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Bo Di Muccio
Utilization continues to be a hot topic of discussion and debate, and for good reason. Of all the key performance indicators (KPIs) that are tracked by professional services (PS) organizations, utilization arguably provides the greatest, most telling insight into a PSO’s operational performance, so getting it right is important. In this article, I’ll share one of the core fundamentals for effectively measuring and setting targets for utilization.
While you may be eager to dive into the nuts and bolts of utilization, we first need to start with context, as this will determine how you will set your utilization targets. By context, I’m referring to the charter of your PS business, and specifically which of the following two categories you fall into:
PS Revenue/Profit Charter: The PS business is in place mostly to drive intrinsic, direct financial performance and profitability.
Product/Sales Support Charter: The PS business is in place mostly to support and drive the company’s core product business.
What bearing does this have on utilization? A great deal. If your executive team is looking to the PS business to drive revenue and profits, your utilization targets and supporting structures (for example, your PS compensation plan) will be shaped to support this objective. Typically, PS organizations with a revenue/profit charter have a greater proportion of billable vs. non-billable time in their target utilization mix.
Conversely, if the main focus of your PS organization is to support and enable your company’s core product business, you will likely place less emphasis on billable utilization hours and have more time allocated for non-billable work such as customer adoption and pre-sales support.
To support this point, Figure 1 shows the current industry data from the latest snapshot (Q1 2014) of TSIA’s core PS benchmark survey.
Image caption for outside modal.
And the result is pretty clear: The target billable utilization profile for PS businesses that have a product/sales support charter is very different from those that have a PS revenue/profit charter. Fully 23 percent of the revenue/profit-driven PS businesses have target utilization of 75percent or higher, versus only three percent for the product/sales support chartered PS businesses. Conversely, 34 percent of the product/sales support oriented PSOs target utilization at less than 60 percent, versus only 15 percent of the revenue/profit-oriented PS organizations. Truly, there is no one-size-fits-all model. Not for utilization, and not for just about any other key PS business metric.
Once you’re clear on your charter, you can begin to focus on the other core aspects of managing and measuring utilization. Watch this space for more posts on PS utilization. In the meantime, you might want to take a look at the Top Six Steps for Defining and Tracking Utilization.
Post Date: June 24, 2014
Bo Di Muccio, Ph.D., distinguished vice president of Professional Services research and vice president of TSIA advisory delivery. He is also the chairperson of the TSIA Professional Services Advisory Board. Using his nearly 15 years of experience in technology industry research, analysis, and consulting, Di Muccio develops and delivers research and advisory programs that help some of the world’s leading technology companies build and optimize their professional services business.
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.