Identifying Profitable Consulting Solutions
In the process of managing a professional services (PS) organization, most people focus on what I like to call the primary metrics of the business: revenues, staff utilization, and billable rates. Clearly, if utilization is high (your consultants are on billable engagements) and you're getting high billable rates for your consultants, business is typically good. But other aspects of the professional services business must also be measured and managed. These areas have the potential to create long-term leverage for the business. These secondary metrics of professional services include sales costs, project costs, and portfolio maturity. I'll discuss sales costs and project costs in other articles. In this article, I'll explore the area of solution portfolio management and how a PS organization can drive the creation of a profitable solution portfolio.
My earlier article "The Three R's: Profitability Levers for Professional Services" emphasized the importance of revenue, references, and repeatability to the long-term success of the professional services business unit. I contend that a core set of target solutions should be the focal point of identifying high-margin revenue; collecting critical customer references; and driving repeatable, consistent execution. This article reviews how the services unit can assess and manage this target solution portfolio.
Solution Portfolio Graph
For each solution that a professional services team wants to target, three critical variables must be managed:
Solution revenue. For each solution, what are the current and projected revenue streams that the company will enjoy from this solution? This analysis should include all the revenue streams that the company receives from implementing the solution (product revenue, support services revenue, and professional services revenue), as shown in Figure 1.
Figure 1 Solution revenue table.
Solution maturity. How mature is a solution? Maturity sounds like a very subjective term, but it can be assessed in a very objective manner. My book Building Professional Services itemizes 22 components of a solution that can be defined and documented. A simplistic yet effective technique to assess solution maturity is to check off these 22 components for each target solution, as demonstrated in Figure 2. Does the component exist or not? If yes, mark it. If not, leave the box empty. For each solution, you can calculate what percentage of the 22 components exists for that solution. (Asterisks mark required components.)
If you want to get sophisticated, you can weight the components. For now, let's keep it simple by treating all the components as equally important to taking the solution to market.
Figure 2 Solution maturity table.
Solution margin. How much money does your company make on each target solution? This is important in separating cash cows from falling stars.
Figure 3 Solution evaluation data.
Figure 4 S-map.
This graph communicates several key points in one crisp picture:
The highest-revenue-generating solutionthe solution that is highest on the graph, in this case Solution XYZ.
Which solution is most maturethe solution that's farthest to the right, in this case solution ABC.
The size of the bubble helps you zero in on the solution that's most profitable for your companyin this case, solution ABC.
This graph also provides a roadmap of where you want to go.
If you were reviewing solution efforts, you would view four distinct quadrants as shown in Figure 5.
Figure 5 Solution quadrants.
CONTINUE (upper-right quadrant). Solutions that landed here are very mature solutions with high revenues. They should be high margin as well.
IMPROVE or REMOVE (lower-left quadrant): Solutions that land here are currently not in good health. They suffer from low revenues and low maturity. Most likely they have low margins as well. Solutions here should face one of two fates: Either they improve their performance or they're removed from the portfolio and the company stops throwing good money after bad.
Maturity Review (upper-left quadrant): Solutions in this quadrant have high company revenues. However, your PS team has very little documented intellectual property regarding this solution. This makes consistent delivery an issue. Low maturity also jeopardizes your ability to defend the solution and derive the highest possible margins from it. Solutions here should be analyzed to determine what efforts would be required to improve the maturity rating.
Revenue Review (lower-right quadrant): Falling stars. Solutions rated here typically represent past cash cows that are now facing declining revenue streams. Hopefully, margins are still high. When margins begin to decline below acceptable levels, the solution should be discontinued.
By taking this specific snapshot of your solution portfolio on a periodic basis (quarterly seems ideal), you can assess the health and improvements in your target solutions. The objective is to move solutions up and to the right as quickly as possible. If solutions are not migrating in a positive direction, they're clearly suspect. The sooner poorly-performing solutions are removed, the healthier your business will remain.