January 26, 2021

Managing Technology as a Revenue Driver in Services Firms

Technology is moving to the center of attention across professional and business services – and firms are spending more and more, not just absolutely but also relative to their revenue. If solely treated as a cost position, it becomes a race to the bottom. Instead, if considered a revenue driver and managed as an integral part of your firm’s P&L, technology paves the way for new business models, growth, and profitability.

An article by Sebastian Hartmann & Stephan Kaufmann

Firm leaders and executives, analysts and industry observers agree that around 2025, most Professional Services firms (short PSFs) will not rely any longer on the linear dependency of revenue growth to headcount growth. Emerging technologies are changing service delivery and workforce management and are favoring outcome-based business models. Solutions based on professionals, data, and technologies coming together in novel ways, virtual and hybrid delivery models and subscription and XaaS business models.

Latest since the pandemic hit, investments into collaboration tools, workflow and delivery platforms, client portals, and differentiating digital and hybrid client experiences are recognized as business-critical fuel to a firm’s performance and competitive differentiation – truly right next to their people for the very first time.

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Despite decreasing data storage and compute costs, analysts predict technology spend to grow in both absolute and relative terms across legal, consulting, tax, accounting, and other professional or business services firms.

This changes what managing both the business and the underpinning technology means for firms and leaders, who will need to

  • embed technology systematically in business and operating models,
  • fund and operate increasing technology spend (and thus a more digital business),
  • move to cloud-based platforms,
  • consciously and proactive manage both internal and external demands,
  • systematically drive synergies across the technology stack,
  • analytically parse out technology cost to single client engagements,
  • or comply with more complex regulatory requirements at speed.

“Technology Business Management” (short TBM) as a discipline and important capability moves to the center of attention – not just for CIOs and CTOs, but for practice groups, sector and office leaders as well as individual engagement (project, case) managers, who need to stay in control of delivery performance and costs.

TBM was born out of the necessity to provide technology leaders with standards and best practices to communicate the cost, quality, and value of IT investments to their business partners. First established by the Technology Business Management Council, TBM is a value management framework, which defines the tools, processes, data, and people needed to manage the business of technology. It has been adopted by enterprises across nearly every industry, from telecommunications and government over manufacturing and banking to healthcare and business services. These organizations are using the TBM framework to manage, plan, and optimize costs, value, and quality of all technology investments. In turn, IT is enabled to drive innovation for their organization and in close collaboration and alignment with the client-facing business.

We have summarized TBM within our service provider context as follows:

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The following questions are driving the need for systematic investments in TBM capabilities:

  • How can we leverage technology for business growth?
  • How do we build technology into our business model?
  • How can we report technology usage for services and clients?
  • How can we control our technology demand?
  • What are our budgeting implications?
  • What does this mean for the economic model of the firm?
  • Who manages which related technology and service KPIs?

To provide replicable answers to these questions, I&T leaders must overcome a central challenge: addressing different stakeholders in their respective language, typically Finance, IT, and the business. Therefore, TBM banks on a standard taxonomy that is designed and ratified by I&T leaders to be industry-agnostic. This taxonomy, at its core, helps to communicate and visualize I&T cost and value across three distinct layers – each of them targeted at one distinct stakeholder group. Together these three layers allow building a cost / value model of an I&T organization. TBM defines the layers as follows:

“Cost pools are low-level categories that are often aligned easily to general ledger accounts. Not only do cost pools make cost allocations easier, but they also enhance reporting because they can be traced through the model to reveal the composition of costs.”

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“IT towers and sub-towers are the basic building blocks of services and applications. […] They are sometimes called domains or functions.”

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“Services are what IT delivers to end consumers: business leaders, end-users and often external parties such as partners and customers.”

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In sum, they form a three-layer taxonomy that by many I&T leaders is considered a best-practice approach to communicate and visualize how I&T organizations create value for the entire enterprise. While this taxonomy is the foundation of TBM, we understand it as a holistic management approach. The value does not lie in the taxonomy per se, but how based on it, the firm can construct managerial disciplines around it.

We see four disciplines at its core:

  1. Financial Management: creating fully burdened cost transparency for fact-based management (incl. charging clients for technology)
  2. Strategy and Roadmap: understanding and shaping business value (with technology as an integral part of client facing solutions and service delivery)
  3. Portfolio Management: running projects, services, and applications professionally – and in continuous synchronization with the business
  4. Data and Analytics: integrating, managing, and sharing meaningful I&T data – which can be linked to financial views

Important to note is that in principle, these disciplines can and often do run in parallel. However, to boost the meaning of each financial transparency is key. It serves as the factual glue between the disciplines and the financial model acts as the single point of truth. Establishing TBM, for example by founding a “TBM Office” or similar roles, paves the way to superior cost and value management of I&T operations and drives alignment with the front office.

Professional and business services providers have now realized the growing and fundamental impact of technology on their business, their firms’ competitive differentiation and hands-on client and employee experiences – especially in a virtual or hybrid, pandemic-shaken world. So, it is time for both business and I&T leaders to collaborate and jointly adjust the financial management views – even for those traditionally people-based knowledge-driven services, like legal services, consulting, tax or accounting.

TBM is a catalyst towards technology-driven business models and revenue growth for PSFs. It is foundational to managing the ROI of your technology investments.

Get in touch if you want to learn more about TBM and how we deploy this for our clients, especially professional services firms or business and technology service companies.

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