Mind the Gap: How to Bridge Front & Back Office Systems for Professional Services
By Roy Edwards & Steve Brooks, Enterprise Times
Is there a fundamental flaw in the tech stack of professional services organizations (PSOs)? New research from Kantata and Salesforce, conducted by Forrester Consulting, suggests this may be the case.
The survey of 383 global technology decision-makers at professional services firms found that at least half of services businesses still face major difficulties across both basic and complex tasks that are fundamental to long-term services success. Key activities that the majority of respondents said were very challenging with their current tech stack include:
- resource planning across the entire services workforce (51%),
- project budgeting and project accounting (51%),
- collaborating directly with clients on engagements (51%)
All these activities are core workflow activities that occur between the typical purview of the front and the back office in PSOs. Tellingly, 50% of decision-makers in Kantata’s research also said that integrating the solutions in their tech stack so that relevant information could be shared across the organization in an accurate and timely manner was very challenging. It seems clear that gaps are emerging between various parts of PSOs – perhaps none wider than the gap between the front and back offices – and the technology solutions many businesses are using to bridge gaps are not coming together to drive the clarity, control, and confidence decision-makers need.
For some PSOs, the parts of the business that manage processes between the front office and the back office are thought of collectively as “the middle office.” According to Chris Mitchell, VP of Global Accounts at Kantata, who works extensively with enterprises looking to address operational gaps between their front and back offices: “The activities that flow between the front and back offices are responsible for taking the forecast and revenue margin from your CRM system and turning it into recognized revenue in your back office system. This involves accessing multiple processes: HR, time management, expense management, resource planning, etc. These are the core processes involved in delivering the forecast. The middle office covers all the processes involved in a professional services engagement between an opportunity being qualified and the final invoice being raised. And you need to give people in the middle office collaborative tools whereby they can work together.”
Whether your organization formally recognizes the middle office or not, all services firms will need solutions and processes that bridge gaps between the front office and the back office to effectively manage the business.
This whitepaper will highlight, define, and explore:
- The reasons why gaps have emerged between the typical front and back office within firms.
- The red flags which indicate the existence of these gaps.
- How technology can bridge the front and back office gap and prevent it becoming a canyon
How Did the Gap Between Front and Back Offices Emerge?
Many professional services organizations are not top-down driven hierarchies. They primarily consist of firms of partners or loose alliances across different countries and regions. As these businesses grow, different systems and inconsistent processes emerge in discrete parts of the organization, and new systems and processes are often developed in isolation. Because of this, departments will often procure solutions that meet their immediate, specific needs or fix a particular problem without considering if the solution is open and the data accessible to other systems.
This leads to data silos that fragment information and make it impossible to get an accurate picture of professional services performance. Businesses that cannot connect systems and gauge performance in real-time may be able to use their front office tools to understand what they expect to do in a given period. They may also be able to leverage back office solutions to retrospectively understand what they did in a given period and how much revenue was generated. However, what happens in between – the execution – is a mystery.
Because of the perceived challenges that come with overhauling systems that cross multiple roles, teams, and key processes, it can often be easier to get consensus on point solutions that map to one clear need. Alternatively, businesses will focus on expanding the footprint of a solution that’s already in use.
Sometimes, this is the right approach to get the ball rolling on particular initiatives – start small, cause minimal disruption. But when this strategy focuses on point solutions with generic capabilities that are not specifically designed to address unique professional services requirements, it can have the opposite of the intended effect.
These solutions were ultimately not meant to provide the connected end-to-end engagement management needed in the professional services industry today. Instead, most of these systems operate as silos without seamless connections and workflows between core enterprise front and back office platforms. By further fragmenting the business and making it harder for business managers to see the big picture, such point or custom solutions have proved ineffective for many professional services firms.
The Red Flags: What Indicates Trouble Between Front and Back Office Systems?
There are several operational red flags that suggest a possible issue is emerging between your front and back office systems. These include:
1. Declining KPIs
Declining key performance indicators (KPIs) are a classic warning signal that there are issues or gaps between your front and back office systems. When KPIs begin to trend downward, it suggests that the essential workflows that ensure the business is able to consistently perform up to expectations and achieve targets are not being proactively monitored or optimized. This flagging performance can be reflected by the following:
- Poor or falling employee utilization rates
- Margin dilution
- Revenue leakage
Poor or falling utilization rates may develop because too many employees are sitting on the bench or because people with the wrong skill sets are working on projects. As a result, projects fail to line up with revenue forecasts and struggle to live up to the expectations of clients. A fixed-price project overrun can often result in higher utilization but a lower project margin. Another scenario that might lead to falling utilization is one where proposal management and resourcing systems work in isolation. This means that supply and demand cannot be balanced, leading to poor utilization or revenue leakage.
All businesses suffer from some form of revenue leakage. Simply put, revenue leakage is any unnoticed or unintended loss of revenue from the organization. If an enterprise is not actively looking for revenue leakage, it can go unnoticed indefinitely. It can add up to a significant loss of revenue in the long run, particularly in a global enterprise.
Research and strategic advisory firm MGI Research estimates that 42% of companies experience some form of revenue leakage. Analysts at Ernst & Young have suggested that every company should expect to lose 1% to 5% of realized EBITA to leakage.
Like revenue leakage, margin dilution is also a constant threat. Margin dilution occurs when the actual profit margin of a project is less than the planned margin at the time the project was agreed upon and contracted.
The challenge for professional firms is that program managers, project managers, resource managers, and PMOs often do not have visibility or access to key information to enable better decision making. This impacts their ability to make effective decisions that could mitigate revenue leakage or margin dilution.
2. Overreliance on Spreadsheets
Evidence of overreliance on spreadsheets in a mature PSO is also a potential red flag. Spreadsheets still dominate many aspects of many professional services businesses. In a 2021 Kantata-commissioned study, “Resource Management Tools Solve Critical Issues,” Forrester Consulting found that half of respondents were using spreadsheets for their resource management end planning, the most widely used tool among respondents.
As Tom Schoen, CEO and President at BTM, describes, spreadsheets are a natural starting place for keeping information organized in a PSO, though one that becomes cumbersome and limiting as the business grows:
"When I first started BTM, we ran it on spreadsheets that were all interlocked. It was pretty easy to do, when you have only half a dozen projects running at the same time. It doesn't work when you have 70 to 80 projects running. We needed a professional services tool to be able to help manage that workload."
One example of where spreadsheets can limit an organization and create gaps is at the project proposal stage – many professional services firms continue to use spreadsheet-based proposal tools.
The consequence is that information is locked in multiple individual spreadsheets, preventing key decision-makers from getting the forward view of overall demand that they need. This information is particularly essential for the resourcing teams.
For example, when sales teams work up new proposals in spreadsheets, an early sign of demand which can be useful upstream, the resourcing team has no visibility or access to that project pipeline. Consequently, the resourcing team doesn’t see these proposals until the project has been won or is at a late stage. They are put on the back foot immediately and placed into a reactive staffing process. They are now required to scramble to assign resources to meet the project requirements.
To align the front and back offices, professional services businesses need to connect these little islands of information so these groups can start collaborating more effectively. A professional service solution should include a proposal management tool that can quickly model resource requirements, identify potential shortfalls, and inform both the front and back offices of margin implications.
3. Critical Information Falling Through the Gaps
With the emergence of digital transformation and the rise of remote and flexible working, the number of tools being used in PSOs continues to increase, making the tech landscape for services challenging. It’s a complex and chaotic cocktail of different software systems serving different purposes, hosting different and overlapping inputs that often don’t talk to each other. This is exacerbated by the fact that these systems are sometimes geographically dispersed. Frequently, no system binds them together and delivers the oversight that allows the business to improve utilization rates and profitability. Furthermore, they are costly to maintain and may not include key capabilities like resource planning. Today’s business managers and stakeholders need visibility and access to information that will support their decision-making.
This complex and fragmented landscape can undermine efficient business processes in various ways. Core workflows remain disjointed and disconnected, which makes it easy for critical information to fall through the cracks. Without proper visibility of key metrics and workflows, companies are significantly limited in their ability to achieve next-level business objectives.
Some companies have attempted to create a data lake or corporate data store that takes data from all existing fragmented systems to enable a joined-up view with analytics that provides insights. Other firms have developed an enterprise management system (EMS), another overlay approach. However, some analysts have cautioned against this approach. These systems are highly complex and customized. They are also not the actual systems people use every day. So, the information needed to maintain client engagement and revenue is not applied when and where it is needed.
4. Increase in Workarounds and Homegrown Solutions
An increase in workarounds or homegrown systems designed to fill the gaps between point solutions is also an indicator to monitor. Professional services firms have plenty of options when it comes to time management solutions, expense management solutions, project management applications, and project accounting software.
However, the plethora of tools is like having pieces from different puzzles. They are not designed to fit together. That means that on top of investing in these tools, PSOs often need to use various methods to bring data together from these different systems. And it’s those reconciliation workarounds that often become a homegrown system, which often evolves around CRM systems, ERP, and specialist point solutions like expense and time management.
5. Unhappy Clients
Jacqueline Stanley, Director of Delivery at Hero Digital, suggests unhappy clients are also an indication of a problem between the front office and back office. She confirms the scenario, typical in agencies, where the account team is brought into the discussions at the later stages of discussions, possibly with unrealistic goals set.
"We have to translate those high-level requirements into deliverables to get on a good foot with the client."
The delivery team then must renegotiate those goals or may fail to meet those objectives. “When an agency misses the mark with a client, it’s always the delivery team’s fault. We will be responsible for the revenue leakage, and our margins will go down. The delivery team will be upset despite the fact that the team worked hard to develop work for this client, and the client remains unhappy.”
When Does Bridging the Gap Become Mission-Critical?
Disconnected systems can make it very difficult to accurately view current actuals versus baseline budget expectations. Imagine trying to corroborate information or data at a program, portfolio, or business unit level – lack of such complete, accurate, and timely information hampers effective decision-making, client satisfaction, and, ultimately, profitability.
Services businesses should start planning to align the gap when it becomes clear that the business forecast for margin, revenue, and profitability can not be delivered. This will help businesses realize the need for additional and specialized processes to support the effective delivery of the forecast.
According to a 2021 Forrester study commissioned by Kantata, businesses are struggling to realize needed benefits “because they are limited by their technology stacks. Many use outdated technologies, tools, and processes rather than those that serve their evolving needs.” The study goes on to report that professional services firms are underserved by legacy tools “that are siloed within projects and not compatible with ERP/CRM applications in use.“ 1 This lack of compatibility is exacerbating the gap between the front and back offices. It needs to be addressed before the challenges that come with disconnected teams, systems, and processes become too big a burden for the organization to bear.
How the Right Technology Can Help Solve the Problem
To close the gap between the front office and the back office, firms should consider using a specialized professional services solution to enable all stakeholders involved in the engagement lifecycle to collaborate efficiently. The solution should provide visibility of all key project KPIs in real-time. The right tool will enable project teams to deliver or actualize the margin and revenues originally baselined at the proposal stage. This approach will break down silos, providing visibility to internal managers to make better everyday decisions impacting project margin and revenues.
The Blueprint to Closing the Gap
Here are some tips for finding solutions that bridge the gap between your front and back offices in your tech stack.
Key managers and stakeholders must have full visibility of the project pipeline of planned and current projects, revenues, margins, and expenses. This information will come from CRM, the HR system, PPM, timesheets, expenses, and other sources. The new solution requires more than just role, experience, and skills matching; there needs to be a commercial context. So, the commercial impact of different resourcing strategies on commercial engagement performance can be continuously re-evaluated in the context of the resources available.
The solution must enable real-time monitoring of the engagement budget versus actuals, to allow the analysis to support taking early corrective action. In many professional services companies’ engagements, profitability is seen as a finance rather than a delivery responsibility. This leads to finance systems like SAP being used for project accounting. The issue with this is that engagement monitoring becomes retrospective and one-dimensional – actual versus budget without context. The solution should provide full context as to the cause of variation. It will support resource and project managers in re-planning budget and resource engagement quickly and efficiently.
The new solution should have been developed, evolved, and been proven specifically within enterprise PSOs. This will require multiple releases of the application within many PSOs, which are specific to professional services. If this is not the starting point, then major custom development is inevitable, which brings high cost and high risk. How many custom solutions go live anywhere near budget and have high user adoption?
The specialized functionality should be highly configurable to accommodate the constantly evolving service lines and vertical industry alignments of complex enterprise professional service companies. This requires an actively managed and configurable package as opposed to a custom development. Custom development cannot be adjusted quickly enough.
The solution should have a comprehensive data model, which fully supports the entire engagement lifecycle. However, data integrated from many other systems can be translated into something consistent and complete. In other words – it is a harmonizing solution that adds value and meaning by connecting with key components and replaces fragmented point solutions, spreadsheet, workarounds, and other manual systems.
The new solution must be open so they can exchange data with multiple systems consistently at scale, governed by clear business rules. This requires a mature middleware strategy.
To ensure the new solutions run smoothly, the engagement manager needs to work closely with the account manager to maintain the commercial performance of the engagement. This is far more relevant than someone in finance working on limited information across multiple projects. The specialized nature of the solution also allows intelligence to be built in, highlighting scenarios that can lead to revenue leakage before they happen.
Professional services firms are increasingly deploying AI and machine learning (ML) technologies to drive efficiency and expand the services offered to clients. Spending several days reviewing documents or contracts is a thing of the past; AI-based tools can carry out routine but complex tasks in seconds. The future of services technology continues to evolve and shows no signs of slowing down. Organizations must be prepared to optimize their technology stack to keep up. The sector is already investing in cognitive technologies. A Deloitte study revealed that AI investment delivered slightly higher returns for professional services companies than the median ROI of 17% across all industries.2 Along with tech, media, and telecom companies, professional services firms have made the highest investments and realized the highest returns.
Back to Basics: Filling the Gap!
To fill the gap, services businesses need to build processes, data, and technology — fast. The solutions are based on highly uncertain input, which firms can iteratively improve with business users in an agile manner. Well-established processes are required, supported by the right tools, and play a critical role in keeping projections in line with actuals. Inevitably, as part of a normal engagement, issues arise that can change a project from its original proposal written to what is recognized in the back office system. The cumulative effect of changes in multiple project scopes and deliverables can be devastating to a firm’s margins and revenues. “Service businesses must manage that change to ensure it stays as close to the original forecast, revenue and margin as possible. That is the essential role for these professional service solutions,” adds Mitchell.
Narrowing the gap requires change management to break down the existing walls. Services businesses are required to create and sustain a corporate culture of collaboration and continuous engagement to ensure effective decision-making within the firm. This will require a serious dose of change management in firms to demolish the walls between silos and fill the gap. Tackling the complexity of the gap between the front and back offices also requires several robust capabilities (as indicated in the blueprint) that ultimately can help lower costs, reduce risks, and increase customer satisfaction.
¹ Resource Management Tools Solve Critical Issues, April 2021. A commissioned study conducted by Forrester Consulting.
² Becoming an AI-fuelled organization -State of AI in the enterprise, Deloitte, 4th edition