A Strategy to Disrupt the Professional Services Industry
- Research found that 94 percent of the highest growth firms in the professional services industry used disciplined innovation and disruption programs to achieve their growth.
- Disruption is not prescriptive but there are repeated patterns. Companies can learn to innovate and disrupt.
- For some services firms disruption is a choice. For others it's a mandate. As they say in Silicon Valley, "innovate or die."
Market Disruption in the Services Industry is Underway
Research from the Business Growth Report shows there are only four sustainable competitive advantages in the services industry. They are innovation, customer affinity, corporate culture and business intelligence.
The research also shows the Best-in-Class professional service firms are creating, redefining and improving services to shift from what clients believe are indistinguishable and substitutable services to differentiated services built on core competencies, proprietary capabilities and specialized skills.
While most professional service firms view innovation as opportunistic, the industry leaders prioritize innovation as a business growth method and actively pursue services innovation strategies and techniques.
The top 14 percent of the highest growth professional service firms took innovation a step further with active market disruption strategies. They seek to upend their own industry or adjacent markets. They view market shifts, such as deregulation, globalization and technology as growth opportunities. They experiment with techniques to transform the scope, quality, value, delivery and resourcing of services.
Not If But When
Market disruption in service industries remains in early days but the services trend is both clear and occurring all around us.
Quicken with its online bookkeeper has acquired 20 percent of the small business accounting market and continues to grow at double digits. TurboTax has replaced tax preparers. Wikistrat has replaced consulting firms. Roman has replaced doctors’ offices. Crest white strips have decimated expensive teeth whitening services from Dentists. Retail cashiers are being replaced with self-service scanners. Call center reps are being replaced with virtual agents. Travel agencies are extinct.
Service directories have evolved from Craig's List to Angie’s List to Takl to a plethora of specialty service provider websites. They include architects, accountant, lawyers, doctors and more.
Not to be outdone, Amazon, an innovator that has displaced dozens of industries, now offers contract workers for home or business installation services.
In the legal industry, LegalZoom.com has replaced personal law firms. Elevate has replaced corporate law firms. Axiom and Lawyers on Demand have shifted legal services acquisition and delivery to remote and contract staffing. The Am Law 100 was an early source for law firm assessment and comparisons. Today that transparency has grown to include many online websites which rank and refer attorneys.
The management consulting industry, long thought to be the most entrenched, is also in transition. After divesting their consulting businesses due to accounting reforms and Sarbanes-Oxley legislation, the big four accounting firms are again expanding well beyond accounting and gunning for increased market share in the management and technology consulting industries. In similar pursuits, Accenture and IBM continue aggressive acquisition strategies to expand their digital and management consulting services.
But the biggest disruptors are likely firms such as Eden McCallum. Instead of penetrating lucrative markets with similar offerings and services, they shift the staffing model and value proposition. They source on-demand consultants from alumni of high-end management consultancies, retired partners of the Big Four accounting firms, independent subject matter experts and freelancers from the Gig economy. They operate lean business models, offer more modularized services and bring much needed transparency to the consultant selection and pricing processes.
Their variable cost models don't incur the significant expenditure for idle staff. In fact, while consultant availability is not a skill, it is the most used factor by traditional consulting firms to determine which consultants get put on the next client engagements. While that may make financial sense for the services firm who must get idle staff into billable client projects asap, it doesn't make sense for clients. In fact, Johnny Grow's own business model follows Eden McCallum, but with a focus on revenue growth services instead of broader management consulting.
Management consulting, like many service industries, is built and valued based on proprietary knowledge. When that knowledge becomes democratized or available through other sources, the industry is ripe for change.
Here's How It's Done
While industry disruption is far from prescriptive, it follows a familiar pattern. It starts with a customer problem that matters. Inconsistent staffing, inflexible services, risk, uncertain project outcomes or customers paying what they believe are excessive hourly fees are examples of problems that matter.
Any startup or competitor that can solve a customer problem that matters, find a new or better service, or a new or better way for clients to acquire, consume, use or benefit from a service, can displace an incumbent delivering the status quo.
Disruptors are in tune with customer behaviors and problems. They create nontraditional business models or design alternative services with more speed, agility and control and less cost and bloat. Their services change the value proposition, reduce or eliminate risk, increase transparency, apply technology for greater efficiency or faster time to value, or otherwise give clients something they're missing.
They typically enter from the fringes with an inferior service. Incumbents generally dismiss or ignore the threat. It's not so much that incumbents are blinded by disruptors but instead choose to deny the nontraditional value or rationalize the change as insignificant.
Much of their dismissiveness and vulnerability comes from the incumbents' historical success. History shows that's it's the most successful firms that are most often upended. Perhaps this is why more than half of the names of companies on the Fortune 500 have disappeared since the year 2000, why the average tenure of an S&P 500 firm has fallen from 61 years to less than 16 and why Innosight forecasts that half of the S&P 500 will be replaced in the next 10 years.
The disruptor iterates quickly, expands their service, and grows client and market share. What began as a primitive service to a few clients expands to become a viable alternative for a niche market. That expansion continues as the new service becomes recognized as credible to many clients beyond the niche. The disruptor has created momentum.
The Disruptors and the Disrupted
Whether disruption equates with opportunity or destruction depends on whether you are the disruptor or the disrupted.
Innovation leaders profit from disruption because they apply focus, investment, iterative prototyping, advanced technologies and frequent measurement. They build on what works and quickly discard what doesn't. They experiment, iterate, fail, iterate again, fail again and iterate until success. They are agile and relentless. They use innovation and technology to acquire underserved clients, create toe holds in niche markets and expand.
Research shows that laggards generally fail at disruption for one of two reasons. They don't apply a systemic approach or they are not fully committed. Many just don't believe they are capable of innovation or they simply experiment. Their pursuit resembles more of an academic curiosity exercise than a commitment to business growth. These efforts are typically doomed from the start.
Disruption is not easy, but growth and comfort do not coexist.