"The sum of anecdotes is not data." -
Roger Brinner, Economist
We all want better answers, and we want them faster. We
want to manage with more intelligence; we want to make the best
decisions possible. Unfortunately, most firms do not possess
the tools that will help them find the type and the quality of
answers they need to important questions regarding operational
performance, strategy, predictive analysis and team
effectiveness. However, a new breed of business intelligence
systems is emerging within the corporate world. The aim is to
provide fully-integrated, relevant and actionable information that
blends a historical view with a directional outlook. Design
firms need the same kinds of tools, and while such a solution
remains elusive in the present, I predict its arrival will be swift
and certain.
Living in a project-based world can make it harder to see the
need and value for business intelligence and the system required to
support it. Clients throw us curveballs that can't be hit,
resource management is always a challenge, and design firms tend to
resist using sophisticated measurements to better understand their
firm's performance. This thinking is based on the sense that
collecting anything more than the most basic project data will not
pay off. Principals may try to ask for more, but the typical
response is lukewarm at best. When more sophisticated
analysis is done, it tends be ad hoc, and doesn't become
embedded into the firm's habits and culture. When forced to agree
to new methods of collecting data, people typically agree without
commitment, and the initiative often fades into the sunset.
And what about the challenges of implementing important new
strategies? The fact is, most firms struggle there too.
Action plans from the planning meeting age quickly. Without
dogged determination on the part of a firm's leadership, cracks
develop in the integrity of the plan, and staff may begin to fall
back to old routines, weakening the new direction.
Can a Business Intelligence System fix these fairly typical
human failings? Not always. But this is the best chance
to overcome the management obstacles connected to collecting and
using performance data to run and build your firm. Business
intelligence is powerful because it provides an integrated view of
how you're doing. Instead of traditional 'single-thread'
measurements, such as utilization rate, net revenue per employee,
net multiplier and overhead rate, business intelligence formulas
look at a larger slice of the activities being performed.
This allows you to set your own benchmarks for performance levels,
and organize goals by firm, market, team and individuals.
The promise of business intelligence boils down to the leverage
it can bring to making better decisions, made easier. Instead
of relying on anecdotal comments, data is collected on both an
action-driven basis as well as a results-driven basis. This allows
for the blending of results from three primary arenas within the
firm: operating results, strategic initiatives and systems
development for the creation or strengthening of key processes or
functions, such as accounts receivable, marketing, expertise
development, project reviews, and other discrete systems within the
firm.
Business Intelligence for professional services firms will be a
revolution in thinking about and managing all aspects of firm
performance.
Examples of BIS Formulas for Design
Firms
The following examples are representative of the type of
additional measurements a firm can add to its toolkit. They
are flexible and can be modified to meet individual firm
needs.
Revenue Quality Index:
Index Goal: to display how each project stacks up in terms
of overall financial performance.
Formula elements:
- All projects begin with a baseline of 100
- Actual revenues vs. contract fees. Express as a
percentage, e.g., 90%, 110%, etc.
- Accounts receivable performance: dollars collected beyond
firm AR target cycle, as a percentage of the total. Factor as
a penalty using 10% of total. Subtract from baseline.
- Non-billables as a percentage of total actual revenues.
Take the total and figure the percentage of impact on total
revenues, subtract.
- Profit vs. plan: add or subtract percentage over/under
plan
Market Focus Index:
Index Goal: to track the firm's performance to meet
targets within revenues by market.
Formula elements:
- Decide on primary markets, and also retain a "general" market
bucket.
- Set annual revenue goals by these market types
- Identify contracts when signed as part of the right bucket
- Using contract value, show revenue by market monthly, and
compare to original revenue forecasting.
- Don't average the market results, display as a percentage above
or below 100% of target.
Market Expertise Index
Index Goal: to display firm performance at deepening
their position in each focused market they choose.
Formula elements:
- Set annual targets for speeches, articles, client conferences,
market-focused products and tools to develop, etc.
- Consider each activity of equal weight, and simply measure it
as a percentage of performance against the goal of completing the
activity within the year.
- 50% would be horrible, 90% would be strong, 120% would be
stellar.
Professional Development Index
Index Goal: to track the collective progress of
professional staff in pursuit of certifications, registrations and
other notable, standardized, industry-recognized achievements.
Formula elements:
- Individuals formalize their plans annually.
- Targets can be partial or full achievement of the new
status
- Each result is equal weight, measured as a percentage of
performance against the annual plan.
Project Management Index
Index Goal: to reflect the overall effectiveness of the
project management system and efforts.
Index elements:
- Project plans developed vs. standards (some project, say under
$5,000 in value, may not require a formal plan) Use 100% as
goal,
- Performance related to phase reviews conducted, as a percentage
of total phases
- Formal project close-outs conducted as a percentage of the
total
Every firm will have a different slant, a different emphasis on
how to utilize these extended tools to best run their
practice. The important thing to remember is that these tools
are flexible and they should, over time, be incorporated into the
leadership's regular routine when looking at business
performance. Instituting these measurements isn't difficult,
yet there is some work to be accomplished when it comes to ensuring
trust and establishing an agreed rationale for looking beyond the
industry's basic approach.
Is your firm ready to take on a more sophisticated view of
performance? If not, what do you need to do to lay the
groundwork? Competition is likely to get fiercer than ever
over the upcoming years, and this means there's a good chance that
others will be moving ahead when it comes to business
intelligence.
Make sure your firm is one of them.
(Adapted from Jack Reigle's book: Silver Bullets:
Strategic Intelligence for Better Design Firm
Management, published in May, 2008. Visit sparkspublications.com to learn more about
the book. Please contact Jack with questions or comments at
jack@sparksstrategy.com.)
