Valuable insights from the latest professional services benchmark
This is the first article in a two-part series on performance improvement in the delivery of services based on measuring and monitoring five critical key performance indicators. It provides background to this initiative, highlighting early results from the 2016 Professional Services Maturity Benchmark study. Part two will provide more details regarding why these five key performance indicators should be measured and monitored and the impact of poor performance.
What the latest benchmark reveals about professional services
With the economy still showing sluggish growth and competition growing, professional services executives must double-down their efforts to improve service delivery effectiveness. Otherwise, they won’t attain high quality, high levels of client satisfaction and high project profit margins. Service delivery excellence is imperative in order to achieve these goals. Achieving profitable growth requires executives to focus on all aspects of service delivery.
Each year, market dynamics change, new technology is introduced, new regulations are enacted, and business priorities shift. As a result, professional services executives must continue to monitor the business environment to make the best investments possible to grow and prosper.
While the results of SPI Research’s 2016 Professional Services Maturity Benchmark have yet to be published, more than 450 professional services organizations have completed the survey, yielding tremendous insight into the market. For instance, professional services year-over-year revenue growth stands at 10.5 percent, up slightly from last year’s 10 percent. This indicates that the market continues to improve. Much of this growth has been fueled through new client acquisition, whether it is new clients or additional services offered to different departments within the existing client base.
However, the size of the sales pipeline in comparison to the quarterly forecast is down to 169 percent compared to 199 percent last year. This translates to fewer available deals, making it increasingly difficult to sell services. PSOs have had to increase discounts in order to win more work. Also, employee satisfaction is down, which is probably a result of higher levels of attrition due to pressure to work more hours than ever before.
Perhaps the most disturbing early result is that both project margin and organizational net profit are down from last year’s benchmark. SPI Research believes profit is the fuel for growth in professional services. And if there is so much pressure to discount services — especially at very low rates — the growth of the market could suffer.
Every professional services executive knows there are good times and bad. SPI Research expects a bright future in the professional services market. However, for PSOs to benefit the most and to grow, they must focus on improving all areas of their organization. To achieve their desired financial goals, PS executives must continually evaluate all aspects of their organization, from their personnel to the services developed and to target markets and clients. SPI’s Professional Services Maturity Model is designed to help PSOs improve organizational performance, beginning with those areas with substandard performance.
To help organizations focus on service delivery excellence, the following highlights some of the key performance indicators that should be continually monitored and measured.
Why focus on KPIs?
Understanding when and how to start a performance improvement initiative can be difficult in any organization. Some key questions include:
- Are we achieving high levels of client satisfaction?
- Is our work delivered on time and on budget?
- Does each project meet its desired margin and completion goals?
These and many other questions must be answered to better understand where the PSO needs to improve.
Most executives have a solid understanding of their areas of weakness and where they should start. A good place to start is by focusing on key performance indicators, how they are trending, how they compare to those of your peers and the steps required to improve them.
SPI Research tracks over 200 KPIs across professional services organizations. Each KPI is important taken by itself. However, tracking too many can be a burden. Many PS executives have neither the time nor the resources to track them all. Yet department heads might be required to focus on 10 to 20 key measurements. The point is to track those relevant to your organization and understand how they impact overall growth, client satisfaction and profit.
Five KPIs to measure and improve service delivery
Service delivery is where PSOs plan, estimate, propose, staff, execute work and invoice for services. Service delivery is where money is made in professional services as people are the revenue-generating and profit machines of the organization.
Five KPIs critical to improve service delivery:
- Project duration in months. The length of time it takes to deliver projects.
- Methodology use. The use of standardized or structured delivery methodologies.
- Employee billable utilization. The percentage of available employee work hours that are billable.
- On-time, on-budget project delivery. The percentage of projects delivered on time and within budget.
- Project overrun. Overrun in terms of costs or hours compared to the estimate.
Professional services executives, project managers and engagement managers have more than 30 service delivery metrics they use to measure service execution. The five above are among the most important when considering organizational improvements.
Why these five? Stay tuned for part two to see an analysis of these five KPIs and how to quantify their value for your organization. Over the past nine years of benchmarking nearly 2,500 professional services organizations, SPI Research has found these metrics are critical for performance and profit improvement.