The world of software and technology has changed. Most technology and software professionals know this but seem to be caught like a deer in the headlights … waiting and staring until they get hit hard by a truck or the competition, whichever comes first.
Your competition today comes from anywhere in the world. It can be a lean operation with minimal overhead, operating from thousands of miles away, leveraging a highly-distributed, low-cost, even home-based workforce. If you do not become more efficient and innovate, your competition will eat your lunch.
In this article we look at how the professional services game has changed and six specific actions you can take to gain an edge over your competition by improving the way you manage projects and deliver services.
If Your Enterprise is Not Fragmented, It Should Be
More and more, work is done anywhere by anyone who can do it better, cheaper and faster. Companies are discovering how to break a project down into mostly decoupled, atomized work components that can be performed by small independent teams scattered across the globe (referred to as fragmentation). These work components are then put together by an integration team to create the final product.
To be able to atomize the work and understand the costs in the system, companies have to track project details at the work-type level. It is no longer enough to know that employees or consultants showed up and did their “40 hour” work week. Management has to know exactly what employees worked on, how much time was spent on every project and what type of work was performed. By differentiating the time, looking at everything as a project (projectization) with defined deliverables, as well as end dates, the management team is able to measure costs, identify inefficiencies in real-time, and decide how to execute more effectively.
Until recently, companies kept most functions in-house. You can now find more and more “virtual companies” that are experiencing tremendous growth and success. Virtual companies have a small close knit executive team and some senior operational resources that focus mostly on defining and executing the company’s core vision. They focus on a few very strategic niche functions (their personal expertise) and outsource just about everything else. Work is assigned internally or outsourced based on costs, available talent, and customer expectations. These companies are an early look at what a majority of emerging companies will look like in the not-too-distant future. Of course, cloud computing only reinforces this trend, making it much easier to adopt a best-of-breed approach, and to pick and choose what parts of a company’s IT software and systems are best managed externally.
Action 1 – Fragment yourself
Look at your enterprise as a collection of distinct resource groups collaborating on defined work processes and work types. You can then decide what is core to your business and what is best handled by a third party through cloud services or outsourcing. By jettisoning non-core activities you create a leaner more streamlined, more scalable team that focuses on what truly sets you apart, and matters to your business.
If You Are Approving Projects This Way, Panic!
Hig-tech companies are especially susceptible to taking on or funding bad projects. Why is that? It’s probably due to the volatile mix of creativity, ambiguity and a hyper-competitive environment. Software and technology professionals are by nature an inherently creative bunch. They live and work in a fast-changing, competitive and seemingly, in a perpetually deflationary market sector where you cannot count on anything staying the same, except maybe lower and lower prices every day. Customers expect to pay even less and get even more for their technology investments every single year, and amazingly enough they pretty much always do. New super-hyped technologies get rapidly commoditized or become obsolete, and no tech company can maintain an unassailable market position for long.
These chaotic times pose a great challenge for management teams. Many companies still use manual, spreadsheet and email-based processes to manage the project pipeline, approve new projects and review the state of current projects in execution. The process of approving a new project varies by business unit, depending on the type of work, management habits or the department’s relationship with the executive committee. Inconsistent and undisciplined project approval processes lead to the funding of questionable projects or pet initiatives.
Action 2 – Automate your project pipeline management, approval and launch process (hint if you are using five plus spreadsheets and emails for approval and are flying all over the place to run your project-based business, you are not automated)
A formalized streamlined project database that manages your pipeline and project approval processes establishes accountability and transparency, structures project information, and automates compliance tasks, eliminates the possibility of pet projects getting approved, and enhances team collaboration.
Do You Want To Be Flat or Get Flattened?
The only way you can flatten your organization and take unnecessary costs out is by understanding the true and total profitability and cost of every project and resource group. For example, one should not track internal requisitions and equipment purchases as general overhead. Any time spent by salaried or non-exempt employees and administrative staff should be allocated to specific projects and activities. Such costs have to be allocated proportionately to the business units or resource groups they are consumed by. Once you know your true cost for a given work process or deliverable you can decide what is core and what should be outsourced.
There is a lot of project workforce cost and performance data in every organization. The challenge is to determine whether the data is reliable and how to transform that data into actionable analytics in a timely manner. With manual or spreadsheet heavy work processes, companies are essentially at the mercy of the error rates, judgment, biases and opinions of those who are creating, managing and collecting data for spreadsheets. The data collected and entered into spreadsheets is not pre-validated against any corporate policies and is therefore massaged to look anyway one wants it to look. Any discrepancies (if at all) are detected after the fact; corrections are costly and sometimes too late. Executive team may have already made a decision based on bad information.
As a general rule, data entry for billable or non-billable effort, travel and entertainment expenses, project progress, and approvals should not be done by administrative staff or managers. To gain access to information you can trust, such data has to be entered by the actual project contributors. A system that validates the data at point of entry based on your work policy and audits any changes, creates accountability and transparency.
Action 3 – Report on your projects’ true effort and costs factoring in all overhead costs and interdepartmental chargeback; enforce your policies at point of entry
If you want to find out what can and should be core then you have to know how much every work process or work type is truly costing you now. That is why measuring your full-loaded project effort and costs is the fundamental first step towards building a streamlined organization that is able to focus its best resources on its core expertise areas.
So You Think You Can Bill?
Disconnected systems, manual processes and spreadsheets create an environment that leads to errors and questionable activity (and maybe even fraud). Auditors who review financial reports may flag this as a lack of “effective internal controls”. What is even more dangerous is when a company adopts convenient, subjective or inconsistent methods for project cost accounting, billing and revenue recognition. Here are some examples:
– Billable hours, billing rates and invoice line items are changed if the project or billing manager thinks “we can charge more” or just makes ad-hoc changes to the invoice before it goes out. Some people call this ad-hoc invoicing (almost a contradiction in terms).
– Project progress is tracked based on approximations (we are 20% done!) and there is no agreed-upon milestones or contractual language that drives billing and/or revenue recognition
Action 4 – Keep fudge out of your project financial reporting, or it may get messy
Do not assume or estimate when it comes to determining what percentage of a project has been delivered, or for allocating costs against various cost objectives (projects, cost centers). Make sure you have agreed-upon milestones that determine project status and performance, as well as clear, transparent and consistent billing and chargeback processes. Project cost reporting, billing and revenue recognition are business-critical processes that should not be driven by how someone feels, or arbitrarily dependant on who manages the process. Defining and enforcing strict work processes ensures that you comply with applicable laws (such as Generally Accepted Accounting Principles for cost allocation and revenue recognition) and helps preserve your team’s reputation and integrity.
We have people and offices across the US, UK, and Canada. We also have outsourced development teams in Russia, India, Eastern Europe and we have partners in Australia. That’s a lot of time zones. Now imagine if all these teams had to wait for the big boss from HQ to make a decision. How could we get anything done? The answer of course is we can’t. That is precisely why legacy project management techniques and collaboration tools lead to decision paralysis. With competition, all projects are time-compressed even as we try to get work done with such a scattered workforce operating out of multiple time zones.
To operate effectively, decisions need to be pushed down the corporate hierarchy. Decisions need to be localized. Therefore, critical project and workforce information must be shared across the business faster than ever before so that small teams inside and outside the organization are empowered to make good decisions on their own.
At the same time, local decision making should not lead to information silos and turf wars where local teams hide or manipulate the information to suit their agenda. The management team needs to have a global view of the organization, obtain a quick summary of all projects across the enterprise and be able to assess the performance of all business units or resource groups.
Action 5 – Empower your project workers
In a flat agile company decisions are pushed down to the lowest level. People are given the tools they need to make fast decisions independently, and as often as possible. Concurrently, the company’s executives have access to real-time visibility across the enterprise, its entire workforce and project portfolio.
Houston, We Have a Problem. Now What?
By now you probably agree that your project, people and billing processes need a tune-up, so what to do next? Companies that face the project/service delivery and workforce management challenges have some tough decisions to make.
– Do I invest an all-in-one solution from a single vendor?
– Do I go all-in on the cloud? Or do I keep some things on premise?
– Should I keep my existing financial application and only invest in solutions where I have a gap?
– Should I customize if the solutions I have are not working for me? How much customization is ok?
– My IT says they can build some of what I need. My ERP vendor says they can deliver it all and reiterate the benefits of “all-in-one”. My CRM implementer says they can deliver it faster, better, cheaper. Whom do I believe?
Here is what we recommend based on all the failed and successful projects we have experienced, having spent fifteen plus years in this business:
1. Define exactly what the gaps are in your current systems. Do not create a large complicated document. Make a simple, 2-to-3 page summary of the gaps and the business issues you face today, along with any material measurable costs you think can be taken out of the system, and any potential revenue increases you can realize.
2. Everyone (including you) is often wildly optimistic, and we all have big dreams. All that is good especially if you break your dream down into small, achievable milestones. Do not let any vendor, partner or your own internal teams sell you just on the ultimate goal, the big dream. Ask them to commit to something you can measure in short bursts. If you are not able to meet a short-term goal, reevaluate immediately what has to change (by the way, part of what may have to change includes your own focus, commitment and expectations). If IT, or any of your vendors tell you that it will take a year or more before you see anything, run!
3. A lot of customization means a lot of baggage. As a general rule of thumb no enterprise software implementation that can truly create value (while you are still employed with the same company) should last more than 6 to 9 months from roadmap to reality. In fact, most projects can yield immediate tangible benefits in less than a few months. Any system that requires more than 5% customization just to get deployed should be flagged.
4. Anyone who tells you they can do it all without any customization is also not being realistic. Your project workforce processes, and how you run your business, are very different from even your closest competitor. One-size-fits-all software can’t possibly address your business issues and make you competitive. Carefully selected customizations are often necessary to tailor the software to your business, as well as to develop reports and integration points with your existing systems.
5. If your new system isn’t connected, it will be disconnected. We run into this one a lot. A brave new department head realizes that his or her team should account for project costs and forecast better. They then go about choosing and implementing a tool for their own department, often without any collaboration with other departments. Without integration, project contributors do not have as much incentive to use the new system. The only way a system gets adopted and used, enterprise wide, is to make sure the data feeds into billing, or some sort of project financial reporting. A disconnected project management application is not a business critical tool. Even small management changes, turnover or re-organization may lead people to abandon the new system … and the company starts its search all over again looking for the new new.
Action 6 – Don’t recreate the wheel (i.e. focus on the gaps in your current processes and on investing in high-impact tools that offer a solution to what you have not already automated).
Leverage your existing investments. Ripping and replacing your current systems to implement a washed-down, all-in-one solution, or heavily customizing one, creates no value and offers no competitive advantage.