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KEY PERFORMANCE INDICATORS IN PROFESSIONAL
SERVICE FIRMS
Dr. Oliver Grasl
Berlin, 11.12.2012
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
2. CHANGE IS INEVITABLE
External Drivers An Enterprise Internal Drivers
s
ns
ion
ma
ot
Hu
Em
Repositioning
High Market Expectations
Structures
Business Model Business Model Innovation
Intense Competition
Processes
Mergers & Acquisitions
New Value Chains
Organization Expansion to new markets
Disruptive Technologies
Demographic Changes Technology
Scarcity of resources
Government Regulations
Internal and external drivers force enterprises to implement frequent
and wide-spread changes to their business models, their organization
and the technology supporting their business.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 2
3. IMPORTANT STRATEGIC QUESTIONS
How do we create value for our customers and shareholders?
Which markets shall we compete in?
How do we position our firm against our competitors?
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 3
4. BUSINESS MODELS FOCUS
ON VALUE CREATION
How do we create value for our customers and shareholders?
Business models address the question of value creation,
or: "How do we make money in this business?"
These questions are
Which markets shall
addressed by a firm's pro-
we compete in?
duct-market strategy and
How do we position our firm competitive strategy – also
against our competitors? very interesting, but out-of-
scope today
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 4
5. In future business model innovation will be the key
to generating new wealth: Competition no longer
takes place between companies and products,
but between business models.
Gary Hamel (2000)
ur
ns
vio
ma
ha
Hu
Be
Structures
BusinessModel
Business Model
Processes
Organization
Technology
Image Source: gurusofmanagement.blogspot.com
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 5
6. COMPREHENSIVE DEFINITION
OF BUSINESS MODEL
A business model describes how an enterprise
creates value for all the parties within its value
network (customers, suppliers, stakeholders), by
defining its value logic and showing which products
and services are exchanged between these parties.
Value = Benefits – Costs
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 6
7. BUSINESS MODEL VIEWS
Business
Model
Transaction Value Value
Model Network Logic
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 7
8. CORE BUSINESS MODEL BUILDING
BLOCKS
Value Resource Capability
Creates Asset
Needed Needed
to provide to produce
Consumer
Party Channel
Provider
Service
Supported by
Supplier
Transaction Product
Customer Exchanged
via
Good
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 8
9. BUILDING BLOCKS EXPLAINED
Party Any legal entity engaged within the business model. Examples for other parties
besides firms are public authorities and public households.
Asset The term "asset" is used as a generalization for resources and capabilities. An asset
is a resource (e.g. physical property, intangible right) or capability that has eco-
nomic value. Important examples are plant, equipment, land, patents, copyrights,
and financial instruments such as money or bonds. A firm needs assets to enable
its transactions, maintain channels and create its products.
Channel A channel is a conduit by which a firm offers its products.
These products are exchanged via a transaction.
Product A product is any good or service produced by a business. Businesses are
characterized by the fact that they produce goods or service beyond their
own need and can therefore offer them to other parties via a market.
Tran- Firms interact via boundary spanning transactions, which are supported
saction or enabled by channels. A transactions takes place when a product is exchanged
via a separable interface.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 9
10. BUSINESS MODEL: VALUE LOGIC
Sales cost
Customers
Value added
Products Capabilities
Revenue
Resources
Cash
The value logic shows how resources and capabilities are used
to support transactions, create products, attract customers and
drive value creation.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 10
11. VALUE CREATION IS A DYNAMIC
PROCESS …
Sales cost
Customers
Value added
Products Capabilities
Revenue
Resources
Cash
The feedback loops in this diagram are what sustain a companies
business and make it dynamic – even in stable market conditions.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 11
12. FULL BUSINESS DYNAMICS
Market Size
Markets served
Sales Cost
Customers
Value added Competitors
Products Prices
Capabilities
Revenue
Operating Income
Cash
Resources Operations
Debt
Operating Expenses
Business dynamics =
value dynamics × market dynamics × operational dynamics
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 12
13. INDUSTRY-SPECIFIC BUSINESS MODEL:
CONSULTING FIRM BLUEPRINT
Consulting firm value logic blueprint
Customers
Knowledge
Management
Recruiting
Know how Cash
Talent
Innovation
Marketing
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 13
14. BUSINESS MODEL PROTOTYPING
APPROACH
Understand
the business Business model prototyping
follows an iterative process
The conceptual understanding
Prototype of the business is captured
the business in a business prototype,
which is calibrated against
available data
The prototype is then used
Explore future to explore potential scenarios
scenarios of the future and deepen the
understand of the business
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 14
15. BUSINESS MODELS AT DIFFERENT
LEVELS OF DETAIL AND SPECIFICITY
Generic Specific
Abstract
Customers
S ales
c ost R epeat
Projec t
e ffort
Projec ts
required
Customers Repeat
Customer
m ain-‐ Project Project
Consultants
Value
a dded Knowledge tananc e required Acquistion Projec ts
Delivery
Management
Recruiting Projec t
delivery
Capabilities Customers
First
t ime
effort
a vailable
P roducts Know
how Cash projec ts New Recruitment
Customer Project
maintenance Acquistion
Talent Consultans Pro-‐
Partner
C ustomer
Contact jec t delivery
effort
Investments R evenue maintenanc e
effort
Contac ts Maintenance
Contac ting
Partner
C on-‐
Innovation effort
r equired
tac ting Effort
R esources
Partners
P rojec t
Marketing Partners
Cash Delivery
effort
Generic business Industry-specific Firm-specific business
model business model model
Detailed business
prototype
Detailed
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 15
16. CASE STUDY CONTEXT
Case study based on work carried out for a professional service firm
focusing on IT consulting.
∼1100 employees worldwide
∼70 employees in Germany subsidary
Participants were the CEO, CFO and Head of Business Development.
The company has a very stable history of financial success but is
dissatisfied with growth rates
Policy changes are hard to find and enforce in such
conditions!
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
17. KEY KPI‘S FOR PROFESSIONAL SERVICE
FIRMS („MAISTER KPI‘S“)
Profit Profit Fees Hours Staff
= x x x
Principal Fees Hours Staff Principal
= Margin x Value x Utilization x Leverage
Hygiene factor
Hygiene factor Sales and
Cost reduction delivery
management Health factor
Health factor
Innovation and Specialization Standardization
D.
Maister,
Managing
the
Professional
Service
Firm
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
18. STRATEGIC QUESTION
How should principal consultants spend their time?
Which organisational policies should be
followed to ensure the health factors VALUE
and LEVERAGE are improved?
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
19. WHAT PRINCIPALS DO
Principals are responsible for the following activities:
§ Generating repeat business through client maintenance
§ New customer acquisition
§ Project delivery
§ Recruitment and consultant development
§ Development of new consulting products
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
20. FIRM SPECIFIC VALUE LOGIC
(CONCEPTUAL LEVEL)
The causal
loop diagram
identifies the
main feedback
loops that
drive and
sustain the
firm‘s
business and
how the
principals are
involved in
these
activities.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
21. PRINCIPALS ARE RESPONSIBLE FOR
EVERYTHING
Note that the
principals are
involved in
four major
activities, but
they are not
directly part of
a feedback
loop:
This is
because the
firm does not
have an
explicit hiring
policy for
principals.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
22. FIRM‘ SPECIFIC VALUE LOGIC
This is the
feedback loop
that generates
new
customers
from business
contacts
(which are
mostly found
in projects)
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
23. FIRM‘ SPECIFIC VALUE LOGIC
This is the
feedback loop
that generates
follow-on
projects.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
24. FIRM‘ SPECIFIC VALUE LOGIC
This is the
feedback loop
that ensures
that enough
consultants
are available
to deliver
projects.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
25. STRUCTURE OF THE SIMULATION MODEL
The model was
built using
System
Dynamics and
the ®iThink
modelling
environment
and calibrated
against
historical data.
43 Stocks
350 Equations
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
26. THREE SCENARIOS
Scenario 1 – Base Case
Principals spend up to 50% of their time in project delivery
The other 50% go to customer development and innovation
No time for standardisation
Scenario 2 – Concentrate on the customer
Project delivery is delegated to senior and junior consultants
Principals focus on customer development and innovation
Scenario 3 – Innovate and standardise
Principals focus more on standardisation and less on innovation
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
27. SCENARIO 1 – BASE CASE
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The
company
is
concentra;ng
too
much
on
the
hygiene
factors
u;lisa;on
and
margin
and
not
enough
on
the
health
factors
consul;ng
fees
and
leverage.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
28. SCENARIO 2- CONCENTRATE ON THE
CUSTOMER
Principals.Maximum
Project Time Share
0,00 1,00
U 0,00
Principals.Maximum Contact
Maintenance Time Share
0,00 1,00
U 1,00
0 100%
Products.Product
100 Innvoation Effort %
0 100%
Products.Product
0 Marketing Effort %
0 100%
Products.Product
0 Standardisation Effort %
Allocated: 100
Unallocated: 0
Due
to
an
increase
in
consultants
the
leverage
also
increases
because
the
number
of
principals
remains
fixed.
The
leverage
is
s;ll
only
at
most
50%
of
maximum,
showing
the
company
s;ll
has
too
many
principals.
The
health
factors
project
leverage
and
consul;ng
fee
s;ll
have
not
been
addressed
by
the
new
policies
and
they
therefore
both
remain
at
0%.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
29. SCENARIO 3 – INNOVATE AND
STANDARDISE
Principals.Maximum
Project Time Share
0,00 1,00
U 0,00
Principals.Maximum Contact
Maintenance Time Share
0,00 1,00
U 1,00
0 100%
Products.Product
9 Innvoation Effort %
0 100%
Products.Product
30 Marketing Effort %
0 100%
Products.Product
61 Standardisation Effort %
Allocated: 100
U Unallocated: 0
Time
available
for
product
development
quickly
dwindles
due
to
the
increased
;me
principals
must
spend
wri;ng
proposals.
So
aHer
an
ini;al
period
of
successful
product
development
both
the
average
fees
and
the
project
leverage
rapidly
decline
again
–
the
firm
should
be
hiring
principals
now.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
31. RECOMMENDATIONS FROM SCENARIO
ANALYSIS
Collect better data on principal effort allocation
Understand why principals don‘t allocate their time well
Define and enforce effort allocation policies
Ensure innovative consulting products are standardized
Investigate the effect of innovation on fee structure
Beyond
the
concrete
recommenda;ons
the
„real“
value
of
the
model
was
in
providing
a
basis
for
discussion
and
a
risk-‐free
environment
for
policy.experiments.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
32. THREE POINTS TO REMEMBER
Intense competition, disruptive We need effective ways of exploring,
technologies, demographic designing and realizing these
changes and the scarcity business models
of resources are driving
the quest for transforma-
tive business models
If you remember
only three points
1 23 from this
presentation,
remember these
1 23
Business prototypes are a powerful tool for creating
shared understanding and managing both complexity
and uncertainty
1 2 3
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 32
33. Oliver Grasl is managing director and founding partner of transentis
management consulting, established in 1997.
After reading mathematics and theoretical physics at Cambridge
University, UK (MA) and the University of Innsbruck, AT (Mag. rer. nat),
Oliver later specialized in business engineering at the University
of St. Gallen, CH (Executive MBA, Dr. oec.).
Oliver's personal mission is to help companies re-invent themselves
and manage the complexity of the ensuing business transformation.
His engaging, "hands-on" approach is driven by business prototyping
techniques.
He regularly speaks at conferences and publishes papers
in journals and magazines and blogs at www.business-prototyping.com.
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 33
34. CONTACT
Dr. Oliver Grasl
Managing Director
transentis management consulting GmbH & Co. KG
E-Mail: oliver.grasl@transentis.com
Mobile: +49 173 65 46 727
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 34
35. Transformation for success
We help companies to explore their current situation
and to design and realize visionary business models
and processes. This includes the optimal use of suitable
IT solutions. transentis management
consulting GmbH & Co. KG
We get you there. Potsdamer Platz 11
D-10785 Berlin
www.transentis.com
Tel.: +49 (30) 2589 4005
© 2012 transentis management consulting GmbH & Co. KG www.transentis.com