Did IT professional services firms take a tumble in 2013?

Did IT professional services firms take a tumble in 2013?

It would appear so if the “The 2014 Professional Services Maturity Benchmark” is an accurate gauge of the industry’s vitality.  Two weeks ago, Service Performance Insight, a global research, consulting and training organization dedicated to helping professional service organizations make quantum improvements in productivity and profit, came out with their 2103 report.

The topline finding was that, “2013 was a tough year for technology professional services providers despite an improving global economy. All major metrics including bill rates, utilization and revenue per consultant fell. Furthermore, the professional services industry saw average net profit decline to 11.4 percent, down from 16.8 percent in 2012.”

The report goes on to say, “Hardest hit were embedded SaaS consulting organizations as their net profit margin tanked from 2012’s 24.9 percent to only 4.5 percent in 2013. Embedded SaaS PS organizations are in the midst of a business model shift from consulting profit to focus on customer adoption and renewals.”

Some highlights from the report:

 Slowing revenue growth. The leading indicators for growth – annual revenue growth, headcount increases, size of the deal pipeline and backlog – all plummeted in 2013 to the lowest levels since 2009. Year-over-year revenue growth deteriorated from the previous year’s 11.5 to 10 percent in 2013.

 Declining bill rates. Professional services organizations experienced a nosedive in rates with embedded cloud, hardware and IT consultancies dragging down prices.

 Too much overhead. Because PSOs added management overhead in anticipation of growth that didn’t materialize, the percentage of billable staff compared to total staff plunged for the first time since 2009. Excessive non-billable staff combined with declining bill rates resulted in the lowest annual revenue per person since 2007 at $155,000. This low employee revenue yield led to net losses for 10 percent of firms.

Our assessment of 2013, at least among the IT services firms with which we work, is that while it certainly wasn’t a gang-buster year, it wasn’t as uneventful as this survey suggests. The issues/concerns raised in this report, i.e. slow growth, declining bill rates, and high overhead, are certainly on the minds of executives as they look to 2014.

The companies that are in the best position to increase revenue and bill rates this year are those that embrace what we preach; specialize, specialize, specialize. Companies are looking to award their business to IT services companies that can speak from a position of authority, with unqualified expertise and demonstrable proof-of-performance.

In other words, they will listen to the experts, the specialists, because when all is said and done, they’re buying the assurance that you can do unto them what you have done for others, with minimum fuss, bother and risk.