Thursday, September 16, 2010

Transform the value of your firm by transforming your pipeline. Although the equity value of professional services firms is closely tied to the predictability and visibility of their future revenue and workload, predictability and visibility of growth are ephemeral notions for professional firms. In “regular” companies, senior leadership drives a process by which they can continuously evaluate the quantity, quality and velocity of the company’s prospective revenue opportunities. They call it “pipeline management” and the executive, sales and marketing teams scrutinize it regularly looking for how they can loosen bottlenecks and capture more value faster. In too many of the professional services firms we encounter there is no such disciplined process. As a result, leadership and professionals are left to ride the feast-or-famine business development roller coaster in the dark.

Lessons Learned About Pipeline Management

Andrew: In your prior work at Ernst & Young, can you describe for us the guiding principles you identified for successful pipeline management in a professional firm?
John: Well, from my experience, there are three key principals that firms must grasp in order to execute successful pipeline management; they are…
First, I would say that the senior leadership of a firm has to strongly embrace and endorse the belief that effective pipeline management is an essential part of driving superior, predicable growth. A healthy, well-managed pipeline leads to more intentional expansion of existing client relationships plus a steady stream of quality new clients and revenue; it’s the life blood of a growing practice seeking to create opportunity and attract top talent.
Next, firms often focus on just revenue acquisition or solely on the market-facing activities of their professionals. But, both revenue and the consequential activities that lead to revenue results need to be recognized pipeline measures in order to accelerate top line growth and its predictability.

The third principle is really an extension of the first one. Effective pipeline management only works if it becomes a cultural habit of the fir and that only happens from continuous executive sponsorship of its importance and hands-on involvement in its tracking.

Andrew: What steps can firms carry out in order to achieve optimal pipeline management?

John: Great question! I have identified 12 leading practices executives can implement to achieve successful pipeline management and they are:

1.Include pipeline targets and pipeline management practices in individuals’ performance goals.

2.Set standards for the relationships, opportunities and deals that can be included in the pipeline—based on your firm’s go-to-market strategy. Require executive approval for any exceptions.

3.Provide individuals with pipeline management training and leading practices.

4.Establish a pipeline management system and use it. It should include tracking and reporting of pipeline performance; including the routine review of big deals by executive leadership to drive opportunities.

5.Define pipeline stages to track the flow of deals from opportunity identification to closing. The distribution of opportunities in a healthy pipeline should resemble a funnel, with many identified opportunities at the beginning, and progressively fewer at each subsequent stage. Set pipeline stage percentage targets to achieve a healthy pipeline.

6.Set your pipeline target size using a ratio based on the total dollar amount of opportunities needed to achieve your sales goal, e.g., 3 X sales goal.

7.Enter potential deals into the pipeline at the outset of being identified. Don’t hold deals back from the pipeline until you’re certain they will close.

8.Apply qualification standards in a disciplined manner to weed out low value opportunities in a timely manner, while advancing higher value opportunities to the next stage.

9.Apply effective targeting activities, including account management and issues-based sales campaigns to identify new opportunities for the pipeline.

10.Apply effective pursuit strategies, including executive level involvement to accelerate the advancement and close rate of deals in the pipeline.

11.Base your overall sales goal on how much you need to meet your fiscal year revenue plan; usually it’s a higher number (e.g., 115%). Why?

•Lag between selling and billing for completed work
•Sales of multi-year contracts that deliver revenue over the fiscal year and beyond
•Effective rate per hour adjustments, write-offs and discounts that happen after the sale and during delivery

12.Apply a velocity or throughput measure, such as “book-to-bill” to monitor the backlog of work. The “book-to-bill” rate is a popular metric in manufacturing but is useful for professional services, too. It is a ration that measures the relationship between new engagements requested and the amount of engagements that have been delivered and billed. Book-to-bill should be > 1 to indicate that the dollar amount of sold worked is greater than that which is being delivered, i.e. strong demand for your services. A book-to-bill number < 1 indicates a low demand and a risk of having periods of downtime in your practice. Effective pipeline management can help remedy that problem.

While few firms have the sophisticated capabilities to track and measure that Ernst & Young does, there’s a lot to learn from their Advisory practice’s pipeline management approach. If we really care about building the value of our organizations, even those firms with more modest means will benefit from a more intentional, systematic and habitual approach to tracking and influencing their revenue and relationship pipeline.

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