Professional services firms face intense pressure to increase profit and productivity, with new client revenue declining to the lowest level in the past nine years, according to the 2016 Professional Services Maturity Benchmark study from SPI Research.
It wasn’t always this way. During the industry’s heyday in the ‘90s, it wasn’t uncommon to see big-money service contracts being staffed by workers who didn’t have the skills and qualifications best suited for the project. Firm leaders were more focused on top-line growth—revenue, billing rate realization, and utilization—and less on talent and profitability.
This changed with major events like the end of Y2K and the financial crisis of 2008, which caused companies across all industries to scale back their services contracts and reconsider the value they were getting from firms.
In recent years, other forces—from uncertain economic conditions to digital disruption to increased competition—have continued to re-shape the professional services industry, creating new challenges and expectations of firms such as:
- Clients expect professional services firms to have consultants with skills and capabilities that closely match their business needs and initiatives.
- Clients want greater pricing and billing flexibility, such as fixed-fee engagements.
- Firm project managers are not only expected to manage projects against a revenue and utilization target, but also produce a specific profit margin for the client.
- Firms are focusing more heavily on metrics such as profitability, employee engagement, customer satisfaction, and revenue realization to help them compete.
- Firms have invested more in customer relationship management and professional services automation solutions to help address specific problems, but they have tended to be one-off solutions that are disconnected from other systems and incomplete.
Success depends on the ability to understand resource availability and to know your employees’ skills and capabilities for meeting customer demand now and in the future.
To meet the increasing demands of clients today and better compete in the marketplace, many firms are asking themselves: How do I need to change as my clients are changing, so that we’re both successful? This is leading many to look inward at their operational processes and outward at the technology landscape to improve the way they work.
Here are some important things for professional services firms to consider as they think about how to change and evolve their organizations:
Improve your speed and sophistication of data and analytics. Success in professional services depends on the ability to understand resource availability and to know your employees’ skills and capabilities for meeting customer demand now and in the future. The ability to access this information quickly to inform decisions can have a direct impact on your financial performance.
This is no easy task. Many firms are challenged by data that is spread across multiple systems, making it difficult to understand resource capacity, and impeding the ability to make real-time operational and financial decisions. Moving to a single source of truth, where project, talent, and financial data live in one system, can help to simplify and improve decision-making. Firms can then have a complete and accurate picture of employee availability, project data and billing, and costs, enabling them to accurately assign resources and track project budgets to ensure better margin performance.
Real-time visibility into the business also gives firms the flexibility to make adjustments and course-correct when circumstances change. Firms can gain better insight into metrics that go beyond just revenue to look at the entire business, such as headcount planning, margin analysis, and employee engagement, enabling them to better plan for long-term success.
Too much time is spent on manual processes and spreadsheets for activities such as managing the recruiting pipeline, performing resource management, and business planning.
Formalize your focus on people engagement. In professional services, people are a firm’s most important asset. Losing key people immediately impacts revenue and customer satisfaction. Firms should implement a formal and continuous engagement process to both give and get feedback from employees, especially during and after customer projects. Employees might take on six to 10 client projects a year—waiting for yearly and semi-annual annual review processes to engage with employees is too late.
Simplify the IT environment and automate critical processes. The complexity of multiple disparate systems and operational process gaps in firms today has made it difficult for them to scale. Too much time is spent on manual processes and spreadsheets for activities such as managing the recruiting pipeline, performing resource management, and business planning. Firms should look to automate critical operational processes and connect all aspects of a customer project lifecycle—from initial scoping to resource assignment to managing project financials—in a single system to gain the speed, insights, and efficiencies to support growth and the ability to scale.
It’s not easy for any organization to traverse all of the complexities and the pace of change in today’s business environment—but professional services organizations are even more challenged as they manage it for their clients and themselves. When chosen and deployed wisely, technology can provide the foundation that helps firms make better decisions, plan for the future, and focus on what matters most to their businesses.
To learn more about trends in the professional services industry, check out the recent webinar “How Leading PSOs Harness Talent and Grow Margins.” Dave Hofferberth, founder and managing director at SPI Research, and I discuss how professional services organizations can take action to improve retention, client delivery, productivity, and profit.