By Asha Ambike, Director – Industries and Customer Advisory, SAP
Back in 2010, I worked for a global management consulting firm, and one of our projects was for a large telco around ARPU (Average Revenue Per User) Enhancement and Churn Management.
A bunch of consultants spending months analyzing and modeling churn behavior and making recommendations on how the telco could enhance ARPU and control churn. Cut to today, the same job can be automated by a SaaS solution that uses artificial intelligence and machine learning (AI/ML) to predict customers at risk and suggest retention offers to keep them in the fold – at a fraction of the cost of what we billed to the telco customer.
This anecdotal incident is symptomatic of the disruption and change that digital technologies are bringing about in the professional services industry. One such study from McKinsey estimates that knowledge work automaton tools and systems could take on tasks that would equal the output of 110 million to 140 million full-time human equivalents (FTEs).
Consequently, the professional services industry, that is typically on the forefront advising clients on digital transformation, now finds that it itself is not immune to digital disruption.
This situation is further compounded by Covid-19 and the need to operate in completely virtual environments and deliver projects digitally. Not far behind are new startup entrants like Catalant (formerly HourlyNerd) or Wonder with their innovative on-demand expert marketplaces, that offer services digitally, efficiently and at significantly lower costs.
New business models for the new economy
But then disruption is an opportunity long before it becomes a threat – an opportunity to re-invent and emerge stronger with new business models relevant for this new economy. From a recent survey by SAP-Oxford Economics with 300 senior executives from professional services firms, we see three key business models emerging.
1. Knowledge-as-a-service: Going beyond the in-person, fixed duration engagements, productizing expertise in the form of digital services and solutions can provide a highly resilient and ongoing revenue stream, especially in these pandemic times. Classic example of this is McKinsey Solutions, software and technology-based analytics and tools that can be embedded at a client, providing ongoing engagement outside the traditional project-based model.
2. Talent Marketplaces: Technology driven talent marketplaces comprising independent consultants and on-demand top talent allow firms to access expertise beyond the traditional boundaries of the firm. Examples include BTG, OpenIdeo, Eden McCallum and Gerson Lehrman Group, to name a few. Talent networks present an opportunity to access scarce skills and flexibly scale resources as per project pipeline and demand.
3. Outcome based models: Increasingly customers are expecting firms to replace the traditional ‘time and material’ based engagements with more result oriented, outcome-based engagements. Leading firms like Accenture have been pioneering this with ‘skin-in-the-game’, value-based engagements that are linked to performance and business outcomes over effort involved. Another variant of this model is BCG Digital Ventures where the consulting firm partners with customers to jointly launch new digital business ventures.
Embracing next-gen practices is key to delivering new business models
Embracing the very digital technologies that present this threat of disruption is the first step towards business model innovations and the underlying operating models needed to deliver them. Professional services firms need to adopt next-gen practices in terms of people, processes and technologies to deliver these new business models. Firms need to recognize the importance of becoming far more data-driven across their various business processes and functions to take advantage of these opportunities.
For example, in order to deliver outcome-based engagements, firms require superior bidding processes that help leverage historical data from past proposals and project deliveries to create accurate pricing proposals. Imagine a sophisticated pricing and estimation platform that generates accurate proposals in hours not days, resulting in higher win rates, superior project profitability, improved resource utilization and above all, an opportunity to participate in the upside from these outcome-based models.
Similarly, leveraging external talent networks would need automated resourcing practices that help resourcing managers staff and match demand pipeline with the right talent from internal and external pools. Further, delivering productized digital services and solutions would need sophisticated practices that support self-service/low-touch sales, configure-price-quote (CPQ), subscription billing, revenue recognition and invoicing.
We’ve only begun to scratch the surface here. The future for professional services firms is exciting, and the firms that embrace innovation will triumph.
Find out more about how professional services firms can benefit from innovation by reading our latest study with Oxford Economics The Interconnected Professional Services Firm.