The Top 10 Professional Services Trends
Extracting research findings from the prior three Business Growth Reports demonstrates 10 professional services trends that are directly impacting service company growth and profitability.
Increased Competition
In most service industries market share is shifting from the concentrated few. Large oligopoly-like companies dominate many services industries. Bain, BCG and McKinsey in management consulting. Deloitte, EY, KPMG and PwC in accounting. Accenture and IBM in systems consulting. However, these firms are being challenged by nimble competitors who leverage technology to create innovative and compelling alternatives.
A few years ago, Harvard Business School professor Clayton Christensen forecast the disruption of established consultants with smaller and then progressively larger clients. He advised clients of all sizes would use alternatives to the big brands for all but "a core of critical work".
His prediction is clearly being realized. By shifting value propositions, billing models, assumptions of risk, and how work gets done, smaller but more innovative competitors will continue to steadily usurp market share from slower moving stalwarts.
Structured Growth Methods
Most professional service firm leaders and partners are well versed in building customer relationships. However, for most, it's a personal skill learned over many years and is without an institutionalized method to make customer relationship building measurable, repeatable and scalable.
They lack a systemic method to train junior associates or middle management with these skills which limits growth and creates succession management challenges. That's changing.
Research from the Business Growth Report shows that the Best-in-Class professional service organizations (i.e., the top 15%) apply customer growth strategies such as Customer Relationship Management (the strategy, not the software) and Customer Experience Management (CXM) to systemically increase client acquisitions, client share and client retention. These top performers will continue to outpace their lower performing peers who are more conservative and slower to implement change.
Business Model Reinvention
Many service firms are redefining how they package and deliver services. Clients prefer to pick and choose services, as well as use their own resources for select tasks so service firms are offering more modularized services. Componentized services can also aid delivery orchestration when multiple service providers are working together.
Many firms have converted services into pay as you go subscriptions and consumption-based models that forego some upfront billings but create annuity revenue streams. Other firms are packaging their core competencies and know-how into intellectual property that can be licensed. These firms are creating differentiation beyond brand and unique value proposition (UVP) to include the delivery of services in ways clients prefer to consume them.
More service firms are removing physical barriers or the need for proximity with virtual staffing and remote delivery. Their delivery and infrastructure tools are now in the cloud and lend themselves to anytime/anywhere operation.
The pace of business model reinvention is uneven. The top technology consultants strive for business transformation, often using market disruption methods to leapfrog competitors and achieve seismic advances. More traditional management consultants, accountants, architects, engineers and lawyers tend to strive for incremental improvements.
Value-based Billing Models
Clients seek more value, faster time to value and less risk. They want pricing aligned with business results. They want more tangible proof of results and a measurable return on investment. To respond, many high growth service firms are creating alternate billing models based on value and outcomes and not time or effort.
These value-based models put fees at risk with contracts built on forecasted results. Some services are suitable for shared risk while others will be based on time and materials. Focus on client value is the metric that most matters. Service firms that build on this metric are shifting their position from a supplier of services to a contributor and co-innovator of client outcomes.
Shifts in Workforce Staffing
The war for talent is not just among service firms competing with each other. It's also competing with a rising free agent market called the gig economy. Leading service firms are tapping into this white-collar, contract-based labor pool to access skilled staff and scale or descale resources to match fluid client demand.
Adopting a hybrid staffing model that includes an on-demand contingent labor source can increase business agility and impact the financial model by reducing overhead, shifting investments and creating a more variable-based cost model. Contingent staffing can be scaled up or down and is a powerful response to market uncertainty. We witnessed a dramatic rise after the 2008 financial recession and the 2020 coronavirus pandemic recession.
Culture is the Fuel
Service organizations are placing an increased emphasis on corporate culture to attract and retain top talent, become an employer of choice, drive staff productivity and improve the quality of services.
There are a lot of things a services company can do to drive growth. But the one thing that will directly impact every other is corporate culture. It is the common thread that guides the behaviors and actions among multigenerational workforces. When staff believe in the firm's purpose, they are more committed and productive.
Every services company has a culture. Most low performance cultures are a consequence of unplanned actions, unforeseen behaviors and random outcomes. In contrast, high performance cultures are intentional, proactively designed and in a constant state of awareness and improvement.
Employee Churn Continues
Services industry workforce attrition has been ticking upward for more than a decade and now stands at 15%. That's a big problem when high skill unemployment is below 2%.
This professional services industry trend shows no signs of abating. Robert Half reports that 91% of workers said they are experiencing some degree of burnout and 43% plan to survey the job market and consider alternatives. To combat this professional services trend, employers are formalizing their talent management processes and revisiting their culture.
Service Firms are Getting More Marketing Savvy
Few service firms are known for their marketing prowess. But that's changing in large part because clients are changing how they buy. Buyers have turned to web search, social media and other online sources to identify and vet service providers. They are 60 percent through their buy cycle and have developed a vendor short list by the time they reach out to vendors. To make that short list, service firms are increasing their content marketing and brand building. They are also increasing their adoption of marketing automation software.
Increased Data Privacy
Maintaining data privacy and client confidentiality is essential in the services industry. One data compromise and negative headline can permanently damage a business reputation built over decades.
Service firms routinely handle their clients personally identifiable information (PII) however sometimes fail to fully implement and monitor formal safeguards. This is changing. Research shows that leading service firms are now taking a more structured approach to assess data and security compliance and impact for client projects and contracts. Data privacy, regulations and compliance methods are essential to adhere to privacy laws such as The California Consumer Privacy Act (CCPA) or GDPR.
Technology Acceleration
Technology levels the playing field and technology leaders are increasing their use of cloud-based services technology portfolios and platform ecosystems for information, automation and scale.
Digital technologies such as mobility, social media, big data and AI are enabling accelerated delivery of services, improved customer experiences, data transformation, process automation and much improved information reporting.
There's a clear uptick in Services Automation software to aid services planning, deliverability and oversight. These improvements then drive financial returns in staff utilization, reduced invoice leakage, faster billing and overall improvement in project profitability.
There is also an upward professional services industry trend in the use of Human Capital Management (HCM) and talent management systems to bring modern technology to the employee hire-to-retire processes.
Labor is the top cost and the employee experience is a top goal. Both can be aided with HCM systems designed to improve recruiting, onboarding, compensation management, performance management, learning and development, and succession management.