The Road Tops Excellence

8/6/2019 The Road Tops Excellence

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A Service Performance InsightWhite Paper

The Road to ProfessionalService Excellence

March, 2008

6260 Winter Hazel Drive 25 Boroughwood PlaceLiberty Township, OH 45044 USA Hillsborough, CA 94010 USA

Telephone: 513.759.5443 Telephone: 650.342.4690Mobile: 513.280.1290 Mobile: 650.703.6593

www.SPIresearch.com


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TABLE OF CONTENTS

Table of Contents ........................................................................................................... iFigure ............................................................................................................................. iiTables............................................................................................................................. iiIntroduction ................................................................................................................... 1Five Service Performance Pillars ................................................................................. 2Professional Services Maturity Model Levels ............................................................. 3

Level 1 - Initiation ..................................................................................................................... 3Level 2 - Pilot ............................................................................................................................ 4Level 3 - Deployed .................................................................................................................... 4Level 4 - Institutionalized ......................................................................................................... 4Level 5 - Optimized ................................................................................................................... 5

Building the Professional Service Maturity Model ...................................................... 5Current Findings from the Study ................................................................................. 6Conclusions................................................................................................................... 9Appendix ...................................................................................................................... 10

Author Profiles........................................................................................................................ 10Jeanne Urich ........................................................................................................ 10R. David Hofferberth, P.E. .................................................................................... 10

FIGURE

Figure 1: The Professional Services Maturity Model ...................................................................... 2

TABLES

Table 1: Performance Pillars Mapped Against Service Maturity .................................................... 5Table 2: Organization Driving Strategy ........................................................................................... 6Table 3: Professional Services Corporate Objectives ..................................................................... 7Table 4: Professional Services Maturity Improvements .................................................................. 7Table 5: Finance & Operations Performance .................................................................................. 8


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The Road to Professional Services Excellence

Service Performance Insight Page 1

INTRODUCTION

The technology professional services business is starting to mature.Signs that the industry has moved from birth to adolescence or evenadulthood are everywhere. Gone are the days of the ants Viant,and Scient, with huge market capitalization but limited profits. The hea-

dy days of the dot.com boom have been replaced by large public offer-ings for Accenture, Cap Gemini and Bearing Point, and consolidation ofPWC and Cambridge Technology Partners. Todays Big 10 include Ta-ta, Infosys and Wipro. Within technology product companies there is anintense focus on growing revenue and margin from professional services.Much has been written about the technology adoption lifecycle and tech-nology maturity modelswith corresponding predictive and diagnos-tic measures of health for companies at each point of the lifecycle ma-turity curve. Go to the business section of any bookstore and you willfind a plethora of great tools to pinpoint where your company is in termsof product lifecycle maturity and the optimum behaviors, strategy andfocus that should be deployed.

However, little if any research exists to understand and quantify thetechnology professional services maturity model. What are the mostimportant focus areas for professional service organizations (PSOs)

as their business processes mature? What is the optimum level of

maturity or control at each phase of the organizations lifecycle?

Can diagnostic tools for assessing and determining the health of

key business processes depending on the level of maturity of the or-

ganization start to be built? Are there key business characteristics

and behaviors which make the difference between success and fail-

ure? Do they change depending on how mature the company or in-

dustry is? How does the professional service maturity model operate

within the wider context of the technology maturity model?

Dave Hofferberth of Service Performance Insight(www.SPIResearch.com ) and Jeanne Urich of Adexta Consulting(www.adexta.com ) are conducting research designed to benchmark thecorrelation between professional service organizational performance andthe adoption of best practices and business process maturity. Thestudy focuses on professional services excellence across Five ServicePerformance PillarsBusiness Strategy, Finance and Operations, Hu-man Capital Alignment, Service Execution and Client Relationships.Through the analysis of industry benchmarks and practical guidancefrom experts in the field, the study will measure which key elements arethe most important predictors of overall success.

Starting in September, 2007 Adexta & SPI Research have surveyed over40 technology professional service organizationswith a goal to expandthe study to over 100 organizations in the next month. The early respon-dents range from small to very large professional service organizationseither within technology companies (primarily software) or independentsystem integrators. Companies who participate in the study will be givena free copy of the final report. Please follow this link to participate in the


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study:http://www.spiresearch.com/ProductPages/SPI2007PerfPillarsQuest.htm

Figure 1 shows characteristics of professional service organizations asthey move from birth to maturity. This model is built on the same foun-dation as the Capability Maturity Model (CMM) that has been adopted

for software development; but is specifically targeted toward billablePSOs, that either exclusively sell and execute professional services, orcompliment the sale of products with services to optimize the productsuse.

Figure 1: The Professional Services Maturity Model

Source: Adexta and SPI Research, March 2008

FIVE SERVICE PERFORMANCE PILLARS

Adexta & SPI Research have broken the key business processes requiredto create and run a professional service organization into five perfor-mance pillars:

1. Business Strategy: A unique view of the future and the role theservice organization will play in shaping it. A clear and compel-ling strategy provides a focus for the organization and galvanizesaction. Effective strategies focus on target customers, their busi-

ness problems and how our solution solves those problems uni-quely (and better) than its competitors. For a service strategy tobe effective, the role and charter of the service organization mustbe defined, embraced and supported throughout the company.Depending on whether the service strategy is to primarily sup-

port product sales or to drive service revenue and margin, thegoals and measurements will vary.
http://www.spiresearch.com/ProductPages/SPI2007PerfPillarsQuest.htmhttp://www.spiresearch.com/ProductPages/SPI2007PerfPillarsQuest.htmhttp://www.spiresearch.com/ProductPages/SPI2007PerfPillarsQuest.htm


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2. Financial Execution: The ability to manage services profit andloss. The ability to generate revenue and profit and develop re-peatable operating processes. Elements of this pillar providelong-term financial stability, enabling the PSO to manage growthand provide an acceptable level of return to its shareholders.

3. Human Capital: The ability to attract, retain and motivate em-ployees. With changing workforce demographics, human capitalstrategy has increased in importance as executives work to man-age costs while assuring clients have the best personnel work-ing on their projects. As PSOs have adopted a number of newstaffing models designed to achieve these goals, they must con-stantly work to keep their best people on-board and motivated.

4. Service Execution: The methodology, process and tools to effec-tively schedule, deploy and measure the quality of the servicedelivery process. Service execution involves a number of factors:from assuring utilization rates remain high to delivering servicesin a predictable and acceptable time-frame, to reducing cost

while improving project quality and harvesting knowledge.

5. Client Relationship: (Sales, Marketing and Communication) theability to effectively communicate with employees, partners andcustomers to generate and close business and win deals. It in-volves improving relationships to better understand client needs,while ensuring they will provide references and testimonials.

These five pillars define specific areas where organizations of all types(product or service) strive to improve capabilities that will both optimizeprofitability and also improve quality, human capital and client satisfac-tionproviding the best environment for long-term success. However,maximizing performance in one pillar could lead to performance degra-

dations in the other four. The objective is to optimize the results withineach pillar, while driving overall revenue, margin and customer satisfac-tion.

PROFESSIONAL SERVICES MATURITY MODEL LEVELS

Within each of the Service Performance Pillars Adexta & SPI Researchdeveloped guidelines for process maturity. These guidelines cut acrossthe five service dimensions to illustrate examples of business processmaturity. The study has been developed to measure the correlation be-tween process maturity and service performance excellence.

Level 1 - Initiation

At maturity Level 1, processes are ad hoc, and fluid. The business envi-ronment is chaotic and opportunistic and the focus for the professionalservice organization is primarily on new client acquisition and buildingreferences. Often professional service employees are chameleons able to provide presales support one day and develop interfaces andproduct workarounds the next. Success depends on the competence andheroics of the people in the organization, and not on the use of provenprocesses, methods or tools. In spite of this ad hoc, chaotic environment,


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young PSOs are often dynamic and fun. Career and skill growth are ab-undant because there is more than enough work for everyone. Em-ployees willing to put in the time to master the product or take on addi-tional tasks are celebrated and rewarded with increasing levels of respon-sibility.

Rudimentary systems for time and expense capture, reporting and billingare initially developed on spreadsheets. Disciplined financial controlsand an intense focus on revenue and profit have not yet materialized.Typically the start-up professional service organization is run as a cost-center and may be combined with presales, support or engineering.

Level 2 - Pilot

At maturity Level 2, processes are starting to become repeatable. Bestpractices may be demonstrated in discrete functional areas or geogra-phies but they are not yet documented and codified for the entire organi-zation. Basic processes have been established for the five ProfessionalService Performance pillars but they may not be universally embraced.

Measurement and reporting systems are under development but may notprovide complete visibility or control into all major financial areas. Theorganization is now run as a value-added profit and loss center. Thecharter (within product companies) is to build client self-sufficiency andreferences. Friction may exist with other functions and system integra-tion partners.

Level 3 - Deployed

At maturity Level 3 the professional service organization has created aset of standard processes and operating principles for all major serviceperformancepillars but renegades and hold-outs may still exist. Man-agement has established and started to enforce financial and quality ob-jectives on a global basis.

A critical distinction between level 2 and level 3 is the scope of stan-dards, process descriptions, and procedures. At level 3, the standards,process descriptions, and procedures have been published and there arestructures in place to ensure compliance. For example, a Project Man-agement Office (PMO) has been created to oversee project quality andensure projects are delivered in accordance with a standard project me-thodology. Financial measurements and controls are in place to ensurecapture and reporting of time, expense and billing. A core set of man-agement reports and operating plans are in place. The organization maybe very profitable. The charter is to rapidly implement engagements to

secure references while producing service profit. Higher level verticaland business consulting practices may be under development.

Level 4 - Institutionalized

At maturity Level 4 using precise measurements, metrics and controls,management can effectively control the PSO. Each service performancepillar contains a detailed set of operating principles, tools and measure-ments. Organizations at this level set quantitative and quality goals for


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customer acquisition, retention and penetration, in addition to a completeset of financial and operating controls and measurements. The businesshas become predictable and profitable. Centers of technology excellenceas well as vertical and horizontal solution practices exist. Interlocking,matrix managed organization and reporting structures may be in placedepending on the complexity of the solutions provided and the size of the

organization. It may be difficult to innovate and improvisemaking theorganization appear hierarchical and complex.

Level 5 - Optimized

Maturity Level 5 focuses on continually improving all elements of thefive performance pillars. A disciplined, controlled process for measuringand optimizing performance through both incremental and innovativetechnological improvements is in place. Quantitative process-improvement objectives for the organization are established, continuallyrevised to reflect changing business objectives, and used as criteria inmanaging process improvement. New initiatives for quality, cost controlor client acquisition are in place to ensure optimum performance. Therough edges between disciplines, functions and specialties have beenoptimized to ensure unique problems can be addressed quickly withoutexcessive bureaucracy or silos.

BUILDING THE PROFESSIONAL SERVICE MATURITY MODEL

If the service performance pillars are mapped against process maturity aService Excellence Roadmap can be developed. This tool providesinsight into where an organization fits within the service maturity modelas well as a guideline to move from one level of maturity to the next.The tool allows organizations to diagnose their performance strengthsand develop plans to bring lagging areas into alignment.

Table 1: Performance Pillars Mapped Against Service Maturity

Phase 1Initiated

Phase 2Piloted

Phase 3Deployed

Phase 4Institutionalized

Phase 5Optimized

VisionandStrategy Initial strategy

is to supportproduct salesand providereference cust.while providingworkarounds tocomplete

immature prod.

PS has become aprofit center but issubordinate toproduct sales.Strategy is to drivecustomer adoptionand referencesprofitably.

PS is an importantrevenue and marginsource but channelconflict still exists.Services differentiateproducts.

Service leads products. PSis a vital part of thecompany. Solution sellingis a way of life. PS isincluded in all strategydecisions.

PS is critical to thecompany. Service strategyis clear. Complimentarygoals and measurements inplace for all functions.

Financeand

Operations

The PSO hasbeen createdbut is not yetprofitable.Rudimentarytime andexpensecapture.

5 to 20% margin. PSbecoming a profitcenter but stillimmature finance andoperations processes

20 to 30% margin. PSis a complete P&L.Standard methods forresource mgmt., time& expense mgmt. andbilling.

PS generates > 20% ofoverall company revenueand contributes > 30%margin.Well developed finance andoperations processes andcontrols.

> 40% margin. Continuousimprovement andenhancement.High profit.Global with disciplinedprocess controls andoptimization.


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HumanCapital

Alignment

Hire as needed.Generalistskills.Chameleons,Jack of AllTrades.Individualheroics.

Begin forecastingworkload. Startdeveloping job andskill descriptions andcompensation plans

Resource mgmt., skillmgmt, career mgmt,employee satisfactionsurveys. Trainingplans. Attrition


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Table 3: Professional Services Corporate Objectives

Corporate Objective Score Rank*

Improve Service Quality & Client Satisfaction 2.41 1

Increase Product Revenue 3.24 2Improve Product Quality & provide product feedback 3.41 3

Increase Service Revenue 3.73 4

Increase Market Share - beat the competition 3.81 5

Increase Service Margin 3.86 6

Improve cross-functional teamwork & knowledge sharing 3.89 7

Improve Customer application knowledge & self-sufficiency 3.97 8

Increase Employee Satisfaction 4.05 9

* (1 = most important 9 = least important)

Source: Adexta & SPI Research, October 2007

One of the most surprising findings and another sign of maturity is thefocus on methodology, project quality and standards (Table 4). Almostall respondents have a defined service delivery methodology and arestarting to invest in project quality tools and measurements. Many PSOshave started to look for and adopt industry organizational quality stan-dards in addition to individual skill certification. Interestingly, know-ledge management and it infrastructure investment ranked at the bottom.This may be a result of earlier information technology investments asmany respondents have deployed professional service automation solu-tions. Or it may be a result of increasing commoditization of service de-

livery with corresponding client demands for rigorous, demonstrableproject and organization quality standards.

Table 4: Professional Services Maturity Improvements

Maturity Improvements Score Rank*

Methodology investment and improvement 2.70 1

Project Quality measurements and improvement 2.83 2

Professional Services standards and employee certification 3.70 3

Cross-functional partnering and improvement 3.78 4Employee training 3.91 5

IT Investments and improvement 4.22 6

Knowledge Management 4.35 7

*(1 = most important 7 = least important)



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And finally, financial indicators are improving in most areas. Almost allrespondents are experiencing significant revenue and headcount growthand backlog is growing (Table 5). Contribution margin is a healthy 22%and revenue per billable employee averaged $220K. Project, subcontrac-tor and offshore margins are all healthy and improving. A majority ofrespondents use some level of offshore resources and are less reliant on

subcontractors than in the past. Reported margin from offshore re-sources versus subcontractors was 47.5% versus 30.8% - a significantdifference!

One area stands out as an area for significant improvementservice sell-ing, deal pricing, deal discounting and responsibility for pricing. Therewas almost no commonality in reported pricing, discounting and dealauthority. Very few organizations reported defined guidelines for pricingand discounting resulting in discount authority all over the map. Controlof service sales and pricing is a process maturity focus area which willresult in dramatic service profit improvement.

Table 5: Finance & Operations Performance

Financial Metrics Value

What is your annual professional services (PS) contribution margin? 22.0%

What was the year-over-year change in PS contribution margin? 10.7%

What is your average annual revenue per person for billable employees (*1000)? $220

What is your average project gross margin? 38.9%

What is your average subcontractor margin? 30.8%

What is your average margin for offshore resources? 47.5%

What % of your quarterly revenue target is in backlog? 51.3%

Has your backlog been increasing or decreasing? 57.4%

What % of discounting exists? 18.5%

What is your quarterly average revenue forecasting variance? 14.9%

Do you have standard contracts - Master PS Agreement & SOW's? 95.8%

Do you have a professional services Deal Review team? 56.8%

Average non-billable expense per employee per quarter? $3,637

What is the average cycle time for contract review (days)? 3.00

What is your bid/win ratio? Number of wins per 10 bids? 5.76


Another indicator of the need to improve service selling is Bid-winrate. The firms reported greater than a 50% average win rate; this num-ber could improve with an increased emphasis on pricing coupled with agreater focus on bidding on work with a better chance of winning the bid.


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Service Performance Insight (SPI Research) is a globally-focused research firm specializing in management issues regarding informationtechnology (IT) use in the services sector. The firm closely follows professional services organizations (PSOs), independent software vendors(ISVs) and other technology providers, analyzing how organizations best use technology to make their people more productive and profitable.SPI Research pays particular attention to the integration of the three key assets of a PSO: its people, (business) processes and capital, andhow technology can help optimize their use.

Visit www.SPIresearch.com for more information on Service Performance Insight.

2008 Service Performance Insight Page 9

In other words, where single source bids can be created or where theclient relationship is strong enough so that the work is ours to lose.

CONCLUSIONS

With increased global competition for business and resources PSOs must

continue to improve. These improvements cut across every aspect of theorganization, and all departments and individuals must work together todrive service performance excellence. Executives need performance in-dicators and a plan for continual advancement.

This White Paper provides a glimpse into areas where PSOs can improveby showing statistics for average performance reported by over 40 pro-fessional service organizations. Subsequent analysis performed byAdexta & SPI Research will show how the service performance pillarscan be optimized and will provide prescriptive advice to help organiza-tions enhance their business process maturity while improving bottom-line results.

The performance pillars and statistics produced by Adexta & SPI Re-search are by no means the definitive answer to improving performancein every PSO. Each PSO is different and operates to its highest capabili-ty by uniquely providing services and optimizing each pillar in a waythat makes them successful. The purpose of performance pillars is toshow potential areas of improvement, and provide guidance as to howPSOs can advance.

As the technology professional service industry has matured, the stakesand the ante to play have been raised. Todays PSO requires signifi-cant investment in tools, methods and process in all areas ofBusinessStrategy, Finance and Operations, Human Capital Alignment, Service

Execution and Client Relationships to be successful. High-performing

organizations must optimize each service performance pillar and takeadvantage of technology and process advancements to be competitive.

While much progress has been made in service revenue and marginachievement; significant gaps in strategy, service sales and pricing,project methods and service quality and human capital alignment persist.Variable on-shore and off-shore workforces have made a disciplined ap-proach to managing all facets of the business more important than ever

before. We believe this study and continued focus on developing a Ser-vice Maturity Model while provide a roadmap for achieving ServiceExcellence.


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Service Performance Insight (SPI Research) is a globally-focused research firm specializing in management issues regarding informationtechnology (IT) use in the services sector. The firm closely follows professional services organizations (PSOs), independent software vendors(ISVs) and other technology providers, analyzing how organizations best use technology to make their people more productive and profitable.SPI Research pays particular attention to the integration of the three key assets of a PSO: its people, (business) processes and capital, andhow technology can help optimize their use.

Visit www.SPIresearch.com for more information on Service Performance Insight.

2008 Service Performance Insight Page 10

APPENDIX

Author Profiles

Jeanne Urich

Adexta Managing Director, JeanneUrich is a management consultantspecializing in Service organizationimprovement for small to large tech-nology companies. Her focus areasinclude Strategy, Marketing, Busi-ness Development, Alliances,Finance, Operations, and Human Re-sources. She has been a corporateofficer and leader of the WorldwideServices Organizations of Vignette,Blue Martini and Clarify.

She has a Bachelors Degree in Mathand Computer Science from Vanderbilt University. She serves on theAdvisory Board of www.psvillage.com, a preeminent on-line communityfor Services executives, and is a Contributing Editor and ContributingAuthor ofTips from the Trenches: the Collective Wisdom of over 100Professional Service Leaders.

R. David Hofferberth, P.E.

Service Performance Insight Manag-ing Director, David Hofferberth, hasover 20 years experience in informa-tion technology (IT) serving as an in-dustry analyst, market consultant, andas a product director at Oracle. Hoffer-berth is focused on the services econ-omy, and in particular, on white-collarproductivity issues and the technolo-gies that help people perform at theirhighest capacity.

Hofferberths background also in-cludes the management of applicationdevelopment teams and analytical tool development to support businessdecision-making processes. Hofferberth earned an MBA from Duke

University and a BS in Industrial Engineering from the University ofTennessee. He is also a licensed Professional Engineer (PE).

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