Meaningful KPIs in IT Consulting and Managed Services
Eight KPIs across four key domains to continually monitor the success of your business and the satisfaction of customers and staff.
Managed service providers and professional services organizations share in the struggle of effectively measuring the success of their business:
- They hyper-focus on KPIs in a single area (usually financial). But performing well in one area could come at the expense of another.
- They focus on discrete metrics instead of higher-level KPIs. Metrics measure business activities whereas KPIs measure performance against goals.
- They fail to construct a proper KPI that can balance resolution time against number of incidents, as well as customer satisfaction, for a true reflection of performance against the goal.
Our Advice
Critical Insight
There’s no single measurement of business success. It’s all connected. When a business is achieving success, it happens on multiple fronts all at once. Sales must be converted while customers remain delighted. Employees must remain engaged, and the business must turn a healthy profit. To ensure all of this is happening, the right key performance indicators must be measured on all these fronts at the same time.
Impact and Result
- Make use of a framework within which to categorize the goals and corresponding KPIs of a professional services or technology services business.
- Discern a few key KPIs that provide insightful information using metrics you’re probably already measuring.
Meaningful KPIs in IT Consulting and Managed Services
Eight KPIs across four key domains to continually monitor the success of your business and the satisfaction of customers and staff.
Analyst Perspective
Measure success in your IT consulting and managed services business by monitoring performance in four key domains.
Key performance indicators (KPIs) continue to be a high-rank topic of interest among Info-Tech partners. Not only do partners want to track their own performance, but they also want to know how they stack up against industry peers. After all, isn’t knowing what KPIs competitors use to define their success a great way to measure your own? Perhaps, if your goal is to be just like them. KPIs, after all, are tools to measure performance against business goals. If your KPIs are the same as your competition, your goals must be, too. Are they? Not likely.
Your competition’s goal may be to grow to a certain revenue size and sell, while yours is to maintain 40% to 60% gross margin with a high referenceable customer rate. Business goals differ across the industry, and so will your KPIs.
What doesn’t differ is how moving the needle for one KPI will often come at the expense of another. Organizations are so often focused on one or two goals that they fail to see the ripple effect across their other business domains.
In this research, we present a simple framework to categorize KPI measurement. We recommend setting a few KPIs in each domain to strike a balance across all of them, and we even provide a few interesting ones that we’ve seen our partners measuring to get you started.
Fred Chagnon
Principal Research Director,
IT Consulting and Managed Services Industry
Info-Tech Research Group
Executive Summary
Your ChallengeManaged service providers (MSPs) and professional services organizations (PSOs) share the struggle of effectively measuring the success of their business.
|
Common ObstaclesHyper-focusing on KPIs in a single area(usually financial). Performance may occur in one area at the expense of another. Focusing on discrete metrics instead of higher-level KPIs. Metrics measure business activities while KPIs measure performance against goals. Constructing a proper KPI. A properly constructed KPI would balance resolution time against number of incidents, plus customer satisfaction, to truly reflect performance against the goal. |
Info-Tech's ApproachInfo-Tech recommends measuring KPIs in four business-wide domains:
By tracking KPIs in all four areas at once, you’ll significantly reduce the risk of over-engineering your processes to achieve one goal at the expense of another. |
Info-Tech Insight
There’s no single measurement of business success. It’s all connected. When a business achieves success, it happens on multiple fronts at once. Sales must be converted while customers remain delighted. Employees must remain engaged, and the business must turn a healthy profit. To ensure all of this is happening, the right KPIs must be measured on all these fronts at once.
MSPs and PSOs must succeed on the following four fronts
Business Development
- Ability to attract and win new business
- Ability to expand and grow business with existing customers
Service Delivery
- Efficiency of delivery
- Product/service quality
- Customer satisfaction
Profitability
- Profit margin/earnings before interest, taxes, depreciation, and amortization (EBITDA)
Talent Management
- Employee engagement
- Employee churn rate
There’s tension between each of these success domains
Success in one domain often comes at the expense of another
A heavy focus on customer acquisition can take critical resources and attention away from servicing existing clients.
When billable utilization is too high it can cause employee burnout. Yet when it’s too low, the organization is losing profitability.
Employees are happy when they can take pride in the work they deliver, but high-quality products incur expenses that impact the bottom line.
The organization struggles to measure the return on investment (ROI) of employee professional development because it doesn’t always directly add new business or impact the bottom line.
Set goals in all these areas and track KPIs against those goals
Metrics and KPIs are different
Metric |
Key performance indicator (KPI) |
| Tactical: Measures the effectiveness of a specific business activity | Strategic: Measures the performance toward a strategic business goal |
| Discrete: Measures a single business process or activity | Compound: Blends several discrete metrics in relative way to demonstrate their combined improvement |
Examples:
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Examples:
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Info-Tech Insight
Don’t focus on a specific metric. This most often yields behaviors and consequences that are against the spirit of your desired outcome. A good KPI comprises a blend of metrics that are in tension with one another and therefore can’t be gamed.
Goodhart’s Law:
“When a good measure becomes a target, it ceases to become a good measure.”
A KPI is defined by a target, metrics, and a time horizon
A KPI is a measurable quantity that uses a combination of metrics to continuously track progress toward a defined target against a known time horizon.
Ask yourself:
- Target: What goal are you measuring? Growth? Customer satisfaction? What does good look like within that goal?
- Metrics: What are the specific business activities that contribute toward this goal? What metrics define these activities?
- Time Horizon: When is the right time to take the pulse? What will it mean if the indicator is off-target?
Set KPIs in these four domains to effectively manage the tension between them
Business Development
Monitoring the success of your ability to generate and close deals.
The core business processes being performed here are sales, marketing, and product & service development.
Human Capital Management
Ability to hire and retain staff.
Whether they are consultants, technicians, or support staff, your employees are the lifeblood of your products &
services.
Service Delivery
Measurements around the effectiveness, efficiency, and the quality of your product and/or service delivery.
The underlying processes here include resource management, quality control, knowledge management, and customer satisfaction.
Financial Operations
FinOps is the ability to both generate revenue and track revenue, profit & loss.
This area focuses on KPIs that observe margins and other metrics needed to run a successful operation, such as earnings before interest, taxes, depreciation, and amortization (EBITDA).
Info-Tech offers these examples of powerful KPIs to help you start measuring success on all fronts
Business Development
- Net new revenue growth % (Lagging)
- Recurring revenue base growth (Leading)
- Total contract value bookings growth % (Leading)
Talent Management
- Employee engagement (Blended)
- Productive utilization rate (Lagging)
Service Delivery
- Reactive time per endpoint (Lagging)
- Percentage of referenceable customers (Leading)
Financial Operations
- Client efficiency index (Lagging)
- Net margin percentage (Lagging)
Focusing on KPI development and measurement is a big step in operational maturity
And operational maturity tracks convincingly with higher profit margins
|
Level 1
Heroic |
Level 2
Functional excellence |
Level 3
Project excellence |
Level 4
Portfolio excellence |
Level 5
Collaborative excellence |
| “…at maturity level 1, […] success depends on the competence and heroics of people in the organization, and not on the use of proven processes, methods or tools.” | “…at maturity level 2, […] processes have started to become repeatable […] but they are not yet documented and codified for the entire organization.” | “…at maturity level 3, […] management has established and started to enforce financial and quality objectives.” | “…at maturity level 4, management uses precise measurements, metrics, and controls to effectively manage the [organization].” | “…at maturity level 5, […] a disciplined, controlled process is in place to measure and optimize performance through both incremental and innovative technological improvements.” |
Info-Tech Insight
Haste makes waste. Mature organizations have invested the time to accurately measure their performance toward their goals, and therefore spend less time overcorrecting on missed targets.
Source: 2023 Professional Services Maturity Benchmark, SPI Research; n=709
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