Step Change Strategy for Professional Services Companies
Regardless of whether it is an accounting, legal, creative or business consulting firm the cause of stalled growth in professional services companies is typically the same: Partners who are so engaged in achieving excellent outcomes for their clients that they spend insufficient time planning for profitable firm growth. Whilst this is intrinsically understandable, it means that much of the hard work of client staff is wasted with project revenues not converting into long term sustainable profitability.
Partners that are prepared to step away momentarily from chaos that is daily operations, can create a step change in profitability through rethinking their positioning, broadening the sales approach and automating their business. Whilst simplistic, these steps are typically what is required for small and medium firms to generate significant and scalable profits.
“Strategy is choice. Strategy means saying no to certain kinds of things”
Consciously revisit your positioning
During a shock like COVID there is an instinctive reaction to not only say yes to all work that walks through the door but also to chase down other types of work that you ordinarily would not consider. Whilst from a survival perspective this may be necessary, from a strategic perspective it is fraught with danger.
The positioning of a professional services company in the marketplace is singularly important, it defines what level of fees you are able to charge, what kind of talent you are able to attract and what kind client work you are engaged to do. At its best it is a virtuous circle of helping clients with idiosyncratic, bet-the-company problems that require deep expertise and creative problem-solving; this in turn attracts the best and smartest to your firm, who in turn add great client value justifying high charge out rates. At its worse, a take all approach to clients sees a firm undertaking commodity type work, attracting median level candidates and having to compete heavily on price. The difference between the two is down to how you position your company and how the market perceives you.
Michael Porter once said “Strategy is choice. Strategy means saying no to certain kinds of things” in profession services that means making hard decisions about what work to turn away at the door. There is a reason that BCG doesn’t do the heavy lifting on a SAP implementation – they want to be seen by market as being the strategy specialists. It is human nature that consumers, faced with information asymmetry, make assumptions about a business based on their existing customers. Restaurants are a great example; a potential diner will typically choose to eat in a restaurant full of people they perceive to be “like them”. The same is true of professional services firms. To address this, leading companies actively seek out the customers with whom they want to be associated to build positioning, as opposed to letting clients choose them.
Broaden the sales approach
Once firms have consciously defined their target customers, according to a clear set of attributes, the next step is to deliver the marketing messages utilizing a broad set of sales channels. Marketing and Professional Services have always had an uncomfortable relationship, with more traditional firms of the belief that the proverbial shingle on the door, good client relationships and word of mouth should be enough to sustain a practice. Unfortunately, new remote working techniques, lower levels of customer fidelity and a more aggressive competitive environment mean that professional services companies must have more arrows to their quiver.
“Leading professional firms try to create a brand presence where their clients spend time”
In 2020, the average professional services firms spent a significant 15% of revenues on marketing, substantially higher than any previous year. Moreover, digital has now become the core client acquisition channel – in 2020 an impressive 4 out of every 10 new business leads were generated from digital sources. The principal techniques being used to achieve these leads include networking on social media, email marketing campaigns, publishing thought leadership online and participation in industry-based events.
Leading professional firms try to create a brand presence where their clients spend time, and not where competitors are established. This means firms would be well advised to spend less time at crowded, competitor heavy, networking nights and more time in online industry forums or industry specific conferences where potential clients are actively seeking specialist advice. Equally, social networking has become the new norm and provides a unique ability to both build credibility prior to an initial contact as well as to laser target your networking efforts. Such networking is no less skilful than its traditional face to face counterpart and as such requires professional services firm partners to master new sets of business development skills.
Professional services firms routinely underinvest in next generation IT – ironically while often promoting its benefits. Indeed, across the industry only around 26% of firms have automated their backend processes, meaning that nearly three quarters of the industry still rely manual operations. This lack of IT automation means significant time is spent preforming repetitive tasks, which often results in revenue generating staff and partners being taken away from their fee earning roles to generate invoices, contracts with suppliers, manage marketing channels, document expenses or produce regulatory related documentation.
Leading firms are moving quickly to automate all of these tasks, new digital innovations are allowing firms to standardise tasks that are overly burdensome and to digitise them though either system based solutions or through specific task based solutions. These changes are also creating market opportunities allowing small and medium firms to operate in a more agile manner whilst having support resources equivalent to their larger competitors.
Some of the largest areas for automation where firms are investing are:
a) Contract management – the ability to seamlessly share, sign and manage contracts virtually has minimized much of the senior time previously devoted to this task.
b) Knowledge management – previously an under invested area, applications today allow client staff to automatically upload, classify, tag and then share internally important firm generated intellectual capital.
c) Invoicing and Billing – new professional services customised software allows integration of billing, accounts payable, timesheets and payroll. This integration provides automated real time analysis to firm leaders allowing them actively manage project and client profitability from their smart phone.
d) Sales and Marketing – whilst still in its infancy, the industries pioneers are also beginning to experiment with sales and marketing automation. This consists of a mix of integrated capabilities including tender monitoring, client intelligence, lead generation, marketing campaign execution and inquiry management.
Beyond creating efficiencies, firm automation will also begin to create competitive advantage in the eyes of customers. Law firm Baker & Hostetler has announced that they are employing IBM’s AI ROSS within their Bankruptcy practice. ROSS is an internal tool for lawyers that allows them to ask questions in plain English to ROSS, as they would to a colleague, and ROSS then reads through the entire body of law and returns a cited answer and topical readings from legislation, case law and secondary sources, in addition, ROSS monitors the law around the clock to notify lawyers of new court decisions that can affect their case.
Professional services firms, and particularly those in regional markets, have for a long time been able to rely on low churn, historical clients to maintain their business without significant business development efforts. Those days are likely numbered, new competition from disruptive entrants like Upwork along with new ways of working are driving increasing levels of customer churn.
Winning in this new market will mean taking a step change in strategy, embracing digital as both a sale generator and process facilitator. It will also require a rethink of the firms positioning and putting in place new sales channels to support the firms overarching strategy.
About the author – Barcley Consulting is a boutique management consulting firm on the Gold Coast focused on helping market leading companies with Strategy, Innovation and Execution.