Billable Utilization and the PS Charter

I often like to take a slice of something that I’m working on and write a blog post about it.  This gives readers an exclusive look at the latest TPSA research and it also gives me an opportunity to test the waters with some of my newest ideas.  My current preoccupation is understanding what makes PS businesses tick from the standpoint of the PS charter.  This post provides a flavor of this work and provides an example, using the much requested topic of consultant billable utilization.

Dictionary.com offers multiple definitions of the word, “charter.”  In the context of TPS, the following definition is the most apropos:

“A charter is a statement or document outlining the principles, function and organization of a corporate body.”

This is as simple as it gets.  And yet in the context of technology professional services, the charter has been anything but a simple proposition.   Technology companies have been exceedingly schizophrenic when it comes to defining the actual “principles, function and organization” of their embedded PS businesses.  In fact, chronic misalignment between company executives and the PS business regarding precisely the question of the function, etc., of professional services has historically been the source of considerable pain and thrashing for technology companies.  The reason for this is simple:  technology professional services organizations are not stand-alone consultancies, but rather captive business units embedded within technology product companies.  Thus, their identity and purpose … their charters … have always been and will always be intrinsically tied to the core product part of the overall businesses. 

To be fair, one cannot fully fault technology product company executives for not knowing quite what to do with their PS businesses.  For one thing, the distinguishing characteristic of the vast majority of TPS organizations is that they have historically represented a relatively small piece of the overall revenue pie.  For another, technology PS is a completely different enterprise from building technology products, requiring an entirely different and unique mind set, not to mention business model.

So given the fact that TPS businesses are intertwined with the product businesses of the companies within which they are embedded, it stands to reason that they can have very different principles, functions and organizational structures.  The TPSA DataView that I’m working on right now goes into this topic in detail, outlining the myriad factors that underlie and define different PS charters.  It’s clearly not necessary to review all of that detail here.  The critical distinction I draw in the paper is between two fundamentally opposed PS charters:

1. PS Profit Charter:  The TPS business is in place mostly to drive intrinsic, direct financial performance and profitability
2. Product Support Charter:  The TPS business is in place mostly to support the company’s core product business

For the whole notion of the PS charter to have any meaning, explanatory power or prescriptive capability, we would need to be able to confirm a simple hypothesis:

TPS businesses with different charters should behave differently.

In othe words, differing PS charters should also be associated with differing PS policies and practices.  Practices are simple or complex business processes that can help PS organizations achieve targeted business results.  This definition is both descriptive and prescriptive.  The descriptive element is based on the notion that we should generally see a consistency between practices and results.  It is prescriptive in the sense that businesses should in general try to align the practices with desired or targeted results.

But to understand what practices should be attached to what results, we have to first have the data to show the linkages.  We might assume that profit-driven PS businesses should do many if not virtually all things differently from how product support driven PS businesses do things.  But we don’t really know for sure whether this is the case until we do detailed benchmarking.  The DataView goes into considerable detail in this regard, that is, to see whether there is a meaningful difference between the profit chartered businesses and the product support chartered ones in terms of their key policies and practices.  What I’ll provide here is one example of these tests … billable utilization.  So, what is the result of this test?

The above chart provides data from the latest (Q209) snapshot of the TPSA core PS benchmark survey.  And the result is pretty clear:  the target billable utilization profile for PS businesses that have a product support charter is very different from those that have a PS profitability charter.  Fully 43% of the profit-driven PS businesses have target utilization of 75% or higher, versus only 4% for the product support chartered PS businesses.  Conversely, 26% of the product support oriented PSOs target utilization at less than 60%, versus only 7% of the profit-oriented TPS organizations. 

As suggested above, this finding — only an example — has explanatory as well as prescriptive capabilities.  The explanatory content comes in the form of confirmation that the notion of the charter is, in fact, a potentially useful one.  Billable utilization is a king of KPIs for consulting businesses and is a key driver of PS financial performance.  Therefore, we would clearly expect PS businesses with very different charters to show very different target billable utilization levels … and they do. 

But perhaps even more importantly, this analysis demonstrates that PS businesses with different charters simply have different benchmarks and therefore most likely different recommended practices.  Utilization is, again, a very good example of this.  When the PS business is in place to drive high profits back to the company, high utilization is a must.  The more time consultants spend on the bench or doing non billable work, the less profitable the business is — plain and simple.   But when the PS business is in place largely to support the product business, lower utilization is not only acceptable, but probably also recommended since the non billable and/or presales work done by consultants is often precisely applicable to initiatives that drive company/product goals, such as product success, customer satisfaction and the like. 

This is just a flavor of the analysis I’m working on for my upcoming TPSA DataView.  If you like this topic, keep an eye out for the full paper!

Tags: Billable Utilization, Charter, Utilization