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www                                                           .bus                                                        ...
CHANGE IS INEVITABLEExternal Drivers                                           An Enterprise                           Int...
IMPORTANT STRATEGIC QUESTIONS        How do we create value for our customers and shareholders?        Which markets shall...
BUSINESS MODELS FOCUSON VALUE CREATION        How do we create value for our customers and shareholders?       Business mo...
In future business model innovation will be the key                to generating new wealth: Competition no longer        ...
COMPREHENSIVE DEFINITIONOF BUSINESS MODEL                A business model describes how an enterprise                creat...
BUSINESS MODEL VIEWS                                                        Business                                      ...
CORE BUSINESS MODEL BUILDINGBLOCKS Value                                        Resource                     Capability   ...
BUILDING BLOCKS EXPLAINED    Party              Any legal entity engaged within the business model. Examples for other par...
BUSINESS MODEL: VALUE LOGIC                                      Sales cost                                               ...
VALUE CREATION IS A DYNAMICPROCESS …                                      Sales cost                                      ...
FULL BUSINESS DYNAMICS                                                Market Size                                         ...
INDUSTRY-SPECIFIC BUSINESS MODEL:CONSULTING FIRM BLUEPRINT Consulting firm value logic blueprint                          ...
BUSINESS MODEL PROTOTYPINGAPPROACH                              Understand                              the business      ...
BUSINESS MODELS AT DIFFERENTLEVELS OF DETAIL AND SPECIFICITY            Generic                                           ...
CASE STUDY CONTEXTCase study based on work carried out for a professional service firmfocusing on IT consulting.∼1100 empl...
KEY KPI‘S FOR PROFESSIONAL SERVICEFIRMS („MAISTER KPI‘S“)   Profit                                 Profit                 ...
STRATEGIC QUESTION How should principal consultants spend their time?Which organisational policies should befollowed to en...
WHAT PRINCIPALS DOPrincipals are responsible for the following activities:§  Generating repeat business through client ma...
FIRM SPECIFIC VALUE LOGIC(CONCEPTUAL LEVEL)                                                        The causal             ...
PRINCIPALS ARE RESPONSIBLE FOREVERYTHING                                                        Note that the             ...
FIRM‘ SPECIFIC VALUE LOGIC                                                        This is the                             ...
FIRM‘ SPECIFIC VALUE LOGIC                                                        This is the                             ...
FIRM‘ SPECIFIC VALUE LOGIC                                                        This is the                             ...
STRUCTURE OF THE SIMULATION MODEL                                                          The model was                  ...
THREE SCENARIOSScenario 1 – Base CasePrincipals spend up to 50% of their time in project deliveryThe other 50% go to custo...
SCENARIO 1 – BASE CASE                 %&()*+,-./+01213                  %&456)7381639:+&6       !"!!                     ...
SCENARIO 2- CONCENTRATE ON THECUSTOMER                    Principals.Maximum                     Project Time Share       ...
SCENARIO 3 – INNOVATE ANDSTANDARDISE                    Principals.Maximum                     Project Time Share         ...
GROSS MARGIN COMPARISON© 2012 transentis management consulting GmbH & Co. KG   www.transentis.com
RECOMMENDATIONS FROM SCENARIOANALYSISCollect better data on principal effort allocationUnderstand why principals don‘t all...
THREE POINTS TO REMEMBER   Intense competition, disruptive                                    We need effective ways of ex...
Oliver Grasl is managing director and founding partner of transentismanagement consulting, established in 1997.After readi...
CONTACTDr. Oliver GraslManaging Directortransentis management consulting GmbH & Co. KGE-Mail: oliver.grasl@transentis.comM...
Transformation for success     We help companies to explore their current situation     and to design and realize visionar...
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Key performance indicators in professional service firms

Key Performance Indicators (KPIs) are typically used to measure the performance of a firm both at the strategic and operational level. KPIs often form the basis of a firm's goal management system: Each KPI is assigned and owner in the firm's top management, who is then responsible for reaching a particular target.

This case study shows that in order to find realistic targets for KPIs the firm's management needs a clear understanding of how the KPIs really measure the firm's performance, how they depend on each other and how KPI targets need to change over time in order to ensure the firm's ultimate goals are reached.

Our client in this case is a successful IT professional service firm that approached us because they wanted to find ways of increasing their growth rates organically. We took a holistic approach to analysing the firm's business model and KPIs using System Dynamics. The case study illustrates this using concrete examples, in particular regarding KPIs such as the firm’s leverage, the average fee, the utilisation, and the profit margin.

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Key performance indicators in professional service firms

  1. 1. www .bus ines s-pr otot ypin g.co m KEY PERFORMANCE INDICATORS IN PROFESSIONAL SERVICE FIRMS Dr. Oliver Grasl Berlin, 11.12.2012© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  2. 2. CHANGE IS INEVITABLEExternal Drivers An Enterprise Internal Drivers s ns ion ma ot Hu Em RepositioningHigh Market Expectations Structures Business Model Business Model InnovationIntense Competition Processes Mergers & AcquisitionsNew Value Chains Organization Expansion to new marketsDisruptive TechnologiesDemographic Changes TechnologyScarcity of resourcesGovernment Regulations Internal and external drivers force enterprises to implement frequent and wide-spread changes to their business models, their organization and the technology supporting their business.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 2
  3. 3. IMPORTANT STRATEGIC QUESTIONS How do we create value for our customers and shareholders? Which markets shall we compete in? How do we position our firm against our competitors?© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 3
  4. 4. BUSINESS MODELS FOCUSON VALUE CREATION How do we create value for our customers and shareholders? Business models address the question of value creation, or: "How do we make money in this business?" These questions are Which markets shall addressed by a firms pro- we compete in? duct-market strategy and How do we position our firm competitive strategy – also against our competitors? very interesting, but out-of- scope today© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 4
  5. 5. In future business model innovation will be the key to generating new wealth: Competition no longer takes place between companies and products, but between business models. Gary Hamel (2000) ur ns vio ma ha Hu Be Structures BusinessModel Business Model Processes Organization Technology Image Source: gurusofmanagement.blogspot.com© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 5
  6. 6. COMPREHENSIVE DEFINITIONOF BUSINESS MODEL A business model describes how an enterprise creates value for all the parties within its value network (customers, suppliers, stakeholders), by defining its value logic and showing which products and services are exchanged between these parties. Value = Benefits – Costs© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 6
  7. 7. BUSINESS MODEL VIEWS Business Model Transaction Value Value Model Network Logic© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 7
  8. 8. CORE BUSINESS MODEL BUILDINGBLOCKS Value Resource Capability Creates Asset Needed Needed to provide to produce Consumer Party Channel Provider Service Supported by Supplier Transaction Product Customer Exchanged via Good© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 8
  9. 9. BUILDING BLOCKS EXPLAINED Party Any legal entity engaged within the business model. Examples for other parties besides firms are public authorities and public households. Asset The term "asset" is used as a generalization for resources and capabilities. An asset is a resource (e.g. physical property, intangible right) or capability that has eco- nomic value. Important examples are plant, equipment, land, patents, copyrights, and financial instruments such as money or bonds. A firm needs assets to enable its transactions, maintain channels and create its products. Channel A channel is a conduit by which a firm offers its products. These products are exchanged via a transaction. Product A product is any good or service produced by a business. Businesses are characterized by the fact that they produce goods or service beyond their own need and can therefore offer them to other parties via a market. Tran- Firms interact via boundary spanning transactions, which are supported saction or enabled by channels. A transactions takes place when a product is exchanged via a separable interface.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 9
  10. 10. BUSINESS MODEL: VALUE LOGIC Sales cost Customers Value added Products Capabilities Revenue Resources Cash The value logic shows how resources and capabilities are used to support transactions, create products, attract customers and drive value creation.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 10
  11. 11. VALUE CREATION IS A DYNAMICPROCESS … Sales cost Customers Value added Products Capabilities Revenue Resources Cash The feedback loops in this diagram are what sustain a companies business and make it dynamic – even in stable market conditions.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 11
  12. 12. FULL BUSINESS DYNAMICS Market Size Markets served Sales Cost Customers Value added Competitors Products Prices Capabilities Revenue Operating Income Cash Resources Operations Debt Operating Expenses Business dynamics = value dynamics × market dynamics × operational dynamics© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 12
  13. 13. INDUSTRY-SPECIFIC BUSINESS MODEL:CONSULTING FIRM BLUEPRINT Consulting firm value logic blueprint Customers Knowledge Management Recruiting Know how Cash Talent Innovation Marketing© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 13
  14. 14. BUSINESS MODEL PROTOTYPINGAPPROACH Understand the business Business model prototyping follows an iterative process The conceptual understanding Prototype of the business is captured the business in a business prototype, which is calibrated against available data The prototype is then used Explore future to explore potential scenarios scenarios of the future and deepen the understand of the business© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 14
  15. 15. BUSINESS MODELS AT DIFFERENTLEVELS OF DETAIL AND SPECIFICITY Generic Specific Abstract Customers S ales  c ost R epeat   Projec t  e ffort   Projec ts required Customers Repeat Customer  m ain-­‐ Project Project Consultants Value  a dded Knowledge tananc e required Acquistion Projec ts Delivery Management Recruiting Projec t  delivery   Capabilities Customers First  t ime   effort  a vailable P roducts Know  how Cash projec ts New Recruitment Customer Project maintenance Acquistion Talent Consultans Pro-­‐ Partner  C ustomer   Contact jec t delivery  effort Investments R evenue maintenanc e  effort   Contac ts Maintenance Contac ting   Partner  C on-­‐ Innovation effort  r equired tac ting Effort R esources Partners  P rojec t   Marketing Partners Cash Delivery  effort Generic business Industry-specific Firm-specific business model business model model Detailed business prototype Detailed© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 15
  16. 16. CASE STUDY CONTEXTCase study based on work carried out for a professional service firmfocusing on IT consulting.∼1100 employees worldwide∼70 employees in Germany subsidaryParticipants were the CEO, CFO and Head of Business Development.The company has a very stable history of financial success but isdissatisfied with growth ratesPolicy changes are hard to find and enforce in suchconditions!© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  17. 17. KEY KPI‘S FOR PROFESSIONAL SERVICEFIRMS („MAISTER KPI‘S“) Profit Profit Fees Hours Staff = x x x Principal Fees Hours Staff Principal= Margin x Value x Utilization x Leverage Hygiene factorHygiene factor Sales andCost reduction delivery management Health factor Health factor Innovation and Specialization Standardization D.  Maister,  Managing  the  Professional  Service  Firm  © 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  18. 18. STRATEGIC QUESTION How should principal consultants spend their time?Which organisational policies should befollowed to ensure the health factors VALUEand LEVERAGE are improved?© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  19. 19. WHAT PRINCIPALS DOPrincipals are responsible for the following activities:§  Generating repeat business through client maintenance§  New customer acquisition§  Project delivery§  Recruitment and consultant development§  Development of new consulting products© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  20. 20. FIRM SPECIFIC VALUE LOGIC(CONCEPTUAL LEVEL) The causal loop diagram identifies the main feedback loops that drive and sustain the firm‘s business and how the principals are involved in these activities.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  21. 21. PRINCIPALS ARE RESPONSIBLE FOREVERYTHING Note that the principals are involved in four major activities, but they are not directly part of a feedback loop: This is because the firm does not have an explicit hiring policy for principals.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  22. 22. FIRM‘ SPECIFIC VALUE LOGIC This is the feedback loop that generates new customers from business contacts (which are mostly found in projects)© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  23. 23. FIRM‘ SPECIFIC VALUE LOGIC This is the feedback loop that generates follow-on projects.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  24. 24. FIRM‘ SPECIFIC VALUE LOGIC This is the feedback loop that ensures that enough consultants are available to deliver projects.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  25. 25. STRUCTURE OF THE SIMULATION MODEL The model was built using System Dynamics and the ®iThink modelling environment and calibrated against historical data. 43 Stocks 350 Equations© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  26. 26. THREE SCENARIOSScenario 1 – Base CasePrincipals spend up to 50% of their time in project deliveryThe other 50% go to customer development and innovationNo time for standardisationScenario 2 – Concentrate on the customerProject delivery is delegated to senior and junior consultantsPrincipals focus on customer development and innovationScenario 3 – Innovate and standardisePrincipals focus more on standardisation and less on innovation© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  27. 27. SCENARIO 1 – BASE CASE %&()*+,-./+01213 %&456)7381639:+&6 !"!! $"!! !"#! %&()*+,-./+01213;4(7+)73 /+(76(+()6381639:+&6 !"!! $"!! !"#! ! $!!@ %&4=2)7-.%&4=2)73 $!! A((B4+74(3CDD4&73@ ! $!!@ %&4=2)7-.%&4=2)73 ! /+&E67(F3CDD4&73@ ! $!!@ %&4=2)7-.%&4=2)73 ! 97+(=+&=-+74(3CDD4&73@ <,,4)+76=>3333 $!! ?(+,,4)+76=>3 ! The  company  is  concentra;ng  too  much  on  the  hygiene  factors  u;lisa;on  and   margin  and  not  enough  on  the  health  factors  consul;ng  fees  and  leverage.  © 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  28. 28. SCENARIO 2- CONCENTRATE ON THECUSTOMER Principals.Maximum Project Time Share 0,00 1,00 U 0,00 Principals.Maximum Contact Maintenance Time Share 0,00 1,00 U 1,00 0 100% Products.Product 100 Innvoation Effort % 0 100% Products.Product 0 Marketing Effort % 0 100% Products.Product 0 Standardisation Effort % Allocated: 100 Unallocated: 0 Due  to  an  increase  in  consultants  the  leverage  also  increases  because  the  number  of   principals  remains  fixed.  The  leverage  is  s;ll  only  at  most  50%  of  maximum,  showing   the  company  s;ll  has  too  many  principals.  The  health  factors  project  leverage  and   consul;ng  fee  s;ll  have  not  been  addressed  by  the  new  policies  and  they  therefore   both  remain  at  0%.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  29. 29. SCENARIO 3 – INNOVATE ANDSTANDARDISE Principals.Maximum Project Time Share 0,00 1,00 U 0,00 Principals.Maximum Contact Maintenance Time Share 0,00 1,00 U 1,00 0 100% Products.Product 9 Innvoation Effort % 0 100% Products.Product 30 Marketing Effort % 0 100% Products.Product 61 Standardisation Effort % Allocated: 100 U Unallocated: 0 Time  available  for  product  development  quickly  dwindles    due  to  the  increased  ;me   principals  must  spend  wri;ng  proposals.  So  aHer  an  ini;al  period  of  successful  product   development  both  the  average  fees  and  the  project  leverage  rapidly  decline  again  –  the  firm   should  be  hiring  principals  now.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  30. 30. GROSS MARGIN COMPARISON© 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  31. 31. RECOMMENDATIONS FROM SCENARIOANALYSISCollect better data on principal effort allocationUnderstand why principals don‘t allocate their time wellDefine and enforce effort allocation policiesEnsure innovative consulting products are standardizedInvestigate the effect of innovation on fee structure Beyond  the  concrete  recommenda;ons  the  „real“  value   of  the  model  was  in  providing  a  basis  for  discussion  and  a   risk-­‐free  environment  for  policy.experiments.    © 2012 transentis management consulting GmbH & Co. KG www.transentis.com
  32. 32. THREE POINTS TO REMEMBER Intense competition, disruptive We need effective ways of exploring, technologies, demographic designing and realizing these changes and the scarcity business models of resources are driving the quest for transforma- tive business models If you remember only three points 1 23 from this presentation, remember these 1 23 Business prototypes are a powerful tool for creating shared understanding and managing both complexity and uncertainty 1 2 3© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 32
  33. 33. Oliver Grasl is managing director and founding partner of transentismanagement consulting, established in 1997.After reading mathematics and theoretical physics at CambridgeUniversity, UK (MA) and the University of Innsbruck, AT (Mag. rer. nat),Oliver later specialized in business engineering at the Universityof St. Gallen, CH (Executive MBA, Dr. oec.).Olivers personal mission is to help companies re-invent themselvesand manage the complexity of the ensuing business transformation.His engaging, "hands-on" approach is driven by business prototypingtechniques.He regularly speaks at conferences and publishes papersin journals and magazines and blogs at www.business-prototyping.com.© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 33
  34. 34. CONTACTDr. Oliver GraslManaging Directortransentis management consulting GmbH & Co. KGE-Mail: oliver.grasl@transentis.comMobile: +49 173 65 46 727© 2012 transentis management consulting GmbH & Co. KG www.transentis.com 34
  35. 35. Transformation for success We help companies to explore their current situation and to design and realize visionary business models and processes. This includes the optimal use of suitable IT solutions. transentis management consulting GmbH & Co. KG We get you there. Potsdamer Platz 11 D-10785 Berlin www.transentis.com Tel.: +49 (30) 2589 4005© 2012 transentis management consulting GmbH & Co. KG www.transentis.com

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