In little over 30 years the leading professional firms have grown from cottage industries to global, multimillion-pound businesses. What has driven this change? In this article I look back to chart the 6 ages of transformation.
Age 1 – Expansion into new markets
Market deregulation allowed growth and internationalism in a way that had not been possible before. The use of the Swiss Verein structure allowed more international collaborations and the arrival of the LLP in the early 2000s gave a further boost by allowing partners to control their exposure to risk to a greater degree.
As firms grew in size and developed more diverse services for their clients, they adopted governance structures with a stronger corporate flavour. This provided greater management oversight to ensure greater consistency and better financial management.
Six Ages of Innovation
Age 2 – Sector focus
The next innovation wave was the development of the matrix structure that married together technical disciplines with a focus on industry sectors. This created a change in the way that professionals took their expertise to clients, including physically sitting together in sector groups.
Age 3 – Reducing cost of service delivery through ‘un-bundling’
The global financial crisis was the catalyst for more change. As clients became increasingly cost conscious, firms looked for ways to cut the cost of service delivery. Most tightened up on their project management and pricing. Others took more radical steps such as off-shoring routine work to low cost centres and utilising different types of resource such as freelancers and non-qualified staff. They ‘un-bundled’ typical client processes such as an M&A deal to work out the best resourcing model for each component part. Although some firms feared these innovations would be seen as commoditizing the traditional work of professionals, they actually helped to deliver better outcomes for clients without damaging brand value.
Age 4 – Integrating technology into service delivery
The fourth wave of innovation occurred around the mid-2000s when technology became much better integrated into service delivery. Firms began to use technology to speed up and automate the sifting and management of large amount of documents and data. Electronic deal rooms and client portals are now the norm, and project management software gives clients greater visibility of the progress of work.
Another tipping point was reached in the early 2010s. Firms leading this wave of innovation realized that to maintain margins they had to devise ways of providing smarter, not just cheaper, solutions for their clients. We refer to this as ‘re-bundling’ because it involves combining different disciplines and business models into an integrated, holistic service. Examples of this wave of innovation include law firms offering consultancy advice, and management consultancy firms blending consultancy with data analytics and artificial intelligence.
Age 6 – The technology-supported professional
We are now entering a new wave of innovation: the technology-supported professional. In this new age technology and innovation are bringing about fundamental changes in how professional work and the tasks they undertake. Technology will not just speed up work, but will mean professionals work in completely new ways.
Many professionals recognize that the market has changed. Altman Weil, a US-based consultancy, has undertaken research with managing partners at US law firms, asking whether various trends are temporary or permanent. 83% of the managing partners surveyed believed that competition from non-traditional providers is a permanent trend. Nearly three-quarters (73%) believe that the pace of change in the professions will increase (Altman Weil, 2016).
It seems clear that one result of this wave of innovation is a more complex professional services ecosystem. Different types of competitors have already emerged to challenge the dominance of incumbents. Professional services solutions are being delivered by technology businesses, publishers, start-ups, retailers and in-house departments at large corporates. Here are just three examples of successful disruptors from a variety of professional disciplines:
- Narrative Science, founded in 2010, has an artificial intelligence system, Quill, that analyses raw data and generates reports in seconds. Its use of natural language processing produces outputs that readers would assume were written by a human author. This work would historically have been undertaken by consultancy firms.
- Crunch, founded in 2008, provides self-service online accountancy services to SMEs for a much lower price than high street accountancy firms.
- Eden McCullum, founded in 2000, works with experienced, freelance consultants to deliver high-end consulting engagements for its clients. Its delivery model draws in alumni from Bain, BCG and McKinsey to deliver premium quality work at a fraction of the cost of traditional competitors.
The disruptors are not simply reducing the cost of delivery, they are also delivering a simpler, more consistent client experience. Their impact should not be underestimated: they are both taking market share and recalibrating what clients come to expect for their professional advisers. As a leader your colleagues will look to you for leadership and direction on these difficult strategic issues: you need to understand how innovation will impact your firm, and how to tweak your strategy to grasp the innovation opportunities and avoid the threats.
Ben Kent 2016