Professional services - a new business model

During the last three years, most professional services firms have dramatically altered their business models. In some cases, transformations spanning over a period of only a few months were greater than the changes those companies have seen during the last 10-15 years

Why is this happening and why is it happening now?


The global economic downturn, that has seriously shaken most of the economies in the last years of the first decade of the 21st century, also scarred the professional services industry. And this was not an isolated phenomenon: not only worldwide were professional services firms making lay-offs by the hundreds, but also the Romanian market has seen 20-25% year-to-year falls in profitability between 2008-2011 and many companies have contracted with more than 30% in terms of headcount, introduced salary freezes, cut off executives’ and staff bonification and material benefits.


What did actually change?


Those companies that survived realized that things really need to change – the way they did business couldn’t have stayed the same. This is why new business lines appeared, new ways of engaging customers and delivery were developed (e.g. competence centers, regional teams, highly customized solutions), while traditional offerings were either scrapped or transformed in off-the-shelf, low-cost and low-profitability solutions.

Strategy-wise, even though the market for professional services is still volatile roughly two years out of the economic crisis, growth is on the agenda of most multi-nationals. A quick glimpse through the strategies of these companies highlights one common milestone, that is - vision for 2020. Comparing these companies now to what they aim to be in five years’ time, you will stumble upon totally different animals: IBM is likely to completely exit the hardware business by 2020, the Big4 firms expect to get a significantly larger share of their revenues from Business and Tax Advisory services, rather than from financial audit; other companies having similarly aggressive and novel strategies.


What are the pillars on which to build growth?


Although expressed under different names, and encased in a multitude of concepts in different business strategies and vision documents, a common set of principles have made their debut during the past couple of years and will be further strengthened in 2015 and beyond: embedded IT, data analytics, and competency centers.


Embedded IT
Most executives looking to buy professional services today generally lack the sophistication of IT sector buyers, being focused on end-results, tangible and quantifiable benefits. In addition, even more than a few years ago, they tend to be highly influenced by competitors’ moves, market perception and referrals.

The new generation of C-level executives want to hear about business benefits as opposed to programming languages, platforms, integration, scalability and other technical jargon. They need demonstrable proof that projects will actually generate an immediate, positive business impact.

In this sense, the amount of multi-year, dramatic transformation projects, with extensive customization and client-side effort are going to be a thing of the past. These new buyers are not interested in what is happening in the background, as long as IT directors sign-off and budgets are not overridden.

In this sense, professional service providers will not focus on selling a particular “application”, but an entire package, the IT foundation behind not being emphasized anymore. Success in this sense will belong to those companies that manage to seamlessly embed IT in their offerings and deliver entire solutions, not just bits and pieces of the puzzle. This is why, traditional consultants will either employ IT professionals or create alliances with IT service providers, and typical IT companies will strengthen their consulting arms.




Big data and analytics

More than being a hyped marketing term, big data and analytics have been embedded, during the last two years, in the strategies of most large enterprises (from Pfizer, to GM and Shell), especially as means for legacy enterprise applications to continue to stay relevant.

Nonetheless, whenever there is smoke, there is fire - professional services firms have entered this field, developing their own solutions, filling in the gap and knowledge void in large multi-nationals. This critical shortage of analytic skills represents a significant opportunity for service firms, whose advisors manage to combine technical knowledge with vertical industry acumen, to create the reports and data crunching means that corporations need.

Competency centers and regional teams
As highlighted in the overview of the professional services market for 2014, deep sector and area expertise is still lacking (in this sense, the Romanian market still proves to be a textbook example). Therefore, highly specialized mix-teams are expected to assist local professionals during complex engagements, sharing and transferring their knowledge along the way.

Lacking critical mass, the Romanian branches of large multi-national professional service firms will not be able to locally build and attain niche competences; however, the new focus will be on developing sector teams. As opposed to solution-driven professionals who served banks, FMCG, automotive, energy sector clients, delivering specific projects, the trend is to locally build knowledge in specific sectors and local clients, relying on competency centers to develop approaches and methodologies.

From the clients’ side, there are plenty of advantages of such a mix: on one hand, they constrain service providers in locally deploying their best experts, and secondly, they rely on local teams for adapting methodologies and tailoring delivery to the specifics of the local environment and sector.

Tailored approach
Paraphrasing a common doctors’ saying “No two patients are the same”, in professional services there is a concept that no two clients are similar, nor have the same needs. In this sense, when acquiring professional services, clients don’t expect providers to deploy out-of-the-box solutions, requiring heavy customization and integration work. This approach more often than not proves to be uneconomical, requiring enormous efforts both in time and resources, increasing the risk that something would go terribly wrong. What we will see as an increasingly common approach is the breakdown of off-the-shelf solutions into small, less complex and customizable bites.

A relevant parallel example of such an approach would be Google’s modular handset - Ara Project - in the sense that the client, together with the service provider consults a “menu of services”, chooses, combines, configures and pays and gets only what he absolutely needs.


Next-generation service providers will focus on transforming businesses and business processes through an array of innovative approaches and technologies like commando-teams, tailor-made solutions and mobility, applying analytics across the end-to-end services platform to deliver insights and create new value. Power has shifted away from traditional service providers, which must reinvent their offerings and allow client executives to reach their clients and employees in new and exciting ways.

Winning services organizations will be those that focus on specific vertical industry business problems,yet are savvy enough to build horizontal skills in analytics, IT and sector knowledge. They will apply technology and industry knowledge to streamline and transform the way the world does business, in 2015 and beyond.