Top 3 barriers for higher profit in the IT and consulting industries
To boost profit, IT companies and consultancies must overcome 3 major barriers. Here is how they do it.
If you are in the IT or consultancy industries, chances are that your company is doing excellent. Most likely, your profits are healthy and your confidence in future growth is high.
In these industries, companies are now hiring employees ahead of profit growth as they expect business to be good in the foreseeable future.
But look up SPI Research's annual Professional Services Maturity Benchmark Report, and you will notice that while the top 5% best-performing companies (best of the best) are showing an impressive 35.2% bottom line (EBITDA), the lowest performing third are trailing with 4.7%.
So, what are the barriers holding companies back?
We have combed through the SPI Report and found the 3 greatest barriers your company must overcome to be more profitable.
1. Keep your talent close
Consultancy companies are ramping up their workforce throughout the industry.
As a result, the struggle to find and keep the right talent is becoming ever fiercer, and the lack of available talent is a severe obstacle to profit growth for companies where highly skilled employees are the product.
"Attrition is undoubtedly one of the most vital metrics to watch, as the cost to replace a valuable employee is more than $150.000." (SPI Report, 2018)
Because of this shortage, your company's senior employees will have to spend more time and energy recruiting which decreases revenue per consultant.
If you do not meet this recruitment challenge, revenue will drop even further as expensive sub-contractors and freelancers reduce profit margins on projects.
Looking towards the top 5%, we see that these companies put particular emphasis on building unique employee-centric work cultures. With loads of employee benefits and a continuous learning environment where teamwork and growth are prized, the top 5% are keeping employee turnover low and profits high.
To support their increasing demand, best of the best companies are also highly invested in proactive recruitment programmes. Within these programmes, leading companies are creating their own talent for the future and are firmly embedding a collaborative culture throughout the organisation.
2. Stop planning for last year
In an increasingly competitive market, best of the best companies can stay ahead of the pack because they continuously look for new avenues for growth.
Because they are continually planning, they can move their business focus away from overcrowded markets where project margins are under pressure.
In sharp contrast, many companies see planning as a dreaded once a year ritual of re-living past failures instead of an opportunity to explore new paths to profit.
As the market catches up, their exclusivity disappears, and competitors force them to lower prices.
To stay ahead and be more profitable you should embrace planning as a process that never stops or restricts itself to your executive branch. The best companies make planning a fluid and corporative process throughout the company.
Keeping your plans fresh and updated lets you make proactive strategic decisions towards staying exclusive and maintaining a high-in-demand brand ahead of the market.
3. Introduce transparency throughout your company
Silos exist in companies of all shapes and sizes. Disconnected processes, poor handovers, and a trailing project finance overview are everyday evils that limit profit growth.
When departments and employees do not share information openly across your organization, you are severely limiting your ability to make proper decisions and plan ahead.
A key component for any consultancy company seeking to improve transparency is the proper integration of business solutions. The best of the best consultancies manage to merge highly efficient business processes with transparent digital business solutions to improve profitability and productivity in projects.
Even so, 33% of surveyed companies have not yet invested in professional services automation (PSA). Instead, a surprising number still rely on spreadsheets for resource management, project accounting, forecast and analysis.
If your company is still relying on non-transparent and work-heavy processes like spreadsheet organisation and accounting, your ability to make profitable decisions is severely limited.
2017's best of the best used properly integrated digital solutions to give all levels of their organisation access to the accurate data they need to make proactive, fact-based decisions and drive their companies to impressive results.
Save some time and read the key takeaways from SPI Research
SPI Research provides more detailed information on how IT- and consultancy companies can improve their profitability. If you do not have the time to read the full report, we invite you to read the key takeaways which TimeLog excerpted for the consulting industry.
Get your free executive summary: Key Takeaways From the 2022 Professional Services Maturity™ Benchmark.