Enterprise-Level Professional Services Automation

Transcription

1 A Service Performance Insight White Paper Service Compass: Charting the Course to Professional Service Excellence Enterprise-Level Professional Services Automation Solving the Unique Needs of Large Services Firms with PSA September 2013 Service Performance Insight, LLC Four Bridges 6260 Winter Hazel Drive Liberty Township, OH USA

2 TABLE OF CONTENTS Introduction... 1 Key Challenges Facing PSOs... 1 Challenges are Magnified in Large PSOs... 2 Use the Information Infrastructure to Improve Performance... 3 Take Advantage of PSA... 4 PSA Integration Improves Performance... 6 Projector PSA s Success with Large PSOs... 7 Needs Unique to Large PSOs... 9 Conclusions & Recommendations About Service Performance Insight FIGURES Figure 1: Big Projects, Big Problems... 3 Figure 2: PSA Core Modules... 4 Figure 3: Integrated PSA Information Hand-off... 6 Figure 4: Projector User Interface... 7 TABLES Table 1: Large PSOs perform poorly in some areas vs. smaller PSOs... 2 Table 2: Enterprise Application Use in PSOs... 4 Table 3: PSA Benefits in Large PSOs... 5 Table 4: Average Hourly Bill Rate by Role... 5 Table 5: Integrated PSA in Large PSOs Enhances Benefits... 7 Table 6: Projector PSA KPIs in Large PSOs... 8

3 INTRODUCTION As the professional services (PS) market moves back into a hypergrowth phase, its leaders must prepare for the impending issues associated with rapid expansion. Globalization, a more demanding client base, and regulatory scrutiny are only part of the problem. Talent recruitment and acquisition has become increasingly difficult as the market moves back to year over year growth in excess of 10%. Over the past 15 years SPI Research has seen professional services organizations (PSOs) move to adopt information technology solutions to improve delivery and manage performance. Many of the largest PSOs have developed a mosaic of homegrown solutions to manage the business while organizations with between 100 and 10,000 employees tend to adopt commercial, best-of-breed Professional Services Automation (PSA) solutions. This white paper examines the results of Service Performance Insight s research into 450 professional services organizations with more than 100 employees (average size: 680 employees) surveyed over the past two years, as the professional services market has rebounded from three prior years of stagnant growth. It analyzes the unique difficulties larger professional services organizations face and highlights the benefits information-based solutions provide to overcome these obstacles. KEY CHALLENGES FACING PSOS SPI Research has seen a rebound in the professional services market over the past two years, with revenue growth averaging 12.5% annually. While this high level of growth is in line with traditional professional services market expansion, it does come with growing pessimism that could ultimately, negatively impact future growth. PS executives must contend with: Global change: the professional services market has taken off, but economic instability and political unrest dampen consistent global performance; More demanding clients: broader solutions offerings, demonstrable client value, and shorter project durations, are just a few of the challenges faced by PSOs; Talent cliff: an aging population combined with fewer young people interested in science, technology, education and math (STEM) portends a looming technical talent shortage; Project delivery: improved quality, faster completion time and scope change force PSOs to intensify project management and quality control measures; Regulatory and financial governance: continual accounting changes and complex inter-country tax codes make accounting and reporting increasingly difficult. Service Performance Insight Page 1

4 These market pressures and many others demand increased focus on efficient and effective selling, delivery and management. Challenges are Magnified in Large PSOs While PS growth provides economies of scale and the ability to invest in infrastructure, systems and tools, some aspects of execution become more difficult. Larger organizations tend to operate in multiple geographic regions which create language, culture and accounting challenges. Additional levels of bureaucracy and functional silos hamper communication and agility, while increasing cost. Table 1 compares organizations with over 100 employees to those with less than 100. The table clearly shows larger organizations tend to be less successful in developing new clients. Part of this issue has to do with increased emphasis on current client expansion or growing the share of wallet from the installed base but often larger organizations lose their competitiveness by becoming mired in bureaucracy and approval cycles. Larger organizations must preserve management line of sight while rewarding both new and current client expansion. The table also highlights lower client referenceability and significantly higher attrition in large PSOs. Table 1: Large PSOs perform poorly in some areas vs. smaller PSOs Project Risk in Large PSOs Bigger organizations tend to focus on larger and longer projects whose inherent risks require increased oversight and visibility. Business Solution Over 100 Employees Under 100 Employees % of revenue from new clients 23.6% 36.3% -35% % of referenceable clients 67.9% 75.6% -10% Employee annual attrition 11.4% 6.8% -68% Average project overrun 10.0% 8.6% -16% Projects canceled 3.6% 2.9% -24% Despite investments in project management and governance, which are characteristic of larger organizations, there are also issues associated with service delivery. Larger PSOs tend to have higher overrun rates than smaller, more nimble organizations. Larger PSOs also tend to focus on larger and longer projects, which improves billable utilization and cash flow. However, without careful oversight and sufficient visibility, these more complex projects are more prone to scope creep, overruns and cancellations. As projects grow in size and scope, the potential for problems increase (Figure 1). Resource management, project management and talent management all require greater levels of planning, visibility and control in larger organizations. Service Performance Insight Page 2

5 Figure 1: Big Projects, Big Problems USE THE INFORMATION INFRASTRUCTURE TO IMPROVE PERFORMANCE 15 years ago large professional services organizations had few choices other than to deploy industry-agnostic financial management solutions with a combination of home grown, non-integrated applications to run the business. Today, most of these organizations have matured to a point where they run their businesses on core departmental commercial solutions that include: Enterprise Resource Planning (ERP): The core solution required to accurately collect and report financial transactions. Client Relationship Management (CRM): The automation of client relationship processes to improve sales, marketing and service delivery efficiency and effectiveness. Professional Services Automation (PSA): The initiation, planning, execution, close and control of projects and services through the management and scheduling of core resources that include people (both internal and partners), materials and equipment. Human Capital Management (HCM): Talent management solutions from recruiting, hiring, career and performance management. Business Intelligence (BI): The assembly and use of information to improve decision-making. Table 2 compares the proliferation of core business solutions in organizations with less than 100 employees to those with more than 100. As one might expect, larger organizations tend to use business solutions to manage all aspects of the business. What SPI Research found interesting was that PSA use (while still very high) in large PSOs was lower than in smaller organizations. Historically, the largest organizations built their own resource management solutions, primarily because 15 years ago viable commercial Professional Service Automation solutions did not exist. With the advent of powerful commercial PSA solutions this situation is changing. Service Performance Insight Page 3

6 Table 2: Enterprise Application Use in PSOs Business Solution Over 100 Employees Under 100 Employees Client Relationship Management (CRM) 95.5% 84.9% 12% Professional Services Automation (PSA) 71.7% 75.3% -5% Human Capital Management (HCM) 73.2% 46.1% 59% Business Intelligence (BI) 68.2% 32.3% 111% TAKE ADVANTAGE OF PSA Professional Services Automation is the primary solution for service delivery in that it focuses on where money is made in professional services organizations. Figure 2 highlights the core modules in a robust PSA solution. Figure 2: PSA Core Modules PSA provides the systems basis for initiation, planning, execution, close and control of projects and service delivery. It helps manage key service execution processes including resource management and staffing, project management and collaboration, along with time and expense capture and billing. As management and control of project and service execution has become more important, the scope of PSA solutions has expanded into project accounting and billing. In larger PSOs, PSA has become increasingly important as the need to manage complex, global projects becomes more difficult, and competitive pricing pressures squeeze profit margins. PSA provides the visibility necessary to meet the demands of a global workforce, ensuring Service Performance Insight Page 4

7 billable utilization remains high, while also minimizing non-billable time on the bench. The resource management capability within PSA solutions allows executives to not only focus on skills required today, but also on upcoming work to hire or grow the skills required tomorrow. Robust PSA solutions manage all project-related time and expenses, and govern the accuracy and timeliness of invoices. Larger PSOs tend to work in multiple countries, with multiple languages, currencies, working schedules, and workflows. PSA solutions provide the infrastructure to accurately manage and account for these factors, making project invoicing, analysis and reporting more accurate and timely. Table 3 depicts the benefits PSOs with over 100 employees achieved through the use of PSA versus those organizations that did not. Table 3: PSA Benefits in Large PSOs PSA s Effect on Profitability SPI Research found that organizations using PSA averaged $45.7k in profit per employee versus $19.9k for those that did not, a 130% improvement! Key Performance Indicator (KPI) Use PSA Do not use PSA Projects canceled 3.4% 4.0% 15% Average project overrun 9.4% 11.7% 20% Standardized delivery methodology use 65.3% 63.0% 4% Annual revenue per billable consultant (k) $226 $183 23% Annual revenue per employee (k) $192 $153 26% Annual profit per employee (k) $45.7 $ % EBITDA % 16.0% 14.5% 10% Another interesting fact SPI Research found from analyzing larger PSOs was that in every role, with the exception of executives, organizations using PSA had significantly higher hourly bill rates than organizations that did not (Table 4). While there could be a variety of reasons for this, the organizations that utilize professional services automation tend to be better managed, more efficient, and have incorporated higher levels of business process control and standardization. The results speak for themselves in terms of higher bill rates for those that use PSA. Table 4: Average Hourly Bill Rate by Role Role Use PSA Do not use PSA Senior VP / VP $239 $256-7% Director $208 $185 12% Delivery manager $201 $155 30% Project/program manager $192 $163 18% Business consultant $190 $161 19% Service Performance Insight Page 5

8 Role Use PSA Do not use PSA Senior technical consultant $184 $162 14% Technical consultant $166 $140 18% Solution architect $197 $174 13% PSA Integration Improves Performance Professional Services Automation by itself improves performance, however when integrated with the core financial management system (ERP), CRM and other business applications, organizational benefits improve even further. Figure 3 highlights several of the important informational integration points between core business solutions and PSA. Figure 3: Integrated PSA Information Hand-off Table 5 portrays some of the benefits of PSA integration with the core financial management solution. The table shows that these organizations more often use a standardized delivery methodology and a higher percentage of projects are delivered on time, while fewer projects are canceled. The net result is higher project margins and greater financial performance when solutions are integrated. And these results are in addition to the benefits organizations achieve when moving from no PSA solution to implementing PSA! Service Performance Insight Page 6

9 Table 5: Integrated PSA in Large PSOs Enhances Benefits KPI Integrated PSA Non-Int. PSA A standardized delivery methodology is used 68.4% 63.6% 8% Projects delivered on-time 79.3% 75.8% 5% Average project overrun 8.2% 8.9% 9% Projects canceled 2.9% 3.0% 3% Project margin 37.0% 35.3% 5% Annual revenue per billable consultant (k) $214 $209 2% Annual revenue per employee (k) $183 $170 8% Large PSOs and Projector Projector was designed to address the complexities experienced by and the needs of larger professional services organizations. PROJECTOR PSA S SUCCESS WITH LARGE PSOS Projector PSA is a leading independent provider focused exclusively on delivering cloud-based professional services automation software. The company has had success deploying its PSA solution in organizations of all sizes, ranging from 20 to 2,000 employees. From the start, however, Projector was designed to address the complexities experienced by and the needs of larger PSOs. Its robust capabilities meet the needs of organizations that want a best-of-breed PSA that easily integrates with an organization s existing financial (ERP) and CRM solutions, all wrapped within an intuitive interface: Figure 4: Projector User Interface Service Performance Insight Page 7

10 Source: Projector, September 2013 Projector s Performance Projector s clients demonstrated the highest profitability of all PSA providers and reported the highest level of customer satisfaction with their PSA solution. As shown in Table 6, more than 25% of the large services organizations that completed the benchmark survey use Projector to manage their operations, more than any other PSA tool. These organizations averaged 871 employees and grew revenue at the rate of over 15% annually. In this cohort of organizations with over 100 employees, Projector s clients demonstrated the highest project margins of all PSA providers and reported the highest level of customer satisfaction with their PSA solution. One of Projector s strengths with large organizations is its ability to integrate with both existing front office (CRM) and back-office (ERP) solutions. Over 60% of Projector s customers in the survey integrated the PSA with their ERP system, either through Projector s pre-built interfaces or through its web services API. Table 6: Projector PSA KPIs in Large PSOs KPI Projector Other PSA Providers Number of Organizations in Survey N/A PSA is integrated with ERP 63.2% 57.5% 10% Billable Utilization (based on 2,000 hours) 79.9% 74.2% 8% Satisfaction with PSA solution (1-5 scale) % Project Margin 37.7% 33.5% 13% Service Performance Insight Page 8

11 Needs Unique to Large PSOs While Projector provides all of the functionality found in robust PSA applications, it offers additional capabilities not found in most solutions that can be critical success factors for large services organizations. Some of these critical differentiators include: Line of business configurability: Enterprise-level PSOs often have grown through a combination of acquisition, organic diversification, and global expansion. As such, they often run multiple business lines with projects and people that differ significantly from one another. Projector s Enterprise Configuration capability allows organizations to model people and projects differently based on their line of business. Customizable access rights, permissions, and workflows: Large organizations are more likely to be subdivided into separate P&Ls or business lines. Projector s cost center permissions allow users to be set up so that their access to data and ability to perform certain actions is segmented along these lines. Fixed price project management: When delivering fixed price projects, larger projects represent more significant risk to the PSO. Projector s dynamic revenue allocation model provides accurate revenue projection, performance, and profitability information even on in-flight fixed price engagements. Project lifecycle modeling: Enterprise-level PSOs generally have more well-defined rules around who can do what and when on a project in each stage of its lifecycle. Projector s project stages allow organizations to customize the behavior of the system to model both pre-sales and delivery lifecycles. Integration flexibility: Because Projector is an independent, best-of-breed PSA application, it must easily integrate with a wide variety of departmental applications. Projector s pre-built connectors and open web services API allows it to integrate with existing enterprise-level systems like Salesforce.com, Dynamics, Great Plains, Oracle, SAP, Elite, Infinium, and others. Deployment flexibility: Projector offers both cloud-based (hosted) and private cloud (self-hosted) configurations. This flexibility allows organizations to weigh the oft-competing priorities of implementation timing, infrastructure investment, system availability, and data security. Implementation and support needs: Larger organizations generally have more complex implementation and support needs. These may range from having to balance the competing needs of a large number of globally-disbursed stakeholders to 24x7 system availability. Projector s management and implementation consulting teams have successfully run large consulting organizations in the past and have implemented the solution for a myriad of enterprise-level customers. Service Performance Insight Page 9

12 CONCLUSIONS & RECOMMENDATIONS The professional services market is poised for rapid growth following the 2008 to 2010 downturn. Well prepared organizations will capitalize on the growing demand for high-level, industry-changing professional services. However, for poorly prepared organizations, the next several years could spell their downfall, as the market will be segmented into winners and losers based on strategy, planning and execution in other words, consistent performance. Larger PSOs face a number of growth challenges, most notably, the war for talent, a more demanding client base, increased competition, and a myriad of financial regulations making the delivery and management of services increasingly difficult. To ensure future success, large PSOs must minimize weaknesses and focus on building greater competitive differentiation. To exceed market growth and profitability, they must become more efficient and deliver with higher quality and client satisfaction than their competitors. The integration of core professional services business solutions, ERP, CRM, PSA, HCM and BI provide PS executives the real-time information they need to rapidly adjust and adapt to changing market conditions. Professional Services Automation is the core business solution that enables PSOs to efficiently and profitably deliver professional services. PSA integration with CRM enables PSOs to understand pipeline, backlog and potential revenue. This information allows PS executives to better understand service demand and profit potential. PSA integrated with HCM enables organizations to develop a roster of in-demand skills while monitoring employee skill development and career progression. Finding and retaining a skilled workforce is core to ongoing profitability. PSA integration with BI enables organizations to more thoroughly analyze their service portfolio and create multiple growth and profit expansion scenarios. And finally, PSA s integration with the core financial management solution enables the organization to manage cash flow and profitability. Projector was built to integrate with other critical professional services applications such as ERP, CRM and HCM, providing crossorganizational visibility and performance improvement. Projector is a leading independent supplier of PSA solutions for both large and small PSOs. Its key benefits involve improving organizational efficiency and effectiveness, resulting in significantly improved performance as seen most notably by increases in billable utilization and project margin. Service Performance Insight Page 10

13 About Service Performance Insight R. David Hofferberth, PE, Service Performance Insight founder, managing director and licensed professional engineer has served as an industry analyst, market consultant and product director. He is focused on the services economy, especially productivity and technologies that help organizations perform at their highest capacity. Dave s background includes application and analytical tool development to support business decision-making processes. He has more than 30 years of domestic and international experience with firms including the Aberdeen Group and Oracle. Contact Hofferberth at david.hofferberth@spiresearch.com or Jeanne Urich, Service Performance Insight managing director, is a management consultant specializing in improvement and transformation for project- and service-oriented organizations. She has been a corporate officer and leader of the worldwide service organizations of Vignette, Blue Martini and Clarify, responsible for leading the growth of their professional services, education, account management and alliances organizations. Jeanne is a world-renowned thought-leader, speaker and author on all aspects of Professional Services. Contact Urich at jeanne.urich@spiresearch.com or Carey Bettencourt, Service Performance Insight managing director, is a management consultant who specializes in improvement and transformation for project-driven professional services organizations. She is an experienced change management leader, expert in helping clients develop high-performing teams that deliver increased utilization, profit and customer satisfaction. Carey has more than 20 years of domestic and international experience in leadership roles with software firms including Oracle, ChannelPoint and J.D. Edwards. Contact Bettencourt at carey.bettencourt@spiresearch.com or Service Performance Insight (SPI Research) is a global research, consulting and training organization dedicated to helping professional service organizations (PSOs) make quantum improvements in productivity and profit. In 2007, SPI developed the PS Maturity Model as a strategic planning and management framework. It is now the industry-leading performance improvement tool used by over 6,000 service and project-oriented organizations to chart their course to service excellence. SPI provides a unique depth of operating experience combined with unsurpassed analytic capability. We not only diagnose areas for improvement but also provide the business value of change. We then work collaboratively with our clients to create new management processes to transform and ignite performance. Visit for more information on Service Performance Insight, LLC Service Performance Insight Page 11