I’ve been following SPI (Service Performance Insight) Research for sometime and I would recommend their research and materials for anyone involved in leading strategy and execution within a professional services organization. Last week, I had the pleasure of hearing Dave Hofferberth, SPI’s founder and managing director, present on the KPIs that matter for professional services. For this blog, I wanted to connect how knowing about the skills and project track record of your professional service firm directly impacts the results of the KPI trends that Dave mentions in his webinar.
Those of us who have been involved in professional services know that our ability to increase the value of a service firm is calculated on the ability to create improved financial stability. There are a number of must dos to achieve this: grow and retain a stable base of loyal, repeatable, right fit customers; get higher margins on services delivered; be able to deliver at high levels of quality within a timely and cost efficient manner; and being able to position your services to win over your competition.
The key themes
Your professional service firm is the highly knowledgeable, flexible workforce that your customers hire to execute on work where it makes better sense for them to assign to you rather than to try and do it themselves. This is why at TeamFit, we believe that having a good handle on the skills, people, and types of projects which drives your service revenue is the engine behind your firm’s performance and value.
Let’s look at the trends and how TeamFit can help.
Year-Over-Year Professional Services Revenues
The valuation of your professional services firm is a factor of your revenues. As such, if you want the value of your firm to increase, you have to increase revenues and win more work. This means increasing sales. The number one initiative that Dave’s research indicates is that professional service firms are looking to increase profitability by improving sales effectiveness. Leading service firms know that they have to move to those strategic services where margins are high. To win they offer services that they can well position and differentiate against their competition. Combining this strategy with securing longer duration projects ensures your services firm a safe position.
Does your firm really know what skills and capabilities are being used on projects by its consultants? This is critical information to offer strategic services. Your dedicated sales personnel need to understand the types of projects your firm has worked on coupled with the skills your organization is effective at delivering.
Below is a TeamFit Skill Map for a professional service firm, Razorfish:
The above visual gives a quick summary of this firm’s skills and expertise as applied to projects. Agile methodology, software implementation of learning systems and collaborative applications are key specializations for Razorfish. The company has solid and expert skills in this space. It also looks as though they are ramping up in the social collaboration and the implementation of those systems. Their pipeline reveals they have demands for this type of capability. Their timeline of recent projects reveals the same:
Razorfish differentiates its professional services in the learning, social collaboration and performance management space.
Differentiation for professional services is rooted in skills. Skills which are held by its people.
SPI Research shows Bid-To-Win at 4.92 wins per 10 bids as the average for companies polled in 2014. Being able to increase your firm’s ability to win deals is critical for profitability.
Anyone who has participated in an RFP process knows that there is a lot of effort to craft a well-positioned response. Most RFPs will ask for evidence that your team will have the skills, experience and track record to be able to deliver sound results. Having an easily accessible profile of work delivered with similar scope can really help your pursuit teams with essential background and materials for a response.
Thinking at the strategic level, being able to focus and become a true expert in your particular service area is key. Choosing the right specialization is key to providing more strategic services. This is well articulated in Roger Martin’s cascading choices in Playing to Win.
Knowing your firms core capabilities isn’t merely asking what your firm is really great at now. Instead, the question is “what capabilities does your firm need to be distinctly good at to enable you to play and win where you want to?” Not only is a mapping of your current skills required; a greater priority rests in having a way to know those aspirational capabilities that you will need to build to deliver on your strategy. Having these insights will enable you to increase your bid-to-win ratio.
Annual Employee Attrition
As attrition rises in any professional service firm, its ability to deliver work on-time and on-budget decreases. Loss of a billable consultant has a high cost. Refer to Brijendra Chaudhary’s overview of how to calculate attrition costs. Brijendra’s calculation of costs are categorized as a sum of: the result of the person leaving; recruiting a new person; costs for training; lost productivity; and lost opportunities.
One CEO related to me that he had lost one of his senior consultants. During the exit interview the consultant related that he was leaving the company to join another firm where he would be given the opportunity to develop and utilize skills in a particular specialization. The CEO went on to say that the loss merited reflection because the specialized area that the senior consultant was aspiring for was a competency that his firm was actually looking to grow. He also had a number of projects in the pipeline to justify improving and expanding that particular offering’s solution portfolio. That senior consultant could have played a critical role in leading that strategic expansion of service. If your team had better visibility into projects and potential projects teams, attrition as a result of not having insight into future project types would decrease.
The challenge of transitioning the management of a deal from sales to delivery remains consistent for many professional services organizations. We’ve been hearing from a number of growing, top brand services firms that they are looking for ways to tackle this specific operations concern while also streamlining their team assembly process. A number of leading but also innovative firms are in process of transitioning to a self-selection model for projects teams to ensure accountability on projects. These firms recognize the power of transparency in fostering ownership and quality of work. With the ability to see projects in the pipeline where one has good fit, or the ability to look at skills required for upcoming projects, consultants will have insight into the capabilities they need to grow to ensure better value of their project contributions.
SPI Research considers $200K in revenue per billable consultant as a good benchmark. A minimum of $180K per employee is the minimum for financial success. Also, a professional service firm should aim for a non-billable headcount of less than 30%. “Organizations with high annual revenue per billable employee tend to do well because they complete larger projects, have much more revenue in backlog, complete work on-time and on-budget, have minimal waste, and have higher billable utilization.”
At TeamFit, we also advocate for smart utilization. You want to have deep understanding of your team’s skills so that you can avoid the pitfalls of assigning people on teams based on primarily on availability.
Smart utilization means being able to manage for better customer outcomes. Having the right skills and team to deliver will enable overall project success. With the right mix of people on the team, your firm should gain in efficiency and quality in the delivery of projects.
Here is a great GE consulting story referenced from Smithsonian that sums it up. Henry Ford was the customer:
Ford, whose electrical engineers couldn’t solve some problems they were having with a gigantic generator, called Steinmetz in to the plant. Upon arriving, Steinmetz rejected all assistance and asked only for a notebook, pencil and cot. According to Scott, Steinmetz listened to the generator and scribbled computations on the notepad for two straight days and nights. On the second night, he asked for a ladder, climbed up the generator and made a chalk mark on its side. Then he told Ford’s skeptical engineers to remove a plate at the mark and replace sixteen windings from the field coil. They did, and the generator performed to perfection.
Henry Ford was thrilled until he got an invoice from General Electric in the amount of $10,000. Ford acknowledged Steinmetz’s success but balked at the figure. He asked for an itemized bill.
Steinmetz, Scott wrote, responded personally to Ford’s request with the following:
Making chalk mark on generator $1.
Knowing where to make mark $9,999.
Ford paid the bill.
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Image based on finding from SPI Research, KPIs that Matter for Professional Services. Service Performance Insight (SPI) is a global research, consulting and training organization that helps Professional Service organizations improve productivity and profit.