People Are the New Capital
Most companies today pay more attention to the cost of a screw than they do to the value of their most highly-educated employees. They are fighting the international manufacturing battles of the past, instead of focusing on the true future of competitive differentiation and profit—the skillful deployment of consultants, domain experts and trainers, or the professional services economy.
Disciplines such as manufacturing resource planning (MRP) brought technology-enforced discipline to factories and shop floors in the 1980s and 1990s. Obsessing about the flow of nuts and bolts, optimizing inventory levels, and calculating fulfillment costs down to the penny may not sound exciting, but it led directly to massive efficiency gains and the ability to source raw materials and finished goods from anywhere in the world, with predictable costs and delivery times.
Today, MRP and its successor, enterprise resource planning (ERP) are not strategic differentiators, but merely costs of doing business. In fact, much of the physical manufacturing economy itself has become commoditized—bereft of significant growth opportunities. Margins on products of all shapes and sizes are shrinking. Information and expertise are the new coveted resources.
Yet the management of the high-value people who deliver that expertise is far more primitive than the systems which govern buckets of bolts and trays of silicon chips. Paper, phone calls, simple calendar programs and homebrew spreadsheets are tasked to manage six-figure talent on seven-figure engagements. The most basic client engagement tasks—time and activity capture and reconciliation—are inaccurate to several percentage points in many bureaus. Whether your business calls intellectual capital "knowledge workers", "people power", "geniuses", or simply "professional services", supporting it with the right tools and processes to stay efficient and focused will be vital to winning the competitive battles of the 21st century.
The postwar economy needed some time to cope with a massive influx of raw materials and potential, as cheap oil and unprecedented growth set smokestacks alight. That same "feeling-out" period has afflicted the still-young professional services economy, which is just now recognizing that professional services profitability can be enhanced by applying a new discipline and science: that of Professional Services Automation (PSA). By taking advantage of global collaboration technologies to build more productive teams, by better understanding where your contributors are and how they are being used, and by understanding the true costs and revenue associated with every hour on every project, PSA can optimize the return on information capital.
To be sure, the multinational consulting firms have taken on the problems of people management in the past, but their survival came at a price: massive administrative departments dedicated to maintaining bespoke software and processes to help track the movements and engagements of their personnel. Only the sheer volume of these companies can prop up the amount of effort and expense that goes into the care and feeding of their revenue-generating staff.
Modern PSA, developed to take advantage of universal connectivity, cloud computing, and modern project management techniques, provides a solution robust enough for the Big Four but affordable for more modest organizations.
PSA's keystone contribution is to unify job code tracking across the organization. A common pitfall of ad hoc bureaus is to let the vagaries of differing labor laws and billing procedures in multiple territories govern how information is collected and processed. One group of consultants uses language and policies that bear little resemblance to how another region's accounting department bills for services. Very quickly, each territory, or even each individual consultant, becomes an island, with no clear lines of communication in or out. Robust and flexible PSA solutions have the ability to accommodate regional requirements while ensuring that all activities can be tracked and analyzed as a whole. The PSA system becomes the universal view of the truth: the consistent story of the bureau's activities.
Professional services engagements are built around contractual rules of engagement, specified job activities, expenses, and milestones. Yet project management processes often do not speak the same language as the contract itself, creating myriad opportunities for customers to misunderstand what they have been delivered, managers to misunderstand what their charges are doing, and CFOs to misunderstand the profitability of an engagement. PSA solutions are built around the tasks and activities of contracted engagements, ensuring that the pact between client and provider is honored in every minute and dollar logged on the project, using clear language that all parties have agreed upon and understand.
Once the entire organization agrees on a single view of the truth, many of the other problems which hamper the effectiveness and efficiency of professional services can be conquered. Consistent codes and reporting procedures mean that everyone in the organization has the same view of the difference between billable and non-billable expenses, for instance, which speeds the reimbursement process for field employees and enhances expense recapture for the accounting group. As a result, field personnel are more satisfied, and the company's accounts stay current on all client billables. Top-flight PSA solutions also provide industry standard revenue recognition procedures to keep public reporters in line with accounting standards.
Invoicing itself can be dramatically accelerated. Heterogeneous terminology delays invoicing by days or weeks in many back offices. With a PSA solution to govern and translate activities and expenses from every professional, in real time, invoicing can be completed in a matter of hours. Faster invoicing turnaround can keep the company running smoothly on a tighter cash account.
Understanding the balance of in-house skills, engaged resources, and bench depth is crucial to long-term profitability and success. PSA not only gives managers the ability to instantly assess the capabilities and availability of each resource in real-time, but can provide for long-term planning and projections by attaching career development plans and aspirations to employees. Being able to view the current and future status of the entire services organization can also help the sales organization tremendously. In particular, they can avoid making a client commitment that the services group cannot fulfill.
PSA also enables leaders to take the long view of their activities and intercept problems before they start, rather than simply fighting fires. Detailed real-time visibility also helps plug various revenue leaks in the services group, from the ability to assign idle bench talent to gaps in existing projects, to tighter controls on vacation accrual errors. As projects begin to slip, root causes can quickly be identified, allowing project leaders to reallocate resources or get in front of the client to avoid dissatisfaction. Historical analysis and future projections can help optimize bench depth, either by justifying a new hire today to enable an imminent opportunity, or providing the certainty to know that the time has come for a reduction in force. Those decisions are impossible to make with any certainty without a clear understanding of current activities, likely future allocations, and the projected vs. actual performance of the resources in the professional services group.
The bottom-line truth of the matter is that the marginal profitability of a professional services provider is enormous. A mere two percent improvement in resource management and adherence can produce a dramatic spike in profitability, by increasing billable hours, reducing "make-good" and "re-work" time, and reducing unnecessary idle time and bench depth. In a cutthroat services economy, better professional management is one of the best investments your organization can make.