When it comes to evaluating the operations and technology of a business services organization, there are multiple factors to consider during an operational and IT due diligence. During a diligence, we assess a technician-based business service company through three primary lenses across their operations and technology:

1. Are they in control with a low level of risk?
2. Are they efficient?
3. Can they scale?

In a business services company, labor allows for revenue achievement and growth while representing the largest cost driver. Availability, experience, and professionalism are dominant factors affecting quality, customer satisfaction, and ability to grow and therefore labor must be examined in multiple venues which drives the first four of the eight questions listed below. Integrated and optimized systems allow for efficient processes and performance management visibility, driving the last four of the eight questions below.

1. What is the company’s labor forecasting and planning process?

For business services organizations, proactive labor planning is central to the business. To fulfill growth requirements, a company must anticipate future headcount for both technicians and support staff (e.g., dispatch workers) six to twelve months in advance based upon revenue forecasts, turnover rates, and hiring time.

What to look for:

• An annual operating plan (revenue and margin) by geography
• A system or tool to track technician labor and forecast tied to the revenue budget – it should account for utilization, efficiency erosion, and turnover
• A support staff forecast tied to revenue budget and based upon understanding of scalability of functions
• A process to track actual revenue against forecasted revenue to adjust the operating plan as required

2. Does the company have labor recruiting, training, and retention programs in place?

Technicians who bill hours and fulfill orders are the backbone of a business services company. A company’s capacity and ability to grow is based on filling open positions, and a company’s profitability is based partially on the ability to rapidly train employees and retain high-performing individuals.

What to look for:

• A formal recruiting program with a clear sense of who to hire and where to look for candidates
• A strong value proposition to differentiate the organization as an employer of choice in a competitive job environment
• A training program to efficiently produce billable technicians that tracks the lead time from hire to first billable assignment
• Retention programs that empower employees, recognize successes, and deliver performance feedback as well as a demonstrable commitment to promote from within (e.g., clear promotion pathways for technicians)
• A program to regularly track metrics including time to fill positions, retention/turnover, cost to hire, cost to train, and internal promotion percentage

3. Does the company track labor effectiveness (efficiency, utilization, and quality) and what is the performance?

Direct labor costs are often the largest cost a business services organization will incur, making labor management and optimization integral to success. Labor optimization is derived from three essential elements – utilization, efficiency, and quality. A great company understands, tracks, and improves these elements.

What to look for:

• A program or system to track utilization – rates should be as close to 100% as possible
• Professional development options in place for technicians who are on job sites consistently longer than expected
• Line of sight into when a technician needs to go to a job site more than once – due to rework, warranty, or lack of parts
• A quality management system that includes voice of the customer input along with measurable and actionable metrics

4. What are the company’s protocols for dispatch, scheduling, and route optimization?

The ability to satisfy customer expectations while optimizing technicians’ skillsets is a complex and recurring challenge. The best companies utilize a customer service dispatching center for economies of scale and tap into sophisticated routing systems that optimize order fulfillment as a function of technician capabilities, inventory availability, and vehicle location.

What to look for:

• A tracked record of the time needed to complete a job from order entry through dispatch
• Prioritized dispatching that reflects various customer demands
• Route optimization software to plan routes that minimize windshield time — the unproductive time spent in a vehicle traveling to and from different sites
• A calculation of the density of customers relative to defined zones and routes

5. What are the company’s fleet and asset management protocols?

The largest capital expenditure in a business services company is often related to maintaining a fleet. However, if managed properly, fleet-related costs (i.e., fuel, maintenance, insurance, etc.) can be controlled and reduced. CapEx mitigation starts with proper maintenance of the fleet, including preventive maintenance and break-fix programs.

What to look for:

• Telematics software to track vehicle location, monitor driver safety, and understand current vehicle location and information (e.g., mileage, age, etc.)
• A robust driver safety program with appropriate training and documentation that is manifested by low incidents
• Maintenance programs that include both preventive and break-fix upkeep with inspections on a weekly – or even daily – basis
• Active discount negotiation and purchasing programs for fleet, maintenance costs, insurance, and fuel

6. Are controls in place to properly track and optimize inventory?

For business services companies that manage inventory, proper tracking and deployment of inventory is often an underappreciated component of business success. Inventory issues can be difficult to detect and can lead to inventory write-offs and devaluation after purchase.

What to look for:

• How the target company receives, stores, consumes, and returns inventory and maintains inventory in the system
• How the target company tracks and adjusts available inventory volumes in accordance with demand
• Accurate inventory quantities in tracking system(s) and on the balance sheet
• Validation that the balance sheet inventory is accurate, inventory can be transacted in and out of the system, and that inventory can be allocated to a job

7. What information technology systems and tools does the company use?

As with any type of organization, assessing the scalability, efficiency, and security of systems supporting the business is vital. Beyond that, there should be tools in place to manage dispatching, monitor fleet performance, measure telematics, and support service delivery.

What to look for:

• IT systems that are integrated across the business and scalable for growth
• Mobile technologies and infrastructure to support technicians in the field with proper security measures in place and remote management capabilities to troubleshoot issues from afar
• Cybersecurity processes and systems that protect remote users and mobile devices including VPN, MFA, MDM etc.
• Use of SaaS and cloud-hosted solutions that enable the business to access key systems with ease and security

8. Is there a centralized data repository system in place for reporting analytics?

The ability to transform data into actionable information is key to a successful business services organization. A centralized repository provides a single pane of glass to enable decision making across all functional areas of the business. This tool should be used to define metrics and KPIs that are consistent across the business and used by leadership.

What to look for:

• A central data repository that collects and harmonizes data from all enterprise applications
• Low code, user friendly analytics tools, capable of performing ad-hoc queries and reports
• Well maintained source data along with a process to ensure data remains clean
• Actionable and measurable KPIs that are used for decision making throughout the organization

Addressing these questions ahead of a transaction, private equity professionals can efficiently assess the operations and technology of a business services company and pinpoint key findings related to the health, quality, and value of the business.

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