How To Tell If Your Professional Services Organization Is Flagging

Running a business is a bit like driving a car. One needs to be aware of many different signals when controlling the car – what speed you are driving, your steering, any odd sounds the car might be making, and, of course, what is happening around you. In particular, if one wants to have a smooth, safe ride and reach their destination, one must keep a close eye on what is happening ahead of them.

In a similar way, in professional services organizations (PSOs), leaders use signals to identify issues that stand in the way of their business reaching its destination. These include metrics and key performance indicators (KPIs) that measure whether their business is functioning well and is in a position to hit important goals surrounding project margin, utilization, revenue, and customer satisfaction.

Sometimes the signals that things are going wrong (or right) are less obvious than we’d like them to be. Purpose-built technology plays an important role in ensuring we understand the signals we’re getting. It can also proactively surface important signals we might otherwise miss. Just like the specifically designed alerts in our cars that help us understand whether that repetitive tire noise is just caused by a bumpy road, a stone caught in the tread, or a nail causing a slow leak that will eventually lead to a breakdown. In a PSO alerts might flag up a flawed process, revenue leakage or unknown costs.

The only constant one can rely on is change itself. Those changes are both external and internal. The business climate is more volatile than it’s ever been, and this has obvious impacts on a businesses ability to achieve and exceed its objectives. Even if you feel your PSO is well run, you need to ask yourself – are there any signals you can watch for? Are there ways you can tell if your business has issues that need addressing?

This whitepaper identifies some common and less common signals that a business leader should keep an eye on and what they can do about them. It looks at financial, utilisation, people and client signals.

As part of the research for this whitepaper, we spoke to several business leaders whose thoughts provided real-world examples of how decision-makers are watching for and acting on signals that show the potential for flagging performance.

Inefficient processes can also impact margins. There are leading signals that leaders can check and take action to improve. These include such things as the time to invoice for expenses – both the time between employees incurring expenses and the client invoice being raised after work is done. The gap between the employee being paid and the company being paid can also lead to cash flow issues. If expenses are raised late, contracts may not allow for their invoicing.

Measuring and forecasting requires business data collected by a modern professional services tool. This is not just the historic revenue and cost data,  it includes data from every aspect of the business from opportunities through the wider business costs.

In a commissioned Forrester study, “Vertical SaaS For Professional Services Is Driving Material Benefits,” 77% of businesses classified as laggard organizations based on the maturity of their tech stack said they find it very challenging to predict project resource needs in advance.

Utilization is perhaps the most popular KPI in use by professional services leaders. In our interviews, every business leader cited it as one of their top three KPIs. While utilization is popular, its fluctuation – or sometimes its stability – can become a signal of a flagging organization.

As with margin, utilization metrics come in multiple flavors, whether that is total utilization or billable utilization. Lucy Butterton, VP, Product Management at Kantata, commented, “You need to make sure you can track and manage utilization and that it’s a healthy and accurate metric.”

Butterton makes two valid points: many PSOs track utilization, but they do not always track it accurately. Accuracy is extremely reliant on a process, it can be hard to get people to comply with – timesheet submission. The key to time tracking is ensuring that it is easy for consultants to enter time in their flow of work and to ensure management understands the benefits of accuracy.

In some larger PSOs, utilization is less about accuracy and more about hitting a target. Whilst hitting targets is important, not recording time accurately can hide issues and opportunities. Consultants are working long hours, and some of these hours end up unrecorded. This can result in burnout. If utilization is slightly low, it is important to understand why, so that it can be rectified.

Healthy utilization is not just about billable time. It is also about productive time that benefits the consultants and the company.

Measuring business utilization across an organization is not enough. Consultants should review their utilization and managers need to have visibility of utilization across their firms. With a hybrid working environment, low utilization in different regions should be considered against the use of contractors with similar skill sets in other regions. Schoen recalled a client referring to this very event occurring as “a double whammy;” the PSO ends up with the bench cost and the diluted margin of using a contractor within another region.

Measuring utilization accurately is only possible with the right professional services tool. These tools only work if they are adopted widely by both consultants and managers. Consultants must be presented with a frictionless time entry solution that benefits them and the organization. The importance of change management during implementation to enhance adoption is essential.

If change is navigated successfully and the right tool is put in place, the benefits can be transformative. A commissioned Forrester study, “Vertical SaaS For Professional Services Is Driving Material Benefits,” notes that “9 in 10 vertical SaaS users agree that vertical SaaS for PS drives material benefits for their organization … Those that report an increase in billable utilization, reported a 49.5% increase in utilization!”

Professional services are proven to help drive improvements in utilization. In a recent SPI Research report², increasing utilization rates was seen as the key benefit of deploying a PSA solution. Perception met reality, with those deploying a PSA increasing utilization by 8.2% (from 66.0% pre-PSA to 74.2% post PSA).

Organizations also need to be able to predict future utilization. With an optimized resource management tool, PSOs can forecast utilization rates for consultants in the future. If utilization is forecasted to be dangerously high, leaders can set recruitment needs. Where it is low, does it mean there is an issue with skill sets or the sales pipeline? Is the pipeline’s problem due to the sales team, or is there a market trend reducing demand? Forecasting will help provide answers to these questions.

At the heart of any PSO are its people. Several signals might indicate a PSO is flagging. The Great Resignation and the demand for hybrid and flexible working staff turnover have become an increasing concern for many organizations. A new study from Kantata, “The Changing Dynamics of The Modern Workforce: An In-Depth Look at the Professional Services Industry,” reveals that  61% of business leaders spend at least a third of their time each day solving employee turnover issues.

Within the wider working environment, the next generation of the workforce has different expectations. Chris Mitchell, VP of Global Accounts at Kantata, said, “Graduates no longer want to wait to become associates and partners. They are impatient and will set up their own business. Attitudes are changing. You can’t just expect your junior people to be like sheep and keep working. They expect more; they want more. Unless you give them more, they leave.”

While staff churn is an important metric to keep an eye on, there are other signals to consider.  Taking action on these can reduce churn. Edwards noted, “People are looking at KPIs around efficiency, staff engagement, retention, training, and other KPIs that are bubbling up and becoming just as important as some financial metrics.”

Good employee engagement aims to keep employees happy. It has several facets. The pandemic increased concern for well-being and ignited a desire for career development. According to the new study from Kantata³, 92% of full-time employees would be more loyal if their company invested in their professional growth, including education and certification. There are also benefits to allocating time to philanthropic initiatives to boost employee engagement. Firms that do not invest in their consultants will suffer higher staff churn. The study noted that 43% of full-time employees admit they have considered becoming a freelancer.

Employee choice is also important to holding on to key talent. Can employees indicate which projects they want to work on, rather than being dictated to? Are they heard if they need to adopt more flexible working practices due to changing personal circumstances? During the pandemic, organizations had to adopt flexible working due to child care, isolation, commuting, or other issues. The precedent was set, and for many, there is now an expectation that flexible work is possible and here to stay.

There is also a link between employees and client satisfaction. Jacqueline Stanley, Director of Delivery at Hero, commented, “I think we’re seeing the shift in business of really understanding that happy employees are the key to happy clients.”

There are also obvious signals from clients. Client satisfaction is a critical signal, and most PSOs measure it. However, while a drop in customer satisfaction can highlight an issue, it is a KPI that should not be taken in isolation. Customer satisfaction may come at a cost, but it should also be looked at in the same way as employee satisfaction and margin. If a firm decides to do business with a grey sector, perhaps drug testing or armaments, will all employees want to work with such a company, and will it negatively impact morale?

Regarding client sentiment, signals of dissatisfaction are sometimes hidden in various disconnected data sources, across task management applications, CRM, and spreadsheets. Are key stakeholders no longer attending meetings? Are responses delayed? There are also financial signals that could indicate there is trouble ahead. Unpaid bills are an immediate red flag, but is there an underlying trend where a client pays later with every invoice? It could indicate that a specific client has an issue or a wider malaise with the industry you service.

Organizations must always balance customer satisfaction with profitability. Not all clients are created equal – some clients will be more profitable than others. Understanding the overall margin for each client is important, but it should not be looked at in isolation. Other factors to consider are client satisfaction and how consultants feel about the work. If the margin is high, but the client is dissatisfied, perhaps more or better resources should be allocated. If the margin is low, is it the right work for the organization, or does the team need changing? It may be repetitive work delivered by a high-performing but bored team. Digging under the surface of the client margin is important.

Organizations must reflect on their client margins and be willing to say “no” to new or repeat business, freeing up resources for more profitable work. Chris Meyer and Ken Wilcox⁴ discussed this very topic in an article in the California Management Review earlier this year.

Business challenges are often solved using the PPTI framework – People, Process, Technology, and Information. These four elements are required to help deliver and make decisions to take action on these signals.

1. People

People are often forgotten in a rush to deploy technology. However, change management is important to deliver meaningful change within any PSO. Technology adoption needs a communication plan. You also need senior management to support and sponsor change management in the organization. It has to be top-down, and also bottom-up.

2. Technology

When evaluating tools to improve professional services performance, it is important to select a tool that has been proven successful with a similar organization and is developed by a vendor steeped in the professional services world. Professional services organizations need a solution richer than work management or task management applications, delivered by people who understand the sector. The solution must also be able to collect the data, analyze it, surface the insights on signals that require action, and even propose the next best action using AI. In time, the best tools will develop benchmarking capabilities to demonstrate how your organization is faring against the industry norm.

3. Processes

Processes break over time for various reasons. Organizations need to consider whether the processes they have used since they were a startup are still appropriate, no matter how comfortable. Processes also need to meet the compliance requirements for the size of the organization and the industries it operates within. The best professional services tools have appropriate best practice processes ready for use that are configurable to specific organizational needs.

4. Information

While professional services tools will not be the only system within your software architecture, they can provide a single source of truth through integrations with other systems of record. Insights gained using artificial intelligence need data; the more data your next tool has, the better the insights are over time.

A professional services tool can also give visibility across the organization. For example, a project manager must be able to not only execute on the logistics of a project to get it done, but they must also be aware of the commercial implications of their decisions. Transparency can also extend to customers, giving them access to view project progress and update task information where they have responsibility.

Information also helps with forecasting. As Schoen stated, “If you can’t have good visibility of where you’ve been, and where you think you’re going to go, you can’t really successfully manage a company because you’re just at the whim of whatever happens.”

A modern professional services tool should empower organizations to collect the data required to see the signals of flagging performance. It will then surface the insights they need to stay on track and can even prompt the appropriate action. The tool should also support process changes and help people within the organization improve the PSO’s resilience, profitability, and revenue.

The Power of Purpose-Built Professional Services Software

“Kantata helps us in a lot of different ways. One, it’s extremely easy to use. It took me very little time to get my teams trained. Most of it had to do with the business process of how we were using the tool. The second thing is it’s got excellent reporting. I can get the data out in lots of different formats for a lot of different people within the company, including me, my executive team, the project managers and even the people that are entering their time.” – Tom Schoen, CEO and President of BTM Global

As the SPI Research⁵ recently stated, “PSA has become mandatory for project- and services-driven organizations to improve operational performance, better forecast, grow revenue, reduce cost, enhance quality and drive client and employee satisfaction – all while increasing profit. Every project and services-oriented organization with over 20 employees should seriously consider Professional Services Automation.”

Because leading PSA solutions are designed with specific needs of the professional services industry in mind, they offer greater synergies to professional services organizations. These solutions are better able to surface the data needed to monitor performance and should even provide insights that help decision-makers course correct the business. Be careful though – there are a lot of PSA tools on the market. Not every vendor that claims to offer professional services automation capabilities has the focus, expertise, and scale to provide truly industry-specific solutions. Look for future fit solutions with purpose-built capabilities that map to the unique challenges your business will face in the short and long term.

Buying the right PSA is like buying your next car. While some people might buy a generic, consensus  option when looking for a car, you are more likely to enjoy driving if you find a modern car that is the perfect fit for your needs.

Identifying and adopting the right professional services tool can make your business journey much easier. It increases efficiency, provides signals when things are going wrong, and puts important functionality in the hands of people who need it to reach their destination.

¹ Vertical SaaS For Professional Services Is Driving Material Benefits, September 2022. A commissioned study conducted by Forrester Consulting.
² 2022 Professional Services Automation End-user Survey, Service Performance Insight
³ The Changing Dynamics of The Modern Workforce: An In-Depth Look at the Professional Services Industry, conducted by Atomik Research
⁴ Meyer, C. and Wilcox, K., Unlocking Growth in Professional Services by Saying ‘No’.
⁵ SPI Research: The 2022 Professional Services Maturity™ Benchmark Report