business process alignment: accelerating the quote-to ... · systems basis for initiation,...

A Service Performance Insight White Paper Sponsored by NetSuite

Service Compass: Charting the Course to Professional Service Excellence

Business Process Alignment: Accelerating the Quote-to-Cash Cycle

June 2011

Service Performance Insight

6260 Winter Hazel Drive 25 Boroughwood Place Liberty Township, OH 45044 USA Hillsborough, CA 94010 USA

Telephone: 513.759.5443 Telephone: 650.342.4690

[email protected] [email protected]

www.SPIresearch.com

mailto:[email protected]


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TABLE OF CONTENTS

Abstract .......................................................................................................................................... 1

Introduction .................................................................................................................................... 1

Common Breakdowns in Quote-to-Cash Business Processes ................................................ 3

Where Do You Start? ..................................................................................................................... 3

Application Integration Improves Cash Flow ............................................................................. 4

The Benefits of Integrated Service Resource Planning ............................................................ 4

NetSuite Solutions for Professional Services ............................................................................. 7

Seamless Integration of CRM, PSA and ERP ............................................................................ 8

Recommendations and Conclusions .......................................................................................... 8

About Service Performance Insight .................................................................................... 10

FIGURES

Figure 1: Service Quote-to-Cash Process ...................................................................................... 2

Figure 2: System Integration Improves Visibility, Productivity and Profits ..................................... 5

Figure 3: NetSuite Service Resource Planning .............................................................................. 7

Figure 4: NetSuite OpenAir ............................................................................................................ 8

TABLES

Table 1: Business Applications Integrated with Core Financials .................................................... 6

Table 2: The Benefits of PSA and CRM Integrated with Financials ............................................... 7

Service Compass Business Process Alignment: Accelerating the Quote-to-Cash Cycle

© 2011 Service Performance Insight Page 1

ABSTRACT

In today’s economy, cash flow rules. Every organization must focus on

cash flow to maintain a solid financial position and maximize

profitability and liquidity. In professional service organizations (PSOs),

this process begins with a client quote and ends once payment is received

and the money is in the bank. This macro process of converting sales

opportunities into paying customers is often referred to as ―quote-to-

cash‖, and its optimization is essential for financial well-being.

Many PSOs emphasize the collection process once an invoice is

generated and the work has been delivered. They specifically target

Days Sales Outstanding (DSO) as a key metric of financial hygiene.

DSO is actually the ―tail of the dog‖ and represents the final process of a

progression of steps which convert opportunities into cash. In reality

quote-to-cash is a series of interrelated processes that include:

Sales pipeline and forecasting;

Project scoping and estimation;

Proposals and approvals;

Contract negotiation and acceptance;

Project staffing;

Project execution;

Project completion and acceptance:

Invoicing, and,

Collection.

To optimize these fundamental business processes, many PS executives

rely on the integration of core business applications to provide visibility,

transparency and control. These applications include: Client

Relationship Management (CRM), Professional Services Automation

(PSA) and the primary financial solution (ERP), which each manage

aspects of the quote-to-cash process. Although all of these applications

are offered on a stand-alone basis, the true power of managing the entire

quote-to-profit business cycle is best accomplished by an integrated suite

of applications, commonly referred to as Service Resource Planning

(SRP).

This White Paper identifies the challenges and opportunities PS

executives face when striving to optimize profits through the quote-to-

cash process. The findings and specific benchmark data were taken from

Service Performance Insight’s 2011 Professional Service Maturity

benchmark study, which analyzed results from 214 billable PSOs.

INTRODUCTION

The pressures facing the professional services sector are similar to those

in other markets:

The need to generate high quality leads and prospects;

The need to win competitive bids;

The need to book and schedule orders;



The need to deliver high quality services (and/or products) in an

efficient and profitable manner;

The need to invoice in an accurate and timely manner and

expedite the collection of money; and

The need to maintain and grow existing client relationships to

sell additional products and services.

While other markets must primarily consider product availability and the

efficiency of the supply chain, in professional services the real concern

involves people and the interrelationship of different functions –

marketing, sales, service delivery, finance and account management

(often with competing goals and priorities) to identify, price, bid, win,

perform, collect and expand service projects.

High performing service organizations develop clear roles and

responsibilities combined with congruent measurements and supported

by integrated systems to effectively manage the quote-to-cash process.

Figure 1: Service Quote-to-Cash Process

Source: Service Performance Insight, June 2011

The service quote-to-cash process begins with the development of

winnable proposals and bids that meet or exceed the financial

requirements of the PSO. Once won, projects must be scheduled and

staffed with appropriately skilled resources who can deliver quality

services on-time and on-budget. As project delivery proceeds, it is

critical to closely monitor progress so the project meets the client’s

requirements and remains profitable. Finally, at various milestones

during project delivery, and at the end of the project, accurate and timely

invoices must be generated that clearly reflect the work provided and the

time and expenses incurred, so that they can be expeditiously approved

and paid by the client.

The following sections emphasize the importance of some of the

fundamental quote-to-cash processes, and how improvements can yield a

significant financial payoff. The final section provides benchmark

results which highlight the benefits of integrated service resource

planning solutions compared to stand-alone applications.



COMMON BREAKDOWNS IN QUOTE-TO-CASH BUSINESS PROCESSES

From our research and consulting we have found the underlying cause of

poor financial performance often stems from organizational and

functional process breakdowns in the service quote-to-cash process:

1. Quote (Presales) – Poor lead qualification contributes to a high

cost of sales and a lack of alignment between opportunities and

service capabilities;

2. Sell, Negotiate and Get Order (Sales) – inability to articulate

the service value proposition inhibits calling on real decision-

makers which can elongate the sales cycle and may force

acceptance of unfavorable contract terms or excessive discounts;

3. Staff (Initiate Project Execution) – Inefficient resource

management and poor or non-existent skills tracking can lead to

placing the wrong resources on projects resulting in project

delays and overruns;

4. Delivery (Project Execution) – Poor alignment and handoffs

between service sales and delivery lead to miss-set client

expectations and acceptance of unrealistic timelines and/or

deliverables;

5. Invoice and Collect (Billing and Reconciliation) – a lack of

alignment between contracts, statements of work, project plans

and time and expense collection cause invoicing errors which

lead to lengthy collection cycles, rework and lost revenue.

Clients hate having to restate discussions, requirements and

agreements to disconnected sales, service delivery and finance

representatives.

A lack of smooth handoffs between functions inevitably leads to project

overruns and lengthy collection cycles which compromise client

satisfaction, referrals and future business.

These organizational and process breakdowns are further exacerbated by

poor or non-existent systems, manual processes and data entry, and a

lack of integration between CRM, PSA and ERP applications. The final

―coups de grace‖ in a broken quote-to -cash process is poor or no

management reporting and visibility to be able to spot problems and fix

them before they spin out of control.

WHERE DO YOU START?

When the quote-to-cash process is broken, the best place to start is with

an assessment.

Some of the areas SPI Research has found to be effective ―first steps‖

include:

Comparison to industry benchmarks shows the revenue and

profit potential if improvements are made and provides the

business justification for making an investment;

Assessment of competing functional roles, responsibilities, goals

and measurements reveals the underlying causes of friction and

misunderstanding;



Business process modeling of ―as is‖ and ―to be‖ processes lay

the foundation for change and help clarify roles, responsibilities

and handoffs between functions supported by appropriate

metrics;

Based on objective analysis, leadership alignment around

priorities is manifested in an actionable business plan which

includes budget for new systems and applications, and

Project teams are empowered to focus on the top improvement

initiatives which will likely include selecting and implementing

new systems, business controls and metrics.

APPLICATION INTEGRATION IMPROVES CASH FLOW

To improve the quote-to-cash process, PS executives are turning to core

business application integration to provide visibility, transparency, and

control. The three primary business applications used to improve and

automate the quote-to-cash process include:

1. Client Relationship Management (CRM) supports the

management of client relationships with improved visibility to

lead generation, contact management, deal capture and pipeline

management with the goal of enhancing sales and marketing

effectiveness. CRM allows PSOs to track clients throughout the

sales lifecycle, and to specifically target customer segments and

offers by understanding details of the relationship.

2. Professional Service Automation (PSA) solutions provide the

systems basis for initiation, planning, execution, close and

control of projects, resources and services. PSA improves

service delivery, resource management, project management,

and collaboration, while ensuring accurate and timely time and

expense capture. Over the past decade PSA solutions have

become increasingly popular as a means for improving resource

management and service delivery effectiveness, and the

applications have matured to become easy to use and implement.

3. Financial Management is the primary solution required to

accurately capture, bill and report financial transactions. It

collects and manages all financial information (Time and

Expense, Invoices, Procurement, etc.) to provide visibility and

determine service cost and profitability. Every firm surveyed by

SPI Research uses some type of financial management solution.

While some solutions were home-grown, a majority use

commercial Enterprise Resource Planning (ERP) financials that

offer out-of-the-box integration with other business solutions.

THE BENEFITS OF INTEGRATED SERVICE RESOURCE PLANNING

SPI Research has shown that each of these three primary business

applications improve financial performance (Figure 2). Although each

individual application is critical to organizational success, it is when they

are integrated that the greatest benefit evolves.



Figure 2: System Integration Improves Visibility, Productivity and Profits


Services Delivery and the Front Office

With this integration sales and service delivery are aligned and a smooth

handoff is assured as opportunities are closed and projects are initiated.

Trust and cooperation are enhanced when all functions – sales, service

delivery and finance - have access to the same single source of customer

information. PS executives can better plan and staff projects within PSA

based on a detailed understanding of the time and costs involved, and can

accurately forecast resource requirements based on actual sales pipeline

information. Cost and revenue data is brought together to show project,

resource and client profitability. Executives can gain up to the minute

sales and delivery forecast and pipeline information. Visibility,

transparency and control are all enhanced through management reporting

and real-time dashboards.

The important workflow elements of CRM applications track the

progress of leads into prospects into proposals into orders and ensure

timely reviews, approvals and handoffs. CRM applications are typically

set up as a single source of the truth for all client related correspondence,

proposals and contracts. Tight integration between PSA, where the

project is managed, and CRM where the client is managed is critical for

keeping the sales and service delivery team in alignment.

Once a bid is accepted, the order is passed to the PSA solution to build

the project and resource plan. Staffing and hiring decisions are expedited

while ensuring the best available resources are assigned. The integration

of CRM and PSA provides the PSO with visibility into the sales process

and client contracts and commitments and allows the PSO to forecast

resource and project requirements based on expected close dates.

Once work is initiated, PSA provides the visibility necessary to assure

schedule and cost compliance, and in the event of project changes, the

• Resources

• Projects

• Time & Expense

Collection

• Billable hours

• Project expenses

• Earned value

• Project Accounting

• Profit & Loss

• Employee Data

• Billing

• Payments

• Revenue

• Payment status

• Client Information

• Pipeline

• Requirements

• Quotes

• Contracts

• Orders



combination of PSA and CRM facilitate sales and service delivery

collaboration to generate and secure change orders.

Services Delivery and the Back Office

Tight integration between PSA and the ERP application ensures accurate

and timely invoices are generated and sent to the client containing all the

necessary detail to expedite payment. Integration between PSA and ERP

ensures employee details and costs are continually updated and reflected

in the resource management application to guarantee the best, most cost

effective resources are assigned.

PSA and ERP integration virtually eliminates manual data re-entry and

associated costly manual errors. Integrated systems provide a better

understanding of and visibility into a PSO’s actual costs, project margins

and revenues. And as with any automation, administrative overhead is

decreased and accuracy increased across the board. Table 1 depicts the

reported 2011 PS Maturity benchmark ―level of integration‖ between the

core applications used by PSOs and the financial system.

Table 1: Business Applications Integrated with Core Financials

Business Application Partially or Completely Integrated with Financials

Professional Services Automation (PSA) 58.5%

Business Intelligence (BI) 58.5%

Client Relationship Management (CRM) 46.5%

Human Capital Management (HCM) 43.6%


SPI Research found over 50% of the 214 organizations surveyed use a

commercial PSA solution; approximately 75% use a commercial CRM

solution and 80% use a commercial financial application. CRM and PSA

have become increasingly important for success in the professional

services sector and many PS executives are starting to realize that

integration adds to their potential benefits.

Table 2 highlights the benefits of service resource planning based on

integrating PSA and CRM with the core financial application. These

results show that in every phase of the quote-to-cash process both

operational and financial performance improve because information

flows seamlessly from one application to another, empowering

executives to make faster and more accurate decisions that ultimately

improve project profitability, increase personal productivity and increase

bottom-line profit and cash flow.



Table 2: The Benefits of PSA and CRM Integrated with Financials

Key Performance Indicator Not

Integrated Integrated Improve.

Annual Revenue per Billable Consultant $153K $190K 24%

Quarterly Revenue Target in Backlog 37.6% 53.6% 43%

Management to Employee Ratio 7.7 9.0 17%

Projects Delivered On-time 76.6% 84.6% 10%

Bid-to-Win Ratio 4.67 5.74 23%

Discount Percentage 14.3% 12.3% 14%

Executive real-time wide visibility 61.0% 80.0% 31%


NetSuite Solutions for Professional Services

NetSuite provides two core solutions for PSOs: NetSuite Service

Resource Planning (SRP), a single, integrated solution to run your

entire professional services business, and NetSuite OpenAir, a stand-

alone PSA solution that can be integrated with existing legacy

applications.

NetSuite SRP streamlines the complete services lifecycle from sales

and marketing to project and resource management, service delivery,

billing and revenue management—and helps service organizations

drive repeat business from existing clients.

Figure 3: NetSuite Service Resource Planning

Source: NetSuite, June 2011



NetSuite SRP provides services businesses of varying sizes and

complexity with real-time visibility, resource management and

operational control. The application manages the key drivers of any

services business—revenue, utilization, profitability and days-sales-

outstanding (DSO)—from the corporate level down to subsidiaries and

geographies, all the way to the individual project level.

Seamless Integration of CRM, PSA and ERP

NetSuite SRP provides an end-to-end, cloud-based business management

solution for services businesses. From CRM to PSA to ERP, it manages

the entire PSO in a single software suite.

NetSuite OpenAir is the PSA-engine of the NetSuite SRP suite, available

as a stand-alone option for professional services organizations looking to

preserve their investments in existing CRM and ERP solutions. NetSuite

OpenAir provides prebuilt integration between NetSuite OpenAir and

common CRM, sales force automation (SFA), human resources (HR),

and financial (ERP) applications and more.

Figure 4: NetSuite OpenAir

Source: NetSuite, June 2011

RECOMMENDATIONS AND CONCLUSIONS

In Service Performance Insight's most recent benchmark survey, 214

professional service organizations averaged 6.9% earnings before income

tax, depreciation and amortization (EBITDA). In many industries this

level of profitability would be desirable. However, in professional

services margins below10% are not very compelling.

To drive profitability levels higher PS executives are starting to take a

more holistic approach to the quote-to-cash process, perhaps the most

critical of all PS processes. Delivering services efficiently and

effectively is just one area of importance in improving project profit



margins. Ensuring the organization is focused from the beginning on

selling, delivering and collecting from the best clients who buy and use

the most profitable services is paramount to success.

While there are many collaborative tools organizations can use to inform

and educate their employees on which clients to target, what services to

sell and at what level of expected return, the use of client relationship

management in conjunction with professional services automation, each

integrated with the core financial solution, offers the best chance of

improving profitability.

Over the past several years NetSuite has emerged as a leader in

integrated solutions for the professional services market. Out-of-the-box

integration of their CRM and PSA with the core ERP solution has given

their customers a competitive advantage in terms of selling, delivering

and collecting highly profitable services. This integrated, cloud-based

solution provides unique advantages for today’s global, mobile service

organizations and should make the short-list for any project-oriented

business when evaluating new automation solutions to improve their

quote-to-cash to profit value chain.


Service Performance Insight (SPI Research) is a globally-focused research and consulting firm specializing in the services sector. The firm closely follows professional services organizations (PSOs) — both Embedded and Consultants/Systems Integrators — and the independent software vendors (ISVs) that develop business solutions to make people more productive and profitable. SPI Research pays particular attention to the integration of the three key assets of a PSO: its people, (business) processes and capital, and how technology can help optimize their use. SPI Research has developed the definitive business model that shows how PSOs can improve organizational performance by improving five core aspects of their business. They include: 1) Leadership; 2) Finance and Operations; 3) Human Capital Alignment; 4) Service Execution; and 5) Client Relationships.

Visit www.SPIresearch.com for more information on Service Performance Insight.


About Service Performance Insight

Jeanne Urich, Service Performance Insight Managing Director, provides strategic consulting, research, training and operational advice to improve and transform service and project-oriented organizations. She is a thought leader and recognized expert in Professional Services.

She is the co-author of the ground breaking Professional Service Maturity Model benchmark used by over 4,000 project-oriented organizations to diagnose and improve their performance. www.spiresearch.com. She is a featured speaker and author for major software solution providers and industry associations.

She has a BA in Math and Computer Science (Magna Cum Laude and Phi Beta Kappa) from Vanderbilt University and completed Executive Management programs in Marketing and Finance at Stanford and Brown University.

Contact Jeanne at [email protected] Phone: (650) 342-4690.

Dave Hofferberth, Service Performance Insight Managing Director, has over 25 years experience in information technology (IT) serving as an industry analyst, product director and consultant. Hofferberth’s research is focused on the services economy, and in particular, on white-collar productivity issues and the technologies that help people perform at their highest capacity.

Hofferberth’s background is extensive in services performance beginning in the early 1980’s, where he conducted studies on white-collar productivity in the banking, technology, energy and construction sectors.

Hofferberth earned an MBA from Duke University and a BS in Industrial Engineering from the University of Tennessee. He is also a licensed Professional Engineer (PE).

Contact Dave at [email protected] Phone: (513) 759-5443

http://www.spiresearch.com/



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