White Paper by Sebastian Hartmann & Stephan Kaufmann | January 2019
Despite a value chain under pressure: Professional Services still at the frontline of change?
Historically, professional services firms (short: PSFs) managed to safeguard their business model, substantially influenced trends and shaped them to their liking. Their inherent opaqueness and agility put PSFs ahead of the game and let them almost virtually control industries’ hot topics. However, with the Fourth Industrial Revolution unfolding, for the first time, PSFs lose control of the narrative and face significant distress: the core of the inherent PSF business model, the value chain is under pressure. The key resource – the workforce – thereby tips the scales between fast failure and sustainable success. WEF’s ‘Future of Jobs Report 2018’ “finds that as workforce transformations accelerate, the window of opportunity for proactive management of this change is closing fast and business, government and workers must proactively plan and implement a new vision for the global labor market”. Albeit former victories it remains to be seen whether PSFs can turn this challenge into a success, yet again. This whitepaper outlays the core changes to the traditional PSF value chain, derives implications for existing jobs, conceptualizes alternative career paths and calls PSF leaders and managers to action.
The value chain of traditional professional service firms (PSFs) used to be quite simple.
Originating from the mostly time and material based business of selling smart and thoroughly skilled and qualified people – so-called professional services – the value chain of most consulting firms, law firms, auditors, tax advisors, technical engineers and other experts used to be rather simple: Sell, plan, deliver and close engagements (projects etc.).
In order to drive growth and profitability, “billable hours“ used to be THE key.
Ideally, most of your resources as a PSF were spent on delivery – admittedly some efforts needed to go into selling, planning and properly closing and debriefing your client engagements.
The key to a traditional PSF‘s growth and profitability was thus to keep its workforce’s utilization high on client billable work.
“Client first“ is the ubiquitous industry mantra – usually interpreted as “billables first”. In order to maximize profitability a PSF needed to minimize everything else – especially “back office“ work; except for the traditionally partner-led and strongly relationship-based sales work.
With new technologies & biz models on the rise, the traditional value chain is changing.
Now, with rise of technologies, the digitization and digitalization of knowledge intensive work and the advent of new business models in professional services, the value chain model is advancing: In order to deliver efficiently and effectively, smart people are coupled with or are to some degree even replaced by technology. Within this continuum several options and models take shape – and are still evolving rapidly. Independently from the specific model though it is common sense that professional services need to embed technology in everything they do. As a consequence, PSFs are wise to rethink how to deliver tangible, sustainable, and differentiated results to their clients. This means, they need to seriously reconsider innovation and design – but also the ongoing development and management of their solutions throughout the lifecycle.
Solution innovation, design and lifecycle management are the “new permission to play“!
This new focus on innovation, design and development of technology-enabled solutions can even be considered a PSF‘s “permission to play“ as the competitive environment is changing towards a new game with new rules: In this game, the rules are set by the clients, who are increasingly demanding sustainable, reliable results delivered through tangible, often collaborative technologies. A simple example: It is common for consulting firms to deliver pitches based on real and live client data in interactive formats. By doing so, the client gets a feel for the firm’s expertise and more precisely, what a sustainable solution – especially beyond the actual project horizon – might look like.
PSFs are thus investing more resources into this extension of the value chain – which is in many cases not only an upstream extension but also a downstream prolongation “beyond an engagement“ with additional service and maintenance etc. This brings PSFs in many aspects closer to other industries and their value chains, e.g. software companies.
The career model in most partnerships however remains untouched.
Despite this increasingly acknowledged change to the inherent PSF value chain traditional career paths in most PSFs remain unchanged: As a young entry level employee (often called “associates“ or “business analysts“) you would build your field of expertise, learn to lead client engagements (“managers”) and ultimately advance into client relationship management and sales – crowned with the “partner“ title.
In order to stay competitive though, the resource allocation is steadily shifting.
Meanwhile, the resource investments in new activities due to an extended value chain are continuously augmenting – but often remain classified as “back office“ and thus second choice, career dead ends, a place for non-performers or dreamers etc.
Compared to other industries and the immense importance of innovation, research & development, product design and management, sales channel management etc. this antiquated mindset within many PSFs appears questionable.
It manifests that new career paths for top talents are needed in order to perform.
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.
The talent that a PSF is able to hone in these emerging roles and career paths may ultimately determine its success in the market place more than anything else we know today.
It is imperative to fuel new career paths with fresh minds but also existing talent.
But not only new talent is needed – the existing pools may be leveraged to cherish emerging, multi-facetted paths: They may discover their talents as innovators, designers or long-term lifecycle managers (aka product / solution owners) and take pride in their ideas and contributions to the firm. Not surprisingly, this is a critical success factor for startups (with often much lower salaries) against big PSFs in the war for talent. PSFs must find and define these new ways of working and contributing – and enable their most talented people to engage in these paths.
PSFs need to act now in order to be adaptable and fit for the emerging industry dynamics.
As leaders and managers in PSFs are starting to realize how radically their old recipes for success and growth are decaying, it is time to embrace clear organizational implications:
- Truly investigate changes to the professional service value chain – and recognize the deviations from traditional management views and structures
- Recognize and define new roles and required changes to existing roles and structures
- Derive skill requirements for the next generation of roles within your organization
- Support and protect people who are willing to move into new roles and foster their development
- Enable new and changed roles with a fresh and fitting training curriculum and development opportunities – both inside but also outside the traditional boundaries of your firm
- Develop a sense for your firm‘s ecosystem, how it plays into your organization and to which degree it impacts its structures
In short: Use all available levers and options to attract, develop and retain the right talent within the broader ecosystem of your firm – and recognize how this game has changed.