VS1 Cloud Blog
The professional services industry is growing, with revenues and headcounts rising across the board. But the industry is increasingly being issued with a stark warning that cracks in its traditional model are starting to show. Four major trends that are driving change in the world of professional services.
Talent’s changing face
The first trend, and one impacting the industry across all segments, is talent management. The entry of new generations into the workforce, Gen Y and more recently even Gen Z, has injected an entire new way of working into firms. Compare to older generations such as baby boomers, newer generations place more value on work aspects such as flexible working, purpose-driven and a more balanced work-life.
Most importantly, said Arnout Zandvliet, Product Director Professional Services Organisations at Unit4, a provider of IT solutions to professional services firms, is the heightened customer expectations of younger generations. Influenced by the 24/7 digital economy along with easy to use and design-minded interfaces, newer generations “have a much lower tolerance level to clunky tech.” Instead, “everything has to be easy and intuitive, and personalised” to cater to the needs of the end user.
“Technology is paramount in this regard, including a clear focus on consumerisation of technology to increase adoption,” said Zandvliet.
Meanwhile, the rise of the gig economy means that workforces are becoming more fluid. Traditionally, accountants, consultants or lawyers were on a firm’s payroll, and sourced externally for an hourly rate. Today, in management consulting, up to 20% of fee income is accrued by independent consultants, with consultancies often running hybrid staffing models of own employees and independents on a project-by-project basis.
“Firms want to be able to oversee and collaborate with independents, and manage a relation with them. Such contingent workforce management is of increasing importance in professional services.”
A third disruptor in the talent landscape is the changing mindset towards performance management. At present, most companies can now have up to five generations working simultaneously side by side, meaning that firms need the agility and employee-led insight to facilitate increasingly diverse talent management practices.
“It’s no longer enough to have two to three evaluation moments per year. It’s much more effective to do this on an ongoing basis, and modern technologies make this feasible.” Additionally, Zandvliet added, is that modern technology at the same time can help firms to take a fresh approach to the hire-to-retire life-cycle, which is one of the more costly areas within internal operations.
The quest for productivity
While revenues in the industry are demonstrating an upwards trend, analysis by research firm SPI has shown that professional services firms with a higher degree of internal productivity capture a significantly larger share of the uptick. “With relatively low overall productivity growth in mature markets, it’s important to have this high on the agenda,” remarked Zandvliet.
The key focus point should always be the workforce, as this typically represents between 80% to 90% of the cost base of professional services firms. One effective way to ramp up productivity is by freeing up fee earners from non-chargeable administrative tasks such as entering an absence request, completing a skills matrix, or time writing. “No consultant is hired to fill in a timesheet or an expense report. Modern technology allows firms to process such tasks with a minimum of human intervention.”
While 10 minutes a day might at the outset seem negligible, effectively flowing this time towards more chargeable time or more effective bid management can make a sizeable difference across an entire workforce of several percentage points in margin. Similarly, modern technology can reduce ‘leakage’ in billable hours – hours spent on client work but not written and invoiced. According to one estimate, revenue leakage averages up to 15% in the consulting industry, illustrating the benefit potential that can be unlocked.
“Operational excellence in sales and back-office processes is another area of improvement. Introducing standardised and structured procedures across a firm enable teams to spend less time on routine and more time on managing exceptions. Teams need full transparency on KPIs such as margin per project, resource utilisation rates, and days sales outstanding. Receiving this information with a few clicks instead of having to spend time collecting information from multiple sources represents a major benefit.”
To tap into such benefits, it is key to “have the right ERP solution in place, one that is designed for professional services organisations,” said Zandvliet. Equally, a culture of continuous improvement is needed, because “it’s important for both fee-earners and staff to realise that relatively small improvements can have really large impact on the financial results.”
The changing nature of the professional services value chain has infused complexity into most parts of operations. Globalisation means that internationally operating firms now need to meet demands in different jurisdictions and cultures, while clients facing more complexity (integrated, cross-border, etc) are obliging professional services firms to offer more tailored and localised services.
The need for specialist expertise and more rapid avenues for innovation has propelled the number of acquisitions, partnerships and alliances in the industry, and as a result firms are also faced with a growing need to operate within a chain of services and manage a more extensive set of offerings and broader governance.
Zandvliet: “The need to deliver a wider range of services in an international setting obviously creates more complexity in many areas, including management of project execution, workforce planning, but also in financial budgeting and overall strategic management.”
Synonymous with other industries, regulation is advancing in giant leaps, with regulators placing more scrutiny on transparency and accountability. “Across the professional services industry, (local) statutory reporting requirements and integration requirements are becoming more multifaceted, while regulations are being updated more often. “More than ever, digitalisation is needed to meet compliance demands in a simple and cost-effective manner.”
The rise of new technologies is in rapid fashion providing a wealth of new opportunities for professional services firms to improve their undertakings. Chatbots are one example of how robotisation can support advancement, with personal digital assistants making the lives of partners and consultants hassle-free, while relieving pressure of admin staff. This form of automation can be applied to automatically fill in absence requests, or enter timesheets and expense claims.
Machine learning can be applied to improve pipeline forecasting, lifting business development maturity. “By better predicting how likely it is that an opportunity becomes an actual project, upfront planning can be improved all the way down to recruitment,” said Zandvliet, which translates into higher billable utilisation rates.
Meanwhile, natural language processing is helping firms keep tighter control on their fee-earner databases, which in turn makes resourcing and non-chargeable time spent more effective. Zandvliet explained: “NLP can be used to automatically update skills, leading to better matching of skills (available capacity) with project activities (demand for capacity).”
In the consulting space, artificial intelligence (AI) is now being applied by 61% of mid-sized to large consultancies, up from 38% last year. Of these companies, a quarter use AI for predictive analytics, and 22% use it for machine learning. “Al is no longer a theoretical notion being developed by futurists locked away in labs somewhere, far away from the real world. We will see more and more modern cloud ERP applications feature Al capabilities, while an awe-inspiring amount of data is managed autonomously.”