Benchmark looks at highlights and lowlights of the past 10 years
Ten years ago, we at SPI Research developed the Professional Services Maturity Model to benchmark professional services organizations as a tool to understand the varying levels of operational control or process maturity. This determines the characteristics and appropriate behaviors based on their organizational lifecycle stage.
In doing the benchmark, we seek to answer the following primary questions:
- What are the most important focus areas for professional service organizations as their businesses mature?
- What is the optimum level of maturity or control at each phase of an organization’s lifecycle?
- Can diagnostic tools be built for assessing and determining the health of key business processes?
- Are there key business characteristics and behaviors that spell the difference between success and failure?
The core tenet of the 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, this looks at how executives create a vision and supporting strategy to lead their organizations to success.
- Client relationships. This area is based on how the organization markets and sells services while focusing on growth, client satisfaction and retention.
- Human capital alignment. This looks at how the organization hires, develops, manages and engages its workforce.
- Service execution. This considers how the organization delivers service efficiency, quality and repeatability.
- Finance and operations. This refers to how the firm manages itself from a financial perspective, as well as its reliance on information technology to support operations.
Each of the pillars contains guidelines, best practices 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 difference between maturity levels
The model has five levels of maturity. It begins with level one where the organization operates in a heroic manner. 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 impact less mature 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. We designate the top 5 percent of performers as best-of-the-best and highlight characteristics that separate these firms from all others.
Last year, organizations that operated at levels one and two averaged less than 2.5 percent net profit, whereas those operating at levels four and five averaged over 25 percent. This 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 over to invest in growth, which, in professional services, is critically important for long-term survival.
Maturity is determined through alignment and focus within and across functions. For example, although financial measurements are of primary importance, they’re equally weighted and correlated with leadership and sales and quality measurements. This ensures 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.
What has the survey shown in the past decade? Economic conditions have varied greatly over the past 10 years. In 2006, the market for professional services hummed along, growing at its fastest pace since before the dot.com bust of 2000. But then, in 2008, a financial crisis hit the U.S., which ultimately, negatively impacted the rest of the world. It took a few years for the professional services market to start to grow again. Turbulence and market uncertainty have now become a way of life.
Table 1 highlights that regardless of the economic climate, for the past five years, PS sector revenue growth has exceeded 10 percent annually. This growth has led to strong hiring and net profit in excess of 10 percent each year. However, 2016 has been a volatile year from an economic, political and security standpoint. No one knows the long-term effects of Britain’s exit (Brexit) from the Euro Zone, sub-zero interest rates around the world, presidential elections in the U.S. and the global war on terrorism.
But, if there is two common traits among the leaders in professional services, it is that of flexibility and adaptability. Regardless of how things shape up, professional services executives will work to ensure their workforce is prepared for the changes and challenges ahead, and that they have services offerings that add high value to their client base.
What should we expect in the next decade?
Short term, there are a number of challenges facing PSOs:
- Selling has become more difficult as competition increases globally, allowing boutique consulting firms to compete and win business away from their larger peers.
- Finding and keeping quality personnel has become more difficult. Turnover has grown significantly over the past few years as baby boomers have begun to retire, and people with the requisite science, technology, engineering and math (STEM) skills become harder to find.
- Profits have risen for the past three years, which has fueled growth, but given increasing turmoil, 2016 may be the year when profits retrench.
Longer term, organizational performance and profit will be the core areas of focus for professional services executives. However, they cannot take their eyes off their clients and employees. Having satisfied clients and employees is the only way PSOs will continue their growth trajectory.
The U.S. will continue to be the hotspot for professional services as globalization will demand new products and services to compete in the 21st century, and PSOs will help in their creation. Along with globalization comes the need for greater information technology use and access to big data to better analyze and compete in the marketplace.
This trend continues to bode well for IT consultancies and software and SaaS providers. Other professional services verticals will also grow. For instance, architects and engineers will be in greater demand as the infrastructure in many major cities erodes, and politicians recognize the need for new construction. These initiatives will be popular as they specifically target the middle class.
Sectors such as accountancies and government contracting will also grow as the need for greater control and oversight of these large projects continues. Media and advertising will grow based on a profound change as the digitalization of media becomes increasingly critical to reach a broader audience with personalized advertising. There is little doubt that there is more than enough work to go around. The question is: Will there be enough skilled people to deliver it?
Today, the professional services marketplace can no longer be viewed in terms of just those organizations categorized by the NAICS 54XX designation — professional, scientific and technical services. Now, professional services exist in almost every industry and are becoming a differentiator and a competitive weapon for achieving higher levels of growth and profit. Every services-oriented organization must focus on quality and cost in order to achieve greater success within the marketplace.
There are trends which will highlight changes in the professional services marketplace, some of which include:
- Clients have become increasingly demanding as to the value they receive for the dollars they spend, and now, they have placed greater demands on consultants in terms of value, time and cost. The situation has forced PSOs to package and more efficiently deliver services to ensure clients get what they contracted for while increasing client satisfaction.
- Many PSOs are incorporating products along with their services. Products help them differentiate their services and are a leave behind that enable them to come back and sell more.
- With an increased demand for professional services and talent becoming scarce, many PSOs have ramped up their efforts to incorporate remote service delivery and the use of collaboration tools. This enhanced way of doing business enables consultants to be highly billable while supporting numerous clients at the same time. Obviously, they must spend sufficient client facing time in order to keep the relationship strong.
- The cloud has changed virtually everything, and the solutions PSOs now use include tools to help PS providers collaborate more efficiently on virtual projects.
Over the next year, we’ll pay closer attention to employee attrition as changes in the marketplace will impact mobility of the workforce. We’ll consider the following in order to help the PS industry grow more efficiently and effectively:
- Will professional services organizations continue to differentiate their services through packaging to create a product-like offering with greater predictability, quality and profitability?
- How will PSOs find, recruit, hire and retain employees? Employees are at the center of professional services and ensuring they stay will be critical to organizational success.
- Can PSOs improve performance in the delivery of services? Overall billable utilization still lags the 75 percent bar most organizations set a decade ago. Many PS executives build their workforce with this goal in mind, but it is difficult to attain due to scheduling and project scope changes.
- Will collaboration improve the predictability of service delivery so that consultants can move from project to project more easily with lower levels of non-billable time?
- Will consultants be able to deliver services remotely, which enables them to be billable every hour of the day, rather than spending a lot of time in transit?
- Can PS executives better manage revenue and cost? Profitability is the key to future growth, and PS executives must closely monitor and control every aspect of their organization in order to achieve their desired level of profitability. This effort will involve specific areas of focus in terms of cost and overhead. The optimal balance will provide greater profits going forward.
- Will information technology continue to play a major role in performance improvement across the professional services market? The tools and capabilities have expanded over the past decade and now offer greater analytical and collaboration across organizations.
No one knows exactly what’s in store for the next year, let alone the next decade. One thing for sure is professional services will continue to be in demand regardless of political and economic changes and challenges. Therefore, the best idea is to keep your professional services firm relevant to the trends in the marketplace and to continue to benchmark your organization against your peers.
Complete the benchmark!
David Hofferberth, Service Performance Insight managing director and licensed professional engineer, has served as an industry analyst, market consultant and product director. He focuses on the services economy, especially productivity and technologies that help organizations perform at their highest capacity. Hofferberth’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 firstname.lastname@example.org or 513-759-5443.