Unpacking the State of Professional Services With John Ragsdale

Kantata has just unveiled its highly anticipated State of Professional Services Report, offering fresh, insightful perspectives on the current state and future trajectory of the industry, all derived from candid feedback from global companies. What do these revelations indicate about the market? How does your business stack up against your top competitors?

Navigating these insights can be overwhelming, but everyone could use a guiding hand toward a more promising future. That’s where we come in.
I recently had the privilege of talking with John Ragsdale, Distinguished Researcher and Vice President of Technology Ecosystems at Technology Services Industry Association (TSIA), on Kantata’s podcast, The Professional Services Pursuit, to discuss our research , as well some of the insights John uncovered in the 2024 Technology Survey conducted by TSIA.

The following is an excerpt from our conversation, highlighting some of the biggest takeaways. For the full podcast episode, click here.

Revealing the Future of Professional Services By Looking at its Past

Brent:

The world is definitely at a period of unrest, but 70% of professional services leaders have some optimism about the future. It’s clear that people-powered businesses are seeking solutions to common challenges.

Technology is a top business challenge for firms, with nearly half of organizations saying upgraded core systems is among the top three things they plan to tackle. And this is a notion, of course, particularly in the consulting industry, that’s critical for delivering innovation for clients despite neglect of the tech stack.

What kinds of signals are you seeing in the market?

John:

There’s a lot of optimism because the percentage of companies saying they’re planning an investment in the next 1 or 2 years was very high across almost every category in the survey, which was quite a bit up from last year.

I think it’s because there’s a lot of AI-infused spending and a lot of budgets opening up. But specifically for professional services automation, 66% of companies said they had a PSA tool, but 75% had a budget for a new or additional PSA in the next one to two years. So when most people have a PSA but are shopping, it tells me that the legacy PSA tools aren’t keeping up and they’re rolling to a new software.

Professional services is evolving and today businesses are struggling with how to implement subscription services, value-added services, and the shift to fixed price, repeatable offers. These legacy platforms that were primarily implemented to handle long-term, complex custom integrations simply don’t meet the needs of today’s professional services automation.

The other interesting thing is, a decade ago, we thought that PSA was primarily a big company technology, but spending is pretty high across all size revenue companies. And 58% of even the smallest companies in the survey, under $100 million, have a budget for PSA. I think that best-of-breed professional services automation in particular, infused with artificial intelligence and now generative AI, is going to have a big impact. It’s no longer just a tactical solution about managing margins. It’s really becoming a much more strategic platform.

Brent:

In our survey, we found that 76% of professional services leaders don’t even trust their own systems data due to duplication, silos, and lack of clarity around things like timelines and governance. What are some of the biggest trends and data points you’re seeing around data you can trust in your organization?

John:

Companies are really saddled with these old legacy systems that aren’t scaling if they’re not well integrated. They’re just not leveraging the data that’s available. I truly believe that business leaders have to take ownership of these data challenges. They’ve got to be comfortable understanding it. They’ve got to be able to have a proactive conversation with it, and not just assume it’s going to fix all of these problems.

I recently completed a survey on roadblocks and challenges to AI success, which revealed that data quality and centralizing data from multiple repositories were significant roadblocks in successful AI projects. It’s not just about data cleanliness, it’s also about breaking down silos.

Another of our surveys said that only 28% of sales teams are required to capture the desired outcomes of a customer during the sales cycle. Everybody is doing outcome-based, ROI-based selling, but they’re not capturing it. So professional services gets this project handed to them and they don’t know why they bought it or what they’re planning to do with it or their timeline for ROI.

So they’re probably generating this generic proposal and it’s not meeting the needs of the customer. That’s just one example of how breaking down these silos and really leveraging more of the information that’s available could really help you craft a highly personalized proposal that specifically speaks to the needs of this customer.

Brent:

In our survey, close to two thirds of professionals admitted they had to turn down work in the past 12 months due to lack of adequate available resources, which seems bonkers. Now, broadly, we’re at nearly full employment. But of course, if you look at the data, you know, technology’s been down and consulting’s been shedding jobs.

So is it a mismatch or a lack of pairing of available talent in the market? Is it from maybe going too lean too fast? A services firm is inevitably going to always be a little bit behind the hiring curve because of the nature of things like bench and so forth. But what do you make of this?

John:

This has been a historic problem. It’s a very people-intensive business. But there are really fundamental issues with prioritizing resource forecasting.

It’s taking an average of 18 business days to source a project and you’ve got the sales pipeline with percentages of close rate being predicted. Companies have got to do a much better job of mining this pipeline so they understand what projects are going to be hitting their plate in three months, six months, 12 months, and what skills and certifications and industry requirements need to be there when that happens.

We need to get ahead of what projects we’re going to be getting so we can intelligently start recruiting. Maybe hiring is down, but I haven’t seen layoffs of consultants, and most companies are still trying to recruit consultants. And it takes three months for a consultant to become billable, so there’s a significant lag time.

This is an area that AI is really showing some early potential. The average backlog of projects being deferred to the next fiscal year because you don’t have the resources to complete the project is nearly $9 million. So that’s revenue you were supposed to close this year that is slipping to next year. Not only are you missing this year’s revenue number, but you’re also missing customer expectations because they’ve just gone through this 12-month sales cycle. They’ve signed the deal. They’re ready to get implemented. And you come back and say, “I’m not going to have a team for three months because of the big year-end push.”

So it’s a significant revenue impact, but it’s also really a significant customer experience impact as well.

Brent:

That’s fascinating. Another trend we’ve seen in our research was that improving client satisfaction was a top four challenge in 2023.

Respondents nearly universally agreed that client expectations around services delivery are increasing primarily around quality of work, speed of delivery, and transparency of the project. Where do you think a lot of firms encounter challenges and don’t quite get things right in client satisfaction?

John:

I think the biggest challenge is companies that are coming from an on-premise history.

Let’s be honest. You collected all the money for the deal upfront and you implemented it. And if the customer got value, that’s great. But if they didn’t, their check still cleared.

So I think that some companies were a bit guilty of this launch-and-leave mentality of “We’re going to go on site, we’re going to implement it, and you’re on your own after that.” In a subscription economy, that doesn’t work. You’ve got to be delivering on time and on budget. You’ve got to be delivering the anticipated value that the customer wants, and if they don’t get that, they’re very unlikely to renew. And if they don’t renew, you’re never going to have a profitable account.

One of the things we’ve seen is that the core charter of professional services has been changing. Historically, it was revenue and margin. And now the number one charter is delivering adoption and value.

So are they taking that to heart or is that something they’re being mandated to do? They have a critical role to play in really setting the customer up for success from the very beginning. And I think that many companies are now being forced to rethink the entire services port-to-cash process to put the customer at the center of everything.

Now you can measure positive or negative sentiment so before the project closes and you find out the customer is unhappy, you’re going to be getting clues at every stage of the project. It’s really a game changer that we can start being more proactive, not only about profitability and margins and utilization rate, but also about meeting the needs of the customer. And you’re going to know that at every step of the way.

Brent:

Thank you, John, this has been great.

John:

You’re very welcome. Great to be here and always fun chatting with you, Brent.

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Want to learn more about the state of professional services? Our full 2024 State of Professional Services Report is now available.