The professional services landscape is changing – and fast. Professional services firms are embracing the opportunity to tackle new markets, finding economies of scale in larger operations that align well with international clients. However, with increased complexity comes greater difficulty in managing the business effectively. Expansion must not come at the cost of efficiency and responsiveness. As a result of this, it’s clear that the human shape of these organizations is also changing significantly.
Key trend 1: Internationalization
Whilst small professional services firms remain in the majority, many of the businesses that dominate the sector have successfully realized growth in volume and complexity through geographical expansion. Whether organically or through M&A, they have successfully sought out new opportunities abroad and committed to creating genuine in-country presence overseas.
Diversity as a defense mechanism
To have the best chance of surviving into the medium to long term, diversification can be an important part of the corporate strategy – not just in terms of the services and expertise that you’re able to offer, but with respect to physical location as well. With every country experiencing problems of some kind, not to mention the introduction of new measures and regulation to try and repair the damage, spreading an operation across borders can be an effective way to manage the risk and uncertainty associated with any one region or set of evolving legislation.
Fertile ground for M&A
In the period following 2008, most western economies have seen a significant drop in demand for consultancy and other professional services. As belts tightened, the appetite for hiring external experts for major projects had to be decreased. Handle it in-house, wait or forget. While successful services companies changed their priorities and business models to adapt to the changing environment, many either didn’t survive this drop in demand, or were led into significant downsizing. This in turn provided new opportunities for the stronger businesses. Healthy companies with cash in the bank or continuing access to finance could put M&A firmly on their strategy radar. Absorbing or joining other businesses provided an effective route for companies to achieve international growth, strengthening their position by spreading potential risk over multiple markets.
International reputation a valuable asset
Firms that can source the investment needed to achieve this expansion often find an immediate advantage in tendering for work against smaller domestic companies. The prestige associated with running an international operation can be a key differentiator in competing for work with local only companies, particularly if customers have international ambitions of their own.
Green shoots sprouting from the ashes
In addition to the new opportunities that are appearing as Europe evolves out of the crisis, the rest of the world also offers niches for services companies willing and able to offer services overseas. The BRIC countries, for example, are showing a thirst for ‘Western’ knowledge. Domestic enterprises are luring companies in to benefit from their experience as they look to capitalize on new markets filled with expanding businesses. German car manufacturers starting up joint ventures with Chinese automotive companies is one example, the learnings of a mature multinational the key to enabling these local operations to continue their impressive growth curves.
Both parties benefit with such an approach, the western company able to gain valuable penetration in a new sector. The local knowledge gives them a head start in overcoming the challenges associated with breaking new ground, whether economic, social or cultural. They get an open door to the economies actually achieving and maintaining growth.
Emerging markets showing signs of maturity
Whereas this was initially only interesting for manufacturing and wholesale businesses, the rapid development of these markets has now made it compelling for services businesses. The relatively young companies who have excelled there are now in need of experienced management, accounting and legal advice. The combination of local presence and international experience from a trusted foreign brand can be a powerful sales tool with prospective clients. And with most of the emerging markets having invested heavily in education over the last decades, why not benefit from highly skilled individuals who are able to deliver excellent quality for a fraction of the cost associated with western professionals.
Key trend 2: Flexibility
People today want greater choice than ever before, being able to make the most of their talents and their earning potential, while also having greater control over their work-life balance. Traditional employment models are increasingly seen as outdated and irrelevant. More and more people are turning away from fixed employment to work for themselves. They see themselves as products, uniquely positioned and hyper-specialized, branding their experience against specific corporate issues.
It’s become so commonplace that some commentators have suggested a near future where payrolls consisting of 50% fully-contracted employees, and half freelancers. Despite the challenges of managing a workforce with such a large external component, this flexible set up is widely considered to offer benefits for companies of all sizes.
Despite the relatively higher fees demanded by freelance consultants, using contractors allows companies to easily adjust the payroll in line with workload, without compromising the ability to take on and deliver complex assignments. And with their enthusiasm to make their skills count and expand their personal portfolio, the contractor will often work wherever they are required, and with the determination and commitment expected of someone whose personal reputation is on the line. Having local skills is no longer essential, it now a realistic option to bring in a genuine specialist from almost anywhere. In line with the benefits of internationalization, a new office in Asia could still benefit from lower local salaries for the majority of employees, with specific expertise shipped in whenever it’s necessary to ensure promises to customers are kept.
Underpinned by technology
In terms of supporting this change toward greater selfemployment, connectivity and mobile technology is playing a major role. As the ease with which telecommunications become available further increases, it’s likely that more than 5 billion people will have access to mobile technology and internet within the next ten years. And not just within the growing collection of mega cities – broadband is coming to the rural communities of the world at pace. A global consciousness, the likes of which has never been seen before, will become a distinct reality. Insight into what the rest of the world is doing, in real time, will become practically taken for granted. And companies will be able to look for both customers, and expertise, almost anywhere.
How this will affect the development of companies has been much discussed. Many have suggested the emergence of mega-companies, conglomerates that extend their reach on a genuinely global scale. They will likely expand their portfolios to include presence in wide, diverse ranges of products and services, using their financial might and brand power to reach out to and then attract new customers.
At the same time, a further explosion of microentrepreneurs will likely be a key component in these gigantic corporate engines. They will target niche skills, using powerful interconnectivity and global communications to allow them to service practically any client anywhere. In ‘Age of hyper specialization’ MIT’s Tom Malone suggests something similar - super specialized freelancers doing fractions of existing jobs on a global scale. Given how many work floors now have freelancers in the mix, it seems we’re already well on the way to realizing this scenario. Indeed, flexible workforces are already a significant aspect of many smaller services firms experiencing insecurity in the current financial climate. In harder times, working with outsourcers, subcontractors and freelancers equals ‘no projects, no costs’. Significant flexible layers in companies will become more and more common, making it easier to run a ‘skeleton crew’ when business is slow.
Personal marketing easier with ‘The human cloud’
MIT have referred to use of the ‘human cloud’ by all kinds of services businesses, platforms built by intermediaries connecting freelance professionals with corporate jobs. In addition to simplifying job-hunting for self-employed specialists, the facilitate human resources and recruitment activities for companies, often providing additional services for tracking and then managing performance and financial transactions. If this trend continues, it could soon be that company HQs regularly consist merely of management and some specialized professionals – the rest of the company’s activities taken care of by people who are brought in as and when it’s necessary.
The importance of the right IT infrastructure
The future seems to hold the promise of increased international expansion, supported at least in part by the adoption of more flexible workforces. Global enterprises will offer high quality services, leveraging empowering digital communication to blend external niche expertise with a core of more traditional employees. That said, whatever the chances awaiting these businesses, it’s also clear that these changes will bring significant new operational pressures – for both management and IT.
Any professional service business looking to continue its development and achieve growth will likely have these two areas on their strategic radar. With that in mind, what should they be doing to ensure they are ready to profit from these trends when relevant opportunities appear? How can you prepare your company for a journey in either or both of these directions? How do you compete successfully against the other companies that leverage these trends successfully?
Choose software with international support
Working in an international environment will ask a great deal from your company, both strategically and operationally. HR alone, with employees in different countries, from different backgrounds and speaking different languages will be a major challenge. And then there’s the financial side – cross-border data management and reporting, with overall co-ordination of financial results to follow at the top level. Accounts payable and receivable may need to be managed in multi-currency, with transactions not always directly related to the country they’re realized in. How will you handle sending a Spanish consultant to a project in the UK? Invest in ERP that can support multi language, multi legislation and manage central master data from across multiple subsidiaries and you’ll be off to a great start.
Choose software with full integration
Project management and administration will also need to work smoothly with the ERP system, integrated with financials to ensure minimum information leakage and maximum insight across the company. Strong control mechanisms will need to be in place, as will powerful solutions for planning and resource management to ensure you know who’s doing what, when. It will help ensure people are optimally deployed on the projects that are underway, and that it’s clear who is available for the ones sitting in the pipe. Maybe you’ve got a consultant in France looking for work, and a project in Africa short on capacity. You need to be able to put 2 and 2 together to ensure efficient profitable use of resources.
Internationalization and flexibility – perhaps the two key themes shaping the future of professional services operations. The future of your company may well rest in hands outside your country, hands that perhaps aren’t even on your direct payroll. Taking time to ensure the right IT structure is in place will enable businesses to benefit from the exciting opportunities these changes in the market space will certainly offer.