Episode 60 Transcript

Brent Trimble: Welcome back, everyone to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. Again, I'm Brent. Today, I'm joined by two really special guests, my colleagues, Sarah Edwards and Jared Haleck. Sarah and Jared head up product innovation and development at Kantata. Both of them have really fascinating points of view and outlook on the role of technology in today's business landscape and how it impacts so much more for our service clients than simply margins and operating process.

Before we dive into today's topic, I would love an introduction from both of you for our guests. Jared, why don't we start with you?

Jared Haleck: Yeah. Thanks, Brent. I've been with Kantata for about four years now leading the product function. I've been leading product organizations for well over a decade. I have really been so fascinated by my experience and time here at Kantata, the problem space, as we refer to it in product speak. There's just no shortage of challenges within the professional services world that we think technology can provide answers and solutions for. It's been a great run. I live here in Utah, and it's currently snowing outside. That's a little bit of introduction from me.

Sarah Edwards: Great. Sarah Edwards, I don't live in Utah, so it's not snowing. I live in London where actually, surprise, surprise, it's not raining. It's currently blue sky and sunny, but I'm sure it'll be raining again tomorrow. My background is professional services. I've worked in the professional services industry now, showing my age, I think, for over 27 years all the way through from being a consultant to a project manager to managing a global services practice.

I guess I've lived and breathed some of the challenges that our customers face, but also importantly, I've seen some of the changes in this industry and some of those changing demands on services firms. That's why I'm really passionate about my role in working with Jared and the team at Kantata. It's really how do we help services firms really address what are unique challenges that the industry faces. It's great to be here and join the discussion.

Brent Trimble: Thank you both. For our listeners in the services industry, and we're recording this here in the beginning of the year, January 2024, the challenges and the myriad of opportunity is always very complex with service industries. We here at Kantata, we're going through a bit of a positioning shift into this notion of the PS cloud and redefining that category.

As we talk through that today, would it be great to hear because you're so dialed in both in research and listening to our customers, listening to our prospective customers, studying the market, studying the contours there, let's start off with a bit around challenges for professional services. As they scale, they become more complex because they scale with their primary product, which are people, and scaling doesn't always make it easier to operate like other industries maybe that are in automation or manufacturing. We're a decade, maybe a decade and a half, into this category of legacy PSA that were really built to address some challenges around managing people and resources at scale. But in today's market, that notion really isn't enough.

Jared, I think we'll start with you. Why has, in your mind, vertical SaaS become really critical for running a modern services business?

Jared Haleck: It's a great question, Brent. Maybe we could just take a step back and maybe just pose the question why vertical SaaS in general for any industry, and we'll work into professional services. My simple answer for why vertical SaaS is why not, in the sense that when you think about the evolution of technology, it went from on-prem to cloud and since the cloud revolution, we've seen this atomization into taking horizontal platforms, maybe like Salesforce or SAP and others of the like, which are very horizontal solutions and take a great deal of customization and really complex configuration in order to meet the needs of specific industries.

We've seen this trend actually since the very early days of cloud software with pretty early breakoffs. One that I'd highlight is for the pharmaceutical industry, a company called Viva that was essentially built on the Salesforce platform using that technology, but they essentially molded it around the pharma industry. The reason for that is because you can get a lot more value out of solutions that are bespoke for a certain industry or built in a way that's wrapped around the specific needs and challenges, processes and so forth, and workflows of a specific business.

Services, I think, is really at the top of the list of industries that benefit from a vertical solution. I say that because there are just so many different structural challenges with running a services business. You've got people and the time and expertise of your people being the core product that you're selling but that happens to be large fixed cost in a business. Time is virtually one of the only things that is inherently perishable that you can't inventory relative to the things that you can sell in a B2B context anyways. Because of all of those challenges, there's a lot of different opportunities that arise in terms of building technology that can solve for those uniquely and specifically.

The stakes are really high. If you get it wrong in a services organization, the margin for error is thinner and smaller than let's say, in many other industries, maybe not all industries, but many other industries. The margin for error is pretty low and the stakes are high. Therefore, any incremental benefit that you can get using technology to reduce the risks, particularly the operational risks of running a services organization has massive benefit to the professional services industry.

Brent Trimble: I think that notion of time and the continuum is really key, and it is perishable. Sarah, you and I share a background in consulting and being in this business and now on the technology side to enable that business. I always likened it to we're always the sharks that had to keep swimming in that revenue journey or else we'd fall to the ocean floor. We've got customer data. We have insight and input from prospects. We study the market in the industry. From your view, Jared's done a nice job of articulating that differentiation with vertical SaaS. Why do you think that looking forward, this specialization, this verticalization will really become essential to these businesses?

Sarah Edwards: I think it's essential because I think actually the world of professional services is changing. I think there's so much more pressure now on professional services firms to not only operate their business effectively, but to do that, they have to retain and develop the talent they need. I talk to customers all the time where they're saying it's becoming much harder to retain and develop that talent. That talent is more demanding. They want to be put on the projects that they want to work on, that they're developing their skills. I think when I started out as a consultant 27 odd years ago, you went onto a project. You were put on that project. You went and worked ridiculous hours on those projects, and you moved from project to project.

I think the world has changed, and I think the demands of the talent pool now has really changed. I think services firms need to adapt to that. It's not just people, it's the customers. Customers now are far more demanding, and I think they’re demanding services in new ways. Again, talking to all of our customers, I think the way that they're delivering their services is now changing. Gone are the traditional projects where it was I used to go onto a project, you'd go onto the client site, you'd deliver that project, you'd go onto the next project.

Those days are gone now. I think we've got people working across multiple projects, selling annuity, repeatable-based services, a lot more pressure on organizations to package up and sell all of their services and deliver those in different ways to customers. I think now more than ever, services firms have to look at, how am I delivering a great experience to my people and importantly, to my customers? If I don't achieve that, they won't be successful.

Brent Trimble: Yeah, and that transition because when you think about it, you described that classic management consulting, staffing manager model where resources are selected, placed, complete work, move to the next one, maybe build some expertise along the way. But now there's all these multiple tensions between client and talent really shaping the industry.

I think that's a great segue for both of you. The next topic that as these tensions have really evolved and are driving and now really moving in quite a fast velocity to reshape the industry, how is technology keeping pace and impacting and transforming the value chain for these businesses?

Sarah, I put that to you, what are some of the key technical innovations, both that you see broadly in the industry and then of course, what we're working on to help these firms deliver value to their clients?

Sarah Edwards: We've always talked about, I guess, operational excellence being at the core. I still think that's the foundation. I think there's a lot of ways that technology can help services firms operate more efficiently. But I think where technology is now able to help and where the boundaries are being pushed with technology is how does technology enable you to deliver, as I said, a great employee experience? How does it enable my employees to see what projects are upcoming and be able to raise their hand or start to feel more engaged and get onto the types of work and develop their skills and capabilities in their career in line with the projects that they're delivering to customers? How do we monitor and track and manage and deliver a great experience to our clients? We've always talked about operational elements when you look at projects. Is the project on time? Is it on budget?

I think we're now seeing technology build and then be able to take it beyond that. What's the customer sentiment? Are they comfortable that the project's delivering the outcomes that they needed to deliver? What's the sentiment of the team on the ground who are delivering that project? Suddenly, I think technology is able to broaden and help people get a complete view of their business, moving beyond that operational component to employee and client experience as well.

Jared Haleck: That's a great point, Sarah. Maybe just to build on a couple of those massive shifts that occurred, not just in this industry, but it’s a generational shift. It's occurred across all industries. My timing of it is it occurred around 2015, somewhere between in the mid-2010s. We've always known that services is super reliant on people. What's that saying, is the economy stupid? Well, in services, it's the people. Everything's foundationally built on people.

You're probably familiar with this, Brent, but there was an HBR article, I won't be able to name the author who wrote a fairly well-known HBR article regarding services, and I believe it's called the services value profit chain, and it goes something like this. By the way, this was in 2008, take care of your people, your people will take care of your clients, and your clients will take care of your profits.

The notion of talent and taking care of talent, being mindful of cultivating talent, hiring the right people, retaining them because it's super costly. Just to break down the economics at which for our listeners who are in services, this may not be new for them, but in any other business, when somebody leaves, then the meter keeps running in terms of products being sold or services being delivered if it's a software technology service. But in professional services, when somebody leaves, the meter stops running, so it's especially costly when somebody leaves a business.

This has always been a major component of running a services business. Sarah talks about different pressures, going beyond just, hey, this is a very different high stakes business. It's actually gotten harder to run a services business over time. One of the key reasons for that is the talent landscape has changed quite a bit. I marked that going back to my comment earlier in the mid-2010s when really, millennials started to enter the ranks of management. The oldest millennials, they're in their early to mid-thirties and 2015.

That really marked for me. I was at another company at the time, and I experienced this building a different type of product, and it's no different here, really marked a shift to a departure from being able to ship software for businesses where you didn't have to think about the user experience. You didn't have to think about what the users thought about using the product because these users now become much more vocal through that generational shift. Millennials are much more collaborative. They're much less likely to force people who work for them to use technology.

The people who work for them, there's study back from around the same time, and I believe it was done by Dell EMC that said that millennials are 60% more likely to leave a job based off of the technology that's provided to them. Imagine that you're in a services business and all of a sudden, it's really high stakes for you to keep your employees. But all of a sudden, you now have to deliver them technologies that meet their criteria having grown up as digital natives. We call this the consumerization of enterprise software. That's been going on in all industries, but it's been particularly impactful in the services space because of the cost of not essentially keeping your employees happy and giving them the tools that they want to use and so forth. This is one really major facet of the change that Sarah's talking about that's occurred in the last half to full decade or so.

As you think about the technology that people like us are trying to deliver, we're really trying to be on the frontier of building solutions that not only the buyer is satisfied with, but also that the users are satisfied with. When, you look at the data around why organizations do not implement PSAs, which really are purpose-built solutions, and they actually are one of the earliest examples of vertical SaaS that emerged out of the early 2000s because some of the earliest PSAs go all the way back to 2000, 2002, 2004 timeframe. But those were all built in a different era for the needs of buyers, for the needs particularly of the finance office.

As you think about the kinds of technology that really services organizations are demanding today, it's moved beyond that. It's moved into how can I deliver technology that helps people get their jobs done in a way that they're willing to use it? That's the principal complaint of the legacy PSA space is that they're really difficult to use. Users don't like using it, and the cost of ownership is really high.

Sarah Edwards: Just to add to that, Jared, I think it's also about having the right tools in place to be able to adapt quickly. COVID showed this, but I think what we know now more than ever is that services firms need to continuously adapt. New AI technology is changing the way that many services firms, the skills and the practices and the offerings that they're having to deliver. I think services firms need to make sure that they can also be looking forward and that they can adapt quickly. I think unless they can adapt quickly, which often it's actually the technology that holds you back from that, they can't adapt quickly, maybe that's even as they grow, you talked about the challenges, Brent, at the start in terms of as you scale a services organization.

I speak to so many services firms where they've scaled successfully and haven't really integrated successfully. They've still got these pockets and silos of essentially different companies and different teams working together. They're not leveraging that global resource pool as an example and leveraging the global skills and capabilities that would enable them to really be able to adapt much quicker with new services to market, the way that they deliver their services. I think there's much more pressure on services firms to achieve that today.

Brent Trimble: Those are really good points. Moving from that, Sarah, you talked a little bit about that legacy orientation of are the project commercials, the quantitative metrics in place, and Jared transitioning more to the experience, both employee as well as client, which every firm is in the business of.

Jared, the article I think you referenced for our listeners is called Putting the Service-Profit Chain to Work. It's an HBR classic article you can find on HBR. It talks through that value chain, which is still extremely relevant, I think. But if anything now, these shifts you're describing are more prescient because you can't achieve these outcomes with that outdated technology.

For both of you, we've been evolving, and you're both on the vanguard of that on our respective brand and platform. We asked our CEO, Michael, a similar question, and you touched on it toward the end about organizational inertia and whether or not a firm really could transition and invest. But from a technical perspective, not necessarily organizational or prioritization changes and KPIs for a firm, but really from a technology perspective, what do you think the cost of doing nothing and continuing to use this pastiche or constellation of outdated tools?

We know the rejoinder for a busy moving at the speed of client business organization scaling or not, the answer is always somehow, we heroically get it done. We'll papier mâché these tools together and throw some people at it, and the work will survive. But what do you think, with these changing dynamics, the true cost of using outdated tools for a company can be operating in today's environment with all the new talent dimensions that Sarah talked about and Jared that value chain of both employee and customer?

Sarah Edwards: The one thing I'd maybe say to that frankly, you talked about this idea of heroics, and I think the services industry is something that has always relied on that, isn't it? It’s like, well, actually, we just have to make people work a bit harder. But I think that's changing, and I think actually services firms now to really survive and thrive in the new economy, they've got to be able to deliver new services quickly, deliver new services in different ways. They've got to retain and develop the talent. They've got to be developing, leading knowledge and talent around key areas like AI or whatever it may be.

I think that the pressure on that is they don't achieve. I think they ultimately will be unsuccessful. I think there's so much competition in this in the market where a customer I think has to make that change to be successful. I think you can only rely on heroics to a certain stage and then you've got to look at, well, how do we make sure that we're operating efficiently and that we are retaining and developing our talent across the business?

I think we're at the stage now that firms won't be able to develop the talent. They won't retain the talent, and they won't be able to unless they change the technology that they're using. Maybe to some of Jared's points earlier, I think, we're in a new era now. We can't just rely on those heroics.

Jared Haleck: You could characterize the era that's gone by where really the cost of doing nothing was, hey, I might not make as much margin. I might not be as profitable, but we'll get it done. I think we've moved into a new phase where it's not just about the hard costs, but it's about the opportunity costs. Keep in mind, one of the structural challenges of services is that the barriers to entry relative to other industries is virtually zero.

Brent Trimble: Absolutely.

Jared Haleck: It’s not entirely zero, but it's pretty close to zero. To Sarah's point, the competition has always been a factor, but probably more so now than ever before. When I say opportunity costs, I think that comes in a handful of different forms, the opportunity costs of not being able to see far enough around the corner to be able to make business decisions now that can put you in a place to take advantage of demand trends. You might be caught not being able to fulfill the work that you otherwise would have had you had the tooling in place to understand what kind of staffing you needed for not just three months out, but closer to 9 to 12 months out.

That's one form of opportunity cost. The other form of opportunity cost is just again, going back to the competitive factor, who's to say that your competition isn't exploiting technology to run their business and therefore has a competitive advantage over you? There's an opportunity cost in new business and potentially not being able to retain your employees as well because other people are running essentially a tighter ship, if you will.

I think those opportunity costs loom pretty large over services organizations. When you look at just purely common sense, looking at somebody who's using technology to truly run their business in a way that helps them achieve those degrees of efficiencies in their business, helps them deliver remarkable experiences to both clients and employees, those are the services organizations that are going to win. Again, we've talked about this a lot already, because of all the structural challenges of running a services business in the first place, it's pretty difficult to do that without a well-oiled machine, which, in a lot of ways, is dependent on technology to do that.

Brent Trimble: Before we wrap today, I'll pose maybe one last question. We've talked a lot about this evolution, the landscape changing both the dynamics of client demand, the services businesses themselves, the multiple tensions with talent, and then this notion of verticalization of SaaS and then our own positioning to the PS cloud. But for our listeners, and usually, our episodes, we tend to gravitate toward that practical expertise, things to consider, but give us a taste and a view for our platform of what we're doing to really stay ahead of these changes and deliver these solutions to clients. What are you most excited about?

Sarah Edwards: I guess we both can answer because actually I think what we're probably both really excited about some of the innovation that we're working together on and driving in terms of how we can enable our clients to look beyond, as we said, just that operational view of a project. How do you get better insight in terms of getting visibility in terms of how a project is performing in terms of how is your customer feeling? How does that relate to how we're delivering to the customer and also the team on the ground? Trying to really look at how we push the boundaries of insight and data and how we gather that insight and data beyond just those operational metrics, I think it’s something that's really innovative and will really start to transform this industry.

How many times in a services business do you find out projects read, and it's too late. You can't do anything about it. Whereas actually I think we know that there's insight and data that you could be gaining from customers, from employees to understand how is this project performing and being able to make those decisions earlier. Some of that innovation is something we're really excited about.

Jared Haleck: Just to build on a little bit of what Sarah said, if you think about the technologies that have been serving services organizations for the last almost two decades now, they've really been focused on the transactional aspects of running a services business and to bring that to life. They've been focused on cost and schedule. Am I going to make money? Am I going to deliver this project on time?

I guess the great irony of that is that when you think about a services business, it's not, by any stretch of the imagination, transactional in nature. It's a relational business. It's people engaging with people. It's like technology has gotten it all wrong for almost two decades now because it's really been focused on the transaction. Don't get me wrong. It's really important. You've got to have the operational rigor in your business to survive in this business.

But I think where a lot of the innovation is, particularly in a lot of the things that we're thinking about around how can we build on a platform where we do in our platform the transaction really well, but how can we start to introduce the relational? How can we start to use this platform as a way to collect information about not only the operational data that flows in and out of a project, but also the experiential data about how do clients feel about what they're experiencing as a customer on the receiving end of those services, and how do employees feel about working at that particular services organization or working on a particular project or for a particular client and then being able to combine those. That's an area, I think, that is really exciting, and I think it's going to be super valuable.

As we talk to our customers about this, look, you can always find inspiration from the things that people are already trying to do. A lot of our customers are already trying to take a platform like ours and bolt it to other platforms that aren't necessarily purpose built. But we think there's a lot of opportunity there. That's area number one.

Area number two is, Sarah mentioned this earlier, the AI frontier. Sarah and I did a session in our customer conference just about a month and a half ago where we laid out our case for generative AI and the impact it's going to make on the services industry and the impact it's going to make on technologies that serve the services industry.

I think in both of those examples, generative AI, just in the services context, never mind technology, it's going to have a massive impact. This is a knowledge-based industry generally. You have a technology that's basically indexed the entire human record and has essentially operationalized knowledge in a way that we've never seen before. There's going to be a lot of impact in the way that generative AI affects the services industry.

I think overall, it's actually going to expand the value frontier for services organizations just in the same way that Google and the early internet actually didn't contract the services industry because knowledge is more available. It actually expanded the services industry.

For those who are providing technology for services organizations, there's going to be just boundless amounts of areas where that kind of technology can be applied again, to not only make services organizations more operationally efficient, but moreover, that technology we've noticed is something that humans are actually pretty okay with engaging with. I think that's actually one of the core innovations of ChatGPT. People don't talk a lot about this is actually the user interface, the ability to just have an AMA or an ask me anything-style interface to augment the work that you're already doing. That's a massive breakthrough.

When you talk about technologies that employees would prefer to use, that's one of those technologies that employees would prefer to use. I think those AI technologies will be brought to bear to improve user experience or employee experience in the services context, and I think that's ultimately going to cascade out to client experience as well.

The last thing I would just say too, again, going back to this notion is it's all about the people in a services context. Some of that AI, we're already starting to use that in our products where we're leveraging that to solve very complex resourcing questions and challenges.

People underestimate why resourcing is as difficult as it is because we feel it when we're trying to resource and staff. If I could just take a second to bring it to life a little bit, Brent, if you were to take a company that had 20 employees and had to staff two projects with seven people each on that project, the number of permutational combinations of resourcing plans that you could put together exceeds 300 million.

There's a spectrum of optimal. What are you trying to optimize for? You're trying to optimize for profit. You're trying to optimize for client experience. You're trying to optimize for employee experience. Well, just having a few people sit in a room and just try to fit the puzzle pieces together, and usually what a lot of companies are doing is they're just trying to get to the point where it works. They're essentially just saying, hey, all right, it works. All these people are available. They roughly have the right skills. But what they actually end up with is one of those over 300 million permutations, and they don't really actually know where it sits on the spectrum of optimal.

This is where AI is some of the work that we're doing as well. We're using different AI techniques to essentially help people staff, not just a single project but multiple projects, and getting them closest to optimal as a starting point. Now obviously, there are things that technology doesn't understand or know about that's outside of the system, so you still have to rely on humans to get it to its final state. But getting you to that most optimal starting point, I think is a massive opportunity for the services industry in the sense of its ability to leverage AI into the future.

Brent Trimble: I like what you said. It dovetails into Sarah's earlier journey around the evolution of the business itself as an early career consultant, simply just being plucked and placed on project and now transitioning to this much more dimensional aspect where staffing and resourcing usually biased toward some nominal skill, margin, and availability, now being able to take all these different attributes into consideration.

Jared, your point around just the UI, right? In this evolution from legacy PSA, which was really folks punching keys and entering inputs into platforms that were really two-decade-old ERP tools. Everyone has those stories of gosh, I've got to log into the company's Acme solution and punch in some time and so forth. Bringing those to bear sounds really exciting. As a colleague, I do get a little bit of an inside view here, so I'm excited to see some of these solutions brought to bear.

This has been fascinating. We've gone through this journey of the why, and then you both bringing to life really the how, and we're excited to see these new enhancements rolled out both through our platforms and the industry. Thank you for your time, both of you. Sarah, I know you've been a little under the weather, so we appreciate that.

Sarah Edwards: I managed to cough not too much, but thank you.

Brent Trimble: For our listeners, again, we’d love to hear from you. If you have any follow-up questions, would like to hear more about some of these advancements or just the industry at large for myself, for Jared, for Sarah, you can always reach out to us at podcast@kantata.com. Thank you again for listening.