A Tale of Two Business Units
Let's compare two consulting businesses. Both are part of technology product companies and were created with the following parameters:
Separate, standalone business units with their own profit and loss (P&L) statements
Chartered to maximize company revenues, not just service revenues (that is, the professional services business must pull product sales)
Required profitability (the business must carry its own weight)
Both businesses target the same industries. They even have the same revenue (see Figure 5).
Figure 5 Annual revenues.
But these two organizations are dramatically different. To highlight the differences, let's refer to the balanced scorecard concept developed by Robert S. Kaplan and David P. Norton in their 1996 book The Balanced Scorecard (Harvard Business School Press). Kaplan and Norton promote the concept that more than just financial metrics can be used to assess the health of an organization. In fact, four key areas need to measured and managed:
Financial: ROI, revenue growth, revenue mix
Customer: Customer satisfaction, retention, account share
Internal: Quality, time to market
Learning and growth: Employee satisfaction, training, development
This article has introduced items that could be added to a balanced scorecard for a professional services organization. Financial metrics would include revenue mix and gross margin. Customer metrics would include the attainment of product, capability, solution, and industry references. And finally, a learning and growth metric could consist of the number of repeatable solutions that the company has in its service portfolio. So, with a balanced scorecard in mindone that considers all four areas itemized abovewe can take a more comprehensive look at the two organizations (see Figure 6).
Figure 6 Balanced scorecard review.
Who has the healthier business? Based on a balance scorecard focused on expanded financial, customer, and employee metrics, it becomes clear that We B' Solutions has a stronger business with healthier margins.