Efficient Growth Strategies for Services Firms at Scale
According to recent research, services teams that do three specific things yield 90% higher revenue growth than their industry peers. SPI Research, a leading research organization focused exclusively on the services sector, highlights these advantages in the 2020 Professional Services Maturity Benchmark. Executives who achieve this growth acknowledge that the three key components of remarkable services performance are utilization, project profitability and delivery success.
These metrics are deeply connected, yet teams too often focus on improving each of the three metrics in isolation, which can lead to impaired performance across operations. Organizations that focus on a holistic balance among these three metrics see positive and sustainable impact on their growth.
In order to improve these three metrics interdependently, it is important to understand each metric’s meaning in this context:
- Delivery success is achieved when exceptional work is delivered on time and on budget. Services teams are tasked with delivering high-quality and valuable work to their clients in terms of scope, time and budget. The ability to succeed in these areas helps services organizations earn a high level of customer satisfaction, which aids in winning future business.
- Utilization refers to making the most efficient use of an organization’s most valuable asset: its people. It shows the percentage of time that employees spend on revenue-generating activities, and it correlates with the extreme perishability of a services team’s key product: time.
- Project profitability focuses on the ratio between the cost of delivering a project and the revenue it generates. This metric shows a services team’s ability to deliver work on a profitable basis, which allows an organization to invest in internal assets such as infrastructure, methodology and staff development to help it gain a competitive advantage in the market.
Balanced Metrics Optimization Helps Services Organizations Improve Business Performance
Imagine a scenario in which a services organization focuses on only optimizing one of these metrics at the expense of the others. For instance, if solely focused on maximizing project profitability, a resource manager might staff several junior-level consultants on a project to keep expenses down. However, in doing so, these consultants might lack the experience needed to work efficiently and become overutilized, leading to burnout.
Team burnout, coupled with the fact that the junior-level consultants don’t have the experience that more tenured consultants have, might cause the project to lag behind schedule and the quality of work to decline. Optimizing project profitability exclusively might cause damage to utilization and delivery, which ultimately could derail the company from hitting project profit targets.
Successful optimization of all three metrics often enables organizations to outperform their peers. The aforementioned SPI Research study reveals the importance of forcing balanced optimization of delivery, utilization and project profitability in the pursuit of sustainable growth.
SPI Research conducted a survey of more than 500 services teams globally. It found a common thread: The top-performing 5% of organizations focused on balanced optimization of all three metrics. This approach earned them incremental gains of 17% to 28% in each of the individual metrics, resulting in substantial gains of nearly 90% higher revenue growth than their industry peers. It’s striking how balanced metric optimization drives sustainable growth.
Research by RTM Consulting describes how the combination of resource-centric capabilities, real-time information, and realignment of processes helps services teams optimize utilization, project delivery, and project profitability to exceed profit targets.
“The top-performing 5% of organizations focus on balanced optimization of delivery, utilization, and project profitability, earning incremental gains of 17% to 28% in each individual metric, and nearly 90% higher revenue growth than their industry peers.”
– SPI Research Professional Services Benchmark Survey
Continuous Improvement Strategies for Services Organizations
How can organizations stop thinking about delivery, utilization and project profitability independently, and start thinking about how each metric influences one another? Leaders of next-generation organizations follow these three approaches:
1. Incentivize managers with balanced metrics supported by individual KPIs.
Rather than rewarding leaders who maximize their teams’ utilization targets, how about setting an organization-wide growth goal and adjusting individual KPIs for each team to help contribute to it?
For example, a company might encourage individual teams to contribute to improving the percentage of projects delivered on time, as well as project profit margins and revenue dollars per consultant, to help the organization achieve its overarching growth goal.
Strategy&, PwC’s strategy consulting business, emphasizes that successful execution of strategy is a competitive advantage achieved through strategic performance measurement by “aligning and cascading strategic objectives down to day-to-day operational goals developing balanced scorecards for reporting.”
2. Provide trustworthy, timely and contextualized access to interdependent metrics.
The ability to deliver one unified truth to an organization is critical. It is unfair to hold managers accountable for hitting goals without providing them with the tools and resources they need to measure their performance accurately and transparently.
Empower teams to leverage a single core dataset and present the data in the right context for their teams. Services teams can fulfill the need for real-time analytics into both historical and forward-looking performance across an organization’s project portfolio by leveraging software platforms built specifically to understand and model the inherently complex nature of services teams.
3. Implement integrated systems, rather than siloed solutions, that can promote local optimization and global suboptimization.
Just as metrics need to be balanced in harmony with one another, so does the technology that supports these metrics. For example, a client invoicing process built in Excel that doesn’t connect with time and expense tracking software could contribute to significant revenue leakage.
Research by Gallup shows that a key differentiator among professional services firms that successfully retain and grow business is the ability to solve interconnected business problems by leveraging holistic technology-driven business solutions. SPI Research found that the top-performing services organizations are 24% more likely to have their PSA solution integrated with their financial management solution, and 20% more likely to have their PSA solution integrated with their CRM platform, with their PSA solution serving as their core delivery platform.
Today’s ever-changing business environment paired with the fluid nature of project-based work certainly presents challenges for services teams. For those organizations that can effectively balance utilization, project profitability and delivery success, the rewards are tangible: the ability to reach new growth milestones.