Tracking the Technology Professional Services Industry

Apples and Oranges

Early this month, the CBI out of London issued a press release with the following headline: UK service sector profitability down sharply.   The press release contained the following information:

Profitability and optimism in Britain’s dominant services sector deteriorated sharply in the three months to August, a survey showed on Tuesday, in a further sign that a recession could be on the horizon. The Confederation of British Industry said profitability in business and professional services fell at the quickest pace in 6-1/2 years while consumer services’ profitability fell for the third quarter in a row.

In essence, the CBI is stating that the business and professional services sector has been incredibly soft in Europe over the past several quarters.   My consternation is not with the conclusion, but the companies used for the basis of the conclusion. For this analysis, what constitutes business and professional services?

In the previous post “Defining the Services Spectrum”, I provided a taxonomy we use to define the world of technology professional services. This taxonomy is not only important in clearly separating various types of technology services like professional services and managed services, but it is also clearly separates technology professional services from other common professional services such as accounting and law. In fact, I believe lumping technology professional services with other business and professional services is one of the fundamental mistakes the industry makes when attempting to track health and performance.

Industry Performance Indicators

So, what indicators do provide insight on the health of the technology professional services sector? The TPSA Advisory Board discussed this question and agreed there are two components to understanding the health of their industry. Fist of all, they identified seven key metrics that provide insight on industry performance:

1. TPS Bookings: Bookings of new TPS projects.

2. TPS Revenues: Recognized TPS revenues.

3. TPS Backlog: The amount of TPS business already booked before a quarter begins.

4. TPS Billable Utilization: Percentage of time for TPS delivery staff that is actually billed.  

5. TPS Realized Rates:  The actual hourly rates customers are paying for delivery staff—not the list rates.

6. TPS Project Margins: The profitability of TPS projects (Project Revenue – Project Costs).

7. TPS Hiring: The rate of hiring TPS staff.  Flat hiring would mean the organization is simply replacing headcount lost through attrition.

The second component the advisory board discussed was time frame. To truly understand the health of the TPS industry, the board agreed you need to know which way these seven metrics are trending over the following time frames:

1. Last Quarter to Current Quarter: As you review the quarter you just closed, are these metrics trending stronger or weaker than the previous quarter?

2. Year over Year: As you review the quarter you just closed, how do the results compare to the same quarter one year ago? This comparison helps separate out true industry trends from annual cyclical variations that may exist in the TPS industry every year.

3. Current Quarter to Upcoming Quarter: What are the managers predicting for the upcoming quarter? Are the predictions bullish or bearish?   

These seven metrics over these three time comparisons, collected from multiple companies, provides a solid base for ascertaining the health of the industry.   Which leads to the image for this entry.

TPS Industry Performance Example

Three quarters ago, TPSA began tracking these seven metrics over these three time frames for TPS businesses. By weeding out general business and professional services, the picture can become very different. Below is a snapshot of how multiple TPS businesses reported their calendar Q2 2008 came out.  This image shows the seven metrics, their reading for Q2 2008, and their range of readings we have collected over the past three quarters. As can be seen, the European market was flat in Q2 2008. However, the data from the last three quarters has shown TPS businesses surveyed for this European snapshot are operating in a range of “flat” to “strong increase” on the seven metrics. In other words, these TPS businesses have not been experiencing a steep decline as the broader services industry has as reported by CBI. This is why TPSA believes TPS and PS industry performance are not one in the same.  

Tracking TPS Industry Performance

Tracking TPS Industry Performance







2 Responses to “Tracking the Technology Professional Services Industry”

  1. New Year’s Anxiety « Service Visions Says:

    […] The second dataset will focus on is the TPS tracker (The Technology Professional Services Industry Tracker). For reminder of what this dataset is all about, read this previous entry: Tracking the Industry […]

  2. 2009: Productivity, Pricing, and Pull « Service Visions Says:

    […] When I return to the saddle in January, I will be anxious to work with Bo DiMuccio on the Q4 2009 Services 50 snapshot. I will also be anxious to review the results from our Q1 TPS Industry tracker.  […]

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