Buying Professional Services – a look into the future

Here’s the final excerpt – for now at least – from “Buying Professional Services  (How to get value for money from consultants and other professional services providers )” - written by Fiona Czerniawska and me. We’re featuring it to celebrate two years since it was published by the Economist Books. In this piece we look at the future and how clients will make their choice of consulting providers.

All this means that, for the astute purchasing team, the choices between professional firms will be more clearly delineated:

  • Advice versus implementation:  One of the initial distinctions we made at the start of this book about the nature of professional services is that they largely about advice.  A consulting company provides recommendations to a client and may support in some way the delivery of a new strategy, but it is not responsible for its entire implementation.  A law firm may help a client negotiate an acquisition, but the final decision rests with their client.  However, the advice-implementation distinction is hard to maintain in practice: while the extreme ends of the continuum are black and white, economic incentives, industry structures and human nature all mean that there a multiple shades of grey in between.  However, many of the pressures we have outlined here, from falling margins to changing organisation models, may force firms to throw their hat into just the one ring: are they advisers working on small, but high-margin projects or high-volume, but low-margin delivery machines.
  • Large versus small: Consolidation among mid-tier players and the increasing prevalence of preferred supplier lists (which tend to focus expenditure on a small number of firms) will inevitably mean greater polarisation.  Only a small number of very large firms will have the scale, global reach and brand to handle the largest projects.  The plethora of very small firms will have to become even more specialised in order to survive; although their lower fee rates will make them an attractive alternative to clients, the latter will struggle to find them and find it hard to judge their quality.
  • Leaders versus followers:  Although commoditisation will increase the need for innovation, lower margins will limit firms’ capacity to invest.  Professional firms will end up choosing between the two: some will send all their spare capacity identifying and developing new ideas, tools and services, while others eschew such high-risk and costly speculation in favour of making the most of their cash-generating services, even if these are lower margin.
  • Volume versus value:  Some firms will choose to focus on volume work, industrialising their services in such a way that they can guarantee the benefits and drive down the costs of delivery.  Others will remain more traditional “craft-based” firms, offering a bespoke service at a higher margin.  However, most sizeable firms will find themselves trapped somewhere in the middle, offering a combination of volume and value in different parts of their business and potentially offering overly expensive volume work and standardised value work.
  • Brands versus factories:   We have already seen financial services institutions start to divide into two groups: those with the better-known brands focus their resources on dealing with consumers and marketing, and those whose core competencies lie in developing new products become the factories that serve the market.  The same division could start to occur in professional services, especially if multi-sourcing becomes wide-spread.  Instead of assuming they have to “own” all aspects of delivery, professional firms may decide that some work is better done by lesser-known but specialist firms, the factories in this analogy.
  • Skills versus outcomes: The issues around size and volume/value are ones we already see in play today; the future will bring more of the same rather than a paradigm shift.  But an area where we may see a much more fundamental change is in what organisations think they are buying and what professional firms think they are selling.  In the past, this was almost always skills – firms were offering experts in particular fields – and it remains true today, even among the some of the world’s largest professional firms.  Indeed, there is nothing intrinsically wrong with this model except where a firm fails to recognise that there is an alternative approach.  Some firms will unquestionably shift the way they position themselves to focus on packed services or outcomes: clients will be buying the output, not the inputs.  Choosing between these two models will depend on the service sought: are you looking for an individual to plug a temporary gap or a specific result?

In this context, successful firms will be those that keep their finger firmly on the market pulse and are prepared to adapt their services and business model to the changing needs and buying behaviour of their clients, sometimes in quite radical ways.  The capacity for reinvention and renewal will be critical.

But, equally, it is important to remember that professional firms have always been spectacularly successful at reinventing themselves: the real challenge for purchasing professionals is to keep up.

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