Discovering Hidden Capacity: An Interview with Chris Vandersluis

This month I introduced the Triple Constraint of PSO Profitability.  The triple constraint states that revenue growth rate, delivery cost, and service quality are interrelated variables that impact the profitability of your professional services business.

I recently had a chance to sit down with Chris Vandersluis, CEO of HMS Software, publishers of TimeControl timesheet software. Chris has nearly three decades of experience in enterprise time and project management, and was willing to share some of the ways his customers have found to free up existing project resources by capturing and then mining non-project time to find and eliminate unnecessary activities.  Referring back to the triple constraint of PSO profitability, they are finding ways to increase their revenue growth rate (and therefore profitability) without increasing delivery costs, by focusing project resources on activities that directly grow their business.  And as you will hear, the cost savings or revenue acceleration achieved can be quite significant!

Listen to Interview with Chris Vandersluis

 

Chris also blogs on enterprise project management.  You can follow him at www.epmguidance.com.

 

Driving Professional Services Growth

Want to drive the value of your professional services business?  Understand and then intentionally manage the triple constraint of PSO profitability.

Professional services leaders are constantly being challenged to deliver more with less, to provide more services to more customers with fewer resources, all the while maintaining the quality of those services.  Savvy customers have further complicated this seemingly impossible task by requiring prototypes or workshops prior to the services sale, demanding specific resources for their projects, and inserting procurement professionals to aggressively negotiate pricing.1

The Triple Constraint of PSO Profitability

The key to driving services growth in the face of these ever increasing challenges is to understand and intentionally manage the triple constraint of PSO profitability.  The concept of a triple constraint was introduced in project management, and simply states that a change in any one of the scope, budget or schedule of a project will impact the other two — they are intimately interrelated.2 In his book Building Professional Services: The Sirens’ Song, Thomas Lah proposes the “Iron Triangle of PS Profitability”, wherein the three interdependent variables for professional services organizations are revenue, references, and repeatability.  Lah suggests that the way to drive professional services growth is to focus on these three factors, where revenue and references impact the top line of the business and repeatability impacts the bottom line.

The Triple Constraint of PSO Profitability

The triple constraint of PSO profitability is analogous to the triple constraint for project management. It is essentially the same triple constraint, but applied to the larger professional services organization instead of to a single project.  Time is replaced by revenue rate3, budget by delivery cost, and scope by service qualityA sustained increase in profitability only occurs when the revenue rate is increased and/or the cost of services delivery is decreased without adversely impacting quality of service.

Profit Levers: References and Repeatability

So how do we meet the demands of delivering more with less, without sacrificing quality and our sanity?  Here is where references and repeatability come into play.  Building and maintaining a solid list of reference customers will tangibly help you to navigate an increasingly complex services sales cycle.  References reflect your quality of service and help to drive your revenue rate. The triple constraint, however, says that in order to realize increased profits from this uptick in revenue rate, you must minimize any increase in delivery costs required to satisfy the additional demand.  Repeatability — offering pre-defined services and pre-configured solutions (reusable IP) — can be used to minimize or even reduce your delivery costs.  In addition to lowering delivery costs, repeat services and pre-configured solutions also reduce the risk and increase the quality of service delivery by eliminating the learning mistakes inherent in custom services.  Repeat services and pre-configured solutions can themselves drive your revenue rate, as they typically result in shorter delivery time frames compared to custom services.

Lah’s iron triangle of PSO profitability, or the triple constraint of PSO profitability presented here are complementary ways of thinking about the same challenges. So which works best for you?  If you’re a seasoned professional services leader who is already using the iron triangle to help manage your business, there’s no need to change.  If you’ve not been introduced to the iron triangle, and in particular if you come from a project management background, the triple constraint may make more sense to you.  In either case, it is critical to the success of your professional services business that you understand these constraints, and that your strategy and operational tactics are built to intentionally manage them.

  1. Winning the Professional Services Sale: Unconventional Strategies to Reach More Clients, Land Profitable Work, and Maintain Your Sanity by  Michael W. McLaughlin
  2. Some references interchange “quality” for “scope”, “cost” for “budget”, and “time” for “schedule”. In all cases the implications remain the same.
  3. The revenue rate is a measure of the growth of an organization’s revenue stream (measured month to month, quarter over same quarter previous year, year over year, etc.). According to the triple constraint, increasing the revenue rate without sacrificing quality of service would typically require an increase in delivery cost (i.e., more resources).

Professional Services by Design (PSbD)

Applying Quality by Design practices to your professional services offerings results in predictable margins, on time delivery, lower risk and more happy clients!

Quality by Design (QbD) has been embraced most fully by the automotive industry as well as others such as electronics and semi-conductor manufacturers.  It was more recently endorsed by the FDA in its guidance to drug makers (Pharmaceutical Quality for the 21st Century: A Risk-Based Approach).

I am a big proponent of lean and six sigma practices for improving and maintaining quality, both in my own organization and for improving and optimizing customer business processes.  Practitioner Michael L. George has written Lean Six Sigma for Service, an excellent book on applying lean six sigma to services. It is highly recommended reading for professional services leaders who want to get the most out of their organizations.  While lean six sigma is great for optimizing services and speeding service delivery, it assumes an existing process that needs improvement — that is, these are reactive techniques.  QbD is a proactive approach that seeks to build in quality from the start.

What does poor quality look like for a services business? The age old challenge for professional services is delivering projects on time, on budget, within scope and with minimal defects.  We’ve found ways to mitigate these risks, such as time boxing, applying agile techniques, and actively managing customer expectations.  But often times these efforts are not enough, and the end result is missed deadlines, busted budgets and the unplanned “firefighting” needed to salvage endangered client relationships.  Wouldn’t it be nice to be able to confidently predict delivery dates and project margin, and consistently make customers happy?

INTRODUCING PROFESSIONAL SERVICES BY DESIGN

The solution that I propose is what I call Professional Services by Design, or PSbD.  PSbD means designing services from the start, by offering repeatable processes and pre-configured, targeted products and solutions that drastically increase the probability of success and decrease overall risk.

The traditional services engagement starts with a scoping study, where you identify unique requirements and then plan and estimate an engagement that is unique to that client.  But most likely you service customers in a small number of markets, who for the most part do the same kinds of things.  This repeatability from customer to customer is rarely leveraged by professional services firms, and is the key to successful PSbD.

A PHARMACEUTICAL CASE STUDY

Let’s take a look PSbD in action.  A number of years ago, my team was struggling with the large, risky enterprise software deployment projects that we were undertaking with our customers in pharmaceutical manufacturing.  While the configuration of the software was often very similar from customer to customer, each engagement was started from scratch and treated as unique.  This led to implementations that were subject to scope change, cost overruns, and unnecessary risk of dissatisfied customers.
Upon analysis, we determined that these customers were mostly doing the same things in the same or very similar ways, from sample tracking to chemical analysis to product release.  Not only that, but all of these companies were using the same ICH methods for chemical analysis, and were under the same FDA mandates for validating their regulated systems.  They were not so unique after all.
Our consultants combined had decades of experience working with pharmaceutical manufacturing customers, so we decided to package a common, pre-validated configuration of the enterprise software and a repeatable engagement methodology (service offering) to go with that configuration.  The result was a combined product and service offering that we were able to demonstrate saved the customer more than 75% of the cost and time to deploy as opposed to a traditional implementation project.  At the same time, we were able to drastically increase our confidence in project profitability, predictably allocate resources, practically eliminate the chance for project failure, and quickly create ecstatic reference customers. 

STILL ROOM FOR IMPROVEMENT

There will always be the need to improve the quality of your service offerings.  There will always be value to applying lean six sigma and other techniques to your existing service portfolio.  But you should start by applying PSbD to new service offerings, creating them with quality in mind from the start.  The additional work up front will result in happier customers, who will be more likely to serve as reference customers and help to drive your business success.
What do you think about PSbD?  Do you have an example of PSbD in action at your professional services firm?  Post a comment and share your thoughts!