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

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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

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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

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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 jeanne.urich@spiresearch.com or phone (650) 342-4690

Accelerate Professional Service Maturity through Transformation

Success beyond change management or re-engineering
by Jeanne Urich and Dave Hofferberth, SPI Research, and Michael Kanazawa, Dissero Partners

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Professional service organizations (PSOs) provide one of the highest leverage business models to quickly grow revenues and profits, but can be the most difficult organizations to transform and change.

Learn from history

Think about the once great dot.com eBusiness integrators (Scient, Viant and Sapient) who launched new methodologies and penetrated the Fortune 50 almost overnight. Don’t forget IBM’s massive strategic shift into IT services and consulting, and the rapid dominance of Tata in IT outsourcing.

Now, consider the cold, hard facts. Over 70% of major change programs fail to achieve their desired results.

Why? One major barrier to success: leaders often underestimate the magnitude of change, the need to fully engage the entire organization and the requirement for leadership focus and follow through. By managing change in a more complete way, as a business transformation, the odds of success are greatly increased.

Organizations begin a service transformation because they want to:

  • Accelerate revenue and margin growth either through mergers and acquisitions or internal process improvements.
  • Drive alignment between the service organization and other departments, or improve internal service organization alignment.
  • Assimilate new groups, companies or functions.
  • Capitalize on new markets and create new solution offers.
  • Implement new systems and processes to improve effectiveness and efficiency.
  • Improve quality and client satisfaction.
  • Optimize sales and marketing effectiveness.

In today’s marketplace, the term transformation describes everything from high-risk complete business overhauls to tactical changes in IT systems. For PSOs, transformation often focuses on a wide variety of actions and opportunities required to drive continuous business growth. The reasons for this change may be one of many:

  • Realigning as a new leader “takes charge.”
  • Launching a new phase in the organization’s maturity.
  • Entering new markets.
  • Integrating acquisitions.
  • Breaking down organizational silos.

Put simply, transformation means opening up new possibilities for growth and moving from one state to another. It is tough work, and many change initiatives fall short, or end up as “flavors-of-the-month.” To prevent that from happening, PSOs need to understand the difference between transforming the organization and changing hastily as a reactionary measure to internal or external drivers.

Differentiating Transformation, Re-engineering and Change Management

Failure to differentiate between change management, process re-engineering and business transformation often leads to using the wrong tools at the wrong time. The table below shows how the goals differ among these three types of change.

Table 1: Transformation, Re-engineering & Change Management 0309 1Source: Dissero Partners, March 2009

Typical change efforts that focus primarily on change management and process re-engineering often fall short and do not include two important factors in a successful professional service transformation project:

  1. Benchmarking and using best-practices data to drive fact-based decisions
  2. Following a complete and proven business transformation process that engages the leadership team and cascades input and commitment throughout the organization.

To deliver a comprehensive service assessment and transformation solution, the following framework is essential Figure 1 indicates the scope of this transformation solution and how it compares to typically under-scoped efforts to drive change.

Figure 1: PS Transformation Framework 0309 2

Source: Dissero Partners, March 2009

Often what seems to management as a minor tweak in business process is a major shift disruptive to daily sales, service delivery and operations. Much more preparation and consideration is required for success. Typical service transformation gaps include:

  • Absence of executive alignment and leadership, due to the project being viewed as only tactical.
  • No market, benchmark or customer fact-based data to substantiate decisions on priorities or to describe why the rationale behind the changes. Lack of meaningful engagement of business operations and employees until it is too late for them to have input, investment or engagement in the process.
  • No ongoing process for strategy execution and follow-through, resulting in lack of sustained focus and follow-through.

Leadership and strategic focus make a big difference in bottom line performance. This is especially true in the case of PSOs, which are people-oriented businesses and have the flexibility to become highly fragmented without clear strategic focus. Specifically, Table 2 shows 40 percent faster revenue growth and more than double the profitability when the  team has high confidence in its leadership.

Table 2: Confidence in PS Leadership 0309 3Source: Service Performance Insight, March 2009

Table 3 shows that PSOs with better clarity of vision and mission and strategic alignment drive over 50 percent faster revenue growth and 65 percent greater profit margins. In addition with improved leadership focus the PSO lees less staff turnover and improved on-time delivery performance.

Table 3: Organizational Vision, Mission and Strategy Clarity0309 4Source: Service Performance Insight, March 2009 

A solution that works

Combining a benchmark with a proven process for transformation provides a recipe for success in driving increased revenue, profitability, human capital alignment, and delivery quality.  That’s PS Transformation!

The transformation process consists of three phases:

1.  Launch: A compressed launch phase focuses the organization, aligns staff and gets them fully engaged in driving the changes.

2.  Execute: Having a specific process to cascade the plans puts leaders at each level in a role of re-setting priorities and making firm commitments to action at each level. This is followed by quarterly checkpoints to drive best-practices learning and to serve as waypoints to test the strategic direction.

3.  Extend: Once the PSO has launched and executed full performance for a year, to extend its efforts, the organization must confront reality, focus and continue to align and engage employees (see Figure 2).

Figure 2: PS Transformation Timeline

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Source: Service Performance Insight, March 2009

Confront reality and focus on the highest impact initiatives for improvement is the next step. Through qualitative and quantitative techniques(1), a comprehensive review and assessment begins and includes:

  • Vision, Strategy, Leadership & Culture; Finance & Operations; Human Capital Alignment; Service Execution; and Client Relationships
  • High-level analysis of business plans, goals and reports
  • Key leadership interviews for all major business functions
  • Targeted customer and non-customer interviews to provide an “outside-in” perspective of the company’s strengths and challenges.

With this information, the leadership team can have an effective and fact-based conversation about priorities for strategic change and improvement. This information provides the catalyst for performance change that is executed through the transformation process.

What are the Financial Results?

Improvements for improvements sake aren’t very interesting. And often incremental baseline trending of budgets and sales forecasts isn’t enough to keep pace with fast-changing markets and the financial demands of the business. PS executives need to show demonstrable benefits from any investments they make. By focusing on the highest leverage areas first, the financial benefits can drive quick wins and solidify support for larger scale changes over time. The results in the following example are for a small PSO, but are scalable to larger organizations and based on the following assumptions:

  • Number of PS employees:  130
  • Number of Billable PS employees:  100
  • Annual PS Billings:  $20.0mm
  • Revenue Leakage:  4.0%
  • Utilization:  68.0%

While PSOs can make literally hundreds of potential improvements  PS firms can target key performance measurements. Small improvements can yield significant results (Table 4).

Table 4: Service Transformation Quantifiable Business Benefits0309 6Source: Service Performance Insight, March 2009

A PSO with $20 million in revenue can improve profitability by a significant percentage. These improvements are realistic if the PS firm follows a proven business transformation process. Change initiatives with full executive team commitment and alignment that incorporate employee input can succeed in driving bottom-line profits.

Effective Professional Services Transformations

Knowing the common causes of failure is the first step to success.   Effective change initiatives have the following in common:

  • The ability of the leadership team to effectively confront the reality of the current business environment with a realistic fact base (and database) and competitive benchmarks.
  • Clear focus (limiting the focus on a few key initiatives without competing or overlapping priorities).
  • Alignment of all parts of the organization around a core set of improvement initiatives.
  • The ability to rapidly engage the full organization in translating improvement plans into operational tactics and job-level objectives.
  • The follow-through necessary to accelerate the learning and performing cycle while creating committed leaders at all levels of the organization.

By leveraging the structure of benchmarks [2] and following a process that keeps the responsibility for leading the transformation squarely in the hands of business leaders, the result is not only quantum improvement in targeted initiatives in a shorter-than-expected period of time, but also a fundamental improvement in leadership acumen from top to bottom. There is no reason that 70 percent of transformation and change efforts should fall short of financial expectations. The tools for success are available and the rewards are great for those who learn to capture that value.

Footnotes

[1] Service Performance Insight (SPI): PS Maturity Model 2009 Benchmark Study provides current and reliable benchmark data from over 200 PSOs.

[2] Dissero Partners: More than 25 years ago, groups of CEOs, division presidents and their executive teams participated in an innovative program at Harvard Business School chaired by one of the founding partners at Dissero Partners, Dr. Robert Miles. The executives worked collaboratively on their top business challenges with peers and key faculty. The biggest and most common problem facing executives was how to generate a tough confrontation of external realities and then fully engage their organization in executing business changes. Now captured in the book, BIG Ideas to BIG Results (FT Press 2008, Michael T. Kanazawa and Robert H. Miles), the process was built on the best practices that surfaced through that program and many years of refinement and streamlining.