesses have more important things to do than wander aimlessly to prove they’re going somewhere. Having a destination and a route in mind is a much better recipe for success.

Building an improvement roadmap

To create lasting PS business performance improvement, here are five simple steps to follow:

1. Realize you have a problem.

Denial is one of the dominant attributes of lackluster business performance. Acknowledging there is a problem is the first step to recovery. The problem may lie in new, fierce competitors who have changed the playing field. It can be rooted in technology shifts which have commoditized cash cow services. The inability to see or seize new market opportunities may be another cause. Or the heart of performance issues may be due to dysfunctional executive relationships and lack of alignment.

You can create an improvement plan after you’ve first assessed the root causes of the problem. Benchmarks are a powerful tool for problem identification. A good benchmark provides an apples-to-apples comparison to other professional services organizations in the same business.

2. Learn about recovery.

Finding a solution is the next step toward solving a problem. In this case, the solution involves learning about possible ways to advance. Diagnostic tools like the PS Maturity Scorecard help firms understand where they are now and what it will take to move up to the next level of maturity as shown in Figure 1. Each firm’s improvement path will be unique, but visualizing the road peers have taken and the timeframes and investments they have made helps chart an improvement roadmap. Processes like the the PS Maturity Scorecard program help organizations avoid unnecessary potholes while focusing on the highest impact strategies.

Figure 1. PS Maturity Levels


Source:  Service Performance Insight, May 2014

3. Seek expert advice.

Enrolling in any improvement program involves discipline and determination. Expert coaching and advice reinforce positive steps while preventing back-sliding. Having an impartial yet knowledgeable business adviser can help reduce the emotional stress of change.

Organizations are best served by seeking expert advice to develop valuable new growth opportunities before competition or lack of alignment has cornered the firm into a death spiral. Here again, having an empirical benchmark standard provides a fact-based reality check and objective yardstick of the value of improvement. A scorecard like the one shown in Figure 2 is one way to do it.

Figure 2. Measure Service Performance Progress with a Scorecard


Source:  Service Performance Insight, May 2014

4. Prevent relapse.

As with all programs that require change, participants often don’t allocate the time, money or attention to fully develop and fund improvement priorities. Day-to-day business and tactical issues get in the way of long-term growth strategies.

Let’s face it. It’s hard to change old habits, so the temptation to resume business-as-usual behaviors is strong. This is a crucial stage for long-term, sustainable business enhancement because it defines the future path, whether change is possible and if the executive team is willing to see it through. Cement and reinforce improvement plans with quarterly check-ins and annual check-ups with the help of a coach and roadmap.

5. Maintain business improvement efforts.

Developing a lasting, sustainable growth strategy is hard especially when it involves change and building new management disciplines. The thirst for continuous improvement must become part of the organization’s DNA. Progressing through maturity levels depends on adopting repeatable and sustainable methods, tools and measurement systems.

Permanent business improvement does not happen overnight. The maturity model is not static as it reflects the dynamic and ever-changing PS industry and emerging best practices. Each year, the bar has been raised. Best-in-class performance five years ago may now be considered average. Maturity advancement requires continuous effort to take advantage of changing market dynamics. Preventing business setbacks requires maintaining healthy business measurements and controls.

About Service Performance Insight

Over the past seven years, more than 10,000 PSOs have used the concepts and KPIs from SPI’s PS Maturity Model to pinpoint their organizations’ current maturity and develop improvement plans to advance in lagging areas.

SPI Research works with PS firms to create a maturity scorecard to compare to the benchmark maturity definitions. It analyzes current performance and helps prioritize future improvement initiatives. At the end of the project, leaders not only understand the maturity model, but also have the tools to identify, frame and prioritize strategic improvement priorities required to accelerate performance.

To learn more about SPI Research services and how SPI can help your company, please contact Jeanne Urich at or phone (650) 342-4690

Real-time Visibility is the Secret Sauce for Professional Service organizations

Data proves real-time visibility works
by David Hofferberth, Service Performance Insight

For decades, information technology providers have touted the benefits of how their solutions improve real-time visibility. They say their solutions access data faster to improve decision-making. But talk is cheap. While few would argue with this construct, the question is, “How much more efficiency does real-time visibility provide?” We’ve explored this question for the past seven years in our annual Professional Services Maturity Benchmark. Now we can quantify the advantages of real-time visibility.

Cover_2014PSMB_smIn the latest benchmark, 238 professional services executives shared the level of information visibility they had across their organization. The figure shows that approximately 10 percent said they had complete information visibility for making decisions in real time. Still, what does this do to improve the bottom line in professional services?  Level of visibilityWe decided to consider only those 10 percent of the organizations (about 30 firms) who said they had complete information visibility and compare them to the rest. Table 1 highlights a few differences.

The data shows that organizations with high levels of visibility grew and expanded their client base much faster. They accomplished this feat by having a better win-to-bid ratio. This means that for every 10 bids they submitted, they won about one more bid because of a more efficient and effective bidding process.

Real-time visibility comparisonWhen an organization grows and expands the client base faster, it also improves in other aspects. Employees want to work for fast-growing organizations because they feel secure in their jobs, and they should be able to take on more responsibility, learn more and get paid more as they move up within a growing organization. Because these organizations expand faster, there’s less time for administrative overhead. As a result, the percentage of billable time increases significantly. This leads to a much higher revenue yield per employee of over $25K annually. Higher per person revenue helps the organization expand and grow profitably. No one wants to work for an organization that faces financial challenges or loses market share.

The table also shows professional services organizations (PSOs) with high levels of visibility wasted less money on overhead because they stayed aligned and focused. Employee attrition went down significantly for these organizations. And we all know that knowledge workers are the true assets of a PSO. The net effect is a much more efficient organization, resulting in fewer cost overruns and 3 to 5 percent more in net earnings.

How to improve real-time information visibility

What is the potential for information visibility within professional services? Most departments have their own solutions which offer real-time visibility for particular tasks. For instance, sales and marketing personnel use client relationship management (CRM) solutions to manage the pipeline and better understand the services being sold and the price.

Likewise, those responsible for delivering services use professional services automation (PSA) solutions in order to better manage resources and service delivery. It ensures they meet timelines and project profit margins.

The problem is that PSOs only operate at maximum efficiency and effectiveness if the information available to one department — such as sales, marketing or services delivery — is also available to others. This helps departments work together to make sure the entire organization realizes more success.

No doubt, the department responsible for services delivery and human resources would prefer to see what deals are in the pipeline and what their potential bid price is. This information helps ensure they have trained resources available at the right cost to deliver the services. If this information isn’t available at a detailed level, the organization can’t efficiently build its bench in order to start work on time.

Likewise, the sales organization must have visibility into the resources available so it can focus sales efforts on selling projects that best match resource capabilities. Therefore, profits go up.

The impact of real-time information on goals

Having real-time information helps PSOs react faster and make the necessary changes to succeed. It also allows them to more accurately plan long-term initiatives based on the latest information. For example, executives typically look back a quarter or two to determine where they have or haven’t been successful and where they should invest.

Many organizations, however, struggle to look at the prior quarters because the information may not be available for several months. Thus, the lack of real-time information hampers the ability to accurately spot marketplace trends that might impact service strategy. Real-time information prevents surprises. Executives can compare information taken from this week, last week and several prior weeks to precisely determine where to focus future efforts.

Take advantage of the information infrastructure

We believe that using an integrated information infrastructure improves organizational visibility across the entire PSO. It becomes more relevant in light of all the new technologies, such as smart phones and tablets, which provide information access from almost anywhere and at any time. Now, executives, project managers and employees who deliver services have immediate access to any project-related data or changes in priority. They can immediately shift their focus to the most critical issues facing the organization.

No longer do employees have to make multiple phone calls to multiple people to get the message out. The results speak for themselves in Table 2. It reveals a few of the benefits of using integrated solutions.

Integration Drives PerformanceNotice that PSOs without a CRM solution have a deal pipeline of approximately 161 percent of the current quarter forecast. This means they have slightly more than 60 percent more work proposed than is expected to be completed in the quarter. Unfortunately, most of the work in the pipeline won’t be won or will have a start date much later than the current quarter. Therefore, PSOs should have a pipeline of at least 200 percent. This is double the amount of work that could be completed in the quarter.

Those organizations with CRM solutions have a pipeline of 216 percent. But if an organization integrates CRM with a core financial management solution such as enterprise resource planning (ERP), this jumps to 230 percent. It gives the organization a greater confidence margin, which allows the team to craft better proposals.

This analysis applies to PSA solutions in terms of how having integrated solutions further improves the benefits as opposed to having a non-integrated solution. Integrated human capital management (HCM) solutions also yield similar results. The outcome is that this increase in broad, real-time visibility across the PSO helps everyone work with the same information and, therefore, align resources to achieve optimal results.

The proof is in the real-time pudding

Few people doubt the importance of real-time visibility, but they want to see theory backed up by fact before pursuing it. We have monitored this key performance indicator for seven years. All the numbers prove real-time visibility improves performance.

PS executives who want to expand the organization rapidly and operate at high levels of both project margin and organizational profitability will want to do everything within their power and budget to provide the needed visibility to collaborate effectively.

To accomplish this feat, PSOs must use their information infrastructure to their fullest advantage. It’s a powerful tool that lets them adapt to current conditions as quickly as possible to reach and exceed their organizations’ goals.

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.


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.

2013 Professional Services Maturity Benchmark

What will it take to grow and succeed in the year ahead?
by Carey Bettencourt, Jeanne Urich and Dave Hofferberth, Service Performance Insight

Ruler SuccessIn February, we introduced our sixth annual Professional Services Maturity benchmark with cumulative results from 1,059 PS organizations. The results show the professional service market is experiencing high levels of growth across most market segments, including IT consulting, management consulting and managed services. The benchmark has yielded a few trends you should know about.

Growth is strong, but not as strong as in 2011

Accustomed to high levels of growth, the professional services market saw annual revenue growth rates of 15 to 20 percent in the early 2000s. As the global economy dipped into an extended recession, the PS market retrenched but not to the point of flat or negative growth.

In our six years of benchmarking, the average annual growth rate has never been negative. 2009 had the lowest point of year-over-year revenue growth, while 2007 was the most recent high point. Refer to Table 1 for a year-to-year comparison of key performance measurements.

201302 KPI TableThe 2012 survey showed an average growth rate that was almost 20 percent lower than 2011 growth, as shown in Figure 1. This decline from 2011 could be a reaction to the European sovereign debt crisis and worry over the implementation of increased U.S. regulatory costs in 2013. Regardless, double-digit growth rates signify the strength of the global professional services market, making it a dependable source of revenue and profit, particularly in technology and management consulting services.

YOY 5 yr PS RevStaff augmentation, at the bottom end of the market, is experiencing contraction and significant rate pressure. As for the upper end of the market, the demand for unique and specialized expertise is growing along with higher bill rates. Growth rates over 10 percent generally lead to hiring, while growth below that can be managed through efficiency gains, increased utilization and use of third-party contractors.

It’s no surprise that the greatest reported challenge for PS organizations is talent management, as skilled talent shortages have forced firms to revitalize college recruiting and invest significantly in employee development. With economic improvement, we have seen a steady increase in attrition, bringing it on par with pre-recession levels as the war for skilled talent intensifies.

Declining overhead personnel

One key performance indicator that has improved every year is the percentage of employees who are billable as compared to non-billable management, sales and administrative personnel. This metric was less than 70 percent in 2009, but it has risen every year since.

The percentage of billable staff is now more than 75 percent of total staff. While this might not sound significant, it bodes well for profitability because there are now three billable consultants to every non-billable employee. This ratio reduces the pressure for excessive billable utilization because the chargeable workforce has to carry fewer non-billable staff.

Increased reliance on powerful integrated accounting, sales and professional services automation solutions has resulted in significant productivity improvements and fewer administrative roles. However, as the percentage of senior management personnel continues to decline, it could cause operational and sales concerns for PS organizations.

With fewer sales and administrative personnel, sales and marketing efforts could suffer. Reductions in other supporting organizations such as human resources, finance, accounting, and service quality or engineering may compromise recruiting, employee development, financial management and quality. Monitoring this key performance indicator will help PS executives ensure that short-term profitability improvements don’t inhibit long-term growth and quality.

Profits continue to rise

The average organizational profitability in this year’s survey is impressive, as it nearly tripled that of just two years ago. The 2012 benchmark revealed average EBITDA to be 18 percent. Considering the 2011 benchmark showed average profit at 13.5 percent, this year’s survey shows the market is growing and profits are there for the taking.

Many PS organizations are taking the necessary steps to improve profitability. For instance, quarterly non-billable expense went from $1,600 per employee to less than $1,300. Annual non-billable administrative time per employee declined from 232 to 150 hours, giving each employee more than two weeks of additional time. Unfortunately, PS organizations squandered most of this improvement on non-billable project hours, which went up from 196 to 225 hours.

Bill rates also continued to rise, resulting in a higher revenue yield per consultant. Average revenue per consultant soared to $206,000, up from $197,000 in 2011.

Although client delight is always the number one PS priority, high profitability provides an excellent indicator of firm health. Many profitability levers, such as cutting administrative, facility and discretionary travel expenses, are sound business practices for the long-term. However, other profit levers such as staff, salary, bonus and training cuts may improve short-term profitability yet damage morale and growth over the long-term.

Sound management practices favoring long-term growth investments over short-term tactics will yield sustainable profits. For example, providing employee incentives helps drive performance improvements, revenue growth and profitability. Employee, quality and infrastructure investments will lead to greater financial performance over the long haul.

Metrics matter

Every year, we recognize the top 5 percent of benchmark participants with the annual “Best of the Best” award based on superlative overall maturity scores. Perennial winners share many common characteristics, with the main ones being constant management operational vigilance and respect for metrics.

The leaders of the best-of-the-best firms have real-time visibility into and control over all aspects of the business. They understand the impact of key metrics such as attrition, project overruns and excess overhead on bottom-line profitability.

The most mature organizations are more likely to have implemented integrated accounting, CRM and PSA backbones to give them the real-time visibility they need to catch problems and spot negative trends before they spiral out of control. Their key focus and investment are in finding, hiring and retaining top-quality staff, yet they’re frugal in other areas such as expensive facilities and perks that don’t affect client and employee satisfaction.

Looking ahead

A focus on greater efficiency and productivity were major reasons for growth and success in 2012. 2013 will require greater creativity as increased burdens such as health care costs and taxes could limit profitability and inhibit growth as PS organizations’ clients face similar challenges.

The growth and success of the professional services marketplace comes from the organizations offering innovative services to help clients manage change and improve performance. As market dynamics change, leading PS organizations have adapted to take advantage of new technologies to create innovative solutions to help their clients.

2013 will be no different in terms of the need for continuous improvement. But the headwinds will be slightly stronger, and the need for repeatable service offers and organizational efficiency and effectiveness is critical if professional organizations want to remain competitive and profitable.

The Best and the Worst of Times

Technology service providers must negotiate mine fields
by Jeanne Urich and Dave Hofferberth, SPI Research

If 2007 was characterized as “the year of technology consolidation,” based on the unprecedented number of technology mergers and acquisitions, 2008 must go down in the technology service history books as “It was the best of times, and the worst of times.” For most of 2008, many technology firms and pure-play technology service providers experienced significant year-over-year professional service (PS) revenue and margin growth. But, as the entire market tumbled in the fourth quarter, technology service organizations were not immune to the ravages of the economic downturn.

The year ended with a bang as the technology service world recoiled from Satyam’s (Indian’s fourth largest technology firm) demise as Chairman Ramilinga Ragu resigned and admitted to “deliberately over-stating Satyam’s revenues and profits for a number of years.” In his letter of resignation, he admitted to overstating cash on hand by over $1 billion and overstating quarterly earnings by $128 million.

If that wasn’t bad enough, Forrester issued a warning in January 2009 that technology spending in 2009 would grow at 1.6 percent to $573 billion in the U.S. in 2009. This is the slowest rate of technology spending growth since 2002 and down from actual 4.1 percent spending growth in 2008 and 7 percent spending growth in 2007.

Also, in February 2009, BearingPoint, one of the world’s largest providers of management and technology consulting services, filed for Chapter 11 Bankruptcy protection and has begun a sale of international assets.

In today’s turbulent economy, even as technology product companies focus intensely on maintaining revenue and growing margin from professional services as a “recession-proofing” survival strategy, technology service providers are seeing deferred decisions and protracted sales cycles. Winning deals must demonstrate immediate cost savings or significant return on investment (ROI). Consulting has been harder hit than managed services and outsourcing because managed services and outsourcing can provide immediate cost reductions.

Technology professional service trends in 2009

Although the technology sector has held up better than most, the overall economic turmoil has started taking its toll on tech. Several of the issues affecting the PS industry include:

  • Pressure to do “more” with less – PS organizations are focusing on reducing overhead, non-billable travel and expense, training and reliance on subcontractors and offshore staff. Once all the “discretionary fat” has been removed, firms will face layoffs.
  • Potential Indian service provider meltdown – This is based on Satyam misstating revenue and profit for a number of years. With the huge economic downturn, U.S. and Europe, the Middle East and Africa (EMEA) firms will be wary of working with Indian firms and will start “in-sourcing” professional service work in-country to preserve jobs. Currently, the top Indian firms rely heavily on compromised financial service sector revenue.
  • The move to Software as a Service (SaaS) – Traditional software firms derive over 50 percent of revenues from services, but PS revenue and margin are not the objective for SaaS firms. The SaaS professional service objective is rapid, low-cost implementation to drive subscription revenue. This year will challenge SaaS revenue and profit growth because the recession will disproportionately hit the small to medium business space (the primary SaaS target).
  • Vendor consolidation – Cost-conscious clients continue to reduce the number of service providers to drive pricing economies. For service providers, this translates to the need to expand globally and add service lines with increased focus on solution creation, marketing and selling.
  • Skills imbalance – The downturn will reduce hiring pressures, but the new breed of consultants is unwilling to make the travel and lifestyle sacrifices of previous generations. This will increase pressures on service firms to deliver more services remotely and develop strong delivery methods and tools to reduce consultant burnout.
  • Hybrid on- and off-site delivery models – Outsourcing and hybrid professional service organization (PSO) on- and off-site delivery models have become the norm, which puts intense pressure on service firms to quickly and accurately develop detailed requirements so off-site teams can effectively configure, develop and integrate.
  • No initial public offerings (IPOs) – The only viable strategy for pre-public technology companies is to become profitable or be acquired. In the current market, smaller “strategic” technology acquisitions are a viable alternative to research and development spending. Software continues to attract venture capital funding ($5.4 billion in 2008), but the majority of funding focuses on profitable later stage companies.
  • The independent service provider market is alive and well – Industry consolidation has created a huge secondary “service provider” market where independent technology service providers have flourished. Oracle supports a network of over 4,000 independent service providers and Microsoft and Cisco continue to rely on their partner networks to perform the majority of professional services surrounding their products.

Despite the general gloom and doom, many technology companies remain “bullish” on the future of technology professional services. The optimism comes from companies adopting a PS maturity model who are starting to see real gains in PS profit.  Research shows that in January 2008, over 1,200 PSOs started to use a PS maturity model to assess and improve the maturity of their organizations.

The PS maturity model

The premise for a PS maturity model was to explore the critical dimensions of technology professional service organizational performance to determine which elements, and in what combination, produced the best overall results. Many successful organizations follow maturity models such as the Capability Maturity Model (CMM) and Six Sigma; each PSO needs to find its own model that leads to success.

The PS maturity model has become an important framework for assessing and improving all elements of a professional service organization. The model addresses these questions:

  • What are the most important focus areas for a PSO as business processes mature?
  • What is the optimum level of maturity or control at each phase of an organization’s lifecycle?
  • Can the PSO build diagnostic tools for assessing and determining the health of key business processes — depending on an organization’s level of maturity?
  • Do key business characteristics and behaviors spell the difference between success and failure? If so, do they change depending on the maturity of the company or industry?
  • How does the PS maturity model operate within the wider context of the technology maturity model?

Service performance pillars

Successful PSOs use a model to benchmark, segment and analyze their organization into five distinct areas of performance, both logical and functional. Five service performance pillars form the foundation of all service-oriented organizations (responsible parties appear in parenthesis):

  1. Vision, strategy and culture: (CEO) a unique view of the future and the role the service organization will play in shaping it.
  2. Finance and operations: (CFO) the ability to manage services profit and loss — to generate revenue and profit while developing repeatable operating processes, IT applications and management controls.
  3. Human capital alignment: (human resources) the ability to attract, hire, retain and motivate high-quality employees and subcontractors.
  4. Service execution: (engagement/delivery staff) the methodologies, processes and tools to effectively schedule, deploy and measure the quality of the service delivery process.
  5. Client relationships: (marketing and sales) the ability to communicate effectively with employees, partners and customers to generate and close business and win deals.

These dimensions are termed “pillars” because they provide the structural foundation for all service organizations, and the PSO will not survive without them. Each of these pillars defines core functions and operating processes within a billable professional services organization. For each service performance pillar, approximately 35 key performance measurements serve as the basis of the maturity model.

Most organizations operate at varying levels of maturity across these five dimensions. In fact, almost no organization achieves the same level of maturity for all five service performance pillars. The disparity in pillar maturity most likely comes from the charter of the organization, organization size, overall organization lifecycle stage, as well as leadership focus and competence.

Because a specific functional executive within the PSO owns each pillar, these leaders must strive to operate as efficiently and effectively as possible while supporting the overall goals of the organization. Like the pillars within a building, they represent separate, but inter-related and inter-dependent operating processes. If one pillar fails to mature so it can support the business, just like a building, eventually the entire structure will collapse.

Service maturity levels

Five maturity levels help determine the relative operational effectiveness of each pillar:

  • Level 1 — Initiated “Heroic”: The PSO is in its early stages; operating processes are ad hoc and fluid. The business environment is chaotic and opportunistic, and the focus for the PSO is primarily new client acquisition and reference building. Employees wear many hats and serve many roles. The primary goal is growth.
  • Level 2 — Piloted “Functional Excellence”: Core operating processes have become repeatable. The company can demonstrate best practices in separate functional areas or geographies, but staff has not documented and codified them yet for the entire organization.
  • Level 3 — Deployed “Project Excellence”: The PSO has created a set of standard processes and operating principles for all major service performance pillars, but renegades and “hold-outs” may still exist.
  • Level 4 — Institutionalized “Portfolio Excellence”: Management uses precise measurements, metrics and controls, to effectively manage the PSO. Each service-performance pillar contains a detailed set of operating principles, tools and measurements, with quantitative and qualitative goals for specific functions.
  • Level 5 — Optimized “Collaborative”: The PSO focuses on continual improvement of all elements of the five performance pillars. A disciplined, controlled process is in place to measure and optimize performance through both incremental and innovative technological improvements. Management has established quantitative process-improvement objectives, and continually revises them to reflect changing business objectives, and uses them as criteria in managing process improvement.

The maturity levels allow PS firms to discover areas where they are underperforming compared to their peers. In some cases, this performance may be a result of the organization’s strategy, for instance, de-emphasizing margin to help increase product sales. Regardless of the motives, understanding each pillar’s relative maturity can help PS executives implement an operational improvement strategy to move their organization forward.

Start with a fact base and create an annual improvement plan

One of the key benefits of a PS maturity model and benchmark is that it provides clear metrics and guidance on many key performance measurements. Running a service organization is a game of singles and doubles. Small percentage improvements in just a few key performance areas can have dramatic bottom-line results. PS executives often feel isolated and have a limited support base within their companies to rely on for advice. Adopting a benchmark and score-carding process takes the guesswork out of metrics.

By developing a measurable annual improvement plan and backing it up with clear improvement initiatives and goals, despite a tepid economy, the organization can create and institutionalize a continuous cycle of improvement and renewal.