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Professional services in 2023: the SPI view

from  March 24, 2023 | 4 min read

Service Performance Insight have been publishing their Professional Services Maturity Benchmark for the past 16 years. In that time, it’s become the gold standard for industry analysis in the professional services space. Today, we’d like to take a look at the main findings and trends from the latest edition.

The 2023 report surveyed 709 firms worldwide, representing over 430,000 consultants across a range of industries from IT services to management consulting, architecture and engineering, accounting, marketing and advertising, hardware and networking, and SaaS and software. It also draws upon the insights gained from 3,000 participant firms in the past 5 years to give a rich database from which to analyze trends and offer informed predictions.

This year’s report shows a curious trend after last year’s tentative optimism and slow return to growth. Professional services firms worked harder in 2022, but not necessarily smarter – with economic turbulence, record-high inflation, and continued change all contributing to the challenge.

The report also continues to prove that increasing levels of business process maturity, and balancing/aligning/focusing on each of the 5 maturity pillars, does indeed result in significant performance improvement.

Let’s take a look at some of the most important findings.

PSOs worked harder, not smarter, in 2022

In what should be taken as a warning for leadership and management, almost every KPI declined relative to the previous year in 2022.

Deal pipelines, billable utilization, project margin, achievement of projected annual rev, and margin goals all saw reductions relative to 2021. As did employee headcount growth.

Fortunately, employee attrition also fell slightly this year, and profitability did see a slight increase. However, without keen attention paid to the causes of these declines, there’s a real risk of year on year stagnation for companies that can’t pull themselves out of the slump.

Click to read PSO ERP Market Megatrends 2022 Gated

Service delivery should be your main priority in 2023

Almost all KPIs associated with service delivery degraded in the past year. This trend means that smart firms will look for new ways to increase their efficiency.

This will be especially true considering another trend noted in the report: the tendency towards larger individual projects. Although larger projects mean larger fees and theoretically larger margins, there’s a potential danger if delivery suffers.

As the report notes, “Services delivery is where profit is made in professional services. If PSOs cannot improve margins in 2023, it will be difficult to grow in 2024."

Leaders will need to increase their used of standardized delivery methodologies to improve execution, help project managers to improve work quality at the level of individual tasks and institute regular quality checks. Technology will be key to achieving this, in particular, professional services automation tools (PSA).

Talent remains a challenge

It took on average 10 days longer to recruit new hires – and for those new hires to become productive – in 2022. This should be cause for concern, because each additional day in the process of onboarding and ramping a new fee earner not only adds expense to an already increasingly expensive and scarce resource, it has knock-on effects for service execution and total margin.

The importance of investing in talent does seem to have been realized by more firms, however, with guaranteed annual training days increasing for the first time in several years as leaders work hard to broaden the skills of their consultants and provide an environment where they can learn and develop.

The talent challenge will continue however as the fully loaded cost per consultant continues to rise. Most executives knew this problem would affect them, but many are struggling to justify increasing their fees to the level that will keep their margins intact.

Once more, technology – especially that which helps to streamline and automate workflows and to accurately match employee skills and ambitions with project demand – will play a key role in both improving efficiency and fostering a good working environment to keep engagement high and employee burnout low. This will be especially important as the scarcity of available workers does not appear to have improved, in spite of a recent wave of layoffs.

Technology adoption continues to accelerate – and to underpin high performance

Not long ago, it wasn’t uncommon for professional services businesses to invest very little in technology for their own internal use. But the market has now clearly demonstrated the benefits of making this investment. In 2022, technology spending and particularly PS spending rose to new heights.

Top performing organizations accelerated their IT expenditures and used the newly established hybrid working reality to re-invest their facility and business expense savings in replacing legacy business applications.

What’s made the difference? The importance of real-time information is now understood throughout the industry thanks to its ability to help people perform at a higher level. And capabilities like AI and ML will only continue to enforce these trends as they help advance goal achievement by boosting efficiency, expediting workflows, increasing billable utilization, reducing bench time, and enhancing the productive capacity of fee earners.

Ready to learn more?

For more headline stats from this year’s report, check out our executive summary infographic here, from which you can also download a full copy of the report.

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