The Formula For Sustainable Success For Professional Services Organizations
Over the past eight years over 1,500 professional services organizations (PSOs) have participated in the Service Performance Insight annual Professional Services Maturity™ Benchmark survey, and now over 10,000 firms use it to plan, benchmark and analyze performance. The 2015 report promises to offer even more insight and analysis into the market with a view of the key success factors that drive exceptional consulting performance.
Much has changed in eight years, as the economy went from boom times to bust almost overnight. In the past three 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 future, it comes with a few caveats, as competitive pressures have intensified the need to sell and deliver with precision.
The professional services market is at an interesting juncture in terms of talent. The looming “talent cliff” means first we must put a premium on developing an engaged workforce.
The professional services market is at an interesting juncture in terms of talent. The looming “talent cliff” means first we must put a premium on developing an engaged workforce. 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 before seen pace.
With immigration as a sensitive topic for politicians and business leaders alike, many PSOs are going offshore to less developed regions to find personnel with requisite 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 we have seen in years. 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 will curtail growth and compromise profit.
A look at the Professional Services Maturity Model™
The core tenet of the PS Maturity Model™ is service and project-oriented organizations achieve success through the optimization of five Service Performance Pillars:
- Leadership. Based on vision, strategy and culture, SPI looks at how executives create a vision and supporting strategy complemented by alignment and congruent goals and measurements.
- Client Relationships. This area is based on how the organization markets and sells services while focused on growth and client retention.
- Human Capital Alignment. This area looks at how the organization hires, develops, manages and retains its workforce.
- Service Execution. This area considers how the organization delivers services efficiency and with quality at the forefront.
- Finance and Operations. Based on how the firm manages itself from a financial perspective, as well as its reliance on information technology to support 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 chaotic and 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
Seven years of results and insights gained have confirmed the original hypothesis that service 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, which ultimately leads to sustainable success.
Over 1,500 firms have participated in the PS Maturity Model benchmark since its inception in 2008. 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 service 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.
For many organizations, completing the annual benchmark is a rite of passage. These organization’s executives understand the value they gain from its insight. It helps them better prepare their organization for the challenges that lie ahead.
Download a copy of the benchmark survey
Jeanne Urich – Managing Director, SPI Research
Jeanne has been both a professional service executive for over twenty-five years as well as a management consultant specializing in business optimization and transformation for companies engaged in delivering services. She is a world-renowned thought-leader, speaker and author on all aspects of Professional Services.
