Key Takeaways: Maintaining a Healthy Professional Services Business in an Uncertain Economy

Thank you to SAGE for sponsoring this in-depth and informative webinar. Thanks and appreciation also goes out to our distinguished panelists for their time and insightful commentary on this topic:

• Brian Siefkes, Sr. Director Professional Services, Sage
• Dave Hofferberth, Managing Director, Service Performance Insight
• Michael Valocchi, SVP, Head of Cognizant Consulting- Americas

What was learned during the discussion? The following is a brief recap of some key takeaways from the webinar:

Why are professional services organizations different?

• In the simplest sense, there is no physical product manufactured, produced or sold. Knowledge is the product, we sell what we do.
• Professional services organizations (PSOs) sell to clients versus customers. The typical customer buys products, a client buys advice and services.
• As a PSO, your people are a majority of your costs. And not only are those people the largest portion of the cost, they are the deliverable product as well.

How will business models respond to market pressures?

• Successful business models need to pivot on two key elements: service offerings and pricing models. It is important to understand how the clients are thinking about buying and the reasons clients buy.
• A successful model will also pivot around revenue collection, especially in uncertain times.
• In a product-based business, a better product means a more competitive market. When knowledge is the primary product, success then depends on being nimble and strategic with your service delivery capacity (human capital).
• PSOs need to be aware of and find revenue leakage. While that's it sounds simple, revenue leakage hides easily. Most leakage can be traced to billing and time entry.
• Because it's a people-based business there is a dependency on time entry to understand costs and what your people are doing to avoid project slippage and scope creep.
• Be capable and ready to react to what clients are demanding. Be flexible, nimble and have systems and processes in place to be able to adapt to needed change.

What top-performing services firms do better

• Know your company. Know your people. Know how they're spending their time. If you are not on top of your time entry, problems follow. The companies that do this at a high level do well.
• Review and adopt best practices from the financial management of the organization's standpoint and from a resource planning standpoint.
• Utilize incentive compensation to ensure adherence and high participation related to accurate time entry, because that is where it all starts.
• Maintaining an accurate picture of how your business operates allows for educated decisions on what to do next.

How to proactively set up your business for uncertainty

• If you want to get on track to becoming a better organization and/or maintain your health as an organization, get the foundations right. Ensure your KPIs are something that everybody understands and agrees to across the board.
• How do you track project profits? Are you utilizing a standard cost rate or an effective cost rate regardless of how many hours your people work? There is always that payroll variance line item on your balance sheet. Are you using a burden cost rate? What kind of multipliers are going into those calculations?
• It is important to build a culture of financial responsibility within your organization, because every single person within a consultancy has a direct impact on the financial performance and health of that company.
• PSO's are fundamentally different from other business in that every individual is hands-on, and need to not only recognize that but act appropriately in a way that preserves costs, preserves revenue and profitability.
• Take steps back and continually evaluate your plans. Have viable contingencies for things that may or may not happen. This means looking at your people and the services you're offering as well as training.

The importance of data management

• Focus on running your organization with a data data-driven mentality focusing on specific KPIs for each element of your organization. Each department will have different yet very specific KPIs, but this is key to optimizing the organization.
• Create enterprise transparency. Across your organization, ensure KPIs are clearly identified and understood so that deficiencies or variances can be recognized and changes made that will positively impact operations.
• Work to make sure your data is accurate and up-to-the-minute timely. When you know the speed of things that are happening, better decisions can be made with less risk of incorrect or lagging indicators.

Register and view the webinar On-Demand here.