In today’s era of Professional and IT Services competition and consolidation, some small to medium-sized companies are proudly delivering 20%-50% annual growth.
Unfortunately, the vast majority of firms have experienced two consecutive years of fee erosion, commoditization, client defection, and company identity crises. We set out to discover where the growth opportunities exist in today’s economy, and to share our findings.
Our ten-month study uncovered the major gaps between the top performing and bottom performing companies. Our interviews with 53 CEOs across North America were designed to help leaders in this industry achieve three goals:
1. Identify the most common barriers to company expansion;
2. Learn what investments will positively affect their 2004-2005 growth;
3. Compare their operating model and areas of focus against their peers.
We spoke with companies across six major sectors of the IT and Services market, including hardware and software support, business and process consultants, IT outsourcing firms, integrators, and BPO’s (business process outsourcing). BPOs had, by far, the most rapid growth rates of any other sector.
More than three-fourths of our interviews focused on understanding the dynamics within the small to medium sized organizations (50-500 employees).
We compared and integrated our findings with IT research firms and trade groups. These included ITSMA, AFSMI, Gartner Group, Culpepper and Associates, and the New Client Marketing Institute.
The Top Frustrations—and Hype
When we spoke with CEO’s, three common frustrations surfaced:
In spite of the media focus on outsourcing, only two of the CEOs we interviewed mentioned concern with offshore development. We also learned that only 7% of all outsourcing revenues are generated by offshore firms, according to Joe Blumberg, CEO of Specifics Inc. (www.specifics.com). As of this writing, we can infer that offshore development may be worth watching, is more hype than a present threat to successful services firms.
From a marketing awareness standpoint, we found that the 80/20 rule applies. IBM Global Services has become the “Kleenex brand” in IT Services. ITSMA’s most recent branding study claims that IBM GS now has a threefold brand equity lead over other firms. This makes it increasingly more critical for small to medium sized firms to create and communicate unique positioning statements.
We also learned that the companies who designed their business around a time and materials model are experiencing the greatest profit erosion. The time and materials- based firms told us that billing rates have declined by 15%-20%. Companies who position themselves as problem-solvers, trusted advisors or BPOs did not report any concern with their profitability.
Four of the key areas where bottom performers struggled included market positioning, staff attrition, long sales cycles, and poor self-management. CEOs with flat or declining revenues consistently expressed concern with balancing their own personal and professional lives.
The Top Performers’ Five Common Strategies
How can you best capitalize on the lessons we learned from the successful companies? First, consider how to invest your 2005 budget. The top performers who participated in our study typically invest at least 2%- 3% of gross revenues in five areas:
Scott Testa, CEO of MindBridge in Norristown, PA, has the commitment to building a winning team. “We have become part of the ‘200 rule’ with CIOs. On the average, CIOs receive 200 email, direct mail and phone messages each day. ” He continues, “This is the time to grow and invest in sales and hiring—when we come out of this economy, we can turn on the light bulb again. ”
We also learned that the bottom performing companies are over-investing in three areas:
You don’t need to be an IT Services firm to learn from these secrets. In light of these findings, ask yourself these questions. Is your company ready to be a “top performer” in 2005? What initiatives will your company be willing to let go? How will you surround yourself, and your key executive team, with a top performer operating model?
Lisa is President of Nirell & Associates in Del Mar, CA. She leads the “Profitable Growth Series" workshops and audio series for leaders who want to accelerate top-line growth by retaining their best people. In addition to having 23 years experience in software, consulting, and sales, Lisa has served on 3 Boards of Directors.
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