I’ve been a strategic advisor to professional services firm leaders now for two decades, and have helped a hundred organizations (and many hundreds of individual leaders) to level up their game – and their results. So, it’s not hard from my vantage point to see the direct connection between our engagements (strategic planning, growth strategy, leadership experience, team engagement) and the transformation of business they deliver.
Dream. Plan. Do. Win. I don’t need to be convinced.
Still, I understand and appreciate the concern (and even skepticism) of many firm owners and executives. Most have experienced less than ideal results in these projects. Poor process, ambiguous direction, weak facilitation, plain vanilla ideas. Or good ideas, but no real plan. Or pretty good work plans, but too little action. Or a lack of adaptability and resiliency in the management system. Loads of challenges.
Once we get beyond these – and assuming you’ve chosen the right strategic advisor [someone who both understands (as an insider) your business and industry, and (as an outsider) the likely paths of disruption, change, and innovation in everything] – our next question is really this:
“If we undertake this work, and do it better than we have before,
will the results we achieve really justify the effort and investment?”
Candidly, is the juice worth the squeeze?
Our strategic engagements are never simply ‘make work’ for clients – things to do simply because “that’s what clients do.” The per se reason for a business plan isn’t the plan – it’s the business. I’m not a consultant, facilitator, advisor, or coach for any other reason than results for the client and for the client’s business. We do what we do (explicitly) to help you do what you do – better.
“Plan for the future, grow your business, make more money.”
The bottom line is the bottom line.
So, indeed, is it worth it?
We answer this question in partnership with the client team, by creating a defined business improvement model – and typically focused on change in one or more of these key business performance metrics: utilization, multiplier, negative variance (write downs), and voluntary turnover. [Indeed, there are other metrics of successful performance, but these generally matter most (in our experience) to most firm leaders).
Here are a couple of quick thoughts on each:
Utilization – According to the latest Deltek Clarity study (and rather consistently through time), average firm utilization in AEC is about 60% (and 63% for top performers). We like to propose an overall target increase in utilization of three points (for example from 60% to 63%). This takes time and effort, and it’s not trivial (but it’s also not about turning the place into a ‘sweat shop.’) When accomplished, this change alone will increase firm revenue by about 5% on the top line, and with a big piece of that dropping to profit as well.
Multiplier – The Deltek Clarity study reports average industry multiplier of 3.10 (3.50 for top firms). If we improve the multiplier by about 8% gross (that is from 3.10 to 3.36), this will also impact top line revenue about the same as the improvement in utilization (about 5% net of total revenue). Another really large lever for better performance results!
Voluntary Turnover – The Deltek study (along with others and confirmed in our experience) reveals that voluntary turnover has climbed steadily over the last several years to about 12.5% today. Our advice is to target a reduction here to about 10% – through better recruitment, training, people system management, career development – and overall higher employee engagement and experience. In our estimation, there is a true ‘hard cost’ in each lost employee of at least $50,000 – and not including the also significant lost opportunity cost of losing key departing staff. No organization can turn around every employee who is prepared to walk (many reasons for departure are beyond the firm, and some staff just don’t fit well in the organization). Still, a reduction of 2-3 points – for instance from 12.5% down to 10% – is an improvement of about 20%. And at $50K per head, it’s usually a big number.
Negative Variance – Most professional firms are continually challenged with write downs. Staff members do what they believe is right, serving the customer, improving design, and making things better. But too often, some of this effort can’t be billed to the client – for either budget or contractual reasons. Untangling the cause and effects here takes some work – but it’s not impossible. On the contrary, we’ve found that a specific focus on improving this (business development processes, project management processes, accounting processes, training and mentoring of staff) – can and does lead to very real results. Reducing negative variance by just 1% of revenue is huge, and with an even a larger increase in bottom line profitability.
High level thoughts …
In the table here, I’ve summarized these various quick calculations as we’ve suggested – including improvements in utilization, multiplier, voluntary turnover, and negative variance. The numbers can be big – and certainly in some combination (agreed to between client and advisor) can form a strong basis for an intervention and organization development plan with a real, tangible, and attractive rate of return.
A Model for Firm Performance Improvement and Net Services Revenue Enhancement
Notes:
1. Deltek Clarity Study (2022)
2. An increase of .26 points on a 3.1 multiplier equals 8.4%, then applied to 60.3% of the hours; total increase 5%.
3. Employee costs estimated at average salary ($90K) x 1.4 expense load, recruitment and onboarding at 40%
Not all of this potential change can or will of course be realized right away. Progress rarely happens in a predictable, straight line. Things shift, key people come and go, and the world evolves in unpredictable ways. Shit happens.
Still, with reasonable expectations, a committed focus, a little patience and resiliency – and with the right team and the right plan – amazing results are predicted, and organization transformation becomes reality.
1X. 2X. 10X.
This is the path – from good, to great, to extraordinary.
Yea?
John
