EXECUTIVE INSIGHT. The Unique Challenges of Professional Services for Small and Medium Sized Businesses

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1 EXECUTIVE INSIGHT The Unique Challenges of Professional Services for Small and Medium Sized Businesses Effective SMB Automation Requires a New Breed of Professional Services Automation Technology June 2009 A Joint White Paper from the TPSA and QuickArrow

2 The Unique Challenges of Professional Services for Small and Medium Sized Businesses HE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 TPSA-EI TABLE OF CONTENTS Executive Summary... 3 SMB Adoption of On-Premise PSA Slowed by Cost And Complexity... 3 Figure 1: TPSA Member Adoption of PSA Technology... 4 Beyond Spreadsheets: New Dynamics Forcing SMBs Toward PSA... 5 Unique Requirements from SMB Companies for PSA Software... 6 Figure 2: Target Utilization and Rate Realization for TPSA Members... 6 THE TPSA RECOMMENDS... 7 QuickArrow Small Business Edition... 9 ENDNOTES Contact Information QuickArrow, Inc Jollyville Road Suite 200 Austin, Texas Telephone: Fax: Technology Professional Services Association Camino San Bernardo Suite 200 San Diego, CA U.S.A. Tel.: Fax: info@tpsaonline.com TPSA Page 2

3 THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 EXECUTIVE SUMMARY As the professional services industry matures, core operational metrics like target utilization and rate realization are suddenly common discussion topics for board members, investors, and even Wall Street analysts. With this level of transparency, small and medium-size services organizations are under more pressure to achieve metrics similar to enterprise operations. However, with few tools to automate key processes, small firms are at a disadvantage: they struggle to accurately calculate key metrics, and without sophisticated reporting they do not always understand what to change to move a metric up or down. Professional services automation (PSA) technology allows services teams to more effectively plan, manage, and execute customer projects, providing tools to track project progress and utilization, ensure accurate billing, and enable analytic-based reporting on operational success. Though PSA suites have been around for more than a decade, legacy technology installed on-site (or on-premise) has primarily targeted large companies, and as a result, PSA adoption remains low among small and medium-size businesses (SMBs). But this is quickly changing as new approaches to PSA are providing smaller firms with access to innovative functionality. In this report, learn why traditional on-premise PSA tools do not meet the needs of SMBs, and find out about a new breed of PSA technology that brings valuable operational insights to SMBs without the cost and complexity of legacy systems. SMB ADOPTION OF ON-PREMISE PSA SLOWED BY COST AND COMPLEXITY Today s professional services (PS) organizations are under immense pressure to boost revenues and lower operational costs. As services contribute a larger share of corporate revenue, outperforming product revenue in many firms, our industry grows more transparent as services executives, company board members, Wall Street analysts, and even customers increasingly understand profitability drivers such as utilization rates and rate realization. In order to capture sufficient details about each project to enable profitability reporting and analysis, technology has been developed to track project success and give early warning signs of challenges. Professional services automation, or PSA, is software used to manage the delivery of professional services projects to clients, and the resources that are required for those projects, such as skilled personnel and equipment. Typically, functions include project management and documentation, time recording, billing, and reporting TPSA Page 3

4 THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 As seen in Figure 1, traditional PSA solutions, which are installed on-site, have proven a poor fit for smaller services firms and PS groups, leaving many small and medium-size businesses (SMBs) to navigate this increasingly competitive landscape with spreadsheets, paper files, and significant reliance on employee memory. Figure 1: TPSA Member Adoption of PSA Technology Do you have a Professional Service Automation (PSA) system in place? $1B - $10B 78.9% $100M - $1B 64.7% $25M - $100M 58.3% <$25M 54.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% Source: TPSA 2009 Benchmark Though TPSA research shows that SMBs are more interested than ever in investing in automation, smaller companies find that the traditional on-premise PSA tools are a poor fit for several reasons, including: Process pushback. Many small PS firms have leadership with big company roots. After years of being a cog in the wheel of a large services organization, services executives heading up a smaller team are weary of process-heavy operations. That process pushback often extends to a wariness of PSA, since on-premise PSA implementations at large companies tend to over-complicate even simple tasks. Tool complexity. Small companies do not have a team of analysts to create custom reports and dig through reams of information looking for nuggets of business intelligence. Most legacy PSA tools that evolved from a history of mainframes and green screen applications are cumbersome to use, require classroom training in order to master, and even tech-savvy business users need ongoing support to complete common processes TPSA Page 4

5 THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 Implementation/ownership costs. Traditional PSA tools are deployed on-site with huge upfront costs and hard-coded integrations to back-office accounting systems. Legacy products from enterprise application vendors require use of the vendor s full suite of CRM, ERP, and financial applications to accomplish project quotes and billing. A dedicated team of IT employees is required to implement and maintain the system, design custom reports, and customize screens or process flows. On-premise tools must have patches and upgrades manually installed, involving backup servers and downtime for major upgrades. Wrong functional mix. Enterprise PSA tools put a tremendous focus on resource management, with profiles of all PS consultants with their areas of expertise and certifications meticulously defined, and complex algorithms used to allocate consultants to pending projects. For smaller PS firms with dozens of consultants, not hundreds or thousands, not only is the functionality overkill, the required data and tasks involved for resource allocation wastes time with no tangible benefits. Legacy products from enterprise application vendors require use of the vendor s full suite of CRM, ERP, and financial applications to accomplish project quotes and billing. BEYOND SPREADSHEETS: NEW DYNAMICS FORCING SMBs TOWARD PSA Though PSA adoption has historically been lower for smaller services firms and PS teams, the 2009 TPSA Member Technology Survey shows that even faced with an uncertain economy or perhaps because of it interest in PSA is on the rise for SMBs. In the survey, TPSA members were asked if they had approved budget in 2009 for professional services automation technology. Surprisingly, smaller companies actually plan to adopt PSA at a faster rate in 2009 than larger firms. A total of 22% of companies with less than $1 billion in revenue, and 14% of companies with revenue less than $500 million, have budget for PSA technology in , as compared to only 11% of companies with revenue over $10 billion. 1 According to interviews with TPSA members, the growth of PSA adoption among smaller firms is occurring for several reasons, particularly due to pressure from three sources: Executives and stockholders. With detailed financial reporting publicly available from large technology firms, SMB executives and stockholders expect similar utilization rates and profit margins from their smaller operations. Not only is automation required to capture more information about projects to provide more accurate forecasting and cost analysis, but technology can also streamline some common processes to lower operational costs of service delivery. Economy. The economic recession was cited by several SMB members as a primary reason for PSA investment. With services revenue growing at a much faster rate than product revenue, company executives want to not only continue 2009 TPSA Page 5

6 Company Revenue Company Revenue THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 this trend, they want to squeeze as much cost as possible out of the process. PSA technology is seen as a way of further increasing transparency of operational profits and costs. Competition. With fewer new deals due to the economy, competition to win each project increases, with more independent consultants hungry for business and large companies making a play for smaller deals. SMB firms feel pressure to look and act like a larger firm, with more polished presentations and proposals, and more sophisticated reporting and automated processes to further reinforce the level of professionalism and experience. The 2009 TPSA Member Technology Survey shows that smaller companies actually plan to adopt PSA at a faster rate in than larger firms. Unique Requirements from SMB Companies for PSA Software From interviews with services leadership at multiple TPSA member companies, it is clear that the core operational benchmarks used to gauge success are the same across large and small companies, such as resource utilization and rate realization. Average benchmarks for these metrics by company size are shown in Figure 2. 2 Figure 2: Target Utilization and Rate Realization for TPSA Members Target Utilization for Billable PS Resources Actual Rate Realization for Billable PS Resources $1B-$10B 64.7% $1B-$10B 77.5% $100M-$1B 66.7% $100M-$1B 80.5% $25M-100M 67.0% $25M-100M 77.4% <$25M 66.9% <$25M 78.2% 63.0% 64.0% 65.0% 66.0% 67.0% 68.0% 75.0% 76.0% 77.0% 78.0% 79.0% 80.0% 81.0% Source: TPSA 2009 Benchmark 2009 TPSA Page 6

7 THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 However, with all manual processes and heavy reliance on homegrown tools and spreadsheets, small PS groups may struggle to accurately calculate key performance metrics. Even more challenging, understanding what levers can be pulled to improve metrics, and what the impact would be, is very difficult without more sophisticated reporting than spreadsheets and whiteboards can provide. The challenge, then, is how to introduce some structure into the process without saddling employees with time-consuming record keeping or creating additional administrative overhead in areas like resource management, in which requirements are light. SMBs need a new breed of highly flexible and easy-to-use professional services tools to meet their unique requirements, particularly in the following areas: Project management. Service executives at SMBs want fast and easy access to project status and profitability, without having to analyze multiple reports and data sources. Graphical reporting is required to allow an immediate assessment of projects and easy identification of problem areas. Additionally, smaller PS groups want a system that can be leveraged as a central repository for all details about projects, capturing information in a single central location instead of spreadsheets, knowledgebases, and various file systems. Time, expense, and billing management. Making it quick and easy to record online and offline time and expenses allows companies to more accurately capture billable time, as well as automate the billing process. For small companies, the system should come with standard flows out-of-box and easy configuration options to change settings and add new processes without programming. Strategic business analytics. PS organizations are pushing PSA vendors for more sophisticated reporting and analytics, particularly to analyze project history and identify the elements or indicators of successful and unsuccessful projects. With no dedicated team of data analysts, SMBs require PSA analytic tools with business-user-targeted controls that identify trends automatically and proactively. THE TPSA RECOMMENDS The strong planned spending on PSA technology, in spite of the economic gloom, illustrates the critical role technology plays in PS operational efficiency. With increased transparency in our industry about utilization rates and services revenues, small and medium-size PS operations are determined to better understand and improve key success metrics, and that requires moving beyond spreadsheets to adopt technology that can provide a boost in oversight and performance. However, new PSA implementations will not achieve the desired results without a balance between people, process, and technology. SMB companies shopping for professional services automation should pay particular attention to: 2009 TPSA Page 7

8 THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 Employee adoption. One of the top reasons for lack of return on investment (ROI) for enterprise applications is poor employee adoption, with employees often feeling tools that are forced upon them with no benefit to end users. Make certain you select technology with a highly intuitive user interface designed for business users, and clearly communicate the business value for every user of the system: all project tracking and accounting will be automated, boosting utilization rates and enabling consultants to increase billable hours. Deployment options. Though traditional PSA software from enterprise application suite vendors has always been installed on-premise, small firms should opt for the flexibility and lower cost of a software as a service (SaaS) product. With wizard-like setup tools and end-user-targeted configuration options, no onsite administration is required, and upgrades are painless and require no downtime. Quote to Cash. The end-to-end process from opportunity tracking to collecting payment for a completed project is known as quote to cash. For small companies, that may not have the luxury of a CRM and ERP system, keep two things in mind. First, select a product that will enable as much of the quote to cash process as possible to gain insight into all phases of your PS operation. Next, select a product that is flexible enough to easily integrate into common front- and back-office systems (Salesforce, QuickBooks), should continued company growth allow your technology platform to expand. Smaller PS firms should opt for the flexibility and lower cost of a software as a service (SaaS) product TPSA Page 8

9 Small Business Edition only $1,995/yr. for up to 10 users! What s included: Time and Expense Management Project Management Opportunity Tracking Billing Summary Integrated Reporting Strategic Business Analytics Client Portal Document Management User Community Access 24x5 Support Deliver Projects on Time and on Budget Improve your Cash Flow Measure and improve your performance Accurately capture and invoice for every billable hour Take Back Your Nights and Weekends Reduce your billing cycle to hours instead of days or weeks Standardize projects with easy-to-use, flexible project templates Catch runaway projects early and make the changes necessary to get them back on track Simplify and speed up your reporting process with more than 25 easy-to-use, configurable report templates Configure executive dashboards to easily monitor your overall business health at a glance Start your free trial today at quickarrow.com/smallbiz! If you're still running your business on spreadsheets, then you already know how much time it takes just to get an idea of where your projects stand, much less deliver accurate, timely invoices to your clients. 9 times out of 10, that means project and cost overruns, and countless nights and weekends away from the family, just trying to get your head above water. That's exactly why we created QuickArrow Small Business Edition, an affordable, easy-to-use solution that can help you streamline your business and take back your personal life. I used to spend half my work week updating spreadsheets and preparing reports.with QuickArrow it takes a couple of hours. Mark Foster, Director of Professional Services

10 Case Study Troux Technologies reduces end of quarter invoicing from 2 weeks to 3 days CHALLENGES With no central database, project managers were using a single, shared Excel spreadsheet for resource utilization making it difficult to update and leading to inaccurate data. Troux had a redundant auditing process between the Services and Accounting departments. This led to errors in data entry and a slow invoicing process. Home grown reporting spreadsheets were complicated and time consuming, and the lack of reporting capabilities meant minimal visibility into the Services department. RESULTS All project managers are now looking at the same project information, eliminating over-scheduling and reducing project collisions. Accounting can see all necessary information in QuickArrow, shrinking the end of quarter invoicing process from 2 weeks to 3 days. SOLUTION With no central database, project managers were using a single, shared Excel spreadsheet for resource utilization making it difficult to update and leading to inaccurate data. Troux had a redundant auditing process between the Services and Accounting departments. This led to errors in data entry and a slow invoicing process. QuickArrow s reporting capabilities have stopped time consuming data gathering and complex analysis and Services is now able to provide near-time results of quarter-to-quarter information for executive dashboards. Home grown reporting spreadsheets were complicated and time consuming, and the lack of reporting capabilities meant minimal visibility into the Services department. I used to spend half my work week updating spreadsheets and preparing reports. With QuickArrow it takes a couple of hours to pull my reports and provide our executives with rich data detailing the health of our Services department. - Mark Foster, Director Professional Services For more information, please contact us at PSA1 or qasales@quickarrow.com.

11 Case Study Prescient Applied Intelligence gains immediate visibility into end of month revenue and resource utilization CHALLENGES Utilizing three different software packages to handle timesheet entry, expense reporting, and invoicing, Prescient wasted valuable time synching-up databases and had trouble generating reports. Professional Services had no visibility into financial information related to the business, could not develop accurate forecasting, and were dependent upon other departments to provide insight. Prescient had no system in place to monitor and manage project staffing and resource utilization, affecting monthly scheduling and billing rates. SOLUTION QuickArrow offers a single, comprehensive solution to consolidate and streamline manual reporting processes and accurately manage time, expenses, and billing. QuickArrow s revenue recognition system enables organizations to differentiate between revenue for services performed and amounts contractually billable, creating a true picture of a company s financial standing. QuickArrow provides complete insight into resource availability, skills, and certifications, improving efficiencies in project planning and staffing. RESULTS By using a single solution for time and expense reporting, invoicing, and project monitoring, Prescient has eliminated the time associated with comparing numbers from multiple systems and generating ad-hoc reports for clients. Professional Services now has immediate visibility into monthly revenue and consultant utilization 1 day after closing the month, rather than waiting up to 2 weeks into the following month. Effective and efficient resource management has helped Prescient negotiate accurate project start dates and their new visibility keeps more resources booked at standard billing rates. - Vice President of International Services We are now in a position to provide timely reports and updates, internally and to customers, about the business and project progress. Professional Services is out in front of the business pushing updates to the company rather than reacting to potential problems. For more information, please contact us at PSA1 or qasales@quickarrow.com.

12 THE UNIQUE CHALLENGES OF SMB PROFESSIONAL SERVICES June 2009 ENDNOTES 1 The TPSA Member Technology Survey is conducted annually and asks member companies what PSA technology they are using, how satisfied they are with it, and any planned spending in the next two calendar years. The 2009 survey received responses from 109 member companies. 2 The data for these survey questions in the TPSA benchmark is tracked by percent of members in bands of percentages. Estimated percentages were calculated using the percent of members for each band, and the average amount for each band. For example, if 15% of members selected 50-59%, the estimate would be calculated 15%*55%. The sums for each band were totaled to arrive at an estimated percentage for each cohort TPSA Page 12