It's a challenging time for the professional services industry as it adjusts to cost pressures, skills shortages and changing customer expectations. Sean Hoban gets to see a cross-section of the industry in his role as CEO of Kimble Applications, an up-and-coming supplier of professional services automation (PSA) software, which providers use to streamline their operations. I spoke to him recently on a visit to the company's headquarters office in London.
The trend away from discrete projects and assignments towards delivering service outcomes — at diginomica, we call this the XaaS Effect — is one of the biggest challenges for the professional services industry, he believes:
People want to buy based on an outcome, not based on how long it's going to take you to do it and then making a margin on it. They're wanting things like risk/reward, or they're wanting some kind of consumption-based thing, not necessarily an effort-based thing.
That's making it challenging for the established services providers because they built a business on effectively a business model that says, I've got a cost and then I'm going to make a margin on that cost.
Even when you look at fixed-price, it's essentially calculated based on T&M [time and materials], but with just a bit of premium on the top or a bit of risk buffer on the top. New starters are coming out and are challenging those revenue models and trying to align to how the customer wants to pay for it ...
The challenge for the out-and-out services firms is to move to more of an annuity model, get themselves closer to the customer by doing that. So that they're not just a project, and then when the project's finished, that is goodbye. Whether that's a managed service or whatever it may be, bake that into more of an annuity stream, providing a service that's relevant rather than just a one-off project.
Meanwhile, manufacturers are wrapping their existing products with service offerings and selling the whole bundle as-a-service, he adds, citing printer and copier maker Canon as one example:
The interesting thing is, they wouldn't think of themselves as a professional services firm. They think of themselves as a high-tech manufacturer. But their requirement from a systems perspective is now moving more to a services requirement.
Why not build a PSA solution?
As someone who made his career in the industry, Hoban feels its pain. Having built up the UK-based IT consulting business Edenbrook, which become part of Hitachi Consulting in 2009, he and his co-founders set up Kimble with backing from a number of angel investors including several key figures in the UK tech industry.
We were very familiar with building enterprise-scale software. We thought, well, we know about professional services, we know about building software, why don't we set up a company that builds a PSA solution?
Having decided to build the solution natively on the Salesforce platform, the company has now grown to become one of the largest ISVs in Europe on the platform. After taking funding from Silicon Valley investment firm Accel-KKR last year, it is now expanding operations in the US, Germany and elsewhere.
The Kimble team saw a gap in the market because they felt existing PSA products were too focused solely on project accounting — "caring about the history rather than the future," Hoban explains.
A lot of people in professional services talk about, 'Where's the cliff in my business?' Where does my utilization and my revenue drop off? If you could see an uptick in demand for a certain type of resource, a certain skill, or you could see a drop off of that — or you could see one of your service lines was doing well and one wasn't — if you've got three or four months visibility of that, you can react, adjust and course-correct.
The other pain point they saw was that most providers were running separate software packages for each element. They would have a resource management system, a project delivery system, a billing system and a CRM system, each operating as a separate silo. Building a system that was "all joined up" was important, they felt.
Making the most of your talent
The decision to build on Salesforce allowed them to bring a product to market faster, on a trusted infrastructure, and with built-in connection to a popular CRM. Being joined up to where the sales opportunities are tracked is another advantage, as Hoban explains:
I've always been passionate about [saying], you will improve your utilization by a few percentage points if you start resourcing before you've won it.
If you wait till you've won the opportunity and then resource it or try and resource it, you'll lose time. But if you're actually starting to map out your resources while you think you've got a good chance of winning the deal, you're finessing your resource pool and probably getting an extra 2% utilization by being ready as soon as you win it.
Managing the organization's talent pool is another example of being joined up. While connections to external talent sourcing tools are important, many service providers aren't making the most of their in-house talent, says Hoban:
When you get into the larger organizations, one of the things that we see time and time again is they're not accessing their global employee base ... and they've delayed revenue, they've maybe lost a project or whatever.
Often when we're going into organizations, we're doing a change management piece around their resourcing process ... so if I've got someone based in Paris and I pull them onto my project, we can still allow the revenue to flow in the right direction in terms of the business unit, but it means that they're securing the delivery of that project.
Providers are also having to become a lot more agile in how they source talent. Traditionally, a professional services organization's employees have been mostly permanent with maybe a fifth being contractors. Younger firms today are working with a much more flexible talent base, says Hoban:
What we see with some of the newer consulting firms over probably the last five years or so is that ratio is the other way round. They'll have 20% permanent staff and 80% contract staff. So they're being more agile with their use of talent.
The problem that gives them is they've got to be able to find the people at the right time. So just-in-time resourcing, really, based on not just a local talent pool, but based on nowadays a global talent pool. If I need some expert in some particular niche programming language, they don't need to be in London, they can be anywhere, remote working in the cloud. Access to that talent pool is, I think, the challenge that services firms are going to have.
Why PSA is 'as hard as ERP'
The other element is using automation to make sure employees are as productive as possible. The Kimble system uses data algorithms to give project managers and field staff various prompts as they use the system to help prioritize and complete tasks. This ranges from reminders to approve timesheets or warnings about resource levels, through to predictive completion of timesheets and auto suggestions in expense claims. This helps to deliver projects according to plan, Hoban believes:
[We're] constantly alerting and nudging them and then helping them through the process, to give consistency of delivery.
If margins are pressured, it's really important that you deliver to the margin that you thought you were going to deliver to.
Co-ordinating all of this in a PSA system is as complex a challenge as co-ordinating business operations in an ERP system, he argues:
One of our key guiding principles is, there's so many different actors involved in a PSA solution — which is why I like to think it's as hard as ERP, frankly — because you've got sales people, delivery people, resourcing people, finance people, and then the poor old consultant, or personnel, in the field.
We have to make sure that we are making it easy for all those different types of users, like the consultant — make it really easy for them to enter time and expenses because that's the lifeblood of the business.
Growing the professional services market
This is a message that Kimble is taking out to the market, both in its home market in the UK, and increasingly in the US, Germany and France, says Hoban:
We've got to a stage now where the US is outselling the UK. We are approaching equal numbers of staff — we're about 40-odd people in the US and we're about 60 people in the UK, so the momentum's shifting.
Kimble is also finding opportunities beyond the traditional professional services space. Hoban says the creative industries, telecoms and pharmaceuticals all have activities that are amenable to what a PSA system can provide:
We're seeing these verticals that you wouldn't necessarily call professional services, but they've still got the same need and the same use cases.
The challenge for Kimble, and others in its space, is to educate the market as to what it has to offer:
I think the players in our space have still got an amount of education to do, a bit like CRM — 15, 20 years ago people didn't really know what CRM was — now people pretty much understand what CRM is ... So that's one of the challenges in terms of getting that messaging right — you're educating but also differentiating at the same time. But those are good challenges to have I think.
Some intriguing views on the evolution of the professional services industry, particularly on the need to adopt new business models and staffing strategies. Like many others, this is an industry where technology has been a growth motor, but is also now becoming an agent of disruptive change that represents opportunity for some newcomers but may adversely affect more established players.
Hoban and his team seem to be on a confident growth path, but tackling the US market is always a big challenge for a British software business. While it's true that building a business outside of Silicon Valley tends to make you leaner — startups elsewhere don't have access to the same levels of funding — it does mean you enter the US market as an outsider. With a network of a half-dozen regional offices across the US, Kimble is certainly taking its onslaught seriously. We'll have to see how it does.