KPIs for Professional Service Firms

www
.bus
ines
s-pr
otot
ypin
g.co
m

KEY PERFORMANCE INDICATORS IN PROFESSIONAL
SERVICE FIRMS
Dr. Oliver Grasl
Berlin, 11.12.2012

© 2012 transentis management consulting GmbH & Co. KG www.transentis.com

CHANGE IS INEVITABLE

External Drivers An Enterprise Internal Drivers

s
ns

ion
ma

ot
Hu

Em
Repositioning
High Market Expectations

Structures
Business Model Business Model Innovation
Intense Competition

Processes
Mergers & Acquisitions
New Value Chains
Organization Expansion to new markets
Disruptive Technologies
Demographic Changes Technology
Scarcity of resources
Government Regulations

Internal and external drivers force enterprises to implement frequent
and wide-spread changes to their business models, their organization
and the technology supporting their business.

© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 2

IMPORTANT STRATEGIC QUESTIONS

How do we create value for our customers and shareholders?

Which markets shall we compete in?

How do we position our firm against our competitors?


BUSINESS MODELS FOCUS
ON VALUE CREATION

How do we create value for our customers and shareholders?

Business models address the question of value creation,
or: "How do we make money in this business?"

These questions are
Which markets shall
addressed by a firm's pro-
we compete in?
duct-market strategy and
How do we position our firm competitive strategy – also
against our competitors? very interesting, but out-of-
scope today


In future business model innovation will be the key
to generating new wealth: Competition no longer
takes place between companies and products,
but between business models.

Gary Hamel (2000)
ur
ns

vio
ma

ha
Hu

Be

Structures

BusinessModel
Business Model
Processes

Organization

Technology
Image Source: gurusofmanagement.blogspot.com


COMPREHENSIVE DEFINITION
OF BUSINESS MODEL

A business model describes how an enterprise
creates value for all the parties within its value
network (customers, suppliers, stakeholders), by
defining its value logic and showing which products
and services are exchanged between these parties.

Value = Benefits – Costs


BUSINESS MODEL VIEWS

Business
Model

Transaction Value Value
Model Network Logic


CORE BUSINESS MODEL BUILDING
BLOCKS

Value Resource Capability

Creates Asset
Needed Needed
to provide to produce

Consumer
Party Channel
Provider
Service
Supported by

Supplier
Transaction Product
Customer Exchanged
via

Good


BUILDING BLOCKS EXPLAINED

Party Any legal entity engaged within the business model. Examples for other parties
besides firms are public authorities and public households.

Asset The term "asset" is used as a generalization for resources and capabilities. An asset
is a resource (e.g. physical property, intangible right) or capability that has eco-
nomic value. Important examples are plant, equipment, land, patents, copyrights,
and financial instruments such as money or bonds. A firm needs assets to enable
its transactions, maintain channels and create its products.

Channel A channel is a conduit by which a firm offers its products.
These products are exchanged via a transaction.

Product A product is any good or service produced by a business. Businesses are
characterized by the fact that they produce goods or service beyond their
own need and can therefore offer them to other parties via a market.

Tran- Firms interact via boundary spanning transactions, which are supported
saction or enabled by channels. A transactions takes place when a product is exchanged
via a separable interface.


BUSINESS MODEL: VALUE LOGIC

Sales cost
Customers
Value added

Products Capabilities

Revenue

Resources
Cash

The value logic shows how resources and capabilities are used
to support transactions, create products, attract customers and
drive value creation.


VALUE CREATION IS A DYNAMIC
PROCESS …

Sales cost
Customers
Value added

Products Capabilities

Revenue

Resources
Cash

The feedback loops in this diagram are what sustain a companies
business and make it dynamic – even in stable market conditions.


FULL BUSINESS DYNAMICS

Market Size
Markets served
Sales Cost

Customers
Value added Competitors

Products Prices
Capabilities
Revenue

Operating Income
Cash
Resources Operations

Debt
Operating Expenses

Business dynamics =
value dynamics × market dynamics × operational dynamics


INDUSTRY-SPECIFIC BUSINESS MODEL:
CONSULTING FIRM BLUEPRINT

Consulting firm value logic blueprint

Customers

Knowledge
Management
Recruiting

Know how Cash

Talent

Innovation

Marketing


BUSINESS MODEL PROTOTYPING
APPROACH

Understand
the business Business model prototyping
follows an iterative process

The conceptual understanding
Prototype of the business is captured
the business in a business prototype,
which is calibrated against
available data

The prototype is then used
Explore future to explore potential scenarios
scenarios of the future and deepen the
understand of the business


BUSINESS MODELS AT DIFFERENT
LEVELS OF DETAIL AND SPECIFICITY

Generic Specific
Abstract

Customers
S ales
c ost R epeat

Projec t
e ffort

Projec ts
required
Customers Repeat
Customer
m ain-‐ Project Project
Consultants
Value
a dded Knowledge tananc e required Acquistion Projec ts
Delivery
Management
Recruiting Projec t
delivery

Capabilities Customers
First
t ime
effort
a vailable
P roducts Know
how Cash projec ts New Recruitment
Customer Project
maintenance Acquistion
Talent Consultans Pro-‐
Partner
C ustomer
Contact jec t delivery
effort
Investments R evenue maintenanc e
effort
Contac ts Maintenance

Contac ting

Partner
C on-‐
Innovation effort
r equired
tac ting Effort
R esources
Partners
P rojec t

Marketing Partners
Cash Delivery
effort

Generic business Industry-specific Firm-specific business
model business model model

Detailed business
prototype
Detailed


CASE STUDY CONTEXT

Case study based on work carried out for a professional service firm
focusing on IT consulting.
∼1100 employees worldwide

∼70 employees in Germany subsidary

Participants were the CEO, CFO and Head of Business Development.

The company has a very stable history of financial success but is
dissatisfied with growth rates

Policy changes are hard to find and enforce in such
conditions!

KEY KPI‘S FOR PROFESSIONAL SERVICE
FIRMS („MAISTER KPI‘S“)

Profit Profit Fees Hours Staff
= x x x
Principal Fees Hours Staff Principal

= Margin x Value x Utilization x Leverage

Hygiene factor
Hygiene factor Sales and
Cost reduction delivery
management Health factor
Health factor
Innovation and Specialization Standardization

D.
Maister,
Managing
the
Professional
Service
Firm


STRATEGIC QUESTION

How should principal consultants spend their time?

Which organisational policies should be
followed to ensure the health factors VALUE
and LEVERAGE are improved?


WHAT PRINCIPALS DO

Principals are responsible for the following activities:

§  Generating repeat business through client maintenance

§  New customer acquisition

§  Project delivery

§  Recruitment and consultant development
§  Development of new consulting products


FIRM SPECIFIC VALUE LOGIC
(CONCEPTUAL LEVEL)
The causal
loop diagram
identifies the
main feedback
loops that
drive and
sustain the
firm‘s
business and
how the
principals are
involved in
these
activities.


PRINCIPALS ARE RESPONSIBLE FOR
EVERYTHING
Note that the
principals are
involved in
four major
activities, but
they are not
directly part of
a feedback
loop:

This is
because the
firm does not
have an
explicit hiring
policy for
principals.


FIRM‘ SPECIFIC VALUE LOGIC
This is the
feedback loop
that generates
new
customers
from business
contacts
(which are
mostly found
in projects)


This is the
feedback loop
that generates
follow-on
projects.


This is the
feedback loop
that ensures
that enough
consultants
are available
to deliver
projects.


STRUCTURE OF THE SIMULATION MODEL

The model was
built using
System
Dynamics and
the ®iThink
modelling
environment
and calibrated
against
historical data.

43 Stocks
350 Equations


THREE SCENARIOS

Scenario 1 – Base Case
Principals spend up to 50% of their time in project delivery
The other 50% go to customer development and innovation
No time for standardisation

Scenario 2 – Concentrate on the customer
Project delivery is delegated to senior and junior consultants
Principals focus on customer development and innovation

Scenario 3 – Innovate and standardise
Principals focus more on standardisation and less on innovation


SCENARIO 1 – BASE CASE

%&'()'*+,-./+0'1213
%&456)738'1639:+&6

!"!! $"!!
!"#!

%&'()'*+,-./+0'1213;4(7+)73
/+'(76(+()638'1639:+&6

!"!! $"!!
!"#!

! $!!@
%&4=2)7-.%&4=2)73
$!! A((B4+7'4(3CDD4&73@

! $!!@
%&4=2)7-.%&4=2)73
! /+&E67'(F3CDD4&73@

! $!!@
%&4=2)7-.%&4=2)73
! 97+(=+&='-+7'4(3CDD4&73@

<,,4)+76=>3333 $!!
?(+,,4)+76=>3 !

The
company
is
concentra;ng
too
much
on
the
hygiene
factors
u;lisa;on
and

margin
and
not
enough
on
the
health
factors
consul;ng
fees
and
leverage.


SCENARIO 2- CONCENTRATE ON THE
CUSTOMER

Principals.Maximum
Project Time Share

0,00 1,00
U 0,00

Principals.Maximum Contact
Maintenance Time Share

0,00 1,00
U 1,00

0 100%
Products.Product
100 Innvoation Effort %

0 100%
Products.Product
0 Marketing Effort %

0 100%
Products.Product
0 Standardisation Effort %

Allocated: 100
Unallocated: 0

Due
to
an
increase
in
consultants
the
leverage
also
increases
because
the
number
of

principals
remains
ﬁxed.
The
leverage
is
s;ll
only
at
most
50%
of
maximum,
showing

the
company
s;ll
has
too
many
principals.
The
health
factors
project
leverage
and

consul;ng
fee
s;ll
have
not
been
addressed
by
the
new
policies
and
they
therefore

both
remain
at
0%.

SCENARIO 3 – INNOVATE AND
STANDARDISE
Principals.Maximum
Project Time Share

0,00 1,00
U 0,00

Principals.Maximum Contact
Maintenance Time Share

0,00 1,00
U 1,00

0 100%
Products.Product
9 Innvoation Effort %

0 100%
Products.Product
30 Marketing Effort %

0 100%
Products.Product
61 Standardisation Effort %

Allocated: 100
U Unallocated: 0

Time
available
for
product
development
quickly
dwindles

due
to
the
increased
;me

principals
must
spend
wri;ng
proposals.
So
aHer
an
ini;al
period
of
successful
product

development
both
the
average
fees
and
the
project
leverage
rapidly
decline
again
–
the
ﬁrm

should
be
hiring
principals
now.


GROSS MARGIN COMPARISON


RECOMMENDATIONS FROM SCENARIO
ANALYSIS

Collect better data on principal effort allocation

Understand why principals don‘t allocate their time well

Define and enforce effort allocation policies

Ensure innovative consulting products are standardized

Investigate the effect of innovation on fee structure
Beyond
the
concrete
recommenda;ons
the
„real“
value

of
the
model
was
in
providing
a
basis
for
discussion
and
a

risk-‐free
environment
for
policy.experiments.


THREE POINTS TO REMEMBER

Intense competition, disruptive We need effective ways of exploring,
technologies, demographic designing and realizing these
changes and the scarcity business models
of resources are driving
the quest for transforma-
tive business models
If you remember
only three points

1 23 from this
presentation,
remember these
1 23

Business prototypes are a powerful tool for creating
shared understanding and managing both complexity
and uncertainty
1 2 3

Oliver Grasl is managing director and founding partner of transentis
management consulting, established in 1997.
After reading mathematics and theoretical physics at Cambridge
University, UK (MA) and the University of Innsbruck, AT (Mag. rer. nat),
Oliver later specialized in business engineering at the University
of St. Gallen, CH (Executive MBA, Dr. oec.).
Oliver's personal mission is to help companies re-invent themselves
and manage the complexity of the ensuing business transformation.
His engaging, "hands-on" approach is driven by business prototyping
techniques.
He regularly speaks at conferences and publishes papers
in journals and magazines and blogs at www.business-prototyping.com.


CONTACT

Dr. Oliver Grasl
Managing Director
transentis management consulting GmbH & Co. KG
E-Mail: oliver.grasl@transentis.com
Mobile: +49 173 65 46 727


Transformation for success
We help companies to explore their current situation
and to design and realize visionary business models
and processes. This includes the optimal use of suitable
IT solutions. transentis management
consulting GmbH & Co. KG

We get you there. Potsdamer Platz 11
D-10785 Berlin
www.transentis.com
Tel.: +49 (30) 2589 4005


KPIs for Professional Service Firms

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to KPIs for Professional Service Firms

Similar to KPIs for Professional Service Firms (20)

Recently uploaded

Recently uploaded (20)

KPIs for Professional Service Firms