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Deltek teamed up with Dave Hofferberth from Service Performance Insight (SPI) to take a deep dive into its professional services benchmark report, exploring the trends and challenges facing European consulting firms.
The insights highlight several common success factors among leading firms that can help consulting firms assess and prioritise their performance improvement initiatives over the coming years.
But first, a little about the market…
The pandemic affected consulting as much as it has other industries over the last two years. But we’re beginning to see some interesting trends as the industry recovers even in the face of further economic uncertainty.
Revenue growth has emerged from a devastating low point in 2020, and profit continues to rise steadily – partially driven by a reduction in onsite project delivery, which has improved employee efficiency and lowered travel costs.
In fact, despite struggles with issues like employee attrition over recent years, profit among professional service organisations as a whole in Europe has been rising for around half a decade and is now at a high of 16.6%. This is compared to 14.4% in the Americas.
All in all, this is positive news for the consulting industry. But what sets those who are successful apart from the rest? The SPI research splits 75 European firms into two categories: high performers (the top 15 companies) and the lower performers. Here are five challenges all these firms have in common – and five things we can learn from those making the biggest strides.
1. The Secret to Revenue Growth
The professional services industry as a whole has experienced a significant improvement in terms of revenue growth compared to the lows of 2020, rising from 6.2% to a more respectable 12.7%.
Those we identify as high performers, as you might expect, are doing especially well in this area. They are selling bigger projects, delivering more of them on time, and seeing better margins than in years prior.
What is this down to? Well, these companies have solid reputations, which is a great starting point. But they also do a couple of significant things differently. Firstly, they spend a lot more time investing in and training their employees. And they are far more likely to have embraced IT solutions than those who lag behind, meaning they have better insights too.
These insights were particularly important when COVID-19 hit, as they enabled firms to quickly adapt to the new parameters set by the pandemic.
2. Employee Retention is Key
Both during and after the pandemic, the nature of attrition changed. Employees are now more likely to leave jobs voluntarily, but in truth this issue has been a challenge for the consulting industry for some time.
As a result, a major focus for all consulting firms should be to get that figure under control. Our experts suggest a benchmark of below 5% employee attrition for peak organisational performance.
Those who can do this, will experience much faster growth, greater efficiency, and higher profitability. Those who don’t will be forced to spend time and money hiring new people to fill vacant roles.
Interestingly, companies with under 5% attrition saw a 16.3% increase in year-on-year revenue, compared to just 10.1% for those with over 5%.
Ultimately, this is likely to be a problem for the next five years or so. So, learning to keep people engaged and providing the right training and career paths will be a key part of any future success.
2022 SPI Benchmark Report
How Does Your Consulting Firm Measure Up?
3. High Utilisation Results in Big Rewards
One element of making sure your workforce is engaged — and that your organisation is profitable — is optimising billable time.
Dave shared that 75% of a firm’s workforce should be billable to achieve optimum performance. If you’re not meeting this target, it’s likely an indication that you’re carrying too much overhead in your business, which can significantly impact profits.
Those who do meet this target tend to operate at a much higher level than the rest of the industry, seeing lower attrition rates, higher revenue, and greater profitability.
One important element of getting this right is a good Human Resources (HR) strategy. Your HR teams need to know what is being sold, and what skills you need to fulfil those engagements and enable healthy utilisation.
4. Maximise Profits by Monitoring Project Margins
The key to maximising profits is good planning, and that must cover two key areas: revenue and margin.
We’ve talked about revenue already, but project margins are something that are often neglected, especially as projects progress and creep sets into timelines and budgets.
Project margins are a big factor in profitability, so maximising them is integral to success. Our experts on the panel define an ideal project margin as one that sits around 40%.
The SPI research shows that organisations hitting this target tend to work on bigger, more profitable projects. And with a bigger backlog — which means less discounting and a healthier bottom line.
5. You Need All the Right Information in All the Right Places
Consulting firms have a huge amount of information to track, there are resources to manage, delivery schedules to meet, customer relationships to maintain, costs to control, and profitability to monitor.
The SPI research shows that organisations that have greater visibility across KPIs, and the organisation as a whole, see significantly improved revenue growth, billable utilisation, on-time project delivery, and project margins.
A huge element of this success is enabling integration between different business units, as every area of the organisation inevitably impacts others. To illustrate, organisations with integrated Business Intelligence solutions achieve 96.3% of their revenue targets, compared to just 88.5% for those with no solution.
Success Depends on Everyone Working Together
Consulting firms are like a living organism: everything is connected. Decisions made at the leadership level determine how and what you’re going to sell. That, in turn, impacts the people and skills you need to fulfil your business, and so on.
That’s why true success relies on high-performance and integration across five key areas: leadership, client relationships, talent, service execution, and finance and operations.
To learn more about these five factors, the things that set successful service firms apart, and to explore the report’s findings in greater detail, watch the full webinar on demand.
On Demand Webinar
SPI Insights: The Shifting Paradigm for Professional Service Excellence
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