This will be my last entry for 2008 and I will use it to preview where I believe technology professional services organizations will be spending a majority of their efforts in 2009. Instead of just pontificating, I will base my answer on several data streams.
In addition, here are the top four search terms that lead people to this blog:
· “labor margin”
· “calculating utilization”
· “pricing services”
· “billable and non-billable”
When I combine the data from this blog site with the data from our TPSA database on inquiry topics that have come in over the past three months, three very strong themes present themselves:
Productivity of Resources: Questions surrounding utilization and non-billable headcount are centered on one key question: How can we optimize the cost structure of our services organization? In 2009, this will be a fundamental driver for TPS organizations. Refer to my previous entry PS in a Downturn for reasons why PS management will be under immense pressure to improve productivity. These productivity gains will need to come through multiple initiatives, including new resourcing models and the modified packaging of offerings.
Services Pricing: Market rates will be under immense pressure. So will overall project pricing. TPS organizations will find it necessary to adjust rate structures to align with 2009 market dynamics. TPS organizations will also find themselves in more fixed price engagements discussions where project risks will be pushed from the customer to the services provider. Defining and defending the tangible cost savings associated with services projects will become imperative to unlocking customer budgets.
Product Pull: Finally, services management will revisit their ability to link services engagement with overall product and account success. This, in reality, is the glimmer of hope for 2009. In an economic downturn, capital spend from customers declines. However, services spend can continue as customers maintain or optimize their current environment. This services activity provides needed revenue dollars and can help secure whatever capital spend does occur. Executive management teams become reengaged in the analysis to clearly understand the influence of service engagement on account retention and profitability. One TPSA member has just completed extensive economic impact analysis showing increased services engagement significantly increases the probability existing accounts will maintain or increase their overall spend with the company. This type of disciplined analysis takes time and effort. However, with tough resourcing decisions facing most executive teams in 2009, clearly understanding this type of correlation prevents companies from making short term headcount reductions that handicap future install base revenues.
It would be wonderful if those indexes told us the TPS industry was continuing to be resilient during this global downturn. Regarding our business lives, that would be the best New Year’s gift any of us could receive.