Are you managing your bench?

Is your bench empty?  Unlikely, but would you want it to be anyway?  Do you know how populated it is?

When I spend time with services firms, conversation inevitably gets round to profitability and then I start asking about gross margin.  Two times out of three, I find that gross margin isn’t understood well and, in particular, the costs of employed delivery resources are not split between chargeable and non-chargeable time.  When investigated, the cost of non-chargeable time is often an eye-watering surprise for the firm’s leadership team!  Worse, how this non-chargeable time is being spent isn’t understood properly.

We’re running people businesses.  If we don’t understand how our people are spending their time then we’re in “cobbler’s children” territory!

When we prepare a budget, we set utilisation levels for each grade of consultant from Partner down to Analyst (Note: how “utilisation” is calculated varies from one firm’s definition to another and is a topic of great debate!).  On an ongoing basis, we then need to manage our resources so that the budgeted utilisation level is achieved or even exceeded slightly from time to time….but do we do this?

Step one, therefore, is about assigning our “home team” onto chargeable client work to target utilisation levels.  If we’re struggling to do this then we don’t have a high enough level of business overall and so are overstaffed, the work we’re selling isn’t matching with the intended skills mix that we’ve resourced up for, resourcing isn’t controlled tightly enough and delivery is biased too heavily in the direction of associates, or we don’t have sufficient confidence in individual consultants.  Whatever the reason, it needs to be identified and addressed.

Step two is to make use of the non-chargeable time.  When we do the budgeting exercise, we rarely do anything other than identify the headcount requirement to deliver the volume and types of work that we’re planning to sell and calculate a budgeted cost of employed consultants and external third parties (associates, partner firms etc) associated with this.  In addition, we should look at the amount of non-chargeable time that we’ve built our budget around and the skills linked to this and build a plan to use this effectively for the good of both the firm and the consultants.

Topics such as training requirements mostly get picked up via personal development plans – the timing of delivery of training is planned in to fit with periods of expected lower chargeability where possible and I rarely see big issues in this area.  I often see Business Development and Proposition Development-related activities, however, being left loose and then suddenly jumped on as useful things to be doing “immediately” whenever the leadership team realises that the bench is looking a bit big and people need to be given something to do.  Why?

Most firms these days have resourcing, or wider Professional Services Automation systems, installed and they insert forward client project resourcing needs into them.  This is great, and facilitates forward revenue and gross margin projections, especially if weighted “hot Prospects” are shown as well.  Many of these systems also allow for different categories of “project” to be entered as well and we can use these to schedule a predicted workload of different non-chargeable activities, even split into types such as Market Research, Marketing, Account Management and Proposition Development.  Resourcing discussions can then include debates around the importance of the individual non-chargeable activities as well as client assignments – I accept that the non-chargeable activities will regularly be the ones to “give” in order to satisfy client demand but at least we will know what we’re moving around and we’ll understand the impact on the “list of useful things to do”.

If we plan and manage the use of our resources properly for both chargeable and non-chargeable activity, we’ll achieve higher consultant utilisation, increased opportunities for additional sales, a more likely achievement of internal development plans and more satisfied employees who know that they’re always doing something useful.

 

What acquirers look for in a Consulting Firm

I was interviewed recently, as part of a podcast series, on the topic of what acquirers look for when searching for consulting firms to acquire.

Drawing on my experience from both sides, helping firms to acquire and “packaging up” firms to get them ready for acquisition, there was more than enough content to fill a 25 minute session.

Enjoy listening to the podcast here and feel free to provide comment or contact me to debate the content and/or share your own experiences.

The future’s uncertain…….and bright!

Theresa May stood outside Number 10 after her audience with Her Majesty the Queen on Friday and announced that she will now form a Government to provide Britain with “certainty”. Really? The only thing more certain coming out of this election is that the country has a much stronger second party in Opposition than was the case before she called it.

Whatever your political persuasion, we are faced with a “fog of uncertainty” as Larry Elliott wrote in The Guardian, investors are “unnerved by economic uncertainty” as reported on the BBC, and business leaders are “appalled at the prospect of more political uncertainty” as Sarah Gordon reported in the FT.

So should we be despondent? What does all this uncertainty mean, for business and for our Professional Services and IT Services industry in particular?

Well, let’s take a look at what needs to happen in the wake of recent events. Both Public Sector departments and private sector businesses have a broader range of forward Brexit scenarios to consider than they thought before and they’ll need help with scenario planning now and with solution design and implementation later. Security, both physical and cyber, needs another round of thinking and additional solutions to be implemented to make citizens, consumers and businesses be and feel better protected. Businesses with strong export trade have a window of opportunity to exploit with an even weaker pound – let’s help them expand in existing overseas markets and conquer new ones. Equally, our own services are now even cheaper to buy by non-UK clients for a period – we should be talking to our international client base and capitalising on this.

Quite apart from these, there’s a huge amount of change happening that has no link to whether things are certain or uncertain in UK politics – the pace of change won’t slacken just because of a somewhat unexpected election result. We’re heavily involved in lots of this change and the demand for our expertise and resources won’t diminish any time soon as:

  • consumers continue to utilise digital channels alongside traditional ones, requiring omni-channel business strategies and  integrated IT and supply chain solutions
  • software manufacturers push their customers towards their shiny cloud-based solutions and the customers have to decide whether to go with this and the IT transformation programmes that result or stick with existing systems that work well enough but which may need to be self- or third party-supported
  • big data gets ever bigger – analysing data and extracting the critical intelligence needed to make business decisions swiftly is becoming ever more important
  • the opportunities created by artificial intelligence become better understood – it’s not just about automated factories any more
  • ….and so on….

The political environment may be uncertain but the future for our industry is bright!

Overseas acquirers are on the lookout!

 

 

 

At the time of writing, I’m looking at a foreign exchange website and seeing that £1 will buy around €1.18 or US$1.25, making our overseas summer holidays more expensive this year. Maybe stay at home and mix with the larger volume of inbound tourists?

Overseas businesses are seeing things more like US$1 will buy 80p or €1 will buy 84.7p, which is much more sterling than they’re used to – so, now that it’s clearer to them that the UK won’t cease to exist after Brexit and is even likely to prosper, they’re seeing the UK as a good investment prospect, as evidenced by recent announcements from Qatar, Nissan and Lidl.

The UK has always been a stepping stone for US businesses wanting to expand into Europe and vice versa. Outside of this, the English speaking world likes to set up a base in the UK and even list on the UK Stock Exchange, which has tended to provide a stable foundation to build upon. The weakness of the pound, which isn’t likely to change much any time soon, is contributing to an increased volume of such activity.

In our Professional Services and IT Services world, we’re seeing a similar picture and there is a number of UK-focused acquisition programmes led by overseas headquartered firms that I’m aware of. This activity in the market is pushing valuation multiples up a little but it doesn’t matter too much for the acquirer as the exchange rate is more than making up for this.

Does this mean that the time to package up your firm and sell it is now? Well, it depends. Initial search activity from overseas buyers may not necessarily be as well focused as it could be – “let’s go and research what’s available in the UK and see if there are some reasonably decent firms that we can pick up for an OK price!” – so you may get some initial inbound enquiries and/or interest if you hang up a “for sale” sign. It doesn’t take long beyond a first meeting, however, for an acquirer to focus in on the fundamentals of a firm, including:

– quality of work

– breadth and depth of capabilities

– a client base to leverage

– a decent revenue, gross margin and EBITDA profile

– a baseload of forward business.

I’m amused to see how some firms have been “respraying” themselves to look “hot” – e.g. process improvement consulting firms now displaying a Business Transformation message, IT advisory and project management firms jumping on the Digital bandwagon and some even trying to “double up” on Digital Transformation! If it’s a genuine change in direction for these firms, they’ve invested in the new positioning and have evidence (case studies, industry awards, a decent number of trained consultants etc) to back this up (Note: it’s normally a three or so year programme to change direction properly) then fine. A swift respray, however, is unlikely to work since these overseas acquirers aren’t desperate to buy – they’re taking a look and may buy if the search exercise uncovers something genuinely interesting. In my own activities on the acquirer side, it isn’t difficult to distinguish between the ends of the spectrum and “pure respray” firms are unlikely even to know that we’ve taken a brief look!

So the overseas acquirers are here for a reason, they’re investing but they’re not being silly!

People are your greatest asset but….?

The largest cost item in any professional services firm’s P&L account is people. Boards/Executive Partners worry about this cost and delay recruitment, preferring to run with the variable (higher!) cost of Associates until they’re sure that the forward revenue stream for a particular type of person is truly there. Then, once consultants are recruited and have been taken through some form of induction, they often disappear into the inner workings of the firm, only to reappear on the Partners’ radars at six monthly or annual appraisal rounds unless they’ve been resourced onto an assignment that has active Partner involvement.

Why is this? I would argue that the Partners are understandably focused, on a day-to-day basis, on their clients since without them noone gets fed. Without the people, however, there is not only noone to feed but also noone to deliver the great results for our clients that we desire. We need to get the balance right.

Each firm has requirements of its people (e.g. deliver the client result, keep personal utilisation high, write white papers) but its people also have requirements of the firm (e.g. pay me the going rate, give me a career path, give me interesting and stimulating assignments, create an environment in which I can expand my business and personal network). It’s tempting (and old school!) to say that Operations should be on top of most of the first area and HR on top of the second but, if we’re honest with ourselves, we know that this is not correct.

Mechanical aspects, largely the ones that suit the firm’s requirements, can often be met these days by correct use of end-to-end professional services automation and HR management systems – modern, cloud-based solutions that are reasonably well priced and powerful in what they can deliver. Knowledge of utilisation levels, both backward and projected forward, is relatively simple, keeping detailed skill sets up to date and that fit with personal development plans is doable and resourcing people onto the right projects is a lot quicker and easier than the steam driven approaches of the past. For me, these systems are a no-brainer, allowing Partners to lift their focus out of the weeds.

Addressing the people’s requirements of the firm will come back to reward that firm in many ways. Whether you subscribe to models such as Maslow’s hierarchy of needs (the original five stage model or the expanded version) or not, such models do, as a minimum, tend to give a helpful checklist of topics that every firm should consider and decide on its approach. Yes, basic needs are met by paying people the going rate, establishing an office environment that people want to go to when not on client site, having equal opportunities policies etc., and these are topics to review occasionally. Higher level needs are harder to address and require a culture of continual support. When we get it right, our people feel that they belong, they exude confidence and they choose to go the extra mile for both the client and the firm – this is when the magic happens!

Lifting the timesheet curse!

Most services businesses, from law firms through consultancies to outsourcers, rely on people entering time into timesheets.  At the most basic level, timesheets provide some form of audit trail that work has been done and, not least in Time & Materials projects, they provide data to support a fortnightly or monthly bill to the client.  Most firms have now moved beyond paper or spreadsheet-based timesheets and have either built or bought a simple timesheet system.  So far so good.

Unfortunately, complexity and human nature then enter the fray! Consultants and associates dial into the timesheet system at the end of the week (if you’re lucky!) and input a mixture of reality, the way they remember things and/or the answer that the project manager tells them to enter – filling in the timesheet is a mechanical exercise, a chore!  Project managers use a timesheet approval process to manipulate reality to reflect the time estimates given in the project plan.  Also, there may or may not be a company policy in place about the “professional day” and how timesheet data is used to create client invoices – for example, if the (very!) simple figure below showed an individual’s timesheet for a single week, how many days would you charge the client for Project A?

Hours worked Mon Tues Wed Thurs Fri Sat Sun
Project A 8 10 6 11 2 0 2
Business Development 0 0 3 0 2 0 0
Internal/Other 1 0 1 0 5 0 1

Depending on firm policies and client contracts in place, any one of the following (and more!) could well be correct:

–  5 days

–  4.875 days

–  5.2 days

–  4 days.

In passing, we used to have a timesheet code for “Internal/Other” – it took some time before we realised that it was being used as a bucket to enter time into when it wouldn’t fit anywhere else!

What we need is an internal culture whereby people enter their actual hours worked honestly into a timesheet system that is easy to use and clever enough to apply different sets of rules by project depending on company policy and client agreements (e.g. “a day’s a day” or “”a day is a period of eight hours with part days charged pro rata”)…..but that’s just the billing bit!

If the system can also compare actual time entered with what was expected when an assignment was set up, it can then report out variances to client Partners, project managers etc. to allow them to address project issues, identify potential training needs and learn about over/under estimates applied during the sales process.  I’d like it to go further, however, and hold data about resource costs too so that we can understand, without resorting to endless spreadsheet analysis, real gross margin figures and compare them with plan, and highlight the right assignments to be discussed at Partner level…..now it becomes a more powerful and useful business management tool!

When used properly, timesheets contain a wealth of information that can be used to help the Partner team to optimise their business and keep their consultants fresh and ready for the next challenge.

Marketing is about “Being There”

Many Professional Services firms don’t really “get” Marketing – it’s a drain to pour money down which could otherwise go into Partners’ pockets!  IT Services firms tend to “get it” more but the spend can often be focused on things that take up lots of time and budget for little effect.  So what’s the problem?

Marketing professionals talk about the “Marketing Mix”.  In Services Marketing, the original 4Ps of product, price, promotion and place are expanded to 7Ps, adding in process, people and physical environment …. and some people even add an eighth, namely performance – this is a lot of Ps!  If we’re running a services firm and don’t have much Marketing experience, we find all these Ps a bit difficult and uncomfortable and, hence, tend to gravitate to one end of the spectrum and do only what we feel comfortable with (e.g. buy hospitality tickets for the rugby and invite some clients and a few prospects) or the other and try to cover all the bases.  Both approaches fail in most cases.

Let’s start with what we’re trying to achieve.  When we boil it down, we’re looking for Marketing activity to generate sales leads.  In services businesses, sales leads must lead to face-to-face sales meetings because we all know that, in this industry at least, people buy from people…so they’d better meet and get the chemistry going as soon as possible if any sale is going to be made!

Now, it’s increasingly true that there are hygiene factors to consider that don’t directly lead to sales leads or which, if handled poorly, can hold sales opportunities back.  A consulting firm that I’m working with had a sales campaign put on hold recently when the potential client wouldn’t introduce the consulting Partner to his boss to get a decision until the firm’s web site was more fit for purpose…which it now is!  Which hygiene factors to address and how much to spend on them is worth thinking about – I’d suggest that you do just enough to create an environment within which your target market might start to get a warm and fuzzy feeling.  So you want to tweet – why?  You want an article in the FT – do the people who buy your services read the FT?

It’s best to decide which specific messages you want to get to which specific audiences and then, alongside creating something of an environment around this, research how to get to these audiences – which industry journals they read, which conferences they attend etc – and then put Marketing spend and effort into delivering your messages into these places, consciously and deliberately avoiding spend in places that don’t fit with this.  If this involves face-to-face contact as part of the Marketing activity then this is fantastic since it gives you a better opportunity to start building a relationship and increases the likelihood of getting that all important face-to-face sales meeting.

About five years ago, I worked with an IT services firm focused on Business Intelligence and Data Warehousing – they had reached a plateau and were getting frustrated.  We took the same Marketing budget that they were spending by trying to cover all the bases and focused it onto getting specific messages into three vertical industries, and we aligned the sales team up behind these industry messages.  The result?  50% growth in revenues the next year and 65% growth on top of that the following year.

Decide where you need to be and then “be there”!

BearingPoint’s acquisition of LCP Consulting

Appointed by BearingPoint to introduce appropriate consulting firms to them from my network, I was delighted to be in at the start of this acquisition activity.

BearingPoint is a significant player in mainland Europe, most notably in France and Germany, and is growing fast in the UK.  Our aim was to find consulting firms in the UK that would provide greater local capability in supply chain and similar services and also fit well with the existing horizontal capability teams and vertical practices of BearingPoint elsewhere in Europe.

LCP Consulting is an award-winning consultancy and the team there is seriously strong.  They needed a home where they could spread their wings and grow more quickly.

This tie up is a great example of “1+1=3” – both organisations bring things to the party that the other has been looking for.  Culturally, they fit well too and it was evident even at the first meeting that the two firms could create something special.

Well, the deal is now done and well done to all!  I look forward now to seeing the special things being delivered in the market and the BearingPoint brand gaining increasing recognition in the UK as a result.

See here for BearingPoint’s press release.