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Many consulting firms share a vision when it comes to the success of their business.
They want full visibility of their sales pipeline. They want to standardize the way they price and cost projects. They want to effectively manage their resources. They want to make confident hiring decisions. They want accurate timesheets and expenses. They want to better manage their cashflow. And they want an accurate prediction of the future, so they can take action when things go wrong.
Yet for some consulting firms, this is a pipe dream—or at the very least, pretty difficult to achieve without the right processes and systems in place. The looming global recession doesn’t help, either.
It doesn’t take a consulting genius to know that protecting your margins is a crucial component to your success. The financial stability of your firm is underpinned by a clear understanding of your chargeable utilization rate, gross margin, and the overall profitability of your projects.
This means consulting firms need the right processes and systems in place to achieve this level of visibility and, ultimately, make the right decisions about the firm’s short and long term future.
The maturity of these systems is diverse, ranging from spreadsheets, to standalone tools, to ‘all-rounder’ PSA (Professional Services Automation) software—and the level of visibility each can provide also differs.
PSA software combines the tools that typically live in these spreadsheets and separate systems to provide consulting firms with full visibility and control over the entire project lifecycle.
While this may make PSAs “the big guns” of the operational world, many consultants don’t realize that having this visibility is just as important for a firm enjoying rapid growth as it is for one facing challenging times.
Picture this: your firm is absolutely smashing it. You’re winning new projects left, right and centre, barely able to keep up with your recruitment to meet the burgeoning demand.
Okay, now stop drooling.
How do the operational processes you put in place when you were half the current size keep up?
The thing is, they rarely do. They begin to creak and groan under the strain, becoming more difficult and onerous to do, until operational quality and standards start to slip. Suddenly, despite the success, everything’s a lot harder than it used to be.
Hiroshi Mikitani, CEO of one of the world’s largest retailers, defined these growth shifts as the rule of 3 and 10. This rule states that dramatic changes occur when a workforce increases in multiples of 3 and 10.
In other words, a company that grows from 1 to 3 employees will have changed significantly enough to require its organization model and underlying operating processes and procedures to be reset.
When the company grows from 3 to 10 employees, it has changed again and must adapt to its new circumstances once more. Change will continue to occur as the company shifts from 10 to 30 employees, 30 to 100, 100 to 300, and so on.
So, how do you get ahead of this before things start to go awry?
“Stay one step ahead of your operating model,” is Simon England’s, Partner at Garwood, advice. This means redesigning and building out your core processes based on the size of the business it will eventually grow into ahead of time.
By utilizing a solution that your firm and staff can grow into, you’ll ensure you business doesn’t miss a beat in its continued growth trajectory.
As Professor Joe O’Mahoney explains, adopting a PSA solution earlier than later avoids any major disruptions to your core processes when you’re a significantly larger firm, allowing you to keep key people on key projects.
Now, picture this: times are tough, decisions are getting delayed, and deals cycles are lengthening. You’re starting to worry about future revenues and margins.
This means it’s now time to start doubling down on team utilization, accurate billing to support cashflow management, and a tight focus on project recovery rates, profitability, and budget delivery.
Without adequate processes and systems in place to do these things effectively, things can start to get ugly pretty quickly.
You might be thinking it seems counter-intuitive to invest in operating systems during tough times, but it’s critical to lay the foundations for future growth when conditions improve.
Should utilization rates come under pressure, the consulting capability will be at your disposal to design, implement, and embed any necessary changes.
You might be thinking, ‘Well, what about the time and cost of this investment? Can’t I just use free or low cost solutions like spreadsheets?’
I for one absolutely love my spreadsheets—but I also know there’s a time and a place for them. This can become an incredibly inefficient way to run your firm, placing an anchor on your business and stymying its growth and profit.
By investing some of your time and energy into embedding the best practice operating processes and systems commensurate to the relative maturity of your firm, you can reap significant rewards, ultimately paying back the investment many times over.
A recent independent study from Consultancy BenchPress identified that consulting firms who adopted a PSA generated +2% higher utilization than firms using standalone solutions, and +7% higher than firms using mostly spreadsheets:
Let’s leverage some of this data to really show the impact of PSA adoption:
If we assume that there are 220 available days per year, then a +2% in utilization translates to 4 extra billable days, with a +7% of utilization translating to an extra 15 billable days per consultant.
This translates almost directly into an equivalent increase in profitability per consultant, which will have a significant impact on the bottom line of any firm, regardless of size.
When you consider that a PSA equates to, on average, less than 1% of revenue per year, this means you’ll be getting 2x to 7x ROI in utilization impact alone as a minimum.
In real terms, adoption of technology to support consulting operations helps firms to increase their utilization & billable days by:
Other research shared in the 2023 Professional Services Maturity Benchmark conducted by Service Performance Insight (SPI) indicates that increased operational maturity in consulting firms has a positive impact on other KPIs.
This includes year on year revenue growth, % bids won, projects delivered on time, project profitability, annual revenue per consultant, and company profit (EBITDA %).
I guarantee any CEO or CFO of a consulting firm will sit up and listen if they see a business case for operational improvement framed this way.
By establishing automated and integrated processes from bid to bill, consulting firms can operate with full visibility, greater predictability, and increased efficiency.
This will drive significant improvements in performance, including increased project win rates, higher resource utilization, better project margins, reduced project over-runs and write-offs, and faster, more accurate invoicing. These are crucial elements that can help drive the success and growth of a consulting business.
Fraser Moore, Head of Consulting at CMap, has over 30 years' experience as a business leader in the consulting sector and is passionate about building successful, sustainable, and caring consulting organizations. Having implemented CMap at several businesses in the past 15 years, Fraser strives to help businesses achieve operational success and achieve strategic ambitions. Read more about Fraser's journey here.