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Increasing profitability via addition by subtraction.

technology talent

The entirety of my career to date has been associated with professional services organizations, and I had largely gravitated towards agencies in NYC.  For one of these agencies, I held various leadership positions spanning a decade of service (ultimately parting ways having been their first and only COO).  Established in 2002, this company was considered a full-service digital agency specializing in designing, building, and launching e-commerce website solutions for SMB and Enterprise Clients.

The commercial offering consisted of professional services inclusive of Creative (User Experience and Visual Design), Technology, and Account Services (Account Management and Project Management), where Technology services included roles for Solution Architects / Technical Leads, Developers, and Quality Assurance (QA) Testing Engineers.

A typical engagement encompassing the full cycle from the experience strategy-focused Discovery phase through Launch spanned 9-12+ months in duration with project budgets earning up to seven figures — depending upon the scope and scale of the initiative.

Situation:

Roughly halfway through my tenure at this agency, the business was faced with a difficult decision specific to its commercial offering.  The company was at a proverbial crossroads regarding its raison d’etre, since the business was founded under the premise of providing both Design AND Technology expertise.

What was forcing this crisis of identity?  A persistent trend had materialized over the past eighteen months or so where the business was not earning as much Profit as we thought it should have been.

After performing a comprehensive review of all aspects of the business and, most importantly, the Delivery model — including but not limited to pricing; processes; scope definition and management; and quality of Client relationships, we focused on those acute pain points that recurred across most of our large-scale engagements.

Simply stated, our ability to provide exceptional Technology services to Clients as part of our commercial offering was broken.  And the ability to provide exceptional Technology services (with all other variables within our control largely optimized at the time) was predicated on, well, high-performing technology Talent. 

The business had already been facing an uphill battle concerning recruitment, in general.  And finding, attracting, and hiring exceptional Technology talent was becoming increasingly difficult in NYC.  Exacerbating this situation for many professional services organizations was the practical reality of just-in-time hiring, where delays in filling open positions on project teams translate to delayed income or even lost revenue. 

From my vantage point, the two (2) primary factors impacting hiring included:

1 Competing for the same caliber of talent with:

  • Other agencies with much deeper pockets who were part of massive holding companies (e.g., Interpublic, Publicis, WPP);
  • Firmly established (and well-known) product and technology companies such as Facebook, Google, etc.
  • Traditional consulting firms (Accenture, Deloitte, etc.) acquiring or establishing their own in-house agencies or service complements.

2 Reconciling who / what we thought we needed versus what the business could reasonably invest and otherwise afford to offer in terms of compensation packages:

  • Experience level
  • Technical proficiency
  • Consultative persona oriented around solving business problems for our Clients

The overview of the situation would be incomplete if I did not mention that off-shore and near-shore resourcing options and recruiting Technology talent from less competitive, less expensive U.S. cities were evaluated.  However, current thinking at the time was that it was critical to hire in NYC for collaboration, culture, and onboarding purposes — all of which was to ensure that new employees could start contributing at a high level as quickly and seamlessly as possible.

All of this to say that attracting and hiring exceptional Technology talent (also applicable to User Experience professionals and now Product Management specialists) was incredibly challenging at the time, and the business’s ability to remain both competitive and profitable were being impacted.

Solution:

We made the difficult decision to unwind Technology as a core competency due to the ongoing challenges in the hyper-competitive hiring environment in NYC.  This involved the following important activities:

  1. Developed Engagement Transition Plans to complete in-flight projects involving Technology scope of active contracts and, where appropriate, inform Clients and key vendor partners.
  2. Completed sunsetting the Technology capability:

    Separation Plan:
    Informed impacted employees; drew up separation agreements; and mapped out key transition dates for Leadership.

    Go Forward Plan:
    Described the new commercial offering and the implications for How We Work:  (a.) Marketing activities, messaging, etc.; (b.) Business Development playbook; and (c.) Standard Operating Procedure (SOP) for engagements.

    Communication Plan:
    Provided transparency early and often (as necessary) to the company by informing, educating, and allaying concerns.  This included but was not limited to explaining the decision; its impetus colored by relevant historical and financial factors; and the new focus of the commercial offering — i.e., how the business would continue serving Clients and the vision for the business model moving forward.

  3. Ensured Technology continuity-of-expertise.
    Retained a Solutions Architect dedicated to working collaboratively as part of project teams by providing technical expertise and creative solutions.
  4. Established a shortlist of trusted Development vendor partners to complement our new commercial offering.
  5. Increased frequency of Retrospectives.
    On applicable engagements (involving Technology-driven scope covered by our contract), we conducted retrospectives at key points during and upon the conclusion of each project involving an external 3rd-party partner owning Development responsibilities.  The express goal was to update and pressure test our engagement playbook for the new business model.

Impact:

The outcome of this addition by subtraction considerably improved profitability.  Project cost accounting (PCA) reports indicated an average increase of nearly 120% in profit margin across all engagements moving forward (over the subsequent 18-month period) — which, of course, had a positive downstream impact on Net Income Margin for the business overall. 

Engagement durations shortened from 9-12+ months to 3-6+ months, which addressed some of the natural margin leakages on extended assignments.  In addition, these shorter engagements translated to more cycles/rotations and a greater variety of work for the staff — which produced happier, more satisfied employees.

Finally, these moves helped accelerate the business to evolve from a Technology-first organization to one where the delineation became moot and solving Customer / User Experience problems (and the underlying business contexts) in today’s Digital-first world superseded all else.

By David Ow
David Ow on LinkedIn