Is The Traditional Professional Services Model Dying?

Is The Traditional Professional Services Model Dying?

These days smart professional services firms are leveraging bundled products and automation, not so much people. It used to be just people.

For many decades now, young graduate professionals have been taken into firms and paid lowish wages. They would be trained, well, to do the more repetitive and low level tasks and then the better workers could grow over time into more senior roles that supervised the work of newer graduates. The best, that chose to stay, would raise through the ranks to be a partner / shareholder. Big firms even had (have) hierarchical levels of partnership. This is known as “up or out”. Some staff would be placed with clients to funnel work back to the firm, some would jump to escape the “time sheet hell”.
The finances of these firms were based on a tried and true standard. The aim was to limit spending on people to one-third of revenue, one-third on overheads, and have a third left over for the partners. Traditional firms find those numbers increasingly hard to do now. Automation and competition are putting pressure on the model.
Smart firms are approaching it in a different way.

They are breaking down many of their services into fixed price products that meet client needs

Once upon a time you sold products or services, or maybe both, but professional services were seen as different things. A bit of snobbery involved too I guess. Things have changed, and it’s great to see people changing to fixed prices products. Clients love to know what they are getting and what they need to pay. Monthly charges are even better for them, and for you (why recurring revenue is so valuable).
Having said that, it takes extra discipline, in fact for some people it involves learning many new disciplines in order to make this model work. It takes a commitment to client value, building teams, effective marketing, heaven forbid sales, and industrial strength internal costing and KPIs.
Once you break free of the old model you need to be absolutely sure that you know how your machine works and how to keep it in rude health. Some firms struggle to understand their costs and margins, or repeatedly quote too low for fixed fee work. For them it might be dangerous to more away from old fashioned billing methods until they sort that stuff out. Or these changes could be a good chance to get moving.

Smart firms are looking carefully at the best way of delivering those products

They are building robust systems and processes, defining the skills that their people need in order to undertake each particular task most efficiently. Then employing, and training, or outsourcing to, people that best suit those tasks. Wherever possible removing the bullshit jobs that are headed for the scrapheap anyway. Plus who wants to build something that makes our lives and work meaningless.

If a company makes and installs water heaters their internal accounting systems are good at understanding R&D, process costs, staff on-costs, training, overheads and installation costs. That makes sense for them but some of that manufacturing discipline is also really helpful for professional services. Especially because we are talking here about building a product. You need to know how to account for that.

It was once assumed that the prices professional services could charge would reduce over time as they moved, late, to copy the efficiency gains of 20th century industry. They believed as the technology used for tracking time improved, so too would they be able to remove employee “inefficiency”. And by inefficiency they meant laziness. Like some sort of 1880s fiddling with the lighting levels to see if it made people work faster. But really it’s not so much to do with time at all but efficient resourcing based on activity, not time. They are different things.

Most probably the future looks like not having all people involved in a product line undertaking a diminishing, overarching, segment of all of the tasks based on status. Instead, moving from a process pyramid to a more linear design.

Have your cake on top, do not only eat cake

It’s absolutely fine to put high-value, time based, consulting work on top of your standard products. That suits bespoke and complex problems and allows you and your team to do your best and most rewarding work. It’s the complex problem solving that people love doing.

People genuinely love helping people by solving problems, but aim to only work like this if the client problems are truly difficult and unique. You can still get a kick out of helping someone by supplying an elegant solution to common problems rather than starting from scratch each time.

Standard products and processes will naturally uncover the types of client problems that require one off work. Your products should provide a pipeline for this high-value work.

You might feel that the work you do can only ever be done in a bespoke way, and I have a few clients that operate primarily in that sort of space, but they are actively considering, or in the process of developing, ways to build recurring revenue into their practice. They know that building value into the firm is the direct driver of the value that the stakeholders derive in both the short and long run.