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PSOs need strong leaders making choices based on strong data

Strong leadership has a direct impact on business performance, but as professional services firms evolve leaders must also evolve from heroic startup figures that do and firefight to visionaries who empower their teams.

Everyone has their own definition of leadership and what they seek from CEOs and other senior leaders. However, we define it, we all know that strong leadership is one of the essential needs of any organization to lend a sense of purpose, shared values and commitment to a cause. And today, leadership skills can be enhanced enormously using the power of data.

In the past, leadership has had its fair share of smoke and mirrors. Often, key decisions were based on gut feel. Today, though, in a world increasingly dependent on data, leadership can be supported by analytics to provide auditable, evidence-based decision-making and a solidity of strategy that is a world away from the old reliance on ‘a hunch’. Those enterprises that can combine empathetic and inspirational leaders with systems that enable them to make the right calls at the right time will be best placed to succeed.

For professional services organizations (PSOs), the challenges are perhaps even more demanding. Even minor errors in strategy setting, forecasting or execution can make the difference between profit and loss, success and failure. Every under-utilized person becomes a boat anchor on the business and every over-utilized person increases the risk of subpar work being delivered and/or that person leaving the organization.

The latest annual survey of the PSO landscape* The 2023 Professional Services Benchmark report found that the success of the high achievers was not dependent on how long the businesses had been established, as young, fast-moving organizations were just as likely to be successful. According to the data, though, only 20% of firms performed at the highest levels of financial maturity and more than half (55%) were still in the earliest stages.

What it means to lead
Therefore, the need for smart leaders is even more acute today when, as SPI notes, most key PSO metrics were down on the previous year – including deal pipelines, billable utilization, project margins and revenues. But what can we learn from leaders? SPI found that the best performing firms tend to be highly specialized, concentrating on specific high growth segments, and while they do pursue growth, their experience tends to mean they have a more balanced approach to their go-to-market strategies. Unlike some early-stage companies that can get distracted by the next big thing, the leadership at the high performing organizations use their experience to ensure investments deliver rapid payback and can lead to recurring revenue. They also foster a work environment that is equitable, rewarding their best people with appropriate remuneration and career progression. This in turn leads to a culture of collaboration, trust and loyalty.

Looking at the key performance indicators of the high performers, the top three that stood out are:

  1. Confidence in the professional services leadership
  2. Employees have confidence in the PSO’s future
  3. Ability to embrace change – nimble and flexible

Interestingly, though, the most change in KPIs has been seen in:

  • Ease of getting things done – 17% increase in 2022 compared to 2021
  • Being data-driven – 14% increase in 2022 compared to 2021
  • Innovation focused – 13% increase in 2022 compared to 2021

This suggests a growing emphasis on improving business performance to achieve competitive advantage and leadership has a major role to play in driving success, from crafting a widely understood vision to inspiring confidence, having systems that make it easy to get things done, communicating well and often, being data-driven and unafraid of innovation and change.

These leaders see enemies of progress in hierarchical structures, preferring flat, egalitarian systems and strength in recruitment and onboarding for a fast-track to adding billable hours. One more thing: in an age where so many staff work remotely, they also provide the right tools for virtual collaboration.

And the benefits of getting this right are significant, as well as predictable. High performing firms have employees who are 35% more billable per consultant and generate 39% more revenue per employee. The SPI Benchmark clearly shows a direct correlation between the strength of leadership and strong business performance, but it also issues a warning. Across the board, the measures of leadership performance declined in 2022 compared to 2021 and were as low as 2018. This should serve as a warning to senior executives that they need to renew their focus on leadership skills to avoid further declines.

The tools to do the job
This touches on an important point. Those companies polled which had advantage over competitors, also had far better real-time information visibility, allowing leaders to make decisions based on live data to accelerate and fine-tune decision making. Similarly, those organizations which spend more on business applications and integration (for example between business intelligence, CRM, PSA and financial management systems) and are much more satisfied with their infrastructure than rivals. By integrating the systems which staff use, they also help to bond teams to a common purpose and a shared cockpit overview of activities. This extends all the way from strategic planning to outcomes, what SPI calls the “plan-to-profit” cycle, and it differentiates winners from companies that are hindered by their addictions to Microsoft Excel and other tools. Fifteen per cent of all those surveyed even lack a formal CRM system.

Interestingly, SPI even makes a technology deployment platform call, suggesting that cloud financial management systems (or ERP) make it easier for PSOs to achieve usability, to add modern capabilities such as AI and run global multi-lingual/multi-entity operations.

Leadership is a complex phenomenon in some ways, but we know when it is there, and we know when it is missing. It also changes over time. The passion and long hours of the startup need to be tempered as organizations mature and different employees develop varying needs and preferences. Or, as SPI puts it:

“The unique knowledge, vision and passion that a consulting leader brings to founding a hot new firm must be nurtured and continuously kindled within new employees. The leader must simultaneously learn to let go and grow at the same time. Micro-managing does not work in PS, cultivating a reputation and repeatable skills, competencies and processes does. Most independent consulting firms can easily grow from 20 to 50 consultants, but after that, things get more interesting. This is when firms must move from heroic to repeatable and founders must move from doers and fire fighters who wear all the hats to leaders and visionaries. The leaders who can’t make this transition must have the courage to bring in new talent who can take the firm to the next level.”

That’s well put. Over time, the best leaders reinvent themselves and their organizations to avoid silos and cliques. In short, if we are to put together the perfect leader, their qualifications and CV may look something like this:

  • Possesses a compelling vision for the organization
  • Makes plans based on evidential data
  • Communicates plans clearly and in a timely fashion
  • Encourages career development and continuous learning
  • Invests appropriately in ICT systems that support real-time decision-making and renders key information visible
  • Creates an environment where people can deliver their best work
  • Addresses silos

Of course, there is no such thing as the perfect leader, but it may be worth pondering whether your leaders have this list of qualities. And, if not, whether your company itself is set to lead.

*SPI Research

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