Professional Services and IT consulting are changing
IT service providers: Making digital activities smarter
A guest article by Jochen Wießler*
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We all have turbulent times behind us and had to overcome some obstacles in order to return to business as usual. In the field of IT services, however, the circumstances have changed not only once recently, but several times.
(Picture: STUDIO12 – stock.adobe.com )
On the one hand, the cloud has eliminated many of the complex challenges in the field of system integration that companies have so far only been able to master with the help of external service providers. On the other hand, low-code environments and agile approaches have contributed to an acceleration of the tedious linear development projects that were common in the past.
A lot is also changing on the market. Offshore providers are trying to create more high-end consulting capacities, while established large companies are expanding their offshore power. And probably the most radical change of all: in the last year and a half, consulting has developed into a service that can be provided largely remotely – a remarkable turnaround for a sector in which business trips were previously the order of the day.
These developments were anything but easy for IT service providers. On the positive side, however, it should be mentioned that the Covid-19 pandemic has made a significant contribution to increasing the added value for customers and has given many companies the impetus to optimize their business model. Speaking directly with customers, one gets the impression that the level of service has not deteriorated after the transition to virtual models.
For decades, personal customer care on site was considered the gold standard. In the field of change management and re-engineering, companies still expect to be face to face with the consultants they pay millions to. However, as we know, this is no longer necessary for most tasks of IT service providers.
Most of the revenue is generated remotely
The old image of consultants who have been working for the customer for so long that they are practically part of the inventory persists stubbornly, but in reality the professional services area is much more efficient today. According to Service Performance Insight (SPI), more than 59 percent of professional services revenue and 60 percent of billable hours were provided remotely in 2020. Almost 20 percent of revenue in this sector comes from recurring revenue models, such as usage-based solutions, subscriptions, and managed services. The growth potential today lies in the creation of added value through cloud, analytics and other means.
In order for IT service companies to achieve profit margins of at least 20 percent EBITDA today, they must ensure high utilization (85 percent among the leaders), optimize their project implementation, reduce overhead costs and increase their efficiency. This is the only way to get a clear, manageable pipeline and keep a close eye on what needs to be done by when.
In other words, the days when billable hours and new business were inflated to increase growth are over. Instead, consultants work on different projects and tasks at the same time and use intelligent systems to coordinate their work optimally.
Repositioning teams – both organizationally and technically
In view of these new circumstances, the development of interdisciplinary teams is becoming increasingly important. These should include employees who are experts in one field, but are also competent in several other areas, as well as people with specialist knowledge, experience, as well as implementation and analysis skills.
The development of such teams should be accompanied by the introduction of modern technologies and seamlessly integrated systems. It took a while, but now some IT-related innovations are also making their way into the IT service industry and are causing a decisive realignment. Robotic process automation (RPA), for example, is widely used to automate recurring routine tasks, and artificial intelligence (AI) and machine learning help companies to always stay ahead.
Long-established consulting companies are often slowed down by the fact that they have a patchwork of different corporate applications in use, which require cumbersome switching back and forth and numerous user training courses. For productivity, it is important that the software used is easy to use and mobile-capable, so that small but important tasks (such as recording working hours, costs and absences) are not unnecessarily delayed.
Here, too, the pandemic has acted as a catalyst and accelerator. In order to meet the urgent need for support for employees in the home office, more and more companies in all industries are opting for cloud suites. However, even these suites are often inconsistent, as many of them were created by acquisitions – without much attention to the integration of the code base.
Intelligent optimization
In order to meet both their own requirements and the wishes of their customers, IT service providers need to make their digital activities smarter. The following factors should be given special attention:
- improved customer experience with shorter project deadlines that are reliably met,
- smarter decisions based on relevant real-time data,
- Reduction of financial and operational risks (according to a study by the analyst firm IDC, 77 percent of European companies have to look for a way to integrate real-time data to increase their resilience and adaptability),
- optimized workflows for managing complex customer orders,
- intelligent billing and invoicing for error reduction, better payment tracking and optimization of financial forecasts,
- high employee satisfaction in order to facilitate the recruitment of qualified employees, reduce staff turnover and increase loyalty and motivation.
IT service providers need to rethink
Global offshoring threatens to further reduce the profit margin and a new generation of cloud-oriented, digitally savvy providers is grabbing market share. Companies have to assert themselves in a world that has become virtual within a year and a half, and adapt their way of working accordingly. Of course, such a realignment is not easy – but the alternative is much more unpleasant.
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