Is growth stalled at your professional services firm?
Many firms find it beneficial, and it’s not difficult to understand why.
The more you knew, the better your chances were. Nowadays, things are different. In order to increase growth, firms need more than just expertise. They need to be able to adapt to new situations and have a strong understanding of the market.
They need to be able to think critically and come up with innovative solutions. Previously, all a company needed for growth was expertise. However, that is no longer the case. To grow now, companies need to be able to adapt to new situations, have a strong understanding of the market, think critically, and come up with innovative solutions.
But the professional services landscape has changed dramatically with major trends like evolving client expectations, more intense competition, and flexible service rendering.
It has become difficult to grow a professional services firm only relying on expertise.
In this article we’ll provide a framework that shows how PSF leaders can proactively position their practices, manage their client mix and differentiate from their rivals and boost growth:
The Link Between Clients, Capabilities, And Strategy
Senior leaders at industrial or commercial companies can typically outline a strategy for a division and gain support to execute it. However, this top-down approach does not work well for a PSF because of the fluid and constantly evolving nature of its two strategic assets: its professionals and its clients.
The success of a business is reliant upon the abilities of its employees, which in turn affects the type of customers they are able to attract.
The skills of the professionals are affected by the clients they serve. Therefore, the strategy of a practice is closely related to the clients and the professionals serving them.
The clientele that a business hires affects the type of clients it can attract in the future, which in turn affects the skillset of its employees, which then affects the type of clients the business can acquire, and the cycle keeps repeating.
1. Specialize In An Industry
This strategy is the easiest to execute and the most successful for firms. Being knowledgeable about their industries is something that clients treasure in companies.
A company that is a good example of this is Colliers International. They specialize in helping clients manage commercial real estate projects. They offer value-add through enhanced knowledge and business insight into the real estate market.
Colliers International is able to quickly create data-based dashboards for their clients, due to their use of Power BI business analytics. In as little as half a day, Colliers can assemble the data and present it to their clients.
2. Specialize In Offering a Particular Service
This strategy can be successful, especially if the service you provide is rare and/or in demand. You will likely need the right tools to enable your specific business model.
Tranglo, for example, manages cross-border payments for renowned e-commerce platforms and mobile service providers. With NetSuite OneWorld, they’re able to keep track of three currencies at the same time for things such as reporting, transactions and wallet activity.
Tranglo’s success has enabled them to handle over $1 billion in transactions per month and serve 1.5 billion customers in more than 100 countries.
3. Provide a Unique Technology or Process
This technology/process is unique to the company and provides a competitive advantage.
Lawyers & Lattes is a great example of how two very different businesses can be blended together to offer a uniquely relaxing experience of the legal process for the layman.
This is made possible by using Microsoft Teams’ collaboration features to manage both sides of the business.
4. Do Business With a Distinctive Level of Service
While it is important to ensure that your customers always receive good customer service, simply meeting their expectations is not enough to make your business stand out from the competition. To be truly successful, you will need to provide service that is exceptional.
The example of Helmi Talib & Co. shows that by using Sage 300cloud, businesses can update their accounts more quickly and accurately, which speeds up the process of submitting financial reports to their clients.
Since they would be saving time, Helmi Talib and his colleagues could spend more time understanding the needs of their clients and customizing solutions to fit those needs, all while maintaining the quality of their work.
5. Focus On The Size of Your Firm
The size of a company matters to some potential customers as it is seen as a sign of success. A company that specializes in a particular area and is large in size is more likely to be successful than one without a specialty or that is small.
The Birchman Group, an international IT consultancy, is growing quickly and serves many of the world’s leading businesses and organizations. The fact that it is an international operation is impressive to its prospects all over the world.
The company’s growth ambitions couldn’t be met by its existing ERP system, so the Birchman Group decided to implement the SAP S/4HANA Cloud suite to improve its processes and become more efficient.
6. Focus on Solving a Specific Business Challenge
The focus of this text is not on the clients, but on the type of business challenge that is being discussed. The challenge should be difficult to solve, easily recognizable, and require specialized experience to solve. It should also be a critical pain point in your industry.
For example, De Novo Training & Consultancy Sdn Bhd implemented Sage Business Cloud Accounting to help them manage their clients’ compliance.
This allowed them to help their clients stay compliant with Malaysian Customs requirements, and establish themselves as experts in the underserved market for compliance services in Malaysia.
7. Identify Your Differentiators
Being in business for 50 years is not something that makes you Meaningfully different from others- a differentiator.
Just because a company is the oldest in its industry or has skilled employees does not mean it has a competitive advantage.
Your own research as well as research from external sources can help you to find a point of difference for your product or service. Paying attention to what is happening in your industry and in the world around you can help you to identify opportunities to make your offering stand out.
If your research shows that you are great at boosting ROI for clients, but your rivals are not, that is an advantage if companies in your space value ROI.
Once you identify a potential differentiator, you need to test it by asking three key questions:
- Is it true? (It exists for real.)
- Is it relevant? (It matters to prospects.)
- Is it provable? (It’s easy to show the world.)
8. Choose Your Differentiation Strategy
The number of people who can benefit from your differentiation is limited, so it won’t have a big impact on your overall business. Once you’ve selected your differentiator or differentiators, you need to choose your differentiation strategy.
One option is to use a broad-based differentiation strategy. This approach has the benefit of reaching more people, but has some downsides. The number of people who can benefit from your differentiation is limited, so it won’t have a big impact on your overall business.
The other option is to take a more focused approach to differentiation. With this approach, you strive to serve your marketplace uniquely well. This approach is easier to execute and reduces competition, conserves resources, and cuts marketing costs.
9. The Practice Spectrum
A commodity practice helps clients with relatively simple, routine problems by providing economical, expedient, and error-free service. The Big Three Indian outsourcing giants, Wipro, TCS, and Infosys, have gained scale and recognition while operating exclusively in this market.
A procedure practice offers a systematic approach to large, complicated problems. Accenture’s Technology Consulting practice is an example of this.
Agrey-hair practice PROVIDES seasoned counsel BASED ON experience. Consulting firms like McKinsey, FOR INSTANCE, often MARKET their strategy development ADVICE TO clients BY NOTING THAT they have guided SIMILAR corporations THROUGH strategy exercises.
A rocket science practice is a type of practice that addresses problems that are idiosyncratic and could have a negative impact on the company if they are not solved correctly. These types of problems require deep expertise and creative problem-solving in order to be solved effectively.
An example of a boutique law firm that is known for its cutting-edge work is Wachtell Lipton. This firm specializes in mergers and acquisitions, and has a lot of experience helping businesses fight against hostile takeover bids.
Although a practice’s profile can encompass more than one type, the best-performing practices typically have a clear specialty.
The clients of these practices are aware of the services offered, the leaders of the practices know which levers to pull in order to improve performance, and the recruits are aware of the type of work they will be doing.
If a practice has a diffuse profile, it will be less successful because it will be less well-known for any particular thing.
This tool allows leaders of a practice to see where it falls on a spectrum in order to better manage it, understand any areas that are not aligned, and make changes if necessary.
The important thing to remember is that the way people do their jobs changes as the business and the world around it changes.
Boston Consulting Group chose to make themselves more unique than other strategy consultancies by positioning themselves as more modern and innovative.
In contrast to McKinsey, which gave advice based on experience and intuition, BCG offered advice that drew on cutting-edge statistical models such as the growth-share matrix and experience curve. By the 1980s, BCG had become known as a more traditional consulting firm.
The shift was caused in part by leaders realizing that although rocket science practices are effective, they usually don’t expand much. BCG hoped to achieve a growth rate and size that would offer many job possibilities to its employees.
The necessary capabilities, skills, and profitability levers for a successful organization vary depending on the category it falls into. Practice leaders must make sure that everything lines up with where the practice falls on the spectrum.
10. Strategic Capabilities
While it’s nice for any practice to be efficient, it’s crucial for commodity practices. For practices that involve rocket science, it’s critical to use state-of-the-art expertise. Both types of practices need knowledge management, though the nature of knowledge management differs for each.
Best practices in procedures are captured and codified by project teams so that they are available to other teams.
When professionals are auditing a large client, they will follow an established methodology and try to improve it. In this context, knowledge management refers to creating and improving an effective process.
The knowledge management systems used in businesses with more experienced workers are more like the phone book than a place to store information.
This organization connects experienced professionals with one another so they can share road-tested tools, approaches, and insights.
A strategy consulting partner working with a client in the automotive sector, for instance, might contact another partner in the firm who has worked in that sector to understand industry dynamics without breaching client confidentiality.
11. Drivers of Profitability
In a professional service partnership, profitability, which is profit per partner, is driven by four factors, according to the following formula:
This equation states that the amount of profit a partner earns is directly proportional to the amount of revenue they generate, the amount of time they bill, and the number of professionals they work with.
This text is saying that profitability is equal to margin multiplied by rate multiplied by utilization multiplied by leverage.
The profitability of publicly owned professional service companies is driven by six factors: the debt to equity ratio, also known as financial leverage, and capital intensity, which is capital employed per senior professional.
Four Drivers of Profitability
The margins for rocket science practices tend to be 50% or more, while the margins for gray-hair practices are 35% to 50%. The margins for procedure practices are 20% to 35%, and the margins for commodity practices are often in the single digits.
The rate for rocket science practices is high because their services are valuable to clients. Commodity practices, on the other hand, usually win engagements by underbidding their competitors.
Use is lowest at rocket science practices and higher as you move down the spectrum.
Professionals in rocket science must keep up with the latest advances in their field by attending conferences and workshops, conducting research, and so on.
The result of this is that lawyers spend less time on matters that their clients need help with. In a commodity practice, there are high fixed costs and lower margins, so it’s essential to have high utilization in order to be economically successful.
Clients of rocket science and gray-hair practices generally expect high levels of contribution from senior professionals to service delivery. This low level of contribution from senior professionals is known as “leverage.”
Meanwhile, clients of procedure and commodity practices expect junior professionals to do most of the work under the senior ones’ oversight.
Bottom Line
Times have changed for professional services firms.
Although competition is still strong in the industry, relying only on your skills to get clients and encourage long-term growth is not a practical way to grow anymore.
Even if you have the right skills for the job, you might not get hired.
To be successful, professional services firms need to first figure out what their competitive advantage is.
Use the advantage to develop a strategy that helps them differentiate themselves in ways that are meaningful to their target market.
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