W H I T E P A P E R S u c c e s s f u l l y M a n a g i n g a C o n s u l t i n g B u s i n e s s i n C h a l l e n g i n g E c o n o m i c T i m e s

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F W H I T E P A P E R S u c c e s s f u l l y M a n a g i n g a C o n s u l t i n g B u s i n e s s i n C h a l l e n g i n g E c o n o m i c T i m e s Sponsored by: Deltek Michael Fauscette August 2012 I D C O P I N I O N IDC's recent global survey of consulting firms shows that consulting businesses are under tremendous business pressures from the economy, shifting technologies, and increased global competition. To effectively compete in this environment, consulting firms need IT systems that provide visibility into key business metrics, effective project management capabilities, and the ability to manage an integrated project life cycle from the front office to the back office. Many firms have found that existing systems didn't meet their unique business needs, and they either have highly customized systems that are not a good fit or have built their own systems. It's clear from the survey that many of these systems are not living up to expectations. Purpose-built systems for consulting businesses are available that can provide the integrated life-cycle view of project and client, effective resource and project management, and deep visibility into key business metrics necessary to run a successful consulting business. M E T H O D O L O G Y Earlier this year, to support the development of this white paper, IDC conducted a phone survey of 280 consulting firms in the United States, United Kingdom, Belgium, Scandinavia, and the Netherlands. The survey targeted line-of-business respondents almost half were directors/managers of a non-it-related department and only 5.7% were in IT-related positions. The firms varied in size from very large (10,000+ employees) to small and medium sized, with the largest number falling between 100 employees and 1,000 employees (67.2%). From a microvertical perspective, 54.6% were IT/technical consulting firms, 30% were management consulting firms, 10% were other scientific/technical firms, and 9% were marketing consulting firms. I N T H I S W H I T E P A P E R Consulting firms continue to face business pressure from the economy, as well as pressure to adapt to changing customer and employee expectations and new ways to use technology for business advantage. In a recent survey of consulting businesses worldwide, IDC took a look at several key business factors, including key business metrics, critical business IT systems, and some ways that project-based businesses could improve overall business performance. The survey highlighted several areas where many of the respondents had struggled over the past year, including declines in average project size, revenue, profit margin, and number of proposals accepted,

2 with some of the declines up to 25% or even greater. These declines clearly show that consulting businesses must leverage every tool, resource, and process possible to gain and hold competitive advantage while driving greater business efficiencies. Consulting companies, at least successful ones, are metric driven and rely heavily on critical business systems to keep the business operating efficiently. As part of the survey, IDC collected information about key business metrics from the respondents. One of the most revealing discoveries, though, came from the high incidence of "don't know" responses on all of the key performance metrics, an indication that some IT systems are not providing managers with the information they need. Even so, the data provided a lot of insight into areas like billable utilization, revenue, profit margin, administrative overhead, win rates, and revenue per billable head. When asked to identify the firm's top business challenges/issues, survey respondents ranked the top 3 as follows: 1. Increasing revenue (ranked #1 by 45.4% of respondents) 2. Maximizing profit (ranked #2 by 24.6% of respondents) 3. More effective and efficient project management (ranked #3 by 33.2% of respondents) The top issue, increasing revenue, was by far the standout with 45.4% of the firms, but increasing visibility into key business metrics was also seen as an important issue, with 20% of the respondents identifying it as number 1. This is not surprising in a metrics-focused business like consulting. In fact, across the top 3 challenges/issues, metrics were clearly identified as an important priority, with increasing visibility into key business metrics and gaining better customer insight consistently a close second or third. These same trends continued when respondents were asked about their business priorities. When asked for the top 3 business priorities for 2012, the survey respondents listed: 1. Increasing revenue (ranked #1 by 49.3% of respondents) 2. Maximizing profit (ranked #2 by 26.4% of respondents) 3. More effective and efficient project management (ranked #3 by 27.5% of respondents) Increasing revenue is clearly the top priority, but for the second spot, the distribution of answers was much closer. In addition to maximizing profits, gaining better customer insight (20%), more effective and efficient project management (17.5%), and increasing visibility into key business metrics (16.4%) were also top of mind for many firms. The survey also looked at IT systems in use in detail. One of the surprising discoveries was the high percentage of custom-built or homegrown systems across the systems we surveyed: services resource planning (SRP)/professional services 2 # IDC

3 automation (PSA), other financial, customer relationship management (CRM), project management (PM), business intelligence (BI)/analytics, human capital management (HCM), talent management, project collaboration, and other business solutions. In deeper analysis, many of the firms with homegrown systems exhibited numerous signs of not having access to the key business information necessary to effectively manage the business and suffered as a consequence. Integrated front-office and back-office systems was also an area of interest, and the survey showed that many firms had not yet accomplished this integration. Firms with integrated systems reported many benefits, including more accurate revenue forecast, better pipeline visibility, better resource planning, and better chance of bidding on the "right" business and getting proposals out faster. Integrating systems can also provide the ability to manage the entire project life cycle, a critical ability for business improvement. The high incidence of custom-developed systems, while higher than expected, is not that unusual in an industry that, for many years, was underserved by packaged software. That has changed over the past decade, though, and now systems are available that are built to manage the entire project life cycle and built with the core functionality needed by project-based businesses. These systems, called SRP, are purpose built for consulting businesses and cover all the key business areas, including business planning and strategy; visibility and execution; client relationships; financial management; project management; resource management; proposal management; and many other important features. IDC's Consulting Survey showed that while many firms are benefiting from the IT systems that they are currently using, just as many are struggling to get critical business data. Some firms are seeing increased benefit from integrated systems, but again, many are still operating with suboptimal and often highly custom systems that are costly to maintain. It is clear from the survey results that firms are highly concerned with: Growing revenue and increasing margin Increasing visibility into key business metrics More effective and efficient project execution Gaining better customer insight To reach these goals, a new approach to IT systems could offer many of the firms significant advantages. Rather than using highly customized solutions that are not really designed to run a consulting business or building their own systems that, at least based on this survey, do not seem to be delivering the necessary results, firms can choose systems that are purpose built to operate a project-based business. This approach not only would provide better visibility into business metrics, better customer insight, and more effective project execution but also would eliminate the high cost of maintaining homegrown systems for many firms IDC #

4 SRP systems that is, enterprise resource planning (ERP) systems that are purpose built for operating consulting businesses offer firms a solution that provides a full project life-cycle approach to the consulting business and is fully integrated across the entire operation. Providing a single source of the truth gives executives and managers much deeper business insight and helps create a data-driven culture that will lead to better business performance. S I T U A T I O N O V E R V I E W T h e C o n s u l t i n g M a r k e t p l a c e The past few years have presented all businesses with many challenges. Slowing growth has continued to pressure companies to do more with less and left many struggling to grow revenue or manage shrinking margins. Technology shifts are also putting pressure on businesses to deal with an increasingly mobile workforce, shifting platforms, and new ways to gain competitive advantage through the application of technology. Consulting businesses across all microvertical segments are feeling the impact of increased competition, tighter margins, and changing expectations of customers, partners, and employees. In IDC's recent Consulting Survey, consulting firms reported declines in several key performance metrics over the past year, including: 1. Average project size (total revenue). 10% of the firms reported that project size had declined in the past 12 months. Among those firms, the mean decline was 11.1%, but some firms saw much more significant declines, with 17.9% of firms with declines reporting over 25% reduction in average project size. 2. Revenue. 12.1% of the firms reported that revenue had declined over the preceding 12 months by 10.3% (mean), with 23.5% of firms reporting a decline in revenue of 10 14% and 11.8% reporting revenue declines of 25% or more. Using the mean firm annual revenue, that would equate to a revenue decline of almost $17 million for the mean decline and $41 million+ for firms with the greatest declines. 3. Profit margin. 11.3% of firms reported profit margin declines with a mean decline of 6.9%, but of those firms, 15.2% reported 10 14% declines and 6.1% reported 25% or greater declines. 4. Proposals accepted/won. 11.4% of firms saw a decline in proposals won, with a mean win rate decline of 8.1%, but of those firms, 15.6% reported 10 14% declines and 9.4% reported 25% or greater declines. With consulting firms worldwide dealing with a variety of business challenges, it's more important than ever to leverage every advantage to gain a competitive edge. Competitive advantage can come from a superior strategy like having a novel go-tomarket approach, but most often it comes from operational excellence. Managing a consulting business effectively requires deep visibility into key performance metrics and the ability to manage critical business processes like resource management, 4 # IDC

5 project execution, proposal development, client life cycle, contracts, and all financial transactions. You can't grow/increase revenue if you can't win new business, and you can't grow revenue if your CRM system doesn't support your business needs. Optimizing these key metrics and processes is core to operational excellence. Doing this in an integrated environment with systems that are built to support the projectbased business has some significant advantages over systems that are a poor functional fit or "homegrown." K e y B u s i n e s s D r i v e r s f o r C o n s u l t i n g B u s i n e s s e s Managing a successful consulting business requires effective resource management, project management, financial management, and a deep understanding of and focus on performance metrics. Business metrics are important for every company of course, but for a consulting business that needs to manage deal pipeline and flow, resource utilization and bench time, clients, proposals, project milestones, complex revenue recognition rules, and multiple contract types, they are the key to maximizing profits. In a tight economy, performance metrics become even more essential to maintaining a healthy business and taking corrective action before issues get out of control. Key performance metrics for managing a consulting business include: Revenue Profit margin Billable utilization Average hours spent by billable resources on administrative tasks Win rate (percentage of proposals accepted against the number submitted) Revenue per billable resource Profitability per project T o d a y ' s C h a l l e n g e s How are consulting businesses doing? To get a better picture of the consulting business worldwide, IDC asked survey respondents several questions related to overall business performance. One of the troubling issues that came out across all the responses is the high incidence of "don't know" responses for many of the key performance metrics, indicating that respondents didn't have access to or were unable to determine critical business information. Figure 1 shows the annual revenue of the firms in the survey IDC #

6 F I G U R E 1 A n n u a l R e v e n u e Q. What is your annual company revenue? Less than <$5M 3.2% $5M 10M 9.6% $11M 50M 27.5% $51M 100M 15.4% $101M 500M 10.0% $501M 1B 4.6% >$1B 3.6% Don't know 26.1% 0% 5% 10% 15% 20% 25% 30% n = 280 Base = all respondents Source: IDC's Consulting Survey, May 2012 As Figure 1 illustrates, there is a good distribution of firms across all market sizes, with the largest cluster, 42.9%, in the midmarket between $11 million and $100 million. Not surprisingly, the biggest share of consulting firms falls in the midmarket, which seems to be a sweet spot for consulting firms worldwide. Figure 2 shows the average billable utilization, representing the percentage of customer billable time to total work time. 6 # IDC

7 F I G U R E 2 A v e r a g e B i l l a b l e U t i l i z a t i o n Q. What is your firm's average billable utilization (percentage of customer billable time to total work time)? Less than 50% 6.4% 50 60% 11.1% 61 70% 19.3% 71 80% 23.2% 81 90% 10.7% % 3.6% Don't know 25.7% 0% 5% 10% 15% 20% 25% 30% n = 280 Base = all respondents Source: IDC's Consulting Survey, May 2012 Utilization is a key indication of the health of a consulting business and is directly related to effectively managing profits/costs. The mean utilization is 69.9%, which many firms would consider on the low side of average. It's important to keep a reasonable utilization target, accounting for vacations, administrative time, and training and at the same time maximizing billable time. 23.2% fall in the 71 80% band, which, for many businesses, is a reasonable target for dedicated consulting resources, but 36.8% reported below 70% utilization and almost 26% were unable to provide the metric at all. Tied to utilization and also in some ways to IT system maturity and effectiveness, as shown in Figure 3, is the number of average hours per week spent on administrative tasks by billable resources IDC #

8 F I G U R E 3 A v e r a g e T i m e p e r W e e k S p e n t o n A d m i n i s t r a t i v e T a s k s b y B i l l a b l e R e s o u r c e s Q. On average, how many hours per week does a consultant/billable resource spend on administrative tasks at your firm? 1 4.6% 2 7.5% 3 2.9% % % % More than % Don't know 33.9% 0% 5% 10% 15% 20% 25% 30% 35% 40% n = 280 Base = all respondents Source: IDC's Consulting Survey, May 2012 This seems to be a recurring concern among most consulting firms, which share the long-standing goal of reducing the amount of time spent on administrative tasks. Often this metric is tied to effectiveness of time and expense (T&E) reporting systems and project tracking systems. Outdated T&E systems in particular can eat away at consulting time, even though the collection of billable time is a business-critical function, supporting project tracking, client status reporting, and revenue billing. Wouldn't you rather have your consultants engaged in billable work instead of spending their time on cumbersome administrative activities? Lack of a good mobile T&E system can make this issue worse and in fact is an important contributor to employee dissatisfaction. How surprised would new consultants/employees be if they learned that your company's time and expense system wasn't available on their new tablet or latest smartphone? Employees expect to use the latest technology for work, just like they do in their personal lives; not supporting this is a big contributor to dissatisfaction and can be a differentiator in the hiring process. On the high end, a consultant spending 6 10 hours on administrative tasks is losing 25% of the billable hours in a week, a significant investment in administrative 8 # IDC

9 overhead. Taking the mean annual revenue per billable consultant of $112,518 reported in the survey means that the investment in administrative overhead, just in lost billable time, could be approximately $30,000 or more per consultant per year. Another key metric to monitor and optimize is win rate. Win rate, or the number of proposals won per proposals submitted, is an important measure of sales effectiveness. Figure 4 shows the average number of deals won per 10 proposals submitted. F I G U R E 4 P r o p o s a l W i n R a t e Q. Out of 10 proposals submitted, on average, how many deals does your firm win? 1 1.8% 2 2.5% 3 9.3% % % % % 8 4.3% 9 0.7% % Don't know 18.2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% n = 280 Base = all respondents Source: IDC's Consulting Survey, May 2012 Winning a higher percentage of proposals is critical, but it's not just tied to sales. It is also a function of having the right resources available, having the ability to produce compelling proposals in a timely manner, and knowing which opportunities to bid and which opportunities are the "right" opportunity to bid. Building effective proposals isn't just a function of managing proposals; it includes having good visibility into resource allocation and resource skills to determine if you can do the work and if you have available resources. Sales needs access to schedules to see availability and "soft" book to hold resources for projects that are likely to close. They also need current resumes to include in proposals. Firms without integrated systems CRM, HCM, financials, resource management, and project management often struggle to build 2012 IDC #

10 compelling proposals in a timely manner and bid on business that can actually be executed profitably. Bidding the "right" business that is, knowing which request for proposal (RFP) a firm should bid based on ability to execute and ability to make a decent profit on the business is absolutely critical to managing a profitable consulting business. The ability to define which projects to bid (and how to bid them to be successful) comes from historical project data, employee skills data, schedule data, and a sound understanding of the client and client requirements. So reaching the correct bid/no-bid decision is a matter of analyzing relevant system data and using that data to support the decision and the subsequent proposal. As you might imagine, this requires an integrated view of data across several enterprise systems and a strong analytic software capability to pull the data together into usable information. Revenue per billable head is another key consulting metric. Figure 5 shows the distribution across the respondents. F I G U R E 5 R e v e n u e p e r B i l l a b l e R e s o u r c e Q. On average, what is the annual revenue per billable consultant at your firm for the past year? Less than $75, % $75,000 99, % $100, , % $125, , % $150, , % $160, ,999 $170, ,999 $180, ,999 $190, ,999 $200, ,999 $210, ,999 $220, ,999 Other (please specify) 0.0% 1.4% 0.4% 0.4% 1.4% 0.0% 1.1% 0.4% Don't know 50.4% 0% 10% 20% 30% 40% 50% 60% n = 280 Base = all respondents Source: IDC's Consulting Survey, May # IDC

11 Revenue per billable consultant varies quite a bit across regions and across microverticals. What's most disturbing about Figure 5, though, is that over 50% of the respondents did not know or have a way to calculate this key performance indicator (KPI). T o p I s s u e s a n d P r i o r i t i e s When asked to identify the top business challenges/issues, survey respondents ranked the top 3 as follows: 1. Increasing revenue (ranked #1 by 45.4% of respondents) 2. Maximizing profit (ranked #2 by 24.6% of respondents) 3. More effective and efficient project management (ranked #3 by 33.2% of respondents) The top issue, increasing revenue, was by far the standout with 45.4% of the firms, but increasing visibility into key business metrics was also seen as an important issue, with 20% of the respondents identifying it as number 1. This finding is not surprising in a metrics focused business like consulting. In fact, across the top 3 challenges/issues, metrics were clearly identified as an important priority, with increasing visibility into key business metrics and gaining better customer insight consistently a close second or third. What are their priorities? When asked for the top 3 business priorities for 2012, the survey respondents listed: 1. Increasing revenue (ranked #1 by 49.3% of respondents) 2. Maximizing profit (ranked #2 by 26.4% of respondents) 3. More effective and efficient project management (ranked #3 by 27.5% of respondents) Again, increasing revenue is clearly the top priority, but for the second spot, the distribution of answers was much closer. In addition to maximizing profits, gaining better customer insight (20%), more effective and efficient project management (17.5%), and increasing visibility into key business metrics (16.4%) were also top of mind for many firms. I T S y s t e m s Consulting businesses have often had difficulty finding packaged software that is a good fit for their business processes. This is true across almost all enterprise software categories. Most ERP systems evolved out of older manufacturing resource planning (MRP) systems and, as such, were very manufacturing centric. When consulting businesses tried to implement them, they had to do deep customizations to get the packages to meet even the minimum number of business requirements. This lack of fit has proven to be a significant problem for many firms. Either they implemented and 2012 IDC #

12 heavily customized a system that wasn't really designed to work for a project-based business and found themselves with a system that was costly up front, was difficult and costly to maintain, and couldn't be upgraded without substantial effort and really wasn't that good a fit anyway, or they ended up trying to build their own solution. Even firms that specialize in IT consulting are not really equipped to develop and maintain their own custom software solutions, so for non-it firms, it is even more of a stretch. Unfortunately, though, when it seems like nothing prepackaged can solve business requirements, many firms feel compelled to build their own. As Table 1 shows, many firms have developed a variety of "homegrown" systems. T A B L E 1 C u s t o m - D e v e l o p e d S y s t e m s System Developed In-House SRP/PSA 43.4% Other financial management 33.8% CRM 50.7% Project management 48.9% BI/analytics 50% HCM 55.3% Talent management 60% Project collaboration 49.4% Other IT system 60% Source: IDC, 2012 Building and maintaining custom software is a costly exercise that can tie up scarce resources and distract firms from core business activities. Of course, you can understand the desire to put in place systems that are a good fit for the business, but are homegrown systems as effective as purpose-built systems? To try and get a better picture of the effectiveness of in-house-developed systems, IDC compared survey responses on some key business metrics from respondents with in-house- 12 # IDC

13 developed systems with the overall average response. However, this comparison doesn't look at the cost of operating and maintaining these systems, which is another factor to consider. The survey clearly shows that firms with in-house systems saw more severe challenges and issues in several key business areas. For example, firms with in-house pseudo-srp systems tended to have longer deal cycle times. They were 30% more likely to take up to six times as long to close deals, or three to six months. Longer deal cycle times mean that deals take longer to close, stretching cash flow and increasing sales overhead. It's likely that effective proposal management and lack of pipeline visibility are contributors to these longer close cycles. The amount of time a consultant spends each week on administration, which of course represents lost billable time, is a measure of administrative process and firm requirements, but more importantly, it is an indication of IT system maturity and effectiveness. The survey showed a much higher investment in administrative time for firms that use in-house pseudo-srp systems, with 35% more firms having consultants averaging five hours per week and 42% more firms with 6 10 hours of administrative time. Even the highest category of more than 10 hours had almost 10% more firms from the homegrown systems group. To make the situation worse, several lower hour categories declined significantly as well; for example, 35% fewer firms with the homegrown pseudo-srp systems reported investing less than 1 hour. The increases in administrative investment weren't limited to just in-house pseudo-srp though; almost all homegrown application users saw an increase in administrative time, and in particular, homegrown project management systems were over 13% more likely to invest 6 10 hours and homegrown HCM were 16% more likely to be in the 6 10 hours group. It seems apparent that firms with homegrown systems are struggling to keep administrative time under control. In general, firms with homegrown systems had a higher incidence of increasing IT budgets and the fewest number of respondents indicating decreasing IT budgets. This finding clearly supports the premise that homegrown systems are more costly to maintain and are a drain on a firm's precious resources. Figure 6 looks at respondents with homegrown BI/analytics systems against the overall average for declining key performance metrics like number of projects, revenue, profit margin, etc IDC #

14 0% 2% 4% 6% 8% 10% 12% 14%16%18% F I G U R E 6 D e c l i n i n g P e r f o r m a n c e M e t r i c s o f F i r m s w i t h " H o m e g r o w n " B I / A n a l y t i c s S y s t e m s Deal pipeline Proposals submitted Hourly bill rates Profit margin Total BI/analytics Revenue Number of projects Source: IDC, 2012 There is a striking difference between firms with homegrown BI/analytics systems and the general respondents that leads one to conclude that custom/homegrown systems are not providing the same business benefits as standard packaged systems. This same trend was evident with other homegrown systems as well. Figure 7 compares the responses from firms with homegrown HCM with the average response for declining revenue, proposals won, and utilization. 14 # IDC

15 F I G U R E 7 D e c l i n i n g P e r f o r m a n c e M e t r i c s o f F i r m s w i t h " H o m e g r o w n " H C M Utilization Proposals won Total HCM Revenue 0% 2% 4% 6% 8% 10% 12%14% 16%18%20%22% Source: IDC, 2012 Once again, there is a marked difference between firms that develop their own custom systems and the general respondents. The decline in proposals won is particularly important and leads one to believe that homegrown HCM systems are not providing access to critical resource information, perhaps skills data or current resumes. These are only examples; the survey identified many other differences, all seemingly tied to lack of or less visibility into key metrics and the subsequent business impacts of managing with less-than-acceptable levels of key business data. Another interesting difference arose between firms with homegrown systems and the general respondents in terms of what they identified as the top 3 business priorities for Firms with homegrown pseudo-srp/psa systems, which presumably should be developed to provide better visibility into business metrics, ranked "increasing visibility into business metrics" much higher than the average; in fact, they were up to 80% more likely to list it as the number 1 priority. These same firms were also 27% more likely to rank "more effective and efficient project execution" and 18% more likely to rank "better financial management" in the top 3 priorities than the average. One of the benefits of SRP systems in general is better project execution and better financial management; however, for firms that built their own, that does not seem to be the case. This same phenomenon also occurred in the top 3 challenges/issues question. 52% of the firms with homegrown pseudo-srp systems were more likely to rank "increasing visibility into key business metrics" as their top issue, and 56% more likely to rank "more effective and efficient project execution" in the top 2. Again, the 2012 IDC #

16 homegrown systems do not seem to provide the necessary visibility into key business metrics or the needed project execution capabilities. The differences were not limited to homegrown pseudo-srp, BI/analytics, and HCM though; there were also some key differences in CRM. In the top 3 challenges/issues question, firms with homegrown CRM systems were up to 21% more likely to rank "gaining better customer insight," a key function of a CRM system, in the top 3. All of these differences in system performance lead one to believe that custom-developed systems are not meeting the needs of many firms. Integrated Systems Integrating the front-office systems and the back-office systems, or in other words, integrating the CRM system with the financial and project management or SRP systems, can provide significant benefits to a firm. Visibility into key metrics is a critical management tool, and the visibility into many of these metrics is greatly enhanced if the front-office and back-office systems are integrated. Figure 8 shows the percentage of respondents who are currently using integrated systems. F I G U R E 8 F i r m s w i t h I n t e g r a t e d S y s t e m s Q. Is your firm's CRM system integrated with its financial and project management systems or PSA/SRP system? Yes 41.2% No 43.6% Don't know 15.2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% n = 211 Base = all respondents Source: IDC's Consulting Survey, May # IDC

17 Although the responses are almost even for firms with integrated systems and those without, it's surprising how many firms continue to operate with siloed systems. Siloed systems create data silos that are difficult to overcome and create master data management issues that can provide conflicting business data. There are many benefits to integration, as illustrated in Figure 9, which shows the benefits reported by survey respondents with integrated systems. F I G U R E 9 B e n e f i t s o f I n t e g r a t e d S y s t e m s Q. What benefits has this integration delivered to your firm? More accurate revenue forecasts 49.4% Better pipeline visibility 48.3% Better resource planning 52.9% Bidding on the right business 28.7% Getting proposals out faster 29.9% Other 26.4% 0% 10% 20% 30% 40% 50% 60% n = 87 Base = all respondents Source: IDC's Consulting Survey, May 2012 F U T U R E O U T L O O K E f f e c t i v e S t r a t e g i e s f o r B u s i n e s s I n n o v a t i o n The continuing economic climate and other changing market factors are creating a difficult consulting marketplace. In a tight business environment, making critical business decisions in an informed way and in a timely manner is even more important than usual. This means that business metrics must be available and accurate to support the decision process. This spans everything from strategy 2012 IDC #

18 and planning to daily operations. To sustain growth and reach profit goals, firms need systems that can: Support an end-to-end project life cycle Integrate front-office and back-office functions Maintain a 360-degree view of clients Provide a portfolio view of all projects historical, active, and proposed Facilitate a timely response to RFPs by providing the data and content necessary to produce compelling proposals (This includes access to resource availability, resource resumes, soft booking capabilities, pricing data, and a historical perspective on successful projects.) Manage complex contracts and terms and conditions across all clients Enable accurate revenue recognition (revrec) across multiple revrec types Provide management access to key business metrics with drill-down capabilities Provide detailed project management, execution, and reporting Provide a systematic way to track, resolve, and communicate client issues Have an integrated collaborative capability that connects consultants, clients, and other key stakeholders in real time Of course, the systems are only part of the solution the enabler that facilitates effective management. Business processes must also be built around the capabilities of a complete consulting solution and optimized for each unique firm. People-centric collaboration, for example, is as much cultural issue as it is a technology issue. Executives must learn to trust business metrics and use them as a way to make more effective business decisions. However, they can develop this trust only when the IT systems are integrated and can provide timely, verified, and accurate data to executives. P u r p o s e - B u i l t S o l u t i o n s IT systems that are not designed with a project-centric approach are not a viable solution for a firm that wants to leverage all its assets and grow the business even in a tough economy. The requirements of a consulting firm cannot be met "out of the box" by systems that are designed to manufacture products. Customizing these systems to force them to fit is costly and often leads to a system that cannot be upgraded to stay on current technology and take advantage of system enhancements. Many firms worked around the lack of project-centric systems by building their own custom solutions. This was perhaps perceived as a necessity in the past, but it is no longer the case. In fact, as the survey indicated, many firms that have these custom 18 # IDC

19 systems are struggling to get the data they need to manage effectively and are experiencing declines in many key metrics. Firms indicated that there is a need for: Better business visibility/business intelligence to manage tighter margins in real time A move to a modern, integrated architecture and system A way to more effectively manage business risks A move to a vendor-supported system to leverage scarce resources more effectively A system to manage multiple contract types and revenue recognition scenarios A system to manage and have visibility into a complete, end-to-end customer life cycle The ability to more effectively support a mobile workforce Better employee/client collaboration More granular resource management and allocation More accurate business forecasts Visibility into projects and across programs to manage execution and mitigate risks: deliver on time, on budget, and in scope Data to support more effective executive decision making and business planning All of these needs are more effectively addressed in systems that are designed to run world-class consulting businesses. Today, SRP systems are readily available and have many benefits for the project-based business. S e r v i c e s R e s o u r c e P l a n n i n g Project-based businesses have unique business requirements and need systems that completely support their workflow, not product-based systems that have been customized to attempt to make them "fit." Most ERP systems are designed for businesses that make products, a process that is actually tied to the history of ERP, which evolved from earlier MRP systems. SRP, which is a fairly new term, refers to systems that are designed with delivery of a project as a core design principle. These systems have unique features that enable a consulting business to much more effectively manage across the business from front office to back office, or from proposal to billing. SRP systems include: Project portfolio management. Effectively forecasting and managing a projectbased business means managers need visibility into more than the details of a single project. They must manage pipeline, resources, and materials across all active and future projects. In addition, visibility into completed projects allows firms to learn from past issues, optimize pricing and estimating functions, and leverage any reusable project assets. Analytics provide the visibility and access to KPIs across a company's entire portfolio of business in real time, which in turn provides the information to make sound business decisions IDC #

20 Resource management. Project-based businesses are resource centric, which means that business efficiency is driven by ensuring that the "correct" resource based on skills, experience, and competencies is available at the "right" time and that all resources are utilized to near capacity while taking into account vacations and time away from project work for training/skills development and administrative tasks. The proper skills need to be matched with each project task and project schedule, including ensuring that resources are available for future proposed projects. Roll-off of resources from projects also must be done in a seamless manner when tasks are complete. The ability to forecast demand and optimize the resource pool based on the project pipeline is business critical and a significant factor both in ensuring profitability and in developing follow-on business with existing clients. Project-based businesses must attract, retain, and develop the resources to meet, but not exceed, peak demand. Client relationship management/client issue management. Survey respondents reported that in the previous 12 months, 76% (mean) of their firm's business came from existing clients. Maintaining a full view of the client and all client transactions is a minimum for systematic management of client data. It's essential to keep visibility into all clients and all the various touch points with them. This includes not only ongoing project work but also issue management and ongoing service (depending on the type of firm of course). This deep level of client data is valuable to sales, support, and project delivery, and to management in general, and provides an essential business planning tool. Logging, tracking, and resolving project issues and communicating that information to clients in a closed loop are important aspects of maintaining a good ongoing relationship with clients. Generating repeat business with existing clients is one key to increasing profitability. Customer satisfaction is often demonstrated by repeat engagements, and because so many firms rely on existing customers, issue management becomes business critical. An issue management system, including customer collaboration tools, is essential as a part of the client management process. In addition, new customer acquisition costs are much higher than the costs of developing ongoing business among existing clients. Managing key performance metrics for profitability. Profitability in a projectbased business is highly dependent on the intersection of several business elements. Effective resource management that is, reducing "bench" time while having the correct resource available is a piece of the puzzle, but there are other factors that impact profits. Capturing and reusing intellectual property, for example, can make project delivery more repeatable, which in turn can increase profit through lower project costs. Providing guidance to sales teams on developing business opportunities that play to bench strength and core firm competencies can also deliver increased profitability. Financial management. Project-based businesses have unique financial requirements. They must deal with various and complex contract types and terms and conditions. Contract differences or uniqueness creates various methods for managing project progress and ultimately for billing and recognizing revenue. 20 # IDC

21 Proposal management. The proposal process is the life blood of a consulting firm. The ability to find and bid the "right" projects that is, projects that play to a firm's core strengths and to available resources is business critical. Building and delivering proposals in a timely manner can be a key part of winning business. Mobility. The modern workforce is mobile. This has always been true of many consultants, but with the emergence of smartphones and tablet computing devices, this trend has spread to almost all workers. In the past, firms could "get by" with supporting a single operating system, but in today's empowered employee environment, firms must support all of the major mobile operating systems, or employees will simply bring their own device and work around their firm's IT. This can cause significant security and intellectual property (IP) risks, so providing a policy and a way for employees to choose the devices that fit their preferences and needs is growing in importance. There is a lot of benefit to leveraging the growth of these new devices with systems that take full advantage of the new capabilities, which will increase productivity and employee satisfaction. In essence, SRP provides a firm with the tools for managing the entire project life cycle in one integrated system. For years, the IT industry and businesses have discussed the importance of the 360-degree view of the customer/client. For projectbased businesses, the 360-degree view of a project is just as critical and is a key contributor to a successful consulting business. Benefits of Services Resource Planning What are the benefits of taking a full project life-cycle approach in an integrated system that is designed, or purpose built, for operating a consulting business? The benefits, and there are many, fall into a few basic categories: Business planning and strategy. A system that has the requisite data and visibility across the business can facilitate timely business planning and business strategy adjustments in real time to compensate for changing market conditions and take advantage of new opportunities. Business visibility. In a consulting business, visibility into key performance indicators across the project life cycle is absolutely essential for managing operations, growing revenue, and maximizing profits. Business execution. For consulting businesses, business execution is about managing a portfolio of projects through a complete life cycle. This includes effectively leveraging a firm's resources, including people and IP, to maximize utilization and project profitability. Client relationships. As the survey showed, most firms get the bulk of their revenue from existing clients. Therefore, maintaining trusted status with clients is business critical. This includes knowing the client by having a system that can provide an integrated view of the client relationship and managing project issues effectively IDC #

22 Proposal management. The ability to find and close the "right work" by building compelling proposals is a function of having the right data to support decisions and having a systematic way of assembling the necessary components easily. This includes visibility into resource skills and availability, as well as historical project data to support the process. Financial optimization. The system must support multiple contract types, complex terms, and conditions and maintain compliance. It must support complex revrec rules and be integrated across the project life cycle. Financial optimization also includes providing timely and accurate financial data to support business decision making. IT budget optimization. An integrated system can help consulting businesses lower operating costs and IT overhead while freeing up more resources for use in the business. Consulting businesses that build, operate, and maintain in-house systems are not making good use of critical resources. Further, this approach is costly and, as the survey shows, many times does not produce the desired results anyway. Better alternatives and new deployment options like cloud/saas can produce much better IT and business results. C O N C L U S I O N IDC's Consulting Survey showed that while many firms are benefiting from the IT systems that they are currently using, just as many are struggling to get critical business data. Some firms are seeing increased benefits from integrated systems, but again, many are still operating with suboptimal and often highly custom systems that are costly to maintain. It is clear from the survey results that firms are highly concerned with: Growing revenue and increasing margin Increasing visibility into key business metrics More effective and efficient project execution Gaining better customer insight To reach these goals, a new approach to IT systems could offer many of the firms significant advantages. Rather than using highly customized solutions that are not really designed to run a consulting business or building their own systems that, at least based on this survey, do not seem to be delivering the necessary results, firms can choose systems that are purpose built to operate a project-based business. This approach not only would provide firms with better visibility into business metrics, better customer insight, and more effective project execution but also would also eliminate the high cost of maintaining in-house systems for many firms. SRP systems offer firms a solution that provides a full project life-cycle approach to the consulting business and is fully integrated across the entire operation. Providing a single source of the truth gives executives and managers much deeper business insight and helps create a data-driven culture that will lead to better business performance. 22 # IDC

23 A P P E N D I X L i s t o f A b b r e v i a t i o n s BI business intelligence CRM customer relationship management ERP enterprise resource planning HCM human capital management IT information technology KPI key performance indicator M million MRP manufacturing resource planning PM project management PSA professional services automation Revrec revenue recognition RFP request for proposal SRP services resource planning T&E time and expense C o p y r i g h t N o t i c e External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2012 IDC. Reproduction without written permission is completely forbidden IDC #