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
David.Hofferberth@SPIresearch.com Jeanne.Urich@SPIresearch.com
www.SPIresearch.com
 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

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

ABSTRACT
In todays 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 Insights 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;

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

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 clients
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.

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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;

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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.

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Figure 2: System Integration Improves Visibility, Productivity and Profits

Client Information Resources

Pipeline Projects
Requirements Time & Expense
Quotes Collection
Contracts Project Accounting Billable hours
Orders Profit & Loss Project expenses
Employee Data Earned value
Billing
Payments
Revenue
Payment status

Source: Service Performance Insight, June 2011

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

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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 PSOs 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%

Source: Service Performance Insight, June 2011

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.

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

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

Not
Key Performance Indicator Integrated Improve.
Integrated
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%

Source: Service Performance Insight, June 2011

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 managementand helps service organizations
drive repeat business from existing clients.

Figure 3: NetSuite Service Resource Planning

Source: NetSuite, June 2011

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

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 businessrevenue, 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

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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 todays 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.

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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 jeanne.urich@spiresearch.com
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.
Hofferberths 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.
Hofferberths background is extensive in services
performance beginning in the early 1980s, 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 david.hofferberth@spiresearch.com
Phone: (513) 759-5443

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.

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