Business and professional services firms all over the world continue to demonstrate their commitment to evolving with the times. This is no small feat, given the current climate of rapid technological advancement and continual political and economic change. Firms are also under tremendous pressure to gain and maintain competitiveness, from both an innovation standpoint as well as a fiscal one.
TRENDS IN 2021
For recent trends in 2021, view our quarterly industry outlook for business and professional services.
Despite these challenges, however, there are opportunities for business and professional services firms with an eye on progress and growth. What are the top-of-mind trends for law firms, engineering firms, consulting firms and marketing firms, to name just a few, expected in 2020 and beyond? RSM has compiled the following information from interviews with executives, our industry knowledge, external reports, industry sources and our internal data. Each trend pertains to the industry as a whole; individual trends may affect your specific business to a greater or lesser degree, depending upon its sector, size and strategic mandate.
Designed to be a high-level overview, this following highlights opportunities to improve as well as areas that may require further investigation.
1. Integration of digital transformation into the overall strategic road map
In recent years, digital transformation has fundamentally shifted from being a competitive advantage to being necessary for survival. Technology has dramatically changed the business landscape; for example, as Vanguard’s Global Chief Information Officer John Marcante recently pointed out, in 1958 U.S. corporations remained on the S&P 500 index for an average of 61 years. By 2011, it was 18 years. Today, companies are being replaced on the S&P approximately every two weeks.
The continued growth of the digital platform economy will have a significant impact on firms in any of the traditional professional services sectors, as well as business services. Online platforms that connect sellers and buyers directly now extend to consumers, service providers and stakeholders—all brought together to facilitate value exchange as part of a larger, more direct ecosystem. Online market platforms with on-demand legal or consulting services and a la carte pricing disrupt companies with business models that charge monthly or retainer fees. While artificial intelligence (AI), blockchain, enterprise platforms and software will not replace professional services per se, these tools certainly change how, when, how often and for what price firms are engaged. Technology also introduces firms to competition from nimble providers with less overhead in low-cost jurisdictions.
- In this changing environment, how can firms compete?
- Automate simple, manual tasks and elevate employees to focus on high-value work
- Gain visibility into client analytics to improve value propositions and continuous work
2. Mastering the specifics of an industry
Being the best in a particular field and providing expertise specific to a client’s industry is a major competitive advantage. Such specialization allows firms to become more agile in providing unique and individualized service to their clients as well as focus their offerings on the most profitable industries and mitigate risk.
3. Data-driven decision-making
The effective use of client data such as customer lifetime value (CLV), customer acquisition cost (CAC) and net promoter score assists firms in attracting and retaining the clients that will best sustain their business for the long term. Such data also allows firms to quickly offload clients that may be hampering profitability.
4. Cybersecurity focus
Middle market firms are attractive to cybercriminals, in part because they don’t have the resources of large corporations to fend off attacks. All data has value and cyber-related threats affect all businesses, regardless of size. According to a 2018 NetDiligence report, 20% of cyber claims were filed by firms in the professional services industry.(1) It is essential that the leadership team maintains a broad understanding of the steps required to protect client data. Firms that are victims of cybercriminals face intense and long-lasting media scrutiny that often causes major clients to jump ship in search of a more secure service provider.
5. A reimagined business model
Firms face unprecedented competition from non-traditional players and this trend continues to grow. Technology has lowered the barrier to entry for competitors in lower-cost jurisdictions and RSM notes a series of disruptions to the traditional business model, including:
- Standalone automated services, based on information technology, machine learning and AI
- Virtual firms
When building a strategy, it is imperative that firms consider the entire competitive marketplace as opposed to other professional services firms only. Historically, some of the greatest market disruptions have occurred from outside the industry.
6. Succession planning
Increased emphasis on succession planning remains a top trend in the industry. While firm leaders certainly recognize the need for proactive succession planning within organizations, the reluctance to develop a formal process persists. Many firms address the issue belatedly, handle succession on a case-by-case or ad hoc basis, or avoid the issue entirely.
In our experience, partners aged 60 or older control a significant percentage of total firm revenue, despite the fact that only a small percentage of firms have a formal succession planning process in place. This creates undue risk; when partners retire or leave, relationships and revenue may vanish with them if succession planning remains either unattended or is poorly scoped out.
Success in succession planning begins with a well-timed plan, initiated two to three years ahead of the key firm leaders’ retirement. When putting a plan together for your firm, consider the following success factors:
- Depth of management team
- Client/customer diversification – the whole firm must own the client relationship, rather than have it be tied to one individual
- Tangible growth initiatives/leadership in evolving market dynamics
- Ongoing investment in financial and technology systems
- Optimized working capital cycle
The right time to address succession is now. Without an established pipeline of talent behind senior management, the firm’s legacy may be lost, sold or acquired by a different firm, one that took the time to groom its future leaders. Where possible, organizations should focus on creating “institutional clients.”
7. Awareness of market dynamics
Over the last few years, increased merger-and-acquisitions activity in the business and professional services realm has led to increased industry convergence. Globalization is a prime motivator for much of this activity. Acquisitions seek local expertise and language to service the international needs of an increasingly globalized client base. In addition, large firms often acquire agencies with digital expertise to gain the type of talent and client base required for successful digital transformation engagements.
8. Importance of recruiting, retention and retooling
Qualified labor shortages prove to be an ongoing trend in many sectors, and are largely attributable to longstanding low rates of unemployment. For many firms, technology is changing traditional roles. Hiring managers are in a race to find the skills required to meet the business needs of the firm. High staff turnover and competition for talent will likely continue into 2020 and beyond.
9. Changing contracts
Integrated project delivery models are becoming more and more common in the engineering space. Rather than each contractor submitting individual proposals and fee quotes, and overseeing the execution of their portion of the project, these types of contracts are collaboratively developed and submitted as one integrated engagement encompassing all third-party contractors. Clients benefit from the simplicity of having one contract and the collaboration among the team of third-party service providers. As profit margins are shared among the contractors, risk is shared among the group. Early data suggests this trend may facilitate higher-margin projects as well as minimize the risk of having projects continually go to lowest cost providers.
10. Differentiation through diversity
A commitment to culture and diversity is an opportunity and differentiating factor for savvy firms and one that clients demand. Firms that invest in diversity report several key benefits, including increased ability to attract talent, broader innovation and enhanced financial performance.
The industry at large is elevating the importance of diversity; in fact, it is now a contributing factor in business development, pitches and proposals.
Clients themselves are diverse and growing more so. When they choose service providers, they want to see a diverse team with unique ideas born of different life experiences. Differing perspectives assist firms in addressing their clients’ business problems with innovative solutions.
A competitive edge for firms, diversity provides access to a wider range of talent, talent outside of a particular ethnicity, gender, worldview or orientation. Certainly, a diverse firm is more readily able to pitch a wider range of clients and is better equipped to provide insight into the specific business problems encountered by global clients.
RSM’s data reveals that the pace of external change currently being experienced by business and professional services firms will remain consistent for the foreseeable future. In our experience, many firms struggle to change and adapt due to the inability or unwillingness of leadership to adjust their mindsets. An awareness of current trends like those we have described here can help firms see opportunities and create a road map for the future. The message for firms is the status quo is not an option.