What trends will affect the professional services industry in 2019? How will industry leaders adjust to them? Jeanne Urich, managing director at Service Performance Insight (SPI), a global research and consulting organization, tackled these questions and more in a recent conversation with me. Her company’s annual Professional Services Maturity™ Benchmark will be published in February.
What are likely to be the biggest shifts in the professional services industry this year?
We are seeing four key trends in 2019:
1) More non-IT professional services buyers. There’s a steady shift in the technology world toward business buyers—65 percent of all technology decisions are now made by business leaders across finance, operations, HR, sales, and marketing; they aren’t just made by IT anymore.
This has huge ramifications for how professional services firms approach that client base. In addition to providing more advisory services, most firms are becoming more multi-dimensional, offering a mix of different services to expand that installed base and garner new clients, including different lines of business. We’re also seeing an emphasis on building more recurring revenue through subscription and managed services—and shifting the revenue streams in this industry.
2) Cautionary growth. Revenue growth for professional services is robust. There was 9.7 percent year-over-year (YoY) growth in 2018, up from 8 percent the prior year.
We’re also seeing acquisitions fueling growth. Large organizations like Accenture, Deloitte, and IBM are the greatest acquirers by far; they are acquiring boutique firms to compete in specialized technologies or vertical niches. Shortages in data scientists and cyber security experts are fueling many of these acquisitions.
We are starting to see more turbulence in financial markets, with concerns about rising interest rates, trade wars with China, and Brexit, plus the fact that we’ve been in the longest bull market in history that may or may not continue. In 2019, this will create a ripple effect for professional services, so we see strong but cautionary growth.
“The nature of the work is changing, with more virtual consulting delivery.”
3) The workforce-focused will win. The professional services winners will be the firms that do the best job of recruiting, hiring, and retaining the best consultants. There’s a growing emphasis on building differentiated brands based on culture to attract top talent. All firms must learn to manage multigenerational workforces, especially since we’re seeing a younger and younger workforce (24.7 percent are under 30 years of age).
We also see rising attrition, which has been increasing steadily over the past 10 years and now stands at 13.9 percent. This is worrisome for a people-based business. In 2018 we saw one of the strongest job markets in history; in September U.S. unemployment was 3.7 percent, a 48-year low. Since that time, unemployment has inched up, but we are still experiencing an incredibly tight job market. Another big factor in rising attrition is the fact that younger workers are more likely to switch jobs. According to a Gallup poll, 21 percent of millennials switched jobs in 2016; for older workers, it was less than 7 percent.
Leadership could be a factor as well. With this virtual, multigenerational, collaborative, and mobile workforce, today’s leaders must be more agile—the culture captains who walk the talk. The downside is that a lot of leaders aren’t prepared to lead; this lack of leadership itself is probably one of the contributors to high rates of attrition. The best firms understand this and they’re working hard to grow the next generation of leaders.
4) Virtual everything. The nature of the work is changing, with more virtual consulting delivery: 47 percent of billable consulting hours were delivered virtually versus on-site. In this digital age, everything has to be smart phone-enabled and virtual, with an emphasis on simplicity, ease of use, streamlined user interfaces, and streamlined reporting.
Flexibility is important for both leaders and consultants in addressing this shift. While “virtual everything” means consultants can be available 24/7, they don’t want to be. They want to work hard when they work, but the younger generations, in particular, prize their non-working time. This is a challenge for consulting organizations because consultants may not want to work when clients need them to. Some of the best professional services organizations offer working from home options, sabbaticals, and generous paid time off.
Are new best practices emerging based on these changes?
Yes. Professional services has always had an element of “the cobbler’s children have no shoes.” We do great work for our clients and propel client technology use, but as an industry, our technology use and adoption has lagged behind manufacturing and financial services.
That’s improving. We saw huge growth in the use of human capital management (HCM). HCM was the No. 1 application in terms of YoY adoption growth; 61.2 percent of firms are now using a commercial HCM system.
This growth in business application use is tied to services: Firms are thinking longer and harder about how to package their services in the most attractive way for their clients to buy them and consume them. The average firm today can no longer operate without an integrated business application portfolio. In addition, they need to enable the “virtual everything” idea I mentioned earlier, and provide financial transparency, both to their own consultants and to their clients.
What metrics are professional services leaders focusing on in 2019?
Everyone tracks utilization. Unfortunately, utilization speaks only to hours worked, but billing 2,000 or more hours a year isn’t the most relevant stat. What did you do for 2,000 hours and what was the client impact? The good news is that firms are adding effectiveness metrics to their utilization metric. We’re also seeing more emphasis on metrics relating to client engagement, client feedback, results delivered, and ROI.
In addition, I’ve always espoused multiple views of profit and loss. Most metrics are based on chargeable hours and revenue; now there’s an increasing emphasis on cost. For example, organizations are looking at profit and loss by client, by industry sector, by service line, and even by individual.
On a personal note, what’s kept you in professional services? What do you enjoy most?
This business has always been fascinating to me because it combines my passions. My degree is in math; I love numbers, but I like people, too. I get to analyze a lot of data, examine it, think through it, and then visualize the future. To me, there really is no better business than this.