Emerging Trends & Challenges for Professional Services in 2023
The latest episode of Kantata’s Professional Services Pursuit Podcast focuses on some of the emerging trends and key challenges being faced by services organizations in 2023. Brent Trimble hosts the episode, and is joined by Dave Hofferberth, the Managing Director at Service Performance Insight (SPI). Hofferberth, known as the “Father of PSA” shares insights gleaned from his impressive 25-year career in the services industry and previews some of the results from the upcoming 2023 Professional Services Maturity Benchmark report.
This blog is just a sneak peek into the entire discussion, covering the key takeaways, including emerging trends in the industry, the ever-growing importance of hiring and retaining the right talent, and the role that technology plays in success. To hear the entire discussion, listen to the episode or read the transcript here.
The SPI Professional Services Benchmark Report: An Overview
The main goal of Service Performance Insight (SPI) is to provide survey-based reports to educate professional services leaders on how to run their businesses better. According to Dave, the SPI tagline is “accelerating performance and productivity in profit.” SPI is well-known for their annual Professional Services Maturity Benchmark Report, with this year’s benchmark set for publication on February 8th. The yearly report is based entirely on survey responses from services leaders on the most critical success measurements and key performance indicators (KPIs). The Benchmark Report gives businesses an idea of how they are performing in comparison to similar organizations, as well as the areas they may need to take a closer look at, measure more precisely, and ultimately improve.
The Benchmark Report is built on what SPI calls the five pillars of professional services. All survey questions are framed with these five key variables in mind, as a services business cannot be successful if even one of these is ignored or put on the backburner. In the episode, Dave outlines the five pillars below and some of the common questions professional services leaders should be asking themselves in regards to each.
- Leadership: How do you lead, communicate, and develop culture? How flexible are you?
- Client relationships: How do you sell services? How successful are you?
- Talent: your people. How do you find the right people and keep the right people?
- Service execution: Are you executing on time and on budget, and what do your margins look like?
- Finance and operations: Are you profitable? Are you achieving your goals?
Previewing Takeaways From the 2023 Benchmark
The Benchmark Report analyzes nearly 150 KPIs, but leaders often know the ones that are most valuable to them and where they could use some optimization or streamlining — and focus on those. Dave says, “leaders don’t hone in on all 140 key performance indicators that we provide, they may hone in on 20 or 30 that are very important to their firm.” The report serves as a trusted resource for how businesses are measuring up to the competition and peers. Dave provides an example: “Leaders will see that they grew at 10%, and the average grew by 12%. Okay, so they didn’t do as well as their peers in growth, but maybe they did better in terms of profitability. They take the comparisons and basically say okay, here’s the areas where we need to improve.”
Dave points out the true value of the Benchmark lies in understanding not where your business excels in comparison to others in the market, but where you are falling behind. According to Dave, “The goal is, don’t improve the things you’re doing really well in, improve the things you’re doing poorest at. That’s where you’ll get the biggest bang for your buck. That’s where you’ll improve performance. That’s where you’ll improve profitability.”
Dave recognizes the impact of an inflationary and recessionary market on the services industry: “We see that the organizations just have to do a better job of balancing direct labor cost versus revenue, and with inflation what it is right now, you know, I’m surprised a lot of the firms have not significantly increased rates.” This has led to Dave’s increasing concerns regarding the growing attrition rate in today’s climate, citing that he believes that “a lot of the emphasis for the following year will be on talent as it was last year. It may be next year too. Try to figure out how to streamline the hiring process, because it’s taking too long. And then how to keep employees once you get them.”
Dave emphasizes that the third SPI pillar — Talent — is the most important for professional services organization, and the biggest driver of success. The nature of services puts increased pressure on your people to be your biggest asset.
According to Dave, PSA helps organizations effectively manage, hire, and train these resources. “Professional services organizations work hard to hire a lot of quality people, but if they’re over-hiring skills, billable utilization will be down and profitability will be down. So PSA helps them understand exactly how many people they need with a specific skill that they should try to hire.”
Understanding Technology’s Role in Professional Services Success
In Dave’s 25-year career in professional services, he has been able to uncover trends in the space, common challenges that tend to impact even the most successful organizations, and the ways leaders have turned to technology to help overcome those roadblocks. In the beginning, professional services automation software was being used primarily to improve profitability, streamline processes, or optimize the way resources were being managed. It helped solve the problems that businesses recognized as impeding value or success.
Today, rather than reactively adopting software built for professional services once major problems emerge, professional services organizations are often adopting it ahead of turbulence in order to future-proof their organization against inevitable changes in plans, market shifts, or evolving client demands. The benchmark data highlights the ways organizations are using technology to remain agile and flexible during times of uncertainty. Dave reinforces how important it is for businesses to “understand that your plans will change during the course of the year, depending on economic conditions.”
He shares that as the PSA category has evolved, the ways solutions in the category have been leveraged have evolved too. “We’ve found over the past two decades that PSA is used in the planning process, it’s used in the sales process, it’s used in the hiring process, and it’s used in the financial process because the data within the solutions helps you understand what services you should be selling.” Rather than only solving for the challenges that are already eating into margins or impeding growth, PSA software has grown in popularity as it’s become clear that the best solutions actually drive decisions about the future of the business. A few questions that PSA can help answer according to Dave include:
- What are the hot services?
- What do margins look like?
- Who are your most profitable clients?
- What services should we focus on this year? Which ones have the highest growth potential, margins, and win rate?
- How do we price services to maximize margins?
- Which ones have the highest margins?
- Who do we hire?
Learn More
If you’d like to learn more about where to focus your services business in the upcoming year, listen to the entire podcast or read the transcript here. Subscribe to the The Professional Services Pursuit Podcast to stay up to date on the latest expert advice, trends, and best practices surrounding the professional services industry. And keep an eye out for the 2023 SPI Benchmark Report, set to publish on the 8th of February, to find out where you may be able to improve your processes and drive profitability.