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Source : SAP
Taking Control of your Business Growing Profitably in the Professional Services Market
Professional Services Market is also known as:
professional services industry,
business and professional services,
professional services market research,
professional services,
market professional services,
market research enterprise services,
advanced professional services,
affiliated professional services,
applied professional services,
associated professional services,
audit services.
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Contents
- Executive Summary.
- Market Trends
Market Consolidation
Outsourcing Growth .
Client Sophistication
Regulatory Changes
New Technology .
- Internal Challenges.
Limited Visibility into Project Performance
Difficulty Managing Project Resources.
Inefficient Operations .
Inconsistent Opportunity and Risk Management . .
- Best Business Practices for Professional Services Firms.
Enhance
Project Visibility with Real-Time Analytics .
Maximize Resource
Utilization with Project and Resource Management .
Improve Operational
Efficiencies with a Single Integrated Solution.
Acquire Profitable
Clients with Adaptable Opportunity Management. .
- Business Benefits of SAP Solutions for the Professional Services
Industry .
- Conclusion
Executive Summary
Today's professional services climate is unforgiving. Margins are down,
customer expectations up. In this environment, a professional services
organization must keep a tight rein on all aspects of its business. But for
those firms that weathered negative or nonexistent growth rates in the past few
years, there is a silver lining: The economy is slowing recovering, and
companies are once again spending, however cautiously, on professional services.
Many small to midsize professional services firms are wrestling with how to grow
their client base while responding to outsourcing trends, regulatory change, and
increasingly sophisticated, demanding clients.
These same firms may also be contending with outdated, homegrown software
applications to manage their critical resources, projects, and financials,
realizing that antiquated solutions will not support the growth that they
desire. In fact, these solutions could actually prevent many firms from
operating efficiently ' and from taking advantage of new opportunities.
How can a professional services firm grow profitably while providing clients
with the higher-quality service and rock-bottom project pricing they demand? The
firm must rely on leading best-practice solutions to gain control over every
aspect of its business ' from business development to resource planning to
client billing. This paper details how professional services firms can grow and
thrive in a difficult market by enhancing project visibility, maximizing
resource utilization, improving operational efficiency, and successfully
acquiring more customers.
Market Trends
The professional services industry has suffered in recent years from a down
economy and reduced spending on services. The result was increased competition
among firms for dwindling budgets and a fundamental shift to a buyer's market.
But now the market for professional services is recovering. Worldwide consulting
revenues, for example, were expected to rise nearly 3.5% over 2005, yielding a
market size of over US$210 billion for 2006.1
Along with moderate growth, the current professional services marketplace '
including consulting, Information Technology (IT),
business process optimization (BPO), and tax and
audit firms ' is characterized by the following trends: market consolidation,
outsourcing growth, increasing client sophistication, regulatory changes, and
new technology. Let's consider in more detail how these trends impact
professional services companies.
Market Consolidation
Global clients require global support, especially in the case of IT and BPO
services and consulting firms. To meet this requirement and compete with larger
firms, small to midsize professional services firms have undergone
mergers and acquisitions (M&As) to build economies of scale.
Consolidation in the IT and BPO services markets, in particular, continues to
abound. The realities of market consolidation require that firms prepare for M&A
activity by being able to render accurate and auditable internal processes and
records.
Outsourcing Growth
The trend of business process outsourcing is a mixed bag for professional
services firms. For an IT or BPO firm, each time a business elects to outsource
a function, a potential revenue stream disappears. But for many consulting
firms, the very question of whether to outsource can spark new projects or
clients. And, of course, the largest consulting firms that have added
outsourcing to their portfolio of service offerings (such as IBM Global
Services, EDS, and Accenture) will continue to win contracts and grow revenue.
Professional services firms need to clearly understand and forecast the impact
that outsourcing will have on their future revenue streams.
Client Sophistication
Today's clients are increasingly discerning: they expect seasoned consultants
with deep industry or functional expertise to work on their accounts (see Figure
1).2 They want greater transparency on engagement pricing and management, and
demand price and scope concessions. Fixed-price projects are more common,
raising project and delivery risk. These more sophisticated clients also require
measurable return on investment (ROI) for almost
every project. Professional services firms need to carefully manage skill levels
and pricing to meet the evolving needs of their client base.
Regulatory Changes
The Sarbanes-Oxley Act (SOX) and
International Financial Reporting Standards (IFRS)
significantly impact professional services firms. On the client side, many
companies are transforming fundamental business processes in order to comply
with SOX and IFRS mandates. And these alterations are a major driver for
engaging professional services firms. Regulatory changes also impact
professional services firms internally. For example, audit firms must now
perform global risk and conflict checks before engaging a new client or signing
a new contract with an existing client. Ensuring internal compliance is a
responsibility all firms must address. In addition, many firms can use their
expertise to help their own clients become compliant.
New Technology
Internet and mobile technologies are mandatory for improving project and
consultant efficiency. Applications that run on mobile devices can significantly
increase timely communication and streamline administrative processes. In
professional services, most consultants work at client sites. Without ready or
convenient access to the firm's own IT systems, communication among the project
team and within the services firm is difficult. With the pervasiveness of the
Internet, wireless networks, and Web-based applications, professional services
firms will want to boost productivity by providing consultants with these tools
so they can easily access their firm's systems.
Internal Challenges
In order to proactively respond to these market trends, professional services
firms must address a wide range of internal challenges. These range from
identifying profitable projects to managing opportunity and risk.
Limited Visibility into Project Performance
Many professional services firms find it difficult to answer basic questions
about their business, such as: What types of projects are the most profitable?
How profitable is each client? Without an accurate understanding of how much it
costs to provide service on a per-project or per-client basis, it's nearly
impossible to gauge specific project performance and profitability.
Many firms lack the kind of solutions that provide this insight. And the
solutions they do have are either not robust enough or not integrated ' and thus
unable to report on the time, resource usage, material costs, revenue, and
profitability of specific client engagements, let alone capture knowledge
capital for a specific project.
This information gap essentially leaves the firm unable to address important
considerations such as the following:
- What is the average profit margin across all lines of business? How does
the margin vary by client? By project length? By team?
- What types of projects return knowledge capital that can be used to sell
additional work to other industries or customers?
- What mix of services will provide the optimal utilization of resources
or greatest ROI?
The difference between posting a profit and taking a loss is having insight
into project costs and client cost-to-service data and metrics. For professional
services firms to grow profitably, they must have access to this insight ' and
then apply it to plan for and secure future projects, clients, and resources.
Difficulty Managing Project Resources
Human resources comprise the single largest line item in any professional
services firm ' accounting for 72% of operating expenses (see Figure 2).3
Therefore, it's imperative that professional services firms get the most from
their investment in consultants and staff.
To accomplish this, firms need to effectively manage and match the right mix
of people, equipment, and services with the right project ' all while ensuring
project profitability and client satisfaction. By mastering this balance, firms
utilize their teams to the fullest, while remaining flexible on assigning
resources to meet client expectations.
Inefficient Operations
Many professional services firms are operating inefficiently due to disparate
information housed in multiple financial systems. Important time and expense
systems do not integrate with client billing or project resource management
systems, clouding any potential for accurate visibility into business processes
and performance. These disparities force staff to waste valuable time entering
time sheet and project information manually when they could be focusing on the
successful completion of client projects.
Inefficient and manual processes increase the likelihood of inconsistent or
inaccurate data from one system to the next. Automated, integrated, and easily
accessible software applications can rapidly increase the efficiency of
professional services firms ' and contribute dramatically to project
profitability and client satisfaction.
Inconsistent Opportunity and Risk Management
The goal of most professional services firms is to grow business, but often
their existing solutions inhibit their ability to effectively acquire profitable
new clients. They may lack the historical data needed to analyze the impact of
scoping, pricing, and staffing decisions on the profitability of projects.
Without this analysis, firms are unable to proactively identify which new client
opportunities promise profit ' and which will result in loss.
It's also virtually impossible to answer strategic questions such as the
following:
- What is the revenue potential for this client?
- What are our profit margins on the services this client is requesting?
- What will our cost of sale be to win this account?
Professional services firms need to qualify projects and clients based on
potential profitability, conflict, risk, and resource utilization information '
and complete this assessment during the proposal stage.
Best Business Practices For Professional Services Firms
SAP has 30 years of experience working with over 1,400 customers in the
professional services industry. We understand the business practices used by
progressive consulting, BPO, IT, and tax and audit firms to maintain and grow a
profitable client base in the midst of challenging industry realities. By using
best business practices and solutions developed by SAP specifically for the
professional services industry, firms now have solutions with preconfigured
settings that support end-to-end business processes, along with a proven
implementation methodology and documentation, to help harness project
information necessary to create the project and client insights required to grow
strategically and profitably. Management actively takes control of financial and
operational activities, making forward-thinking decisions that help the firm
maintain and even gain market share.
To grow profitably, professional services firms need to employ best business
practices and solutions that help them perform the following:
- Enhance project visibility
- Maximize resource utilization
- Improve operational efficiencies
- Identify profitable new clients
Enhance Project Visibility with Real-Time Analytics
Many professional services firms still rely on outdated and disconnected
applications to manage their projects, resources, and operations. This lack of
integration across the organization impairs visibility into operations, making
it difficult to deliver projects profitably, on time, and within budget. A
single integrated project management solution can provide real-time visibility
into all aspects of a project or ongoing client engagement, enabling management
to rapidly access accurate data on which to base key decisions.
In addition to providing an integrated view of data, the software backbone
should offer prebuilt analytics that deliver timely reports and metrics.
Real-time analytics capture, monitor, and track all critical project information
' from detailed financial information to project resource management ' and can
be used to structure future projects to ensure profitability. A sophisticated
portfolio management solution includes real-time analytics that can help analyze
the performance of projects and ongoing engagements in light of the company's
strategy and the business environment. The goals are to monitor the project
portfolio for early detection of troubled projects and to ensure maximum value
for the firm while incurring minimum risk.
A best practice for knowledge management is to develop, enhance, structure,
and store the knowledge a firm acquires through its consultants, engagements,
and clients. The collected knowledge has to be retrievable and reused in a
strategic way to generate the greatest profits.
An integrated solution allows for complete visibility into performance across
multiple engagements and geographic regions for more efficient planning and
execution of projects. Detailed insights improve the ability to accurately
forecast resource demands and coordinate all project tasks and milestones '
ensuring on-time delivery of services.
Maximize Resource Utilization with Project and Resource Management
Professional services firms must extract full value from their investment in
consultants and staff when demand is high, while minimizing the impact on
profitability when demand declines. A best practice includes flexible project
resource planning to provide visibility into demand and the tools to apply the
best mix of resources to the right projects. A software solution allows firms to
compare the current status of resources and projects with an overview of their
total resource pool. With this insight, they can determine whether they have the
necessary resources ' based on skill set, knowledge, and experience ' to meet
their clients' expectations.
The solution should enable firms to maintain high utilization levels by
streamlining the process used to assign resources to client engagements. Firms
should strive to balance consultant skill sets and career aspirations with
client expectations. If the resource planning solution is integrated with the
firm's HR application, the firm can leverage a wealth of HR data including
updates regarding skill sets, billing rates, training, travel preferences, and
location to determine ideal optimal staffing scenarios.
Improve Operational Efficiencies with a Single Integrated Solution
Many professional services firms are operating inefficiently due to multiple,
disparate solutions that not only force their staff to waste valuable time
entering information multiple times but also increase the likelihood that data
will be inconsistent or inaccurate from one solution to the next. With a single
integrated financial solution, data is entered only once, thereby increasing
operational efficiency and data accuracy. Firms can then easily and accurately
bill for every cost incurred ' from contractors hired to time and expenses.
Consulting firms need an invoice management solution that enables them to
bill their customers accurately and timely, using a fixed-price or a
time-and-materials billing model. Firms can then generate invoices periodically
according to milestones or predefined thresholds, ensuring an even revenue
stream and transparency for both sides of the business relationship. Consulting
professionals can regularly enter their time and expenses ' anytime, anywhere '
enabling up-to-date project tracking and billing that speeds up the collection
process. With an automated and streamlined invoicing process, firms can increase
cash flow and improve profitability.
A time and expenses management solution that is integrated with the firm's
billing application further increases billing accuracy and decreases time to
revenue. A self-service application for time and expenses should include time
capture, travel planning, travel expense reporting, and profit center
accounting. Another key to improving process efficiency is the leveraging of
mobile devices for capturing time and expenses.
Acquire Profitable Clients with Adaptable Opportunity Management
Firms need to grow business, but more important, they need to grow business
with profitable clients. Many firms, however, lack a consistent approach to
scoping projects, hindering their ability to understand which opportunities will
be most profitable.
To drive new business and expand the footprint of services provided to
existing clients, firms need support for opportunity management ' including
account management, lead generation, and qualification. Firms need a proposal
and order management solution that helps them do the following: respond to
inquiries; provide quotations; acquire and enter sales orders; administer
services; determine pricing; check feasibility of services; and track, manage,
and bill orders. The solution supports the use of information from the scoping,
discovery, and goal-definition processes to create a high-level project plan.
Finally, the solution enables firms to estimate resource requirements for
projects. The benefit? Firms have a consistent approach to project scoping,
discovery, and proposal processes, resulting in a shortened sales cycle, a
reduced cost of sale, and a laser focus on the best opportunities.
Business Benefits Of Sap® Solutions For The Professional Services Industry
Based on more than 30 years of experience and tailored to the professional
services industry, the SAP® solution portfolio, best practices offering, and
services provide an affordable option for consulting, BPO, IT, and tax and audit
firms. When implemented by professional services industry specialists, these
world-class solutions can reduce costs by more than 50% compared to traditional
approaches.4 Implementation is fast, and the project price defined.
The SAP for Professional Services solution portfolio provides a powerful,
robust, and complete answer to the challenges of managing projects, resources,
and time and expenses. Using SAP solutions designed for professional services,
firms can perform all core activities related to human capital and financial
management, analytics, administration, and operations. These solutions enable
firms to effectively manage opportunities, resources, revenues, and costs ' and
to deliver the high-quality, on-time results clients demand.
With SAP solutions for professional services, firms have the facts, figures,
and functions they need to put the right people in the right place at the right
time. The solutions deliver rich functionality for the entire project life cycle
' from winning new business to billing. SAP provides an integrated, end-to-end
environment in which data flows freely to where it's needed.
Conclusion
Professional services companies face several daunting internal challenges
that can impede their ability to grow profitably. Limited visibility into true
project costs can hamper performance and misguide planning. Ineffective human
resource utilization can prove crippling to success. Inefficient operational
processes can further limit the productivity of valued consultants, taking away
from revenue-generating opportunities. And old technology can impede the ability
to create consistent risk and opportunity management processes.
To boost profitability, professional services firms must rethink their
internal infrastructure. They must adopt best business practices that streamline
their operations and provide increased visibility into every aspect of client,
project, and service-line profitability. Firms that continue to simply plan and
staff projects relying on a combination of spreadsheets and management instinct
will fall behind.
Companies that can take a proactive approach will ultimately take control of
their business and come out ahead. What professional services firms need is an
integrated technology solution that reduces manual processes while helping to
improve visibility, resource utilization, and operations. The SAP integrated
solution portfolio for the professional services industry provides the timely,
accurate insights firms need to make proactive business decisions that drive
profitability and performance.
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