New PAC Report: What PSOs can do to build resilience and stay competitive
A study conducted by PAC (a Teknowlogy Group company), on behalf of Unit4 sheds light on the recent performance and future priorities of Europe's 2 million service-based businesses. Based on the insights of 400 industry leaders, the research highlights the challenges that professional service firms face as they adapt to new working practices, business models, and technology platforms that have all been transformed by the significant impact of the pandemic and the changing needs of customers and employees.
With the economy facing renewed volatility, forward-thinking service-based firms are taking action to ensure they can survive and thrive. This study has identified significant changes in opinion and thought since the last report, particularly in terms of growth drivers, the role of CFOs, and the urgency of digital transformation. Businesses must adapt to these changes now to stay competitive.
In this blog, we will look at the key findings of the 2023 report and how they differ from the previous year. For leadership teams at professional service firms, the analysis in this report provides a benchmark of the financial and operational performance of their peers and an insight into how they plan to address the key market dynamics that will shape the sector in the coming years so for more detailed information; you can download the full report below.
Key Findings:
- Growth - The professional services sector continues to show signs of good growth, and despite some remaining volatility, more than three-quarters of PSO executives expect their headcount to grow in the year ahead. Project managers and software developers are the most in-demand skills.
- Growth drivers - Selling more to existing clients and launching new services will outweigh M&A activity and the pursuit of new logos as the main growth drivers. This is compared to last year, when 50% of business leaders stated that new customers would be their primary driver.
- Project management – Meeting project deadlines remains a challenge for many firms, with 45% failing to deliver at least 25% of their projects on time last year. This poses a significant challenge for PSOs who prioritize repeat business with existing clients.
- Resource management – It has become a major concern that 42% of PSOs have not achieved an 80% utilization rate in their latest financial year. However, there is significant scope to enhance the productivity of the current teams.
- High attrition - Last year, over a third of PSOs had to deal with attrition rates exceeding 20%, a higher ratio compared to the previous year. Business leaders need to harness the power of talent management solutions that can help them to understand the reasons for churn so they can develop strategies to combat the problem.
- Talent retention - The race for talent shows no signs of slowing down in many areas of the professional services sector and ensuring that your company’s brand has a positive impact will have a growing impact on recruitment and retention levels. Executives believe more attractive roles and career paths are tempting away departing staff, while more than three-quarters admit they need to do more to improve employee engagement and wellness.
- The role of the CFO – Chief Financial Officers are playing an increasingly important role in organizational strategies, sales, customer engagement, and contract and deal execution.
- ESG strategies – These have not been sidelined by the economy as less than a quarter (22%) of leaders state that they have become less of a priority, while 37% believe they have become more important Professional services businesses are staying committed to their sustainability plans despite economic changes. Clients, investors, and regulators are all looking for progress in areas like decarbonization. Young professionals prioritize ESG factors when choosing employers.
- Legacy technology – This is still holding the sector back, with more than three-quarters of PSOs (79%) citing aging applications as a barrier to driving innovation in their business, while a further 76% identify a lack of integration between existing systems as a challenge. In 2022, 71% of those surveyed stated that legacy systems were holding them back, but in 2023 this number has risen to 79%, indicating that organizations are holding onto their legacy systems rather than investing in new technology. The businesses that will achieve the most success are the ones that establish a flexible foundation, which supplies all departments with the necessary data and information to adapt to developing market trends and customer needs.
Building organizational resilience
Organizational resilience refers to an organization's ability to anticipate, prepare for, and respond to both minor fluctuations and sudden disruptions. It encompasses a range of characteristics that enable businesses to flourish by proactively addressing risks and opportunities, enabling them to avoid or mitigate risks while more easily embracing opportunities. Over the past year, the professional services industry has seen a noticeable shift toward improving organizational resilience, profitability, and cash flow. This is in response to the changing global economic landscape. Despite the challenging environment, many firms remain optimistic about growth and plan to expand their workforce.
Barriers to innovation
The three main barriers to innovation for 2023 were identified as legacy solutions, lack of systems integration, and limited insights into performance data. Efficiency improvements can only be achieved if the operational challenges identified in last year's study, such as inconsistent staff utilization and high attrition rates, are addressed. Urgent action is needed to tackle sub-optimal project delivery to enable firms to expand their revenue streams with current customers. Modernizing the legacy application landscape and enhancing integration between different systems is also crucial for organizations to innovate and create new offerings for the market.
A focus on existing business
In the 2022 study, M&A activity and the acquisition of new customers were identified as the two most important drivers, but this has been replaced by selling more to existing clients and launching new products and services in the 2023 outlook. Over half (57%) of business leaders in the study have expressed their intention to invest in strategies aimed at enhancing customer retention. This highlights the increased emphasis on nurturing the current client base. Customer relationship management platforms will play a crucial role in the digital transformation strategies of PSOs in 2023.
Overall, the report provides an intriguing insight into the rapidly changing market dynamics of the professional services sector. Various factors will influence the market as firms strive to strengthen their relationships with current clients and expand their offerings. However, significant effort will be required to achieve these goals. Despite this, there are a few encouraging takeaways from the study. The most important of which is that change is an inevitable aspect of the global professional services sector, and those who can build resilience and adapt with agility will prosper in the coming years.
Ready to learn more?
To read the full report and understand the complete picture of the professional services sector as we navigate 2023 and beyond, check out the PAC Research Study, Professional Services: A Benchmark for 2023, which you can download here.
To learn more about how Unit4 can transform your operations, check out our dedicated professional services industry page or click here to book a demo of our suite of solutions.
