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?
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:
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.
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…
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.
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?