PSVillage Key Performance Indicators for Professional Services Groups

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Information about PSVillage Key Performance Indicators for Professional Services Groups

Published on March 7, 2014

Author: Changepoint



Joe Longo, VP Consulting, MetricStream
Chad Wolf, SVP Global Services, KANA Software
Rick Moreau, Director Field Enablement, Changepoint

The webcast panel discusses:
- The Need for KPIs
- Paradigm Shift: Impact of SaaS on PS Orgs
- PS Challenges in Adapting to SaaS
- The Shifting Metrics Landscape
- PSVillage Benchmark: Real-world Metrics
- Benchmark Results
- Future Directions

Webinar Key Performance Indicators for PS Organizations in a SaaS or On-Premise World

Our Webcast Panel Joe Longo Vice President Consulting, MetricStream Chad Wolf Senior Vice President Global Services, KANA Software Rick Moreau Director Field Enablement, Changepoint

Contents • Introduction • The Need for KPIs • Paradigm Shift: Impact of SaaS on PS Orgs • PS Challenges in Adapting to SaaS • The Shifting Metrics Landscape • PSVillage Benchmark: Real-world Metrics • Benchmark Results • Future Directions • Conclusion

Polling Question #1 Question Are you using a PSA solution in your services business? Answer Yes, we currently have a PSA solution in place No, our organization does not use a PSA solution Don’t know.

The Need for KPIs • Metrics convert an art into a science • Without KPI’s, the PSO is subject to external measures of success, e.g., ‘customer satisfaction’ • All PS groups will measure the basics: – revenue, profitability, revenue/head, utilization, etc. • The greater the maturity of the organization, the more refined are the KPI’s: – “blended target utilization”, “cost of services sold”, “gross margin”, “cost of sales”, etc.

SaaS & On-Premise Defined • SaaS – Synonyms: “Cloud”, “ASP”, “On-demand” – SaaS is independent of license models – “Per-seat”, “Perpetual”, “Annual Renewal” – SaaS implementation characteristics – “Multi-tenant”, “User-configurable”, “Scalable” • On-Premise – Typically installed at the customer site using customer IT assets. – ‘Hosted’ has service characteristics of On-Premise, with additional IT services bundled-in: using the provider’s IT assets.

Polling Question #2 Question What is your delivery model? Answer SaaS On-premise Blended (SaaS + On-premise) Don’t know

Paradigm Shift: Impact of SaaS on PS Orgs • Customer perception of SaaS models: – “You won’t need any Professional Services” – “If you do need Professional Services, it’s included in the cost, or just free” – “Any new functionality you get, everyone gets, so I never have to pay for it” • Associated business impacts: – Pricing models have to be adjusted – …. Organizations have to adapt – … Operations have to absorb these changes • These changes are reflected in the Business Model – Therefore, KPI’s have changed

SaaS Permeates the Business • Operational Impacts: – How to fund services with perceived low cost or no cost to customers – Roles of PM, SM, BA are blending into a single “Account Manager” – PS software innovation is being de-emphasized • Personnel Impacts: – VP of PS has morphed into VP of Customer Success, Chief Services Officer, etc. • Still performs essentially the same tasks – PS ‘consulting skills’ are de-emphasized • Less opportunity to become a ‘trusted advisor’, to ‘walk the hallways’

PS Challenges in Adapting to SaaS • For a New Company: Evolution – Build from the ground-up, develop appropriate methodology, align roles, hire appropriately, determine KPIs as you grow • For the Traditional PS: painful adaptation – Who moves to the new role; who stays behind – Is SaaS team of equal importance? – Do you share resources across SaaS and traditional teams? – How does the methodology adapt? – Two sets of KPIs maintained – How to deal with precipitous revenue drop? • … and why doesn’t this presentation answer these questions? – Best Practices are evolving – Answers are sensitive to the company Business Model.

Shifting KPI Landscape: Summary KPI Utilization Costs per Head Revenue per Head Speed of Adoption Gross Margin Cost of Sales Solution Footprint Customer Utilization Customer Stickiness Traditional SaaS • Revenue per Head Revenue may not be broken-out therefore can’t be easily track. • Speed of Adoption Traditional PS looks at “Acceptance”. SaaS needs “Adoption” • Gross Margin Like revenue, may not be tracked in detail • Solution Footprint How much of the functionality is used? • Customer Utilization How pervasive is it in the business? Need to get to a critical mass to become strategic • Customer Stickiness 3+ years needed to be break-even

Chad Wolf Senior Vice President, Global Services KANA Software

KANA Software has an Evolving Business Model • KANA is a market leader in customer service serving Global 1000 companies • Market demands causing disruption in enterprise software • Hence, our strategic growth is leading to a hybrid business model – Customers now requesting options from KANA • We now offer a wide range of hosted solutions – Multi-tenant SaaS – Fully outsourced Managed Services

What’s Different Thus Far? • PS Sales model – Minimize vs. tailored • Resourcing model goes global (24x7) • Gross margin uplift after ‘x’ customers – Fixed cost vs. variable cost • Utilization is now a Productive Utilization vs. billable Utilization • Key measures are Quality of Service and Renewals vs. Realized Bill Rate and Margin

The PSVillage Benchmark: Real-world Results • What is the Benchmark? – Conducted in 2011 and still collecting results – Over 150 participating companies & increasing • Completed by services executives with P&L responsibility – Six major categories, containing over 100 data points • Extracting the Results – Constantly updated with new data – Interactive web-based tool delivers analytics – Multiple filters allows laser focused reports

The PSVillage Benchmark: Real-world Results • Our Results were filtered: – “SaaS” & “On-Premise (Commercial Licensing)”

Six High Level Data Domains • Demographics • Financial Operations • Management • Sales Support • PS Operations • Delivery

Delivery : Average Salaries Average salaries for Senior Consultants remain about the same across the two deployment models. SaaS On-Premise

Operations: Utilization Models SaaS utilization model: 55% use 1920 or higher, vs 47% of the On-premise respondents. Significance: SaaS teams utilize a model in which 100% utilization is a higher number of actual hours than On-premise team. SaaS On-Premise

Operations: Target Utilization SaaS utilization targets hover in the mid-range of the scale. On-premises push the upper end. Why? SaaS teams often perform multiple roles, such as support, testing, training, etc. SaaS Blended Target Utilization 40 - 50% 7% 51 - 65% 30% 66 - 75% 41% 76 - 90% 22% > 90% 0% On-Premise Blended Target Utilization 40 - 50% 11% 51 - 65% 21% 66 - 75% 26% 76 - 90% 42% > 90% 0%

Operations: Fixed Cost projects A majority of SaaS projects tend to be fixed price. On-premises projects shun them. Reason: greater control for SaaS environments allows greater predictability, but this also reflects in the company business model where services are typically bundled. SaaS Fixed Cost Projects Target 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% <10% Respondents 4% 48% 7% 4% 4% 0% 0% 0% 7% 0% 26% On-Premise Fixed Cost Projects Target 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% <10% Respondents 0% 5% 0% 0% 0% 16% 5% 0% 26% 0% 48%

Financial: PS Operating Income Margin SaaS margins are below traditional PS organizations. with only 19% reporting over 20% margins while 43% of On-premise groups report margins greater than 20% Reason: Traditional PS teams live & die by income and margins. SaaS groups live & die by customer traction and stickiness SaaS Operating Income Margin Target >30% 26-30% 21-25% 15-20% 14% 13% 12% 11% 10% 7-9% <7% Respondents 4% 4% 11% 44% 0% 0% 0% 0% 15% 4% 18% On-premises Operating Income Margin Target Respondents >30% 26-30% 21-25% 15-20% 14% 13% 12% 11% 10% 7-9% <7% 11% 11% 21% 21% 0% 0% 10% 0% 16% 5% 5%

Operations: KB, PSA, PMO Apart from the PMO, SaaS organizations appear better equipped for the automation and knowledge transfer. Possible reasons: SaaS groups are later generations and not encumbered with margins. Do you have a Project Management Office (PMO)? SaaS 26% On-Premises 26% Have you implemented a knowledgebase for services delivery? SaaS 81% On-Premises 68% Have you implemented an automated system to manage your professional services operations? SaaS 78% On-Premises 68%

Conclusion & Future Directions • PS groups will continue to evolve. • We’ll see more of: – “Customer Success Group” – “Customer Advocacy Group” – “Customer Evangelist” • …. and less of – “Customer Consulting Group” – “Product Consultants” – “Solution Architects” • Employers are looking for SaaS savvy staff • If you don’t have it, get it soon.

Other Considerations • Converting an app to SaaS – Could quite possibly put you out of business • PS Organizational Structure – Shared resources & responsibilities – Single Account Manager – Less consultative, more service-oriented – No longer the necessary evil – Career growth into R&D vs Sales / Marketing

Changepoint - A Market Leader • Market Leader in PSA with specific focus on Technology Services organizations • Scalable from small to extremely large customers • Available On-premise or SaaS • Highly-configurable, integrated solution • Real time visibility into key performance metrics via Executive Reporting and Dashboards • Strong Customer and Analyst validation

Thank You Joe Longo Chad Wolf Rick Moreau Learn more about Changepoint Website Blog

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