To conclude our series on Driving Growth and Profitability in Professional Service Organisations, we will explore:
- Breaking down the process silos
- The Benefits of a Truly Integrated Performance Management System
Breaking Down the Process Silos
It is true that disparate, unconnected process applications allow firms to track operational metrics and they can even permit firm leaders and engagement managers to access this information in real time. However, truly integrated PMS solutions deployed across functional silos go well beyond streamlined metric-reporting to afford PSO leadership the ability to smoothly manage enterprise-wide operations.
A great deal of Professional Service Organisations start with off-the-shelf applications for separate functions (e.g., customer relationship management [CRM], accounting/invoicing, engagement tracking) that operate in relative silos and are managed by individual teams. As the business grows, such systems rapidly reach their limitations in terms of connectivity and functionality. Inefficient practices, such as poor prioritization of resources to satisfy problematic clients, or overstaffing/understaffing projects, can waste time and effort. Inaccurate budgeting and billing, and other imprecise controls over the financial aspects of the business can also create friction and drag that limit the organization’s ultimate potential.
Bringing together multiple applications into a cohesive and comprehensive PMS is a challenging prospect at best. Even if a smidgeon of cross-platform efficiency is achieved, the complexity and cost of maintaining this forced solution undermines any potential gains. Furthermore, the clarity across the entire PSO is compromised by the weakest application. Without this transparency, decision-making is affected, consequently producing negative effects on the business as a whole.
Consider, for example, client recruiting and engagement-management activities. PSOs traditionally employ multiple tools and processes that track prospecting activities from acquisition through engagement. These include everything from list and collateral creation to conversion and ongoing relationship marketing. Such efforts may be the responsibility of specific practices (e.g., geographies, industries, services) or supported by enterprise-wide staff – or some combination thereof.
CRM systems provide robust reporting capabilities from both a prospecting and retention-relationship standpoint. Furthermore, CRM systems are designed to build the trusted relationship between advisor and client through complete management of client communications and deliverables. These activities greatly assist Professional Service Organisations in securing future business.
Breakdowns occur, however, when CRM systems fail to connect relationship-management tasks with other financial and project-management systems. For example, separate invoicing systems might trigger automatic payment notices to clients without alerting the client-relations team. Similarly, pro bono work conducted for a key client to strengthen an existing relationship may exceed thresholds set to minimize the effect of such work on firm-wide margins.
The trend towards accelerated situational awareness and responsiveness to business conditions demands a real-time, holistic view of PSO operations, and firms must re-think their portfolio of business applications. The individual business solutions that leadership implemented to manage client-relationships, resource engagement, and financial management in its early stages, might be scalable within separate functional silos (i.e. CRM). But these solutions cannot effectively bridge the gaps between processes as PSOs grow. So continuing to employ these same tools and processes will ultimately have a negative effect on growth and profitability for the enterprise. To achieve a sustainably high level of profitability, PSOs must possess integrated internal operational systems that provide real-time visibility and control across all processes central to the business.
The Benefits of a Truly Integrated Performance Management System
Just as transparent communication is fundamental to successful relationships between PSOs and their clients, so too is seamless integration of PMS a prerequisite of all the processes associated with client-relationship, resource engagement, and financial management.
Recognizing the CEO/Managing Partner of a PSO bears ultimate responsibility for the firm’s performance, other key PSO leadership positions must work in concert with integrated business applications to provide complete and crystal clear visibility and control across the enterprise (see Figure 5). Only then does PSO leadership possess the detailed operational insights that allow the type of informed decision-making that drives consistent and profitable growth.
A key benefit of a successful PMS is that it provides a 360-degree view into a firm’s project accounting, allowing the engagement manager and the CFO to control costs, monitor variations in estimates, speed billing cycles, and reduce risk. In addition to project and cost controls, a PMS offers precise management of expenses, such as occupancy and training; savings in these areas affords a PSO the opportunity to invest more in sales and staff or simply allow professionals to focus on true value-add work.
As a practical matter, PSOs face an ever-increasing need to generate more information through portals or by customized management reports in real time. PSOs require key performance indicators that measure performance and alert management to deteriorating results before they become critical.
This is especially important when dealing with the increasingly complex reports required for demanding clients who want additional project milestones and detailed financial analysis of the project, embedded within these reports. At the same time, stringent country-specific governmental regulations force greater reporting detail.
This fast-paced global economy means PSOs need to have more ad hoc reports that can be generated with up-to-the-minute information to help analyse actual costs and gain new intelligence about internal operations. Projects can then be scrutinised in greater depth to identify profitability and cost by client, project type, and project teams. One of the great risks that firms face is forecasting project costs incorrectly, which can be highly detrimental to any PSO, particularly when bidding on a large, long-term project. PSOs also need to access data immediately to show return on investment (ROI) on their proposals.
Beyond their visibility and control over internal cost controls, firms must devote resources to comply with increasing and ever-changing corporate regulations for the regions in which they do business. For many mid-sized and smaller PSOs, this will lead to a further decrease in billable time for senior consultants, who are often tasked with that compliance.
Already, most senior client-facing consultants at mid-sized firms spend too much of their time running the business and not enough time with their clients. Total hours worked for this group has remained consistent over the last decade (Figure 6). And while billable hours have increased, the fact remains that fully one workday per week is consumed by non-billable functions.
Seamlessly integrated business management applications cut non-billable time by allowing firms to better manage budgets, create and consolidate reports, and look for trends and relationships in all parts of the business. Firms also gain more visibility into financial and project accounting, and this allows them to maintain tighter control over costs, shorten billing cycles, and monitor variations in estimates.
Effective PMS solutions provide PSOs with real-time financial intelligence about their business operations, which helps streamline operations and increase efficiency. In turn, these efficiencies allow more time for senior managers and partners to focus on clients and provide billable services. Converting even a small percentage of non-billable time into revenue generates enormous returns when applied across the enterprise.
The historical measure to running a successful PSO was maximizing the staff’s billable time. To achieve those results, PSOs often implemented – in silo fashion – very effective solutions for individual operational processes.
Individual PSO leaders take ownership of these processes – and the legacy systems – with the best of intentions for driving growth and profit. Unfortunately, the client-prospecting and tracking application championed by the CMO to measure campaign effectiveness fails to connect with the CHRO’s resource engagement tools. The result: prospecting calls are made on behalf of one PSO practice into the client of another practice from the same firm. Or the CFO’s engagement invoicing system is not transparent to engagement-relationship partners. Subsequently, automatically generated late-payment notices blindside onsite engagement teams.
In early stage growth, PSOs overcome the inefficiencies of these systems through “hands-on” management … literally. Leaders for each of the process-silos share information via weekly reports or operations meetings, and staff steps in when necessary to manually compile or reconcile conflicting data. PSOs will rationalize such ad hoc efforts against the perceived costs associated with, and disruptions created by, enterprise-wide PMS solutions.
The decision-point for PSOs to implement an integrated PMS is never definite. PSOs regularly advise their clients very effectively about how to improve their businesses, but often ignore or simply forget to optimize their own business management processes. But as the speed of business increases and PSOs reach scale, their legacy systems can crumble to the point of relative ineffectiveness.
When the economy is up, many Professional Service Organisations do so well that they are too busy to implement solutions for their own business. And when the business slows, budget constraints usually forestall upgrading or implementing the needed solution. In order to create sustainable and strong businesses that optimize profit independent of economic conditions, PSOs must implement complete PMS solutions that seamlessly integrate the tools and processes for client-relationship, resource engagement, and financial management.
To find out more about Driving Growth and Profitability in Professional Service Organisations contact Dialog Dynamics today.