Global research and consulting organization Service Performance Insight (SPI) Research recently published their 2019 Professional Services Maturity™ Benchmark, providing services businesses with critical insights and the trends shaping the industry.
Following up last year’s interview, we once again spoke with Managing Director Jeanne Urich to learn more about the Benchmark and its insights. Even more Benchmark information is available in our recent webinar with SPI.
Mavenlink: Service Performance Insight (SPI) has been a leading analyst for over a decade. How have you seen the industry and its leaders change over the years?
Jeanne Urich: Change is constant in the services industry. Certainly, adoption of new technology and disruption are the order of the day driving businesses. Service organizations are trying to take advantage of these changes and stay at the forefront of the industry. However, the five sub-verticals that make up the services industry each have unique qualities, business models, and disruptive factors. The major segments detailed in the benchmark are: IT Consulting, Management Consulting, Embedded Services, Architects and Engineers, and Marketing and Advertising Firms.
The companies within these sectors are becoming more virtual and more global. Even small firms have a global footprint from the get-go in order to service clients and access top talent. There are growing service hubs in Eastern Europe, India, and the Philippines that are changing the services industry. Companies are also becoming more multi-disciplinary, while also becoming increasingly specialized.
Winners in the industry are focused on underserved industry segments or hot new technologies but are increasingly offering a whole suite of capabilities to be one-stop shops for their customers. Doing so helps services businesses give provide everything they need.
Mavenlink: What was the most interesting finding from the research?
JU: There are so many interesting findings to unpack. I find the dramatic changes happening in the workforce to be the most interesting.
Our benchmark tracks the age, gender, and location of consultants, as well as a whole host of statistics regarding how long it takes for companies to find employees, train them, and ramp them to full utilization. One of the key things we’ve been writing about for at least five years is that the cohort of baby boomers is now leaving the workforce in droves and being replaced by millennials. The result is that 25% of the workforce is now under 30 years old. That has enormous ramifications for how businesses operate. Businesses need to be more virtual and provide richer tools because the younger workforce expects instantaneous need fulfillment and easy-to-use applications. Millennials are mobile-first and all have grown up with smart technology.
There are leaders and laggards in every industry. In the services world, one of the paramount changes is that businesses are intently focused on building their brand as a great place to work. They need to do so to attract younger workers. Those who don’t provide modern tools and systems are falling behind because it’s harder to attract this younger workforce.
Mavenlink: Is there a trend that you think services organizations will be most surprised to learn?
JU: There are two big trends that I found very surprising. The first is regarding workforce change. We have been tracking two forms of attrition: voluntary, which is people who leave for a better opportunity, and involuntary, which are those who have been asked to leave.
Overall attrition has been consistently rising since the end of the recession. Voluntary attrition now stands at 8.5% compared to 7.5% last year, while involuntary is at 5.4% compared to 4.7% last year. However, voluntary attrition for workers under 30 years of age is at 13.3%, which is very high. Although many companies are leveraging college hiring and grooming of younger workers in their business strategies, the under-30 age group experiences the highest voluntary attrition. Many younger workers will change jobs four to five times before they reach 30 years of age.
The second surprise is in regard to business model changes in the industry. We have seen huge growth in a new aspect of the services economy: subscription or utility type contracts. This is now impacting IT and management consultancies, who must price and deliver subscription-style contracts and managed services to clients. This is impacting how companies are built and how services must work.
With these shifts in models, even small organizations now have added complexity with their business models, processes, and systems. To succeed, companies must not only provide implementation services but also strategic advice and support. In addition, businesses must reorder how clients purchase services, such as shorter, faster, fixed price projects, or consumption-based subscription services. Staff augmentation is now 7% of all work provided - which is focused on providing staffing and skills on demand. As a result, the market is becoming even more complex.
Mavenlink: What do you think are some of the biggest shifts in the industry you’ve seen between 2018 and 2019?
JU: We can define the biggest shifts into the good, the bad, and the ugly.
The Good Shift: The industry is experiencing very positive financial results. The 622 service organizations represented in our benchmark delivered $57 billion in revenue in 2018. Generally, there has been very positive momentum, especially in regard to net profitability, with an average of 18.5% in earnings. There’s still strong demand and a lot of prosperity in the services industry. Many client relationship metrics, such as the length of the sales cycle, the size of the sales pipeline, and win ratios, have also improved year over year. But there is growing concern there could be market downturns. People are wondering when the bull market will shift back to being a bear market.
The Bad Shift: A lot of talent stats and measurements worsened during the last year, with some changing considerably. Specifically, there was an increase in attrition rates from 12.2% to 13.9%. Time to recruit has increased to 117 work days, making it fully half a year or more to find, recruit, hire, and ramp new employees. We’ve consistently seen shorter, faster, and more iterative projects, which puts strain on companies. Also, there has been a huge spike in project overruns from 8.2% to 8.6% while project backlog declined from 44.6% to 44.2% year over year.
The Ugly Shift: There are several statistics well within the control of services firms that took a significant downturn in our benchmark. Specifically, on-time delivery of projects declined dramatically, as well as client references. Happy clients are the ones that got what they wanted within the timeframe and budget they expected. Unfortunately, many service providers did a bad job of delivering on-time and on-budget this year. In addition, the percentage of billable employees and billable utilization went down. This means that firms have more overhead and more people in administrative or pure business development roles, which impacts future profitability. Businesses also had much lower billable utilization, which means that many may not have a system to forecast and effectively staff projects.
Mavenlink: What are the biggest opportunities for services organizations in 2019?
JU: There is huge opportunity. We’ve been doing our benchmark survey for 12 years and revenue growth in this industry has been consistently hovering around 10% year over year. We don’t see it slowing down. Clearly, the winners in the industry have a formula focused on emerging technologies, with technology ecosystems centered on cloud-based software. The best of the best businesses are clustered around the best of the best tech. The market is also breaking into ecosystems as there are a whole host of advantages to being on certain platforms, such as Amazon, Google, Microsoft, or Salesforce.
The best companies are the leaders in those ecosystems. Of course, all services organizations need to look to the future and help clients with future obstacles. Constant change is needed to keep up with the industry and stay ahead of competitors. Looking to the future for clients means preparing for the effects of regulatory changes and new tax laws. Companies need to understand how these regulatory changes will impact their workforce and successful services businesses should help their clients take advantage of them and make sense of the new wave of technology impacting their business.
Mavenlink: What do you hope services providers take away from your research?
JU: There are two major things. We firmly believe that all improvements start with benchmarking. That’s why we do this. We have endeavored for 12 years to be the leaders in benchmarking for the services industry and today there are 25,000 firms that use our benchmarks for detailed insights into how they should run their organizations. If you play, you need to play smart and with an objective, fact-based self-appraisal. We believe our benchmarks provide that.
Secondly, we’ve tracked the adoption of cloud-based applications for finances, client relationship management, professional service automation, human capital management, and more for 12 years. There is absolutely no doubt that if you aspire to be a winning service provider, you must invest in these applications. The percentage of companies that use cloud-based business applications increases every year. Best of the best in the industry use business applications in transformative ways, not just for keeping up with the Joneses. If you want to be a leader in the industry, you need to be a leader in how you use technology to transform your business.
Mavenlink: What research is up next for SPI?
JU: We conduct two major research projects every year and we’re already gearing up for our 2020 Professional Services Maturity™ Benchmark, as well as our summer research project, which will be kicked off in July. We would love feedback as we will be focusing on business models, particularly those regarding services, marketing, and subscription services.
Remember, don’t fly blind. Use the SPI Benchmark to assess and improve your business. I’m a firm believer in you get what you measure as a business. I don’t think it’s prudent for companies who are in the business of dispensing knowledge to not have insight into their own businesses. Benchmark yourselves and invest in the systems that are right for you.
Learn More about the SPI Benchmark
Find out more about the SPI Professional Services Maturity™ Benchmark through our webinar and learn more critical insights regarding the industry and your company’s role within it.