Today’s professional services firms are up against a near infinite set of challenges.
Many of those challenges are universal. Rapidly changing market conditions. An ever-evolving tech landscape. Coping with the pressures of digital transformation, mapping out a post-COVID comeback, and getting reacquainted with customers after all of the changes we’ve all experienced over the past two years.
Other challenges are unique to the professional services space and bring more complexity into the mix. Think – complex projects. Large, distributed groups of contributors, collaborators, and stakeholders. And, of course, the inherent intangibility of professional services in general.
Here, we’ll examine some of the most pressing issues for today’s firms and how to avoid them.
1. Making Data-Driven Decisions in Real-Time
Achieving true “data-driven” status is no longer the holy grail 2010s-era thought leaders made it out to be. Every firm is sitting on mountains of data and even the tiniest companies have access to AI-driven tools promising to help firms make sense of it all.
Yet, even with all that data and all those AI-powered tools, becoming a “data-driven” business remains incredibly difficult.
Firms often face operational challenges that eat into profit margins and disappoint their customers. According to IBM research, only about 40% of projects meet budget, quality, and timeline goals.
One reason is, most firms have access to the same tools and insights. Internally, relying on basic reports means you’re only looking at information your competitors already know about – which let’s face it, won’t net you any sort of advantage. On the customer-facing side, pulling a canned report and presenting it to clients isn’t a good look. If they can find the same information themselves – minus the steep hourly rates – they’re not likely to stick with your firm for long.
Increased competition and pressure to move fast makes matters worse. For example, a financial services firm might find itself fending off fintech-savvy competitors before they’ve tackled internal data issues or the silos and fragmentation that block visibility.
And often, what ends up happening is, firms, under pressure to quickly respond to emerging threats, waste energy and resources on the wrong priorities, leaving little, if any budget for tackling actual problems. As you might imagine, that mistake can be fatal, as firms fall further behind competitors, with no viable way to catch up.
2. Resource Management & Utilization
For project-based firms, resources are the most important element when it comes to ensuring growth, profitability, and longevity.
Successful firms must zoom out and focus on the big picture — making decisions about the direction of the company by weighing a long list of competing variables.
Those variables include the current backlog, upcoming projects, available resources and skills, client demand, the list goes on.
As such it isn’t surprising that firms face significant challenges in this area — including effectively staffing projects, logging hours and expenses, and gaining real-time visibility into resource utilization and availability.
Tracking billable hours is also critical for maximizing revenue and profit margins — and it’s directly linked to utilization. What’s more, something as simple as employees forgetting to log billable hours or submit reports on time can undermine profitability.
Tracking utilization against actual billings allows project managers to identify discrepancies between what was forecasted — and what work was actually performed. When businesses are able to track billing and utilization— by individual contributor, project, and the entire portfolio, they have an opportunity to drive improvements at every level.
So, without a reliable means of tracking billable hours in real-time, firms miss out on critical data points that can impact everything from budgeting and work assignments to forecasting, planning, and investments in future growth.
3. Predicting Cash Flow & Planning for Ongoing Demand
Predicting cash flow, planning for the future, achieving the visibility required to accurately predict future demand (and allocate resources accordingly) all represent serious challenges for pro services firms.
For example, ensuring accurate costing for projects upfront has always been challenging. Firms need to make sure that they set pricing at a rate that’s attractive enough to win deals — but also ensure that the project will generate a profit for the firm once all is said and done.
The problem is, as the project progresses, unexpected expenses accumulate — often for reasons that no one saw coming. As a result, projects often require additional resources or time before they make it across the finish line.
Then, you’ve got factors like long billing cycles, late payments, and complex billing structures — all of which have a big impact on cash flow. More so for firms that serve niche industries like healthcare — as things like insurance claims and compliance costs can further put the squeeze on profit margins.
Most problems point back to the inherent unpredictability of this space. For example, clients’ budgets can scale up and down, often without notice – so it can be hard to predict when you’ll experience downtime or hit capacity limits.
Another common problem is inconsistency in the sales funnel. That inconsistency could be caused by over-specialization, limited service offerings, an inexperienced sales team, or a team lacking in the resources and support they need to succeed.
But inefficient processes, bad strategy, and the inability to leverage real-time insights are also to blame, here.
4. Rising to New Client Expectations
Keeping up with rising customer expectations isn’t unique to professional services firms. But — professional services are unique in the sense that their entire business model is about fulfilling client needs. In the past, firms were able to foster and maintain relationships via in-person meetings and 1:1 interactions.
But today, clients want more bang for their buck. Many are working with smaller budgets or budgets that scale up or down with need, rather than the fixed retainers of the past. As such, professional services firms are under significant pressure to create offers that maximize client outcomes.
There’s also the added challenge of making intangible knowledge-based services feel more real. Meaning, firms need to tie services to real data and metrics that align with clients’ most pressing goals. For example, instead of focusing on win rates and billable hours, success is now measured against things like customer success, annual recurring revenue (ARR).
In addition to the challenges linked to changing customer expectations, professional services firms struggle to manage complex projects. That, in turn, leads to missed deadlines, diminished quality, unexpected expenses, and prevents firms from creating the unified experiences customers expect.
With so many milestones, stakeholders, and moving pieces that need to come together to execute on any given project, it’s really hard for firms to make promises they can keep. That, of course, impacts retention rates, revenue, and your reputation. It also puts your sales team in a tough spot when they can’t provide accurate quotes or deliver the promises outlined in the SLA.
In cases where you’re selling services that are linked to a specific product (think – Microsoft partners that sell consulting services and MS products), orgs need to create offers directly linked to the core value of those products. But – many times, the sales team isn’t able to position service offerings in context with the products they’re selling. So, there, you’re looking at a missed opportunity to generate more revenue by helping customers get more out of their relationship with your firm.
Ultimately, these issues stem from fragmentation, poor visibility, and an inability to leverage data to drive client outcomes.
5. Recruiting, Hiring, & Retaining Top Talent
Finally, the professional services sector has been hit hard by the dreaded skills shortage. But — like everything else on this list — the challenge is exacerbated by the unique nature of the space. Skills and expertise are the product.
A recent Source Global Research report notes that the gap between what firms want to do and what they can do is getting wider. Nearly 40% say they don’t have enough people with the right skills to tackle existing work, while 26% say they don’t have the capacity to take on new work.
The report also found that the pandemic has made clients appreciate the value of true expertise — as experts have played a key role in helping say, diagnose problems, map out new strategies, and navigate COVID-induced pivots. While that new awareness represents an opportunity for service-based firms, it also means junior staff have fewer opportunities to learn on the job.
Retention mostly boils down to treating people well, compensating them fairly, providing them with opportunities to develop new skills and tackle new challenges.
Now, with surging demand for talented workers it can be hard to hang on to people – but firms need to do the hard work of creating an environment that people won’t want to leave.
One recent Reddit thread underscores the impact that “small” oversights can have on morale – learning that new hires are making more than you three years is bound to have an impact on job satisfaction and performance. Sure, you can say market conditions dictate starting wages (and they should) but make sure that you’re adjusting for inflation, cost of living increases, etc. for everyone.
Over time, investing in building a positive brand and business environment serves as an inbound recruiting tool.
You will need to make sure you attract the right people – otherwise you’re dealing with a ton of waste). But — the right people may not always be the most experienced subject matter experts or graduates from elite programs. Many firms are dropping credential requirements and looking outside of the usual channels for candidates.
Like so many industries today, the need to develop new skills remains a significant challenge for professional services firms. As demand for new technologies and competencies ramps up, so too does the pressure to keep up with those changes.
The challenge is, you can’t always find people with the skills you need at the moment. Nor can you hire new people every time there’s a big change in the market. Instead, it’s about building (and retaining) a workforce that evolves with your customers and the market. Instead of focusing on traditional measures of expertise, look for people with AI or data science experience — as well as people with the curiosity and drive to keep learning and improving.
Professional services has always been a challenging space. And — between the rising client expectations, an increasingly competitive business environment, and the pressure to keep pace with the rapid rate of change, it’s unlikely that project-based work is getting easier any time in the near-future — if ever.
That said, navigating this challenging landscape doesn’t need to be overwhelming. With the right tools and the right partner, firms have a rare opportunity to position themselves for future wins and lasting success.
Velosio’s modern cloud solutions help project-based teams streamline operations, improve visibility, and gain the control they need to maximize profitability. Contact us today to learn more about how we support professional services firms.