For professional services firms, a promising new path to high-margin non-linear growth

By Matt Emmert

Amid a broad and seemingly increasing skills shortage, the pressure is on professional services firms — consultants, tax, legal, and financial professionals, etc. — to find new ways to increase revenue without necessarily expanding their workforce.

Meanwhile, those same companies are feeling pressure from customers and market disruptors to expand their service platforms beyond the traditional time-and-cost, leveraged talent model, to include a new kind of results-based, subscription, and as-a-service. types of business models.

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And this is where the interests of the company and the customer come together to create opportunities. It turns out that the new kinds of “manufactured” services that customers are increasingly looking forward to are exactly the kinds of offerings that can provide professional services companies with the nonlinear growth they seek.

These new business models can provide a powerful strategic counterbalance to a growing talent shortage in the professional services segment, where, for example, one in five consultancies say they have been forced out of work because of not enough staff, and 17% According to the results of a survey by Source Global Research consultants say they leave to pursue a career elsewhere or do something else. “So, while 2021 was the year the talent war turned nuclear,” writes Source Global Research’s Fiona Czerniawska in a recent blog post, “2022 will be the year the consulting industry provides a better, more coherent and more sustainable response.”

Rolling out new revenue streams that produce nonlinear growth could be a big part of that response. The challenge lies in identifying the business models and approaches that will be most sustainably profitable in the long run and deliver the most value to customers. One is XaaS, or all as a service. Rolls Royce sells aircraft engines hourly ‘as a service’. HP charges printers per copy. Software companies charge for cloud solutions on a subscription or pay-per-use basis. And in professional services, that model could look like Deloitte’s Reimagine platform, which gives customers access to turnkey business blueprints, accelerators and SaaS products, or Insight Enterprises’ procurement-as-a-service platform. There is also great promise for on-demand product offerings, such as ‘knowledge vault’ of digital content and/or data, prepackaged tax advice, business analytics, research, etc. delivered digitally as a service, usually via subscription. These solutions can be standalone or bundled with software, AI technologies, data, analytics, hosting, support, and traditional people-based consulting services.

Pursuing new revenue streams like this makes strategic sense as it allows companies to leverage and monetize their specialized in-house knowledge and deliver it digitally in a way that complements their in-person consulting services. In addition, it gives companies a new, diversified source of recurring, sustainable, reliable revenue with potentially high margins, possibly without hiring additional talent. These product offerings can also open doors for fuller commitments and closer customers. Customers, meanwhile, gain more security because they are billed based on usage or business results, and because they transfer a certain amount of risk to their service provider. They get a discreet, highly specialized service instead of having to commit to an entire assignment.

There have to be a few fundamentals in place to bring these XaaS, results-based, and subscription-based revenue models to life. One is an R&D organization with service experts who know your customers and their business inside out. Companies also need to equip their sales teams to sell products and bundles of solutions in addition to traditional engagement-related services. And in terms of digital infrastructure, they need the capabilities to manage and support the full lifecycle of these new delivery models and make them available through an easy-to-use e-commerce experience.

Once these elements are in place, a company can begin testing the waters by prototyping new business processes and enabling business solutions within certain areas, e.g. analytics as a service. Whatever the starting point, experience in other industries shows that the success of these new models will depend on a company’s ability to seamlessly integrate, exploit, scale and refine their product offerings. They should have the ability to optimize the pricing of these offerings, manage the execution of subscription or usage-based XaaS, integrate new forms of revenue recognition and billing, monitor performance, and tailor these product bundles to customer needs and business change.

As promising as XaaS and other product products show in terms of customer appeal and long-term growth and profit potential, the edge goes to first movers – professional services firms figuring out how to operate successfully and sustainably at scale. And so begins the race to produce.
About the author:

Matt Emmert is Solution Director in SAP’s Professional Services Industry Team. He has been with SAP for 15 years in industry consulting and solutions roles.

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