Due to the extraordinary events on the global financial stage, I want to diverge from my normal format and invite both TPSA and non-TPSA members to work together to provide critical facts in a time of business uncertainty.
Right now, service organizations serving all sectors are bracing themselves for the potential impact from the financial crisis gripping the global financial markets. In a PS in a Downturn, I outlined the requests that come the way of PS when revenues go flat or retract. Those requests are coming our way. This is a fact.
However, exactly how the demand for technology service businesses will ultimately be impacted by current events is unclear. As I highlighted in Tracking TPS, technology professional service organizations have been weathering the 2008 downturn in the financial and retail sectors just fine. Also, we know that in the 2001 implosion that occurred in the tech space, service revenues became a larger portion of total company revenues for both hardware and software companies. Yes, customers may freeze all capital spending, but they still need service assistance to maintain and manage their current technology environments.
TPSA was formed to help companies separate fact from fiction when making service business decisions. In Q4 2008, I believe one of the most important facts service organizations will need to understand is how demand is trending for professional service offerings. For the past three quarters of this calendar year, TPSA has been taking a snapshot of how PS organizations have been performing and how they feel the upcoming quarter will trend. Before the current financial market challenges, PS organizations surveyed were cautious but optimistic about Q3, as shown below:
In October, we will be taking our Q4 snapshot on PS Industry Performance. In an effort to provide the best visibility possible to PS organizations, we are inviting both TPSA and non-TPSA members to participate in this survey. Companies that provide input by October 15th will be invited to a webcast readout. No specific company data is shared in any forum.
Data can be inputted online by visiting: http://survey.confirmit.com/wix/p724187046.aspx
Questions about participating in this survey should be directed to firstname.lastname@example.org.
To better understand the type of data collected, review the information below.
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.
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.