How maturity leads to 63% higher profits in top companies

How maturity leads to 63% higher profits in top companies

In the consultancy industry, mature companies are leaping ahead of the pack by evolving every area of their business. To compete with the pack leaders these are the five areas of maturity you need to sharpen up.

 

Andreas Agerlund Petersen
Andreas Agerlund Petersen
Journalist & Content Marketer
TimeLog

Each year, SPI Research benchmarks maturity and key performance indicators in IT and consultancy companies.

This year, they found 20 companies that are leaping ahead of the survey's other 436 profiled companies, showing:

  • 63% higher profit (EBITDA)
  • 45% higher bid to win ratio
  • 43% higher annual revenue per employee
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From higher profits and growth to excellent client satisfaction, these companies are superior in every KPI compared to the rest.

So, how do they do this?

Table of contents for this article

    Maturity in every nook and cranny

    The data from SPI's 2018 benchmark form a definite conclusion.

    If you want your company to reach its highest potential, you need to start maturing processes throughout your organisation.

    In this case, maturing means increasing levels of standardisation in operating processes and management.

    What characterised the top performers was high levels of maturity in almost every aspect of their business.

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    What is more, SPI Research shows that KPIs are increasing across the board as your company starts to mature. Even from the lowest levels of maturity, you will experience significant gains, if you implement more evolved and standardised processes and management.

    Maturity leads to better KPIs in every area of business
    Increasing process maturity raises KPIs throughout your company

    From initiated companies surviving on individual acts of heroism to highly evolved organisations, strong KPIs always correspond to high levels of organisational maturity.

    So, you want to start maturing your company?

    To really understand what you need to evolve your company into a 'mature company' we need to break maturity down into a usable framework.

    Introducing the five pillars of maturity:

    • Leadership
    • Finance and operations
    • Client relationship
    • Human capital alignment
    • Service execution

    While most companies excel in one or two pillars, the key to the success of top companies is stellar performance across all five pillars simultaneously.

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    Get inspiration below, on how you need to evolve in each of the five pillars to raise your profits and compete with the top companies.

    We start from the top.

    Leadership pillar - Success starts with mature leadership

    Intuitively, we all know leadership is essential when you want to run a high performing, profitable company.

    But you would be surprised at how extensively leadership maturity impacts your company's performance.

    Excellent or weak leadership seeps into every level of your company performance, and there is an amazingly direct correlation between leadership maturity and KPIs in every area of the business.

    Mature leadership especially impact overall revenue change and employee revenue
    Leadership maturity has enourmous impact on all key performance indicators in your company.

    Mature leadership clearly and thoroughly communicates your company’s vision, mission and strategy. Management is inspiring and communicating effectively throughout the organisation to ensure alignment.

    Leadership at the mature stage is primarily strategic rather than tactical and focuses on innovation and operational excellence.

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    When measuring leadership KPIs, top companies exhibit exceptional qualities in two areas of leadership compared to the rest:

    • Clarity of vision, mission and strategy
    • Focus on innovation

    If you are communicating a clear and compelling strategy, your employees will find a way to make it happen.

    If you embed innovation focus in your company DNA, clients will regard you as a market leader.

    This focus on innovation is one of the key reason why the top 20 companies have a much higher bid to win ratio than the rest.

    Finance and operations pillar – Optimise visibility

    In the realm of the blind, the one-eyed man is king.
    - Desiderius Erasmus’ Adagia

    In the realm of the CFO, establishing real time financial visibility is everything.

    Mature companies run their financials extremely tight, because they are always in touch with the latest metrics from all facets of their business.

    Integrated digital business solutions like PSA and ERP systems let them access the numbers in real time. As a result, they are always on the forefront of their company's financials.

    This enables them to constantly make metric driven, proactive decisions which steer their company away from low profit business or unnecessary and wasteful processes.

    Access to real time metrics lets you run a profitable business with little revenue leakage.
    Otimized acces to key metrics are vital to running a profitable business.

    So, real time financial visibility seems like the holy grail, right?

    Well, to be as sharp as the top performers, you also need to be constantly planning and budgeting as the metrics of your financial and operational KPIs change.

    Highly mature companies are incredibly effective in systematically integrating fluid budgeting and planning processes into their organisation to generate growth and streamline their internal work processes.

    Where less mature companies see budgeting and planning as a dreaded yearly ritual, the best companies use it as an ongoing process letting them fine tune their business constantly.

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    These qualities allow them to make money on every aspect of business, and they have much higher revenue per employee and per project than the rest.

    Similarly, they have 41% less revenue leakage, because their updated processes do away with hidden revenue stealing expenses.

    Added up, these factors are crucial to their success and contribute massively to them being 63% more profitable (EBITDA) than the average consultancy.

    Client relationship – Don't sell anything

    If your client relationship is peaking on the maturity scale, it means your company has completed the evolution from selling anything to anyone to a complete systemisation of your sales, marketing and business development efforts.

    Which means no more selling by following your gut feeling!

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    Highly mature companies systematically select their clientele, the solutions they offer, the deals they are making as well as the references and partnerships they develop.

    This kind of cherry picking lets you focus your business on the solutions that have the highest value to your highest value clients.

    Mature companies that manage this exercise have a 45% higher bid to win ratio than average, because they precisely align their solution offer to valuable clients' demands.

    If you create a systemised, best-practice sales process your win-rate goes up.
    Bid to win ratio is massively influensed by the maturity of your sales proces.

    Simultaneously, highly systematic proposal creating procedures mean that mature companies can properly communicate the quality of their solution, timeframe of delivery, risks etc. at the very early proposal stage.

    This enables them to meet and surpass client expectations as unpleasant surprises, project overruns and misaligned expectations rarely occur.

    As a result, clients love these companies and are willing to pay a high price for their services.

    Human capital alignment – How you win the best talent

    Your ability to attract, hire, retain and motivate the best talent is what sets your company apart in the consultancy industry.

    Talent attraction is also where many companies struggle, and it is one of the main barriers for profit growth in consultancies.

    Mature companies move beyond this barrier by developing standardised programs that nurture talented workers. They provide mentoring and training to support their employees' careers.

    Always challenging and nurturing your employees gives them compelling incentives to stay. Companies with mature talent management programs are bleeding less than half as many employees per year as the average company, according to the 2018 SPI Research Benchmark Report.

    To stay profitable you must focus on developing talent manegement programs.
    Mature talent management let you keep your employees and ensures profitability.

    At the top end of mature companies, high levels of satisfaction among employees are priceless in their employer branding efforts, and they manage to attract the motivated talent which is so scarce within the consultancy industry.

    Despite these efforts, leading firms have discovered that they cannot just attract talent from their competitors.

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    They need to grow their own through recruitment programs which target students at universities and offer extensive in-house education in the company's business and technology.

    Developing your own talent growth programs gives you technologically qualified consultants that are up to speed with your company's culture and possess the specific skills and qualities you offer your clients.

    Service execution - You have to deliver

    Your company can have the best talent or the best sales and marketing efforts, but unless you manage to successfully and profitably deliver top quality services, you will not succeed.

    Maturity in service execution comes down to standardising methods, processes and tools to get the job done in the desired quality.

    Because the most mature companies have developed standardised delivery methods, they can deliver far more projects on time and have fewer overruns and cancellations than the average company.

    In fact, they have 39% fewer projects overruns than the average consultancy.

    Standardise your delivery processes for fever overruns and increase your profit margins.
    Mature delivery methods, tools and processes lets you stay on track and stay profitable in every project.

    The very best companies also put quality control systems in place which systematically measure client satisfaction. This ensures the quality of their delivery and sustains excellent client relationships.

    Due to this, they have 20% more client references than average in an industry where most new business come from referrals.

    In the fierce consultancy industry, client references matter more than ever.
    Measure satisfaction and track your ressources in real time to maximise employee utilization.

    Finally, the best rely heavily on real time resource management via professional services automation (PSA) systems.

    As they are always up to date on resource availability, their billable utilisation increases with 10% or roughly 200 billable hours per consultant per year compared to the industry norm.

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    All in all, mature service execution processes give highly mature companies the edge to make a 71% higher profit margin on their average projects than the rest.

    Read the critical takeaways from SPI's 2019 report

    SPI Research provides detailed information on how consultancy companies can improve their profitability through maturity.

    If you do not have the time to read the full 244 pages report, you can read the key takeaways we have excerpted for you. 

    Get your free executive summary via the link below

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