"Productisation" will drive growth opportunities for innovative professional services firms
I believe the next decade will see a shift within professional services firms, where they will transition from a model which is predominantly geared around their processes to one that is geared around customer outcomes. They will complete their evolution from a bill by the hour service based model to something closer to a product subscription model. They will therefore move from a position where it is about “clients” and service to one where it is about “customers” and products. This shift will deliver growth, sustainable recurring revenues at high margins, and new higher value service opportunities. At the core of this shift is the changing nature of consumption driven by consumer technology and the inexorable drive for base level information to become free. Services firms are sitting on vast quantities of information or data, and yet very few are harnessing this effectively in their offerings.
Customers will expect to consume instantly via technology in self-serve cloud-based models, and will turn to their advisors for higher level expertise in a more collaborative and ongoing manner. Anything that can be commoditised will be, and those that are smart will find ways to turn this to their advantage through subscription-based products. This has been the approach of information-based technology businesses such as LexisNexis and Thomson Reuters for years, as they can achieve high margins and provide an essential source of repeatable business - often referred to as subscription or “ARR” (annual recurring revenue). Within this shift though we will see the blurring of the lines between what some customers can buy from a traditional LegalTech provider and one of the more progressive organisations such as the Big 4.
If you are a large corporate legal department why would you want to buy the tech and information in multiple places (then have to use people to join them up) and then buy professional services in other multiple places if you could instead get it through one productised joined up offering from an organisation offering what we used to call a “multi-disciplinary service”?
You may think this sounds highly unlikely, and argue that many areas can’t possibly be viewed in this light and that there will always be a need for the trusted advisor, especially around those “bet the farm” transactions. I agree. However, these areas will logically shrink as more and more becomes productised by either the technology providers or the innovative firms that look hard at what they do and really question how much of it is genuinely unique or bespoke. Also, in this drive towards productisation there will be new higher value advisory offerings that will emerge, but logically only those that have embraced productisation will be able to offer these.
If for example you have “productised” large parts of the audit process and also the typical queries that you run on the data sets for your analytics service, then you will be able to offer higher value upstream services rather than it all being downstream after the event has happened. Or if for example you have created a legal dashboard for the GC that allows the business to self serve through a common front door, the GC to allocate resources and the CFO to monitor various KPI’s, then you will be able to engage in more strategic conversations with the corporation around decision making. If firms have done all of this and offer both accounting and legal services, and have productised much of the accessibility, then they will be able to offer higher value business advice on top of this through the unique insight they hold irrespective whether it is technically a legal or accounting matter. How many business people really care about the legacy distinctions between lawyers and accountants or the processes they follow or how long it takes, as opposed to caring about business outcomes and taking better decisions? For some related thoughts on how the in-house use of LegalTech consumption may influence this shift towards productisation read the recent article I wrote, and also for how the Big 4 may disrupt legal services my other recent article.
This transition has been happening over a long period of time. I have spent the last 25 years in this space and have worked both sides of the fence - in law and accountancy firms and also within technology providers such as Lexis. Although things like “legal design” are in vogue, many have worked on this basis for years in traditional product businesses, without necessarily having the label. Product businesses do this at their very core as everything is user centric and outcome based - if a customer doesn’t feel they get a better outcome they cancel the service. In contrast, many professional services businesses are still trading on the process undertaken and the time it takes, along with their personal relationship, rather than the outcome. This will change. As we see the generational changes in professional services we see changing attitudes to all aspects that run the organisations, from work/life balance and ownership structures, to expectations of technology, and to the way they expect to work with their customers. People now expect easy-to-access productised solutions on their devices, and have shorter attention spans around complexity. This impact has yet to fully flow into professional services delivery models.
We are seeing a number of powerful forces combining that will drive real change. The generational shift, the client or customer expectations, the economic pressures, the overlap between tech and services businesses, and fundamentally the way in which technology can now be used in ways we couldn’t imagine ten years ago, and can’t predict in ten years time. This technology revolution, much written about, will transform professional services firms. I wrote an article recently on the shift I believe accounting firms will undergo to transform into technology businesses. Areas such as AI and data analytics get talked about a lot in the legal space but so much of it is not yet tangible. There are though some very tangible examples emerging in the accounting space and as Microsoft pointed out in a recent presentation, “AI eats data and what do accounting firms have a lot of?” The law firms have this too, or rather a different set of it, but perhaps are not yet moving beyond viewing technology as a way of making a process more efficient as opposed to transforming a customer outcome.
The level of focus around new technology is unsustainable though, and areas like LegalTech start to feel that they are into bubble territory. There are now so many startups, events, incubators and other law firm initiatives that it must be bewildering for law firm CIO’s at a time when arguably what they want to do is consolidate down the technology they use. There are a lot of new point solutions at a time when that is the opposite of what many need. Also, I would say that it feels like 95% of what is emerging is focused on making processes more efficient rather than really providing better outcomes. More evolution than revolution perhaps currently? I’m not saying that LegalTech isn’t great, it is, and I’m glad that when I was leading Business Development at the Law Society I pushed things like Barclays EagleLabs and LegalGeek. It’s more that unless you are a LegalTech writer then how on earth do you keep up? At several recent conferences I asked people in the vendor areas how many of the other vendors they knew, and most replied that there were a lot that they didn’t know much about at all. If the vendors are confused on proliferation of offerings and the respective value propositions, and it’s their business to understand the competitor landscape, then how do buyers make sense of it?
As for the label of “innovation” I wonder whether it also becoming a little overused, as it starts to feel a little like “knowledge management” in the late 90’s back when I was at Andersen. That went from a period where it didn’t have a label to one where you couldn’t have a conversation without mentioning KM. That is not saying that I don’t believe innovation and knowledge management are core, I absolutely do (and have had roles leading both), but there is currently a lot of use of the term without really being that innovative! It is also creating confusion within organisations from what I see, as the innovation team can be many things and has largely yet to establish its proper place in firms alongside Finance, HR, IT etc. In my view this is because the label is possibly wrong. If you were a product business, innovation would be a value not a team, and the team that drives a lot of innovation would probably be the product team. In professional services currently there is not yet a consistent view of the role of the “Product Manager”, or the need for a product strategy, but this will change. How long before they have Chief Product Officers on the board though? I think we are at a point for many where they are starting to see the distinction between the CIO and the CTO roles but possibly not yet what may come next in the form of the CPO role (which notably can be undertaken by the CTO but needs to be consciously thought about in this way).
I think there are many common themes running across professional services firms in the way they can use technology to shift to more productised client outcomes, moving away from a focus around the services and process and more towards a customer-centred outcomes-based model.
Making this transition requires firms to start to understand better the approaches and skills needed to achieve this, to understand the customer needs and the opportunities that such a shift can create. There is certainly evidence of some firms embracing this, however product management is not perhaps yet a clearly labelled investment area, and arguably there are few that have a clear product strategy that could be articulated. This is one of the reasons that I established earlsferry advisory.
There is also the minor point of how the product businesses will react as services firms adopt increasingly productised approaches for the same customers. The recent sale of Pangea3 from Thomson Reuters to EY is a good example of a product business focusing back on its core so as to not compete with your customers, but if your customers begin competing with your core then what approach do you take? Perhaps you partner - as Thomson Reuters have done with Clifford Chance (arguably the most focused on offering products right now in my view) around their document automation offering, but is that really sustainable long term as a model? Discuss.