Five Strategies for Profitable Services Growth

In today's era of Professional and IT Services competition and consolidation, some small to medium-sized companies are proudly delivering 20%-50% annual growth.

Unfortunately, the vast majority of firms have experienced two consecutive years of fee erosion, commoditization, client defection, and company identity crises. We set out to discover where the growth opportunities exist in today's economy, and to share our findings.

The Study

Our ten-month study uncovered the major gaps between the top performing and bottom performing companies. Our interviews with 53 CEOs across North America were designed to help leaders in this industry achieve three goals:

1. Identify the most common barriers to company expansion;

2. Learn what investments will positively affect their 2004-2005 growth;

3. Compare their operating model and areas of focus against their peers.

We spoke with companies across six major sectors of the IT and Services market, including hardware and software support, business and process consultants, IT outsourcing firms, integrators, and BPO's (business process outsourcing). BPOs had, by far, the most rapid growth rates of any other sector.

More than three-fourths of our interviews focused on understanding the dynamics within the small to medium sized organizations (50-500 employees).

We compared and integrated our findings with IT research firms and trade groups. These included ITSMA, AFSMI, Gartner Group, Culpepper and Associates, and the New Client Marketing Institute.

The Top Frustrations-and Hype

When we spoke with CEO's, three common frustrations surfaced:

· "Our target market does not understand what we do." (1/3 of respondents)

· Today's economic downturn is creating fewer inbound leads and longer sales cycles. Several CEO's in the bottom performing category mentioned that their companies are experiencing 18-24 month selling cycles.

· Profitability is eroding due to the commoditization of IT services. Although we asked whether they attributed the erosion to offshore development, only two respondents concurred.

In spite of the media focus on outsourcing, only two of the CEOs we interviewed mentioned concern with offshore development. We also learned that only 7% of all outsourcing revenues are generated by offshore firms, according to Joe Blumberg, CEO of Specifics Inc. (www.specifics.com). As of this writing, we can infer that offshore development may be worth watching, is more hype than a present threat to successful services firms.

The Impact

From a marketing awareness standpoint, we found that the 80/20 rule applies. IBM Global Services has become the "Kleenex brand" in IT Services. ITSMA's most recent branding study claims that IBM GS now has a threefold brand equity lead over other firms. This makes it increasingly more critical for small to medium sized firms to create and communicate unique positioning statements.

We also learned that the companies who designed their business around a time and materials model are experiencing the greatest profit erosion. The time and materials- based firms told us that billing rates have declined by 15%-20%. Companies who position themselves as problem-solvers, trusted advisors or BPOs did not report any concern with their profitability.

Four of the key areas where bottom performers struggled included market positioning, staff attrition, long sales cycles, and poor self-management. CEOs with flat or declining revenues consistently expressed concern with balancing their own personal and professional lives.

The Top Performers' Five Common Strategies

How can you best capitalize on the lessons we learned from the successful companies? First, consider how to invest your 2005 budget. The top performers who participated in our study typically invest at least 2%- 3% of gross revenues in five areas:

· Attracting, hiring, and retaining great people. These companies ensure that leadership development and self-management are part of the fabric of their company.

· Positioning their company clearly within a specific, well-defined niche

· Creating a lead generation machine, and experimenting with new lead generation approaches. One company sponsors small-scale CIO breakfasts with great success and has scaled back on printing brochures.

· Creating a world-class sales process and scalable sales "machine." Top performing CEO's knew they were on the right path when they found themselves less involved in closing sales, and more time using their CRM automation tools to coach team members from the sidelines.

· Invest in client account management models. One of our participants saw their services revenue from Microsoft grow from $2M to $11M within two years and attribute their success to their commitment to formal account planning.

Scott Testa, CEO of MindBridge in Norristown, PA, has the commitment to building a winning team. "We have become part of the '200 rule' with CIOs. On the average, CIOs receive 200 email, direct mail and phone messages each day." He continues, "This is the time to grow and invest in sales and hiring-when we come out of this economy, we can turn on the light bulb again."

We also learned that the bottom performing companies are over-investing in three areas:

· Replacing sales and marketing talent due to high attrition

· Software and hardware training for their technical staff

· Participation in technology trade groups (e.g. Java and Internet standards)

You don't need to be an IT Services firm to learn from these secrets. In light of these findings, ask yourself these questions. Is your company ready to be a "top performer" in 2005? What initiatives will your company be willing to let go? How will you surround yourself, and your key executive team, with a top performer operating model?

Lisa is President of Nirell & Associates in Del Mar, CA. She leads the "Profitable Growth Series" workshops and audio series for leaders who want to accelerate top-line growth by retaining their best people. In addition to having 23 years experience in software, consulting, and sales, Lisa has served on 3 Boards of Directors.

For a free subscription to NirellNews and a Free Special Report ($57 value), send an email to contact_us@nirell.com or visit http://www.nirell.com. By mentioning ezinearticles.com, you will also qualify for a $100 discount on the "Five Strategies for Creating Profitable Growth" multimedia system. This includes 8 3/4 hours of a step by step systems for creating profitable growth from leading experts such as Amir Hartman, Barry Shamus, and Marshall Goldsmith. For more information, visit http://www.nirell.com/FiveStrategies.htm

---

Tales from the Corporate Frontlines: The Responsibility for Job Security

This article relates to the Job Security competency, commonly evaluated... Read More

Knowledge Mapping

This module focuses on the basics of Knowledge Mapping, its... Read More

Pricing Strategy for Retail Flower Shops

When you create your profit and loss statement to assess... Read More

A Journey of a Thousand Miles

You can't build a reputation on what you are "going"... Read More

Five Ways to Turn Resistance into Opportunity

Resistance. It isn't something people cherish or enjoy encountering. We... Read More

Creativity Management - The Value of Being Prolific

When asked his secret to success, the author Graham Green... Read More

Project Management - I Want It ALL

The knee-jerk response to prioritizing requirements is to mark everything... Read More

A Man and His Razor

It is vain to do with more what can be... Read More

Quality Standards with ISO 9001

Standardizing Quality SystemsThe ISO, or International Organization for Standardization, was... Read More

Business Innovation ? Organizational Culture

Creativity can be defined as problem identification and idea generation... Read More

The Professor Makes A Minus Power Move

If you think the power move has costs, consider the... Read More

Once Upon a Conflict

Once upon a time there lived an innocent, hardworking manager.... Read More

Lean Principles in Action

AbstractThe electrical products industry is one characterized by fierce competition,... Read More

Time Management Tips for Managers

Late last year I was presenting a workshop for the... Read More

Project Management - Are You Done Yet

What happens when a Project Manager asks one of his... Read More

Six Reasons to K.I.S.S.

Six Reasons to K.I.S.S. "Very often, people confuse simple with... Read More

What Makes a Good Appraisal Interview?

WHAT MAKES A GOOD APPRAISAL INTERVIEW?Here is a tip for... Read More

Get Out Of The Stone Age: Give Leadership Talks

160 years ago, the newly invented electric telegraph carried the... Read More

The High Cost of Employee Turnover Among Project Managers

Imagine for a moment this scenario from a frustrated Senior... Read More

Organisational Culture for Continuous Improvement

I have been working with leading Business Improvement guru, Tim... Read More

Using Outlook to Count Responses

Here's a productivity tip that will save you a lot... Read More

Are You in AWE of Your Employees?

Employers have become so concerned about seeming "unfair" or worse... Read More

Developing Your Management Style

One thing a lot of us don't do in sales... Read More

Operating on Perpetual Overload?

Check Out Your E-HabitsAnother week has ended. And, despite moving... Read More

Diversity Training: The Worst Possible Reasons to Request Executive Funding

You're on your organization's diversity committee. You have the best... Read More

Why Saying Well Done Works

Encouraged by the recognition, Sarah Lewsiton went home from work... Read More

Phone Sex is Bad for Business

On August 3rd/2005, Reuters reported that a German man had... Read More

Ten Problem Solving Techniques

Do you ever need to find some good ideas, or... Read More

Assertiveness Helps Accomplish Everything

When trying to get something accomplished, assertive behavior is the... Read More

The Dog That Didnt Bark

A few weeks ago, after consultations with others in an... Read More

Why Management Kills Creativity

Ten or so years ago, an international consultant, specializing in... Read More

OJT - On The Job Training

IntroductionManagers have two powerful ways of improving the performance and... Read More

The Best Way to Keep Track of Meetings

How should you keep track of meetings?Have you ever wanted... Read More