White Paper Sponsored by NetSuite
Service Compass: Charting the Course
to Professional Service Excellence
Business Process Alignment:
Accelerating the
Quote-to-Cash Cycle
June 2011
Service Performance Insight
6260 Winter Hazel Drive 25 Boroughwood Place
Liberty Township, OH 45044 USA Hillsborough, CA 94010 USA
Telephone: 513.759.5443 Telephone: 650.342.4690
TABLE OF CONTENTS
Abstract ... 1
Introduction ... 1
Common Breakdowns in Quote-to-Cash Business Processes ... 3
Where Do You Start? ... 3
Application Integration Improves Cash Flow ... 4
The Benefits of Integrated Service Resource Planning ... 4
NetSuite Solutions for Professional Services ... 7
Seamless Integration of CRM, PSA and ERP ... 8
Recommendations and Conclusions ... 8
About Service Performance Insight ... 10
FIGURES Figure 1: Service Quote-to-Cash Process ... 2
Figure 2: System Integration Improves Visibility, Productivity and Profits ... 5
Figure 3: NetSuite Service Resource Planning ... 7
Figure 4: NetSuite OpenAir ... 8
TABLES Table 1: Business Applications Integrated with Core Financials ... 6
ABSTRACT
In today’s economy, cash flow rules. Every organization must focus on cash flow to maintain a solid financial position and maximize
profitability and liquidity. In professional service organizations (PSOs), this process begins with a client quote and ends once payment is received and the money is in the bank. This macro process of converting sales opportunities into paying customers is often referred to as ―quote-to-cash‖, and its optimization is essential for financial well-being. Many PSOs emphasize the collection process once an invoice is generated and the work has been delivered. They specifically target Days Sales Outstanding (DSO) as a key metric of financial hygiene. DSO is actually the ―tail of the dog‖ and represents the final process of a progression of steps which convert opportunities into cash. In reality quote-to-cash is a series of interrelated processes that include:
Sales pipeline and forecasting; Project scoping and estimation; Proposals and approvals;
Contract negotiation and acceptance; Project staffing;
Project execution;
Project completion and acceptance: Invoicing, and,
Collection.
To optimize these fundamental business processes, many PS executives rely on the integration of core business applications to provide visibility, transparency and control. These applications include: Client
Relationship Management (CRM), Professional Services Automation (PSA) and the primary financial solution (ERP), which each manage aspects of the quote-to-cash process. Although all of these applications are offered on a stand-alone basis, the true power of managing the entire quote-to-profit business cycle is best accomplished by an integrated suite of applications, commonly referred to as Service Resource Planning (SRP).
This White Paper identifies the challenges and opportunities PS executives face when striving to optimize profits through the quote-to-cash process. The findings and specific benchmark data were taken from Service Performance Insight’s 2011 Professional Service Maturity benchmark study, which analyzed results from 214 billable PSOs.
INTRODUCTION
The pressures facing the professional services sector are similar to those in other markets:
The need to generate high quality leads and prospects; The need to win competitive bids;
The need to deliver high quality services (and/or products) in an efficient and profitable manner;
The need to invoice in an accurate and timely manner and expedite the collection of money; and
The need to maintain and grow existing client relationships to sell additional products and services.
While other markets must primarily consider product availability and the efficiency of the supply chain, in professional services the real concern involves people and the interrelationship of different functions – marketing, sales, service delivery, finance and account management (often with competing goals and priorities) to identify, price, bid, win, perform, collect and expand service projects.
High performing service organizations develop clear roles and
responsibilities combined with congruent measurements and supported by integrated systems to effectively manage the quote-to-cash process. Figure 1: Service Quote-to-Cash Process
Source: Service Performance Insight, June 2011 The service quote-to-cash process begins with the development of winnable proposals and bids that meet or exceed the financial requirements of the PSO. Once won, projects must be scheduled and staffed with appropriately skilled resources who can deliver quality services on-time and on-budget. As project delivery proceeds, it is critical to closely monitor progress so the project meets the client’s requirements and remains profitable. Finally, at various milestones during project delivery, and at the end of the project, accurate and timely invoices must be generated that clearly reflect the work provided and the time and expenses incurred, so that they can be expeditiously approved and paid by the client.
The following sections emphasize the importance of some of the
fundamental quote-to-cash processes, and how improvements can yield a significant financial payoff. The final section provides benchmark results which highlight the benefits of integrated service resource planning solutions compared to stand-alone applications.
COMMON BREAKDOWNS IN QUOTE-TO-CASH BUSINESS PROCESSES From our research and consulting we have found the underlying cause of poor financial performance often stems from organizational and
functional process breakdowns in the service quote-to-cash process: 1. Quote (Presales) – Poor lead qualification contributes to a high
cost of sales and a lack of alignment between opportunities and service capabilities;
2. Sell, Negotiate and Get Order (Sales) – inability to articulate the service value proposition inhibits calling on real decision-makers which can elongate the sales cycle and may force
acceptance of unfavorable contract terms or excessive discounts; 3. Staff (Initiate Project Execution) – Inefficient resource
management and poor or non-existent skills tracking can lead to placing the wrong resources on projects resulting in project delays and overruns;
4. Delivery (Project Execution) – Poor alignment and handoffs between service sales and delivery lead to miss-set client expectations and acceptance of unrealistic timelines and/or deliverables;
5. Invoice and Collect (Billing and Reconciliation) – a lack of alignment between contracts, statements of work, project plans and time and expense collection cause invoicing errors which lead to lengthy collection cycles, rework and lost revenue. Clients hate having to restate discussions, requirements and agreements to disconnected sales, service delivery and finance representatives.
A lack of smooth handoffs between functions inevitably leads to project overruns and lengthy collection cycles which compromise client
satisfaction, referrals and future business.
These organizational and process breakdowns are further exacerbated by poor or non-existent systems, manual processes and data entry, and a lack of integration between CRM, PSA and ERP applications. The final ―coups de grace‖ in a broken quote-to -cash process is poor or no management reporting and visibility to be able to spot problems and fix them before they spin out of control.
WHERE DO YOU START?
When the quote-to-cash process is broken, the best place to start is with an assessment.
Some of the areas SPI Research has found to be effective ―first steps‖ include:
Comparison to industry benchmarks shows the revenue and profit potential if improvements are made and provides the business justification for making an investment;
Assessment of competing functional roles, responsibilities, goals and measurements reveals the underlying causes of friction and misunderstanding;
Business process modeling of ―as is‖ and ―to be‖ processes lay the foundation for change and help clarify roles, responsibilities and handoffs between functions supported by appropriate metrics;
Based on objective analysis, leadership alignment around priorities is manifested in an actionable business plan which includes budget for new systems and applications, and
Project teams are empowered to focus on the top improvement initiatives which will likely include selecting and implementing new systems, business controls and metrics.
APPLICATION INTEGRATION IMPROVES CASH FLOW
To improve the quote-to-cash process, PS executives are turning to core business application integration to provide visibility, transparency, and control. The three primary business applications used to improve and automate the quote-to-cash process include:
1. Client Relationship Management (CRM) supports the management of client relationships with improved visibility to lead generation, contact management, deal capture and pipeline management with the goal of enhancing sales and marketing effectiveness. CRM allows PSOs to track clients throughout the sales lifecycle, and to specifically target customer segments and offers by understanding details of the relationship.
2. Professional Service Automation (PSA) solutions provide the systems basis for initiation, planning, execution, close and control of projects, resources and services. PSA improves service delivery, resource management, project management, and collaboration, while ensuring accurate and timely time and expense capture. Over the past decade PSA solutions have become increasingly popular as a means for improving resource management and service delivery effectiveness, and the
applications have matured to become easy to use and implement. 3. Financial Management is the primary solution required to
accurately capture, bill and report financial transactions. It collects and manages all financial information (Time and Expense, Invoices, Procurement, etc.) to provide visibility and determine service cost and profitability. Every firm surveyed by SPI Research uses some type of financial management solution. While some solutions were home-grown, a majority use
commercial Enterprise Resource Planning (ERP) financials that offer out-of-the-box integration with other business solutions.
THE BENEFITS OF INTEGRATED SERVICE RESOURCE PLANNING SPI Research has shown that each of these three primary business applications improve financial performance (Figure 2). Although each individual application is critical to organizational success, it is when they are integrated that the greatest benefit evolves.
Figure 2: System Integration Improves Visibility, Productivity and Profits
Source: Service Performance Insight, June 2011 Services Delivery and the Front Office
With this integration sales and service delivery are aligned and a smooth handoff is assured as opportunities are closed and projects are initiated. Trust and cooperation are enhanced when all functions – sales, service delivery and finance - have access to the same single source of customer information. PS executives can better plan and staff projects within PSA based on a detailed understanding of the time and costs involved, and can accurately forecast resource requirements based on actual sales pipeline information. Cost and revenue data is brought together to show project, resource and client profitability. Executives can gain up to the minute sales and delivery forecast and pipeline information. Visibility,
transparency and control are all enhanced through management reporting and real-time dashboards.
The important workflow elements of CRM applications track the progress of leads into prospects into proposals into orders and ensure timely reviews, approvals and handoffs. CRM applications are typically set up as a single source of the truth for all client related correspondence, proposals and contracts. Tight integration between PSA, where the project is managed, and CRM where the client is managed is critical for keeping the sales and service delivery team in alignment.
Once a bid is accepted, the order is passed to the PSA solution to build the project and resource plan. Staffing and hiring decisions are expedited while ensuring the best available resources are assigned. The integration of CRM and PSA provides the PSO with visibility into the sales process and client contracts and commitments and allows the PSO to forecast resource and project requirements based on expected close dates. Once work is initiated, PSA provides the visibility necessary to assure schedule and cost compliance, and in the event of project changes, the
• Resources
• Projects
• Time & Expense
Collection
• Billable hours
• Project expenses
• Earned value
• Project Accounting
• Profit & Loss
• Employee Data • Billing • Payments • Revenue • Payment status • Client Information • Pipeline • Requirements • Quotes • Contracts • Orders
combination of PSA and CRM facilitate sales and service delivery collaboration to generate and secure change orders.
Services Delivery and the Back Office
Tight integration between PSA and the ERP application ensures accurate and timely invoices are generated and sent to the client containing all the necessary detail to expedite payment. Integration between PSA and ERP ensures employee details and costs are continually updated and reflected in the resource management application to guarantee the best, most cost effective resources are assigned.
PSA and ERP integration virtually eliminates manual data re-entry and associated costly manual errors. Integrated systems provide a better understanding of and visibility into a PSO’s actual costs, project margins and revenues. And as with any automation, administrative overhead is decreased and accuracy increased across the board. Table 1 depicts the reported 2011 PS Maturity benchmark ―level of integration‖ between the core applications used by PSOs and the financial system.
Table 1: Business Applications Integrated with Core Financials
Business Application Partially or Completely
Integrated with Financials Professional Services Automation (PSA) 58.5%
Business Intelligence (BI) 58.5% Client Relationship Management (CRM) 46.5% Human Capital Management (HCM) 43.6%
Source: Service Performance Insight, June 2011 SPI Research found over 50% of the 214 organizations surveyed use a commercial PSA solution; approximately 75% use a commercial CRM solution and 80% use a commercial financial application. CRM and PSA have become increasingly important for success in the professional services sector and many PS executives are starting to realize that integration adds to their potential benefits.
Table 2 highlights the benefits of service resource planning based on integrating PSA and CRM with the core financial application. These results show that in every phase of the quote-to-cash process both operational and financial performance improve because information flows seamlessly from one application to another, empowering executives to make faster and more accurate decisions that ultimately improve project profitability, increase personal productivity and increase bottom-line profit and cash flow.
Table 2: The Benefits of PSA and CRM Integrated with Financials
Key Performance Indicator Integrated Not Integrated Improve. Annual Revenue per Billable Consultant $153K $190K 24% Quarterly Revenue Target in Backlog 37.6% 53.6% 43% Management to Employee Ratio 7.7 9.0 17% Projects Delivered On-time 76.6% 84.6% 10%
Bid-to-Win Ratio 4.67 5.74 23%
Discount Percentage 14.3% 12.3% 14% Executive real-time wide visibility 61.0% 80.0% 31%
Source: Service Performance Insight, June 2011 NetSuite Solutions for Professional Services
NetSuite provides two core solutions for PSOs: NetSuite Service Resource Planning (SRP), a single, integrated solution to run your entire professional services business, and NetSuite OpenAir, a stand-alone PSA solution that can be integrated with existing legacy applications.
NetSuite SRP streamlines the complete services lifecycle from sales and marketing to project and resource management, service delivery, billing and revenue management—and helps service organizations drive repeat business from existing clients.
Figure 3: NetSuite Service Resource Planning
NetSuite SRP provides services businesses of varying sizes and complexity with real-time visibility, resource management and operational control. The application manages the key drivers of any services business—revenue, utilization, profitability and days-sales-outstanding (DSO)—from the corporate level down to subsidiaries and geographies, all the way to the individual project level.
Seamless Integration of CRM, PSA and ERP
NetSuite SRP provides an end-to-end, cloud-based business management solution for services businesses. From CRM to PSA to ERP, it manages the entire PSO in a single software suite.
NetSuite OpenAir is the PSA-engine of the NetSuite SRP suite, available as a stand-alone option for professional services organizations looking to preserve their investments in existing CRM and ERP solutions. NetSuite OpenAir provides prebuilt integration between NetSuite OpenAir and common CRM, sales force automation (SFA), human resources (HR), and financial (ERP) applications and more.
Figure 4: NetSuite OpenAir
Source: NetSuite, June 2011 RECOMMENDATIONS AND CONCLUSIONS
In Service Performance Insight's most recent benchmark survey, 214 professional service organizations averaged 6.9% earnings before income tax, depreciation and amortization (EBITDA). In many industries this level of profitability would be desirable. However, in professional services margins below10% are not very compelling.
To drive profitability levels higher PS executives are starting to take a more holistic approach to the quote-to-cash process, perhaps the most
margins. Ensuring the organization is focused from the beginning on selling, delivering and collecting from the best clients who buy and use the most profitable services is paramount to success.
While there are many collaborative tools organizations can use to inform and educate their employees on which clients to target, what services to sell and at what level of expected return, the use of client relationship management in conjunction with professional services automation, each integrated with the core financial solution, offers the best chance of improving profitability.
Over the past several years NetSuite has emerged as a leader in
integrated solutions for the professional services market. Out-of-the-box integration of their CRM and PSA with the core ERP solution has given their customers a competitive advantage in terms of selling, delivering and collecting highly profitable services. This integrated, cloud-based solution provides unique advantages for today’s global, mobile service organizations and should make the short-list for any project-oriented business when evaluating new automation solutions to improve their quote-to-cash to profit value chain.
Service Performance Insight (SPI Research) is a globally-focused research and consulting firm specializing in the services sector. The firm
closely follows professional services organizations (PSOs) — both Embedded and Consultants/Systems Integrators — and the independent software vendors (ISVs) that develop business solutions to make people more productive and profitable. SPI Research pays particular attention to the integration of the three key assets of a PSO: its people, (business) processes and capital, and how technology can help optimize their use. SPI Research has developed the definitive business model that shows how PSOs can improve organizational performance by improving
About Service Performance Insight
Jeanne Urich, Service Performance Insight Managing Director, provides strategic consulting, research, training and operational advice to improve and transform service and project-oriented organizations. She is a thought leader and recognized expert in Professional Services. She is the co-author of the ground breaking Professional Service Maturity Model benchmark used by over 4,000 project-oriented organizations to diagnose and improve their performance. www.spiresearch.com. She is a featured speaker and author for major software solution providers and industry associations.
She has a BA in Math and Computer Science (Magna Cum Laude and Phi Beta Kappa) from Vanderbilt University and completed Executive Management programs in Marketing and Finance at Stanford and Brown University. Contact Jeanne at [email protected]
Phone: (650) 342-4690.
Dave Hofferberth, Service Performance Insight Managing Director, has over 25 years experience in information technology (IT) serving as an industry analyst, product director and consultant. Hofferberth’s research is focused on the services economy, and in particular, on white-collar productivity issues and the technologies that help people perform at their highest capacity.
Hofferberth’s background is extensive in services performance beginning in the early 1980’s, where he conducted studies on white-collar productivity in the banking, technology, energy and construction sectors.
Hofferberth earned an MBA from Duke University and a BS in Industrial
Engineering from the University of Tennessee. He is also a licensed Professional Engineer (PE).
Contact Dave at [email protected] Phone: (513) 759-5443
