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Two Mistakes Most Software Services Organizations Make Every Day

The software services economy is comprised of a large workforce that, through the utilization of their intellectual capital and technical ability, drives the financial success of Professional Services Organizations. Despite the obvious importance of optimizing these precious resources, many companies struggle to effectively measure and analyze their services operations. While management struggles to measure too many (or too few) metrics in their efforts to understand their businesses, they often overlook the two basic measurement questions – what to track, and how to track it.

Ideally, metrics provide leading indicators on the health of a knowledge-driven services organization. However, the common perception of metrics tracking as a “premium” activity leads many to accept the limitations of the data they do capture, which typically includes only the “must-have metrics” such as utilization rate and revenue. Rarely does it encompass the types of metrics outlined in this article as those most important to track.

Contrary to popular belief, implementing an effective metrics strategy is neither a difficult nor cost-prohibitive endeavor. By understanding which metrics are most insightful and by utilizing a cost-effective metrics infrastructure – such as QuickArrow's Professional Services Automation (PSA) solution – to track them, services organizations can acquire leading insight into their businesses. Unfortunately, many services organizations continue to track a limited set of metrics in manually updated spreadsheets. The problem with this labor-intensive approach is that it ultimately provides lagging – and potentially misleading – insight into your business.

Not too Many, Not too Much

In addressing the challenge of determining what to track and how best to track it, the mantra should be simple: Not too many, not too much. A management team needs a tight, manageable set of metrics – tracking too many metrics creates undue management burden with minimal business benefit. Secondly, the approach to collect these metrics needs to be cost effective. If the data collection process is too labor intensive or if the infrastructure that is required is too expensive, the metrics methodology will not work. This article will define a concise set of metrics that provide the most comprehensive perspective on the performance of your business and outline the optimal means for capturing these metrics — QuickArrow's Professional Services Automation solution.

Metric Perspectives

Every metric provides a specific perspective on your business. Some metrics tell you there is a problem today – others alert you to a problem down the road. Metrics also have naturally different scopes. Total service revenues convey how the overall business is doing, but provide little insight on how individual consultants are performing. Individual utilization metrics provide insight on individual performance and the overall health of the business.

Continuing this logic, there are at least five unique metric perspectives you can consider:

1. Functional Perspective: What business function does this metric help evaluate? Your Sales organization? Your Delivery teams? Services Marketing?
2. Economic Perspective: Almost every internal company initiative has one of two objectives: Improve operational efficiency or create future revenue (economic value). Does the metric track improvements in operational efficiency or assess the economic value of the business?
3. Timeframe Perspective: Just like economic data, is the metric a leading or lagging indicator of how the business is performing? Does the metric indicate you currently have a real problem, or does it warn that you will ultimately have a problem if the current trend continues?
4. Scope Perspective: Does the metric measure the performance of specific individuals, specific projects, or the entire business unit?
5. Stakeholder Perspective: Does this metric provide insight on how your external stakeholders (customers and partners) view you?

In Table 1: Metric Perspectives, these five distinct perspectives are applied to 10 common professional services metrics. The table shows which perspectives are satisfied by each metric. For example, backlog is a leading indicator. If backlog drops below a certain threshold, the business could be moving in the wrong direction. Revenue targets may be met for this quarter, but may be a problem two or three quarters out if backlog is not improved. Backlog can be used to evaluate the service delivery and operations functions, but is not an appropriate metric to effectively evaluate the Services Marketing function.

Now that these five distinct perspectives have been defined, they can be applied to help create an effective metrics portfolio.

Table 1: Metric Perspectives

Metric Perspectives Graph

Again, when defining which tight set of metrics are ideal for evaluating a professional services business, the guiding principle should be not too many – the smaller the list the better. By using the concept of metric perspectives, you can create a truly balanced metrics portfolio. The objective is to identify a set of metrics that minimizes any perspective blind spots. For example, you would not want to pick 10 metrics to manage your services business only to realize that none of them is a leading indicator of your organization's performance.

Figure 1: Perspective Graph Introduction shows the metric perspectives graph. This graph allows you to map metrics to determine if there are any obvious perspective blind spots. Figure 1 shows there are four distinct zones into which metrics can be mapped:

Figure 1: Metric Perspectives Graph Introduction

ZONE 0: Lagging, Economic Value. Metrics in Zone 0 represent how the business has actually performed. Metrics in this zone are those ultimately used to evaluate a management team and include Total Service Revenues and Profitability.

ZONE 1: Lagging, Efficiency. Metrics in Zone 1 indicate a serious and immediate problem in the operation of a services organization. If operational efficiencies are not improved, Revenues and Profits will suffer.

ZONE 2: Leading, Efficiency. Metrics in Zone 2 provide early warning that you may have efficiency issues. Poor performance in these areas does not mean Revenue and Profits (Zone 0) will be immediately impacted. However, these metrics are a pointer to areas that, if not addressed, could impact future financial performance.

ZONE 3: Leading, Economic Value. Metrics in Zone 3 provide insight on the organization's future performance. Is the business creating economic value that will generate future Revenues and Profits? Or, is intellectual and human capital being sacrificed to pay today's bills?

Figure 2: Completed Metric Perspectives Graph

In Figure 2: Completed Metric Perspectives Graph, the scope and the stakeholder perspective are added to the picture. The three rings represent the scope of the metric. The outer ring contains metrics that measure only the overall business. Metrics that assess the health of projects comprise the middle ring. Staff-level evaluation metrics are placed close to the center of the graph.

Stakeholder perspective will be indicated by the color representing the metric on the graph. Metrics colored in RED have an internal perspective – the metric is important to you and your superiors. Metrics colored in GREEN have an external perspective – your customers or partners care about your performance in this area.

Using the Metric Perspectives Graph

We can put the graph into action by mapping utilization, an industry-standard metric common to most service businesses. As a metric, consultant utilization provides the following perspectives into your service business:

Functional Perspective: Utilization is used to evaluate the service delivery function.

Economic Perspective: Utilization evaluates the efficiency of your software services organization.

Time Frame Perspective: Utilization is a lagging metric. When utilization goes down, you have a problem NOW. After the low utilization report comes in, you can't recapture those lost billable hours. Like airplane seats and hotel rooms, you cannot inventory consulting capacity.

Scope Perspective: Utilization is used to evaluate the performance of individual employees. This data can then be used to evaluate the health of projects and eventually the overall business. In other words, utilization is a metric that can provide insight on all levels of your services business.

Stakeholder Perspective: Utilization is an internal viewpoint. Your customers and partners are not concerned about your utilization rates.

With this perspective information, Figure 3: Mapping Utilization maps utilization onto the metric perspectives graph.

Figure 3: Mapping Utilization

The good news about utilization is that it covers the lower quadrant of the graph nicely. Utilization is a metric that hits the center bull's-eye of “staff.” This means the metric can provide insight on individual employees, specific projects, or the overall business. However, using only utilization to measure your services business would produce several blind spots:

Functional Blind Spots: Not specifically evaluating sales, marketing, or services engineering.

Economic Blind Spots: Not evaluating the return on investments you are making into the business. Not understanding the economic potential of your software services portfolio. Yes, we are utilized today, but what about six months from now?

Time frame Blind Spots: You have no leading indicators that will warn the business may be heading south.

Stakeholder Blind Spots: You have no indication how customers and partners feel about the services you are delivering.

The use of only one metric is a simplified illustration of the potential existence of blind spots. For a greater level of detail, we can map the top 10 metrics introduced in Table 1. Table 2: Metric Reference Codes provides a two-letter code for each metric.

Table 2: Metric Reference Codes

Figure 4: Ten Service Metrics maps these metrics onto the perspective graph. Remember, the closer to the center the metric lands, the greater potential scope it has — close proximity to the bull's-eye is a good thing.

As previously noted, a majority of software services organizations do not have all ten of these metrics at their fingertips. However, even a full utilization of all 10 areas still provides a perspective with weak spots:

Figure 4: Ten Service Metrics

1. Not one metric provides an external perspective. How do customers view the business? How do critical partners feel about your skills and ability to deliver? None of these metrics provide insight on how the external world views your business.

2. 70% of these metrics are lagging. They provide little insight on the service organization's direction – positive or negative. Hit rates, sales costs, and backlog do provide leading information; however, there are no leading indicators on the health of the services portfolio or the skills of the staff.

3. No leading metrics are present to evaluate the health of projects. Project profitability measures success after the fact. Are your projects on track now? Are you getting better at managing them?

By utilizing the concept of metric perspectives, you gain much greater insight into what each metric conveys. Mapping these perspectives onto a picture makes the assessment more visual and intuitive.

How You Capture Data Requires as Much Attention as What You Capture

In addition to effectively prioritizing what to measure utilizing the concept of “not too many,” a successful metrics strategy addresses how the metrics are captured by adhering to the principle “not too much.” Most software services organizations understand the importance of capturing metrics, which drives many to utilize a home grown, spreadsheet-based metric capturing strategy while at the same time acknowledging its limitations. For a small software services team, this approach is probably adequate. However, if you are attempting to track meaningful data on numerous consultants distributed across the country (or globe), spreadsheet functionality becomes limited. Spreadsheets don't scale.

The necessity of manual aggregation of data across multiple spreadsheets presents the following challenges:

• Utilization of valuable internal resources on a labor-intensive, time-consuming approach – often consuming hours or even days each month
• Fragile, error-prone reporting
• Limited visibility into group skill resources, leading to potential loss of projects
• Duplication of project efforts due to a limited ability for historical search
• Limited scalability due to the challenge of managing financials and schedules of remote consultants
• Little or no integration among multiple reporting systems for reconciliation

Cost-Effective Metrics Infrastructure – the QuickArrow Solution

The challenges outlined above often characterize a non-centralized, manual metrics strategy. In contrast to a spreadsheet-based system, QuickArrow's Professional Services Automation (PSA) solution is designed to manage a Professional Services Organization. QuickArrow addresses the challenges software services professionals regularly face in trying to manage disparate spreadsheets, emails, and whiteboards while integrating with leading project management, accounting, and financial applications.

QuickArrow provides the following benefits to your software services organization:

• Ability to track key metrics such as utilization rate, backlog, profit per project, total services revenue, and more
• Automation of integration with existing enterprise systems
• Optimal resource utilization with centralized access to resource skills, schedules, and availability
• Increased accuracy of resource planning and forecasting
• In-depth analysis of projects in order to identify areas such as profitability by client, project types, and employees
• Decreased invoice cycle time and increased accuracy
• Greater predictability and forecasting accuracy

QuickArrow can track both Time and Expense (T&E) data as well as resource management data. QuickArrow also offers one-click access to detailed information on metrics discussed in this article such as project profitability, utilization, and bill rate. This analytical ability makes QuickArrow an efficient, effective platform to facilitate a comprehensive, sound metrics strategy.

Conclusions

The velocity of today's knowledge-driven marketplace demands the accurate measurement of that which was before considered intangible – human capital and the utilization of highly specialized resources. Attempting the day-to-day management of a software services organization without measuring the metrics that convey its performance is like “flying blind” – it is at best a difficult endeavor.

Many management teams within software services organizations can readily acknowledge the multiple disadvantages of operating without a metrics strategy and can point to numerous operational pain points as an example. However, many accept the status quo based on the perceived complexity of process improvement.

This perception underestimates the importance of implementing a comprehensive metrics strategy — it's not just a “nice to have.” Without a sound metrics strategy, your organization is in effect making crucial business decisions based on incomplete data, which could cost you projects and revenue. From this perspective, can you afford not to address the issue of measuring the vital aspects of your business?

By using the concept of metric perspectives to define what data provides you the most insight and defining a set of specific, concise metrics to capture, you can move your software services organization one step closer to a comprehensive metrics strategy. This is the first important step toward achieving organizational visibility.

However, the importance of how this data is captured should not be underestimated — this is the second crucial step in implementing a successful metrics strategy. Many software services organizations unnecessarily utilize inefficient, labor-intensive capture methods, such as spreadsheets, just because they suffice for the time being. Unfortunately, the time-consuming, inefficient nature of this method diminishes the value of measuring data because it can't effectively deliver the visibility that drives companies to capture metrics in the first place.

Imagine reclaiming the time your resources currently spend aggregating data from multiple spreadsheets each month. Envision a clear understanding of your resources' skills and availability. Picture your services organization supporting growth without adding any overhead. These are just some of the advantages QuickArrow's Professional Services Automation solution can offer.

Harnessing the power of QuickArrow's PSA solution to capture your data while automating, streamlining, and optimizing your operations puts your metrics strategy into action. By allowing your specialized resources to reclaim their focus on their core capabilities while providing insight into each crucial area of your business, QuickArrow can help you manage the complexities of delivering professional services effectively, and most importantly, profitably.

QuickArrow can be implemented and adding value within weeks – not the months or quarters required by traditional client-server automation application.

Taking the Next Step

To learn how QuickArrow can help you avoid making the two mistakes that Software Services Professionals make everyday – not knowing what to measure, and not having an automated system to track it – call 866.313.PSA1 (7721) and mention this white paper to receive a free 30-minute consultation, or click here to request a consultation online.  You can begin working with on of QuickArrow's PSA Consultants today to evaluate and assess the challenges you are working to overcome, and the goals you are focused on achieving.

Find out why more software companies trust QuickArrow than any other Professional Services Automation solution.

About QuickArrow

QuickArrow is a leading provider of automation and management software for Billable Services Organizations. QuickArrow offers the first and only PSA solution specifically designed to streamline operations and provide visibility into all key operational metrics for Billable Services Organizations.

QuickArrow has received its second unqualified SAS 70 Type II certification. This certification demonstrates the company's commitment to the safety and security of clients' data and to the reliability of QuickArrow's service.

QuickArrow, a founding member of the Technical Professional Services Association, (TPSA), has more than 225 clients and 18,500 users worldwide, including IT services, software, hardware, environmental consulting entities, as well as management consulting, health care consulting and business services organizations. Clients include Salesforce.com, Borland Software, Eloqua, INX, and Genesys Telecommunications Laboratories (a subsidiary of Alcatel). QuickArrow is headquartered in Austin, Texas.