2023 is already proving to be a pivotal year for law firms. Continued headwinds from economic volatility and geopolitical uncertainty are macro forces that firms have faced before. But now, with the rapid acceleration of emerging technologies and a workforce forever changed by the pandemic, opportunities to gain a competitive edge are both more abundant and more complex. Leading the charge are legal CIOs who are helping their firms understand and embrace technologies to drive better insights, support more data-informed decision making, enable modern collaboration, and provide better service to clients.
For today’s professional services and capital markets firms, migration to more advanced digital operations is no longer an option; it’s table stakes.
Leading firms across legal, accounting, consulting, investment banking, and private capital markets are leveraging technology in truly transformative ways — empowering their professionals, exploring new business models, and gaining a competitive edge along the way.
Technology is now a REVENUE driver for consulting firms: 50% of all consulting services will contain digital products by 2025 – and 30% of firms believe that more than half of their revenue already depends on their tech stack.
This is also reflected in the rising tech investments by professional services firms – which 72% of firms focus on their front office and front-to-back integrations.
“Our industry is based on trust and growth – and facing the challenge of attracting fantastic talent. Your article demonstrates the relevance of technology in that context”, says Christian Rast, Global Head of Technology & Knowledge at KPMG in reference to my latest article published in Harvard Business manager together with my co-authors Prof. Dr. Markus Kreutzer (EBS Universität für Wirtschaft und Recht) and Stephan Kaufmann (Workday).
The past two years have shown that consulting services do NOT need to be delivered on-site for clients by default. Based on our survey across representatives from 40 consulting firms, we can see that 60% of firms plan to deliver at least 50% virtually – some 25% even want to provide more than two-thirds of their work remotely.
This has far-reaching implications on the way consulting services and solutions are architected and sold. 86% expect significant changes here. It puts the technology backbone of the firm and the modern workplace for professionals at the center of attention. But what are the consequences for the management and leadership of professional services firms? What does it take to become and operate as a more digital „connected firm“?
For most professional and B2B services firms, human capital constitutes the largest single cost driver of business activities. The current pace of change across consulting, legal, accounting services, and other professions is driving massive shifts in human capital requirements, skill transformation needs, and talent shortages. At the same time, top-tier talent is increasingly harder to recruit, develop and retain. Professional services firms are recognizing that they are not immune to the Great Resignation.
That’s why more and more firms are beginning to leverage a mix of employees and contingent workers to meet their clients’ needs, deliver competitive services and solutions and transform themselves. An extended workforce approach helps firms reduce fixed costs, leverage specialized skillsets for varying periods, increase capacity and individual flexibility or even innovate and grow in new markets. Building management capabilities for an extended workforce that combines internal and external resources will define the success of many professional services firms in the coming years. This article outlines some fundamental building blocks for designing a workforce ecosystem strategy and management capability.
Technology is moving to the center of attention across professional and business services – and firms are spending more and more, not just absolutely but also relative to their revenue. If solely treated as a cost position, it becomes a race to the bottom. Instead, if considered a revenue driver and managed as an integral part of your firm’s P&L, technology paves the way for new business models, growth, and profitability.
In the light of the pandemic, an economic downturn, and an unparalleled technological upheaval across professional services, we urge firm leaders to take a careful look at their management reporting – and to invest in its maturity and future-readiness. It is, after all, one of the most essential tools for any leadership and management role.
As of today, it is quite unlikely that professional services firms will dial back on their technology investments – instead, we even see increasing technology investments in order to keep up with a faster evolving competitive landscape. Gartner predicts an annual growth of 5 to 15% for the technology spend of professional services firms – even factoring in the steadily decreasing unit costs for many technologies (e.g., storage, processing, etc.). As firms work through the selection, implementation and adoption of more and more systems and tools, it is obvious that there is barely a true alternative to a “cloud first” strategy.
The cost pressure is on for professional services. Shifting client demands, declining prices, new technologies, and an emerging set of fierce competitors are taking a toll on law, consulting, tax, and accounting firms. Especially in times of crisis, cash is king. Once the topline deteriorates, outlasting the competition requires superior cost management. COVID19 is surfacing which firms have successfully adjusted their business and operating models and will be able to cope with the harsher climate of a global recession – and the accelerated digital transformation of professional services. But what exactly are the cost levers when the game is no longer about utilization and hourly rates?
Something stirs underneath the surface of professional services. Last year, KPMG surveyed hundreds of leaders and managers across professional services firms globally on their use of technology and the signs for change. A significant 48% reported they expected major or radical change across their business and offered services within the next three years. A percentage that is incredibly telling for an industry with high growth and profitability, yet very little change to its traditional business model over previous decades. So, what is driving the change?
The pandemic may have put the final nails in the coffin of the „time & material“ model in legal, consulting, tax and accounting firms. But what are leaders, partners and managers focusing on when the game is not about „utilization“ and „billable hours“ anymore?
So, here is a framework to grasp and think through the management implications of the next generation value chain for professional services:
Designing for Client-Centricity: A Lens for Legal, Consulting, Accounting and Technology Services Firms
Facing the current challenges has unleashed innovative thinking, agile methods and more dynamic organizations in many professional services firms. But how to anchor this way of thinking permanently?
Infusing old ways of working and outdated services with technology will not do the trick. Collaboration tools may provide a pioneering bridge, but will fail to deliver sustainable value – unless engagement models are re-designed.
Is the next generation of competitors even visible to a traditional lawfirms or the providers of consulting, tax or accounting services?
Many established players seem to have a hard time recognizing the underlying shifts in the market, which can be observed upon closer inspection of demand and spend patterns of professional services‘ clients. Or in other words: They are invisible – unless firms truly listen to clients, tune into the technological change and embrace the emerging digital future and opportunities across the professions and beyond.
Professional Services Firms are currently facing questions such as:
– How to best solve our clients‘ issue in the COVID19 crisis?
– How can we deliver in virtual or fully digital setups?
– How to design or adapt solutions for the emerging recession?
– How to adapt our solution portfolio and firm for the new normal?
Tackling these challenging topics in virtual design thinking workshops is not just necessary and one of the only few options available at the moment – it may turn out to be surprisingly effective and efficient.
Professional Services, like everyone else, are forced to move quickly towards delivering their expertise virtually or even digitally in the face of the COVID19 crisis. For legal, consulting and other expert services, design thinking takes on a whole new meaning, in order to adapt services and solutions for clients – and to develop and design answers to unprecedented challenges.
However, Design Thinking has been mostly known for its playful, innovation and creativity fostering and immersive on-site workshop settings… until now. And like everything else, these workshops need to take place virtually now. But is this even possible?
As the world is bracing itself for the impact of #COVID19 on our nations, economies, companies as well as individuals and societies, #professionalservices firms (#legal, #consulting, #accounting) are both positively and negatively impacted at once.
While it is clearly necessary to deal with the serious short-term implications of this terrifying situation, it may also be strategically important to think through the mid- to long-term implications for professional services in general and individual firms in particular.
So, here are three first hypotheses regarding the #Corona aftermath:
For 2020 we expect the pace of Digital Transformation and client-centric innovation to increase a lot across ProfessionalServices, especially legal, consulting, accounting and marketing services.
Leaders and managers need to be able to prioritize innovation efforts strategically and demonstrate to their fellow partners the continued need for investment, the returns and the strategic progress within the specific environment and portfolio situation of their firm.
With the shorter and darker days of winter approaching, many indicators across industries, geographies and economies reflect growing uncertainty – and the threat of an economic downturn or even recession. So, we have asked ourselves: How will Professional Services as an industry be impacted and respond? Which Legal, Consulting, Accounting or Technology Services firms will suffer or decline … and which firms will thrive? Download our thinking right here:
A few months ago, I was interviewed by Ari for his podcast on „Reinventing Professionals“, which I can highly recommend. We discussed my role at KPMG, how law firm and corporate leaders can scale and grow their businesses in the current environment, ways that technology is challenging the business model of traditional professional services firms, and how professional services firms are evolving…
An unlikely new key player within ProfessionalServiceFirms is slowly crawling into the spotlight: Procurement.
This often immature function and role, which until today has mostly dwelled in the back-office, administrative shadows of knowledge-based firms, is evolving as cornerstone of strategy execution for lawfirms, consulting, accounting, or marketing service providers. Why? Well, read my article on this emerging topic.
Is your firm prepared for an economic downturn?
ProfessionalServices have largely flourished since the 2008/2009 recession. But how well Professional Services Firms will be able to continue to “score”, will depend on the degree of resilience within their revenue structures and their ability to grow and occupy new market space amidst an unfolding economic downturn.
The signs for a major economic downturn are clearly starting to show across several industries – and in professional services. Structural short-falls that have so far been covered by a thriving economy are now being revealed. This recession may hence become the catalyst of the long foreseen true “disruption” to lawyers, consultants, accountants and tax advisors.
Some B2B sales questions which your firm should be able to answer right now:
– Clients, who buy “service (or product) A”, also typically buy what?
– What is the next likely “challenge” or “issue” for any given client?
– What is the next likely offer (service / product) for any given client?
– Which patterns across the firm’s service or product portfolio are emerging?
– Which client or service segments show untapped potential?
Unlocking effective B2B sales analytics is still a challenge for many knowledge-based firms, like lawfirms, consulting, marketing or even technology service providers. Find some guidance in this article written together with my colleague, Simone Göltl.
Can Old Dogs still learn New Tricks? Towards the Next Gen Playbook for Managing Professional Services
The inherited recipes for growth and profitability are eroding as the input-oriented models of traditionally fuzzy knowledge-based services are being replaced by throughput- or output-based compensation for much more client focused and increasingly digital solutions. Leaders and managers in charge of professional service firms need to adjust their management playbook in order to remain relevant in the next generation of professional services. But where to begin?
Can you bend that way? Revisiting the Ambidextrous Organization for Managing Innovative Professional Services today
„Success in the past always becomes enshrined in the present by the over-valuation of the policies and attitudes which accompanied that success“. Finding the right updated and best fit organizational guardrails for innovation must be a key focus for professional service leaders. A key concept to achieve this: Ambidexterity. Let’s take a look at it …
In order to unlock scalable growth, professional services firms must shift management attention from dividend payouts to firm value – a fundamental and necessary shift in the financial management mindset of Professional Service Firms (PSFs).
While the term „product management” may still sound foreign and incompatible with the fuzzy and often ill-defined (lovingly called “bespoke”) professional service business, its essence is already emerging in many forms, roles and organizational setups. Embracing the role of solution managers consciously and adjusting the organization surrounding them must be a key workstream within the digital transformation journey of any professional service firm today.
The innovation engine of many firms seems to lack power… and the future readiness of many firms appears questionable. Why is that? After all, there is no lack of talent, analytical and strategic capabilities or money in this highly profitable industry.
We see professional services clearly pushing into „everything-as-a-service“ and generally much more „digital“ approaches to delivering their expertise and value. This has created a renewed and even greater appetite for data than ever before – and not just their clients‘ data, but their very own data: But herein lies the challenge for them…
“You can’t manage, what you can’t measure” – and the #solution view is here to stay as a key business object for #ProfessionalServiceFirms, which needs at least the same kind of management attention as the two core traditional “business objects”, clients and human resources.
Cross- and up-selling in professional service firms has become less of an art but more of a systematic method and data-driven approach that facilitates new growth and scalability.
Traditional business models for professional services are about to expire.
Both established and new players venture into new ways of delivering tangible value to clients and finding smarter ways to charge clients for their work – or rather: the value delivered.
In order to thrive as a next generation PSF, leaders and managers need to acknowledge the need to hire, grow and retain top talent outside of traditional career paths – offering alternatives to contribute to a firm‘s success, to shape its path and drive its future.