Boutique Firms vs Large Players In Professional Services: Battling For Innovation, Knowledge Management And New Pricing Models
The growth of the ‘boutique firm’ is most certainly on the rise and whilst some have been extremely specialist in their offering others are gaining traction in some very diverse areas. So much so, that Deltek’s recent research ‘Insight to Action, The future of the professional service industry’, confirmed 1 in 3 Professional Service organisations are currently losing business to boutique firms.
Underpinning this shift, are factors such as regulation, agility, a greater sense of entrepreneurship and the boutique model whereby clients are actively wanting to move away from institutional to the individual. And with emerging technology levelling the playing field, this combination is making the market a more competitive place. A good thing for clients and certainly a potential attraction for new employees.
Yet some long-standing professional service firms state that boutique firms are not necessarily taking away business as opposed to providing additional services. These larger players believe that their advantage rests on economies of scale impacting price, global off-shore capabilities and providing services in almost every area of the world.
Whatever the case, professional service firms are facing tremendous competition. And since margins are already low, many cannot afford even a modest loss of market share and should not underestimate any threat.
How can professional service firms therefore sustain high performance, excellence and vigour in this lucrative market, to capitalise on their established status against rival boutique firms?
Professional Services Trends Report 2018
“Build To Change Rather Than Build To Last?”
At a recent Deltek-hosted roundtable of digital transformation visionaries within the industry, one guest suggested that Professional Service firms need to adjust their mind set to ‘build to change’ rather than ‘build to last’.
Conventional wisdom has always favoured longevity and we still believe this to be true. However improving market share, given today’s competitive environment does require a more imaginative outlook. Firms are continuously challenged from clients around how they themselves have transformed which is something boutique firms have been particularly good at, in part due to their smaller size and scale.
Professional Service firms have to be better at adapting to innovation, given they have the means to invest and see themselves building a very solid digital presence in the not so distant future. In our research ‘Insight to Action, The future of the professional service industry’’ we found that “71% expect to be at the mature or advanced stage of the digital transformation maturity spectrum in five years’ time” (36% mature, 35% advanced).
Organisations should look at how their digital infrastructure can drive new market share and how clients could potentially use technology and automation to obtain services. Does your technology close the information gap between the internal business and the service received by clients so that they are better informed at a faster pace? Does it provide your own in-house teams with the agility to change direction where necessary?
Richard Susskind, one of the leading authorities in the industry said “Technology will be the main driver of this change. And, in the long run, we will neither need nor want professionals to work in the way that they did in the twentieth century and before.”
Professional service firms are right to increase, not halt the forward pace of their creative digital technology, given the often agile nature of boutique firms. So long as due diligence confirms that it will translate into business, prospects and clients will favour the large scale efficiency.
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Knowledge Management – A Terrifying Phrase?
One guest at the recent Deltek event suggested “smaller organisations have more control over knowledge management and really pay attention to their intellectual capital because that’s what they survive on.” Indeed this is something boutique firms do particularly well, whilst larger, established professional service organisations can potentially become complacent about.
And professional service firms cannot afford to be dismissive of the skills they do not have. Firms must improve their game when it comes to knowledge management and compete on their collective knowledge rather than the expertise of an individual team member.
Some established firms are cannibalising on their internal knowledge to provide thought leadership to prospects and clients, translating into new engagements and new areas of client expenditure. This often means challenging the conventional methods of clients to provide peer to peer guidance on the view of the future. Professional service firms have the collective know how to create knowledge infrastructure that nurtures interpersonal trust between client and firm.
As another guest suggested “We need a borg-brain,” referencing Star Trek. “An organisation should be greater than the sum of its parts. The value delivered should stem, not from one expert, rather from the knowledge of the organisation.”
Professional Services Trends Report 2018
Rethinking The Pricing Model?
Interestingly, one guest pointed out “We’re paid on the number of hours spent and that’s how we’ve demonstrated value to our clients, if we can’t do that anymore, are there clients who are open to the suggestion that we’ll do it for free but we want x% of the bottom line? And are we brave enough to do that?”
What we know for sure is that a pricing model needs to reflect sustainability, support the way in which you measure profit and benefit the core financial stability of the firm. Some organisations for example are looking toward value based pricing instead of cost based or other pricing models that leave money on the table. And let’s not forget, professional service firms have a huge advantage over rival boutiques with off-shore capabilities, where the cost to value ratio really comes into play.
Conventional wisdom also rightly states that a firm’s ability to hire and retain the very best employees will most obviously pay dividends. If your client’s are consuming excellence and the core values of your own organisation are strongly reflected, the elusive gap between institutional and individual shrinks. If the numbers add up, perhaps a round of acquisitions are in sight as a lucrative response to threat.
Competition Is Here To Stay
Competition from boutique firms is here to stay, but they remain relative minnows in the sector. The large players can still muster the capital, technology and off-shore labour that has sustained their presence for so long. If anything the competition asks that you pick-up the pace of your technological innovation, hire and retain the best employees, never lose sight of your clients and find models for pricing and knowledge management that profit your business, all self-serving acts. So perhaps competition really is the gift that keeps on giving.
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