Exact’s Oliver Wright looks at the challenges faced by managers in the professional services sector in establishing exactly how and where their business is performing best, and the steps they can take to ensure that margins are as strong as possible.
Once a business gets beyond a certain size, even the most attentive of management teams will have trouble knowing exactly what is happening throughout the organisation. Yet this knowledge is crucial to improving performance and, ultimately, profit margins. While it may seem obvious that a successful business is one that is turning over a profit, it is never that straightforward. This is especially true for those firms providing professional services rather than manufacturing or supplying physical products.
Faced with increasing competition, more informed clients demanding more for less, and human capital challenges, managers in the professional services sector must strive to improve operational performance and deliver on client needs, whilst positioning the business for sustainable growth. As the business expands, they also often encounter a lack of clear organisational strategy.
Creating the right conditions
Business managers and owners want to engender strong, stable growth within their organisation. While an inefficient business can still grow, albeit slowly, it is vital to identify the strongest parts of the business and address problem areas as early as possible in order to capitalise on new opportunities. However, there can be a wealth of problems that businesses of all sizes face when trying to create the right conditions for efficient and sustainable growth.
For example, where a business has grown too quickly, and particularly when international expansion or acquisition is involved, it can be difficult to identify exactly which parts of the business are performing well. In these cases, central management will be faced with the thorny task of trying to understand and collate information from several offices – all of which are most likely using different software solutions. It means the management team doesn’t have access to the data on demand, and the performance information that they do receive is unlikely to conform to their needs.
Even in a smaller company with only one or two international offices, the problems of communicating data efficiently between teams can impact on its ability to manage growth. For example, where disparate reporting and accounting packages are used, lack of compatibility means that data most likely has to be re-keyed into a central database. As well as being time intensive, this process can result in errors during reporting, which in turn leads to an inaccurate or incomplete picture of the overall health of the business.
With many professional service organisations being project focused, the need to be opportunity driven and act fast to a customer’s demands is paramount. These issues are compounded by not having a central system, as it becomes more difficult to identify whether or not new jobs are being managed in the best way. With increased competition freezing or forcing prices down, the need to work closely with the customer to not only deliver on time and on budget, but to allocate resources and provide improved working methods has become increasingly difficult.
The need for ERP
The role of ERP (Enterprise Resource Planning) in professional service organisations is to address these challenges by addressing the fundamental issue of a lack of transparency across the organisation. The management team will struggle to develop a business improvement plan if it can’t identify exactly which areas of the business are the most profitable, or those that need to be improved or potentially divested. ERP software provides the best solution as all departments can use and feed into it, with the management team then able to access, analyse and act upon the vital business intelligence it can deliver. Many businesses, especially those in the professional services sector, don’t realise that they have a need for ERP software. Often, this is because they can’t see the full impact on performance that the lack of inter-departmental communications creates, or the extent of the problems that it causes.
A great example of how ERP can be used to improve profits in the professional services sector, is how it can reduce wasteful practices. For example, if the price of a particular service changes, and the sales team or project manager hasn’t been made aware of this, they might sell the project in at the wrong price. In addition, if the wrong type of employee is subsequently allocated to the job, either because they don’t have the right skill set or are too expensive given the overall quoted price, then the project quickly loses its profitability. With an ERP system, pricing changes can be entered into the system, allowing managers to instantly gain an accurate report on how much the project is worth and the resources that should be allocated to it in order to achieve the best margin.
ERP also allows professional services firms to fully assess their service delivery, establish and apply KPIs and reporting to improve both business performance and customer satisfaction. Using ERP, it is also possible to correlate when a job was booked in and when it was completed, to ensure that performance targets are met and customer satisfaction is maintained. As long as all departments are feeding into the ERP system, the data available for setting targets and ensuring performance is limitless – from the number of sick days taken across the company, to how many jobs are delivered on time and within budget. At the same time, this business intelligence can provide revealing information on the areas where processes could be streamlined and made more profitable.
Eliminating growing pains
Leaving aside the question of using ERP software, larger businesses providing professional services often have a difficult time getting hold of the necessary information to improve profits. For smaller businesses, this isn’t a problem, as the size of the company makes it much easier to see how the business is growing, and where problems exist.
However, it doesn’t take long for a company to get to the point where profits are being lost as a result of a lack of communication. It takes a lot for a management team to realise they don’t know their company as well as they should or where their business is succeeding or failing. Yet with the right solutions in place, managers can pinpoint how the business can be changed to boost performance, improve profits and deliver sustainable growth.
