ThinkingStreet.com

Effective pricing and discounting strategies are one of the key reasons why some technology professional service organizations succeed and others fail. According to the “The New Professional Service Maturity Model” benchmark report just completed by Adexta and SPI Research, companies with the lowest bill rates experienced twice the project cancellation rate (3.2%) compared to companies with the highest bill rates (1.6%). The results for on-time project completion were equally dramatic with only 67% of low bill rate projects delivered on time as compared to 85% for companies with the highest bill rates.

Best in class professional service organizations not only establish high billing rates but protect them by limiting discount authority. By charging and maintaining premium rates these firms are able to invest in a continuing cycle of excellence. Organizations with the highest bill rates consistently reported significantly greater investments in their employees - more vacation time; higher incentive payments and double the average investment in training per employee.

These insights and many more are provided in “The New Professional Services Maturity Model - A Roadmap to Achieving Professional Services Excellence”, an 88 page benchmark report developed by Jeanne Urich and R. David Hofferberth, P.E. It is available from Adexta and Service Performance Insight for $495 at (spiresearch), or directly at: Click Here

The report provides benchmark data from 52 professional services providers in addition to actionable guidance on how to improve organizational maturity, leading to performance improvements and increased profitability. It shows how professional services organizations can begin the process of establishing their own roadmap to service excellence by comparing themselves to industry benchmarks.

Until now, little if any research examined Professional Service strategies and benchmarks within the context of a rapidly maturing technology environment. Some of the questions around these issues include:

• What are the most important focus areas for professional service organizations (PSOs) as business processes mature?
• What is the optimum level of maturity or control at each phase of an organization’s lifecycle?
• Can diagnostic tools be built for assessing and determining the health of key business processes depending on an organization’s level of maturity?
• Are there key business characteristics and behaviors that spell the difference between success and failure? If so, do they change depending on the maturity of the company or industry?

Service Performance Pillars

This research report benchmarks the correlation between professional service organizational performance and the adoption of “best practices” and business process maturity. Adexta and SPI Research have organized the key business processes required to create and run a professional service organization into five performance pillars:

1. Vision and Strategy: A unique view of the future and the role the service organization will play in shaping it. A clear and compelling strategy provides a focus for the organization and galvanizes action. Effective strategies focus on target customers, their business problems, and how a solution solves those problems differently, uniquely, or better than its competitors. For a service strategy to be effective, the role and charter of the service organization must be defined, embraced and supported throughout the company. Depending on whether the service strategy is to primarily support the sale of product or to drive service revenue and margin; service organization goals and measurements will vary.

2. Finance and Operations : The ability to manage services profit and loss - to generate revenue and profit while and developing repeatable operating processes. Elements of this pillar provide long-term financial stability, which enables PSOs to manage growth and provide an acceptable level of return to shareholders.

3. Human Capital Alignment : The ability to attract, hire, retain and motivate employees. With changing workforce demographics, human capital strategy has increased in importance. As executives work to manage costs, they must assure clients have the best/cost-effective personnel working on projects. As PSOs adopt new staffing models designed to achieve these goals, they must also be diligent to keep their best people on-board and motivated.

4. Service Execution : The methodologies, processes and tools to effectively schedule, deploy and measure the quality of the service delivery process. Service execution involves a number of factors: from assuring utilization rates remain high, to delivering services in a predictable and acceptable time frame, to reducing cost while improving project quality and harvesting knowledge.

5. Client Relationships : (sales, marketing and communications) The ability to effectively communicate with employees, partners and customers to generate and close business and win deals. Effective client management involves improving relationships to better understand client needs, while ensuring clients will provide references and testimonials.

These five pillars identify specific areas in which PSOs of all types (product or service) strive to improve capabilities that will both optimize profitability and improve quality, human capital and client satisfaction - providing the best environment for long-term success. However, maximizing performance in one pillar could lead to performance degradations in the other four. The objective is to optimize the results within each pillar, while driving overall revenue, margin and customer satisfaction.

Professional Services Maturity Model Levels

Within each of the Service Performance Pillars, Adexta and SPI Research developed guidelines for process maturity. These guidelines cut across the five service dimensions to illustrate examples of business process maturity. This study has been developed to measure the correlation between process maturity and service performance excellence.
This model is built on the same foundation as the Carnegie Mellon Capability Maturity Model (CMM), which has been adopted for software development; but is specifically targeted toward billable PSOs, that either exclusively sell and execute professional services, or complement the sale of products with services to optimize a product’s use. The five maturity levels include:

• Level 1 - Initiated: At maturity Level 1, processes are ad hoc and fluid. The business environment is chaotic and opportunistic, and the focus for a PSO is primarily on new client acquisition and reference building. Often professional service employees at this level are chameleons - able to provide presales support one day and develop interfaces and product workarounds the next. Success depends on the competence and heroics of people in the organization, and not on the use of proven processes, methods or tools.
• Level 2 - Piloted: At maturity Level 2, processes have started to become repeatable. Best practices may be demonstrated in discrete functional areas or geographies but they are not yet documented and codified for the entire organization. Basic processes have been established for the five Professional Services Performance Pillars but they may not be universally embraced.
• Level 3 - Deployed: At maturity Level 3, the PSO has created a set of standard processes and operating principles for all major service performance pillars but renegades and “hold-outs” may still exist. Management has established and started to enforce financial and quality objectives on a global basis.
• Level 4 - Institutionalized: At maturity Level 4, management uses precise measurements, metrics and controls, to effectively control the PSO. Each service performance pillar contains a detailed set of operating principles, tools and measurements. Organizations at this level set quantitative and qualitative goals for customer acquisition, retention and penetration, in addition to a complete set of financial and operating controls and measurements.
• Level 5 - Optimized: Maturity Level 5 focuses on continual improvement of all elements of the five performance pillars. A disciplined, controlled process is in place to measure and optimize performance through both incremental and innovative technological improvements. Quantitative process-improvement objectives for the organization are established. They are continually revised to reflect changing business objectives, and used as criteria in managing process improvement. New initiatives for quality, cost control or client acquisition are in place to ensure optimum performance. The rough edges between disciplines, functions, and specialties have been smoothed to ensure unique problems can be addressed quickly without excessive bureaucracy or functional silos.

Building the Professional Services Maturity Model

When the service performance pillars are mapped against process maturity, a Service Excellence Roadmap can be developed. This tool provides insight into where an organization fits within the service maturity model as well as a guideline to move from one level of maturity to the next. It allows organizations to diagnose their performance strengths and develop plans to bring lagging areas into alignment (Table 1).

Table 1: Performance Pillars Mapped Against Service Maturity

Source: Adexta and SPI Research, January 2008

View Large

With increased global competition for business and resources, PSOs must continually improve. These improvements cut across every aspect of the organization, and all departments and individuals must work together to drive service performance excellence. Executives need performance indicators and a plan for continual advancement.

Building a customized PS Maturity Model Report Card

After completing the benchmark survey, Adexta and SPI Research create a unique spider diagram for each respondent to show how their organization’s functional maturity compares to the Professional Services Organizational Maturity Model. The spider charts also provide a visual representation that depicts the relative process maturity or immaturity against each of the Five Service Performance Pillars. It gives insight into areas of relative functional strength and weakness, thus providing a roadmap for future investments. The following figure shows an example of the Spider Chart for one of the respondents.

Figure 1: Example PS Maturity Model Report Card

Source: Adexta and SPI Research, January 2008

This charts shows that the respondent has a well articulated Vision and Strategy, embraced by all functions and employees along with individual goals and metrics to drive that strategy but within the other Service Performance Pillars, processes are immature. Going forward, this respondent should start investing in Human Capital, Service Execution and Client Relationships.

This report provides a glimpse into areas where PSOs can improve by showing statistics for average performance reported by over 50 professional service organizations. It shows how the service performance pillars can be optimized and provides prescriptive advice to help organizations enhance their business process maturity while improving bottom-line results.

About Author:

Jeanne Urich is a principal with Adexta Strategy Consulting. She can be reached at Jurich [AT] jurich.biz

Views expressed here belong to the author and do not represent those of the ThinkingStreet or the author’s employer.

Trackback URI | Comments RSS