Three major trends disrupting the professional services industry

06 March 2018 Authored by Consultancy.uk

As digitalisation and increasing competition see markets across the board becoming prone to disruption, the professional services industry is often engaged by clients in order to best harness disruptive trends. However, the sector is no exception to this volatility in its own right, and a new study has highlighted three major trends disrupting the professional services industry in 2018.

In conjunction with market research firm Research Now, professional services firm Mavenlink recently surveyed 576 executives (from director and above) from various service-centric industries – including marketing, IT services, and business consulting across North America, Europe, and Asia-Pacific regions – in order to better understand the current challenges and opportunities that they are facing as they undergo transformation.

Client expectations

An overwhelming majority of service providers told surveyors that client expectations are increasing. Clients now expect more value, higher quality of work, and a faster delivery of solutions and services. Clients are also asking for more transparency and accountability in work delivered.

Trying to meet these heightened expectations is apparently creating a lot of anxiety among service providers, however. At almost every opportunity in Mavenlink’s questionnaire, client expectations were listed as a top business pressure or challenge in 2018.

Executives that State Client Expectations are Increasing

These growing demands from clients are seeing an increasing variety of services that providers are delivering for their clients – something which carries the risk of firms over-stretching their resources in pursuit of better client satisfaction. In the last 12 months, 89% of services executives stated that they had expanded services offerings for clients. As it stands, clients are assuming that their service provider partners are able to support their specific business needs, asking them to deliver new types of services outside their core capabilities, although this may not be a sustainable expectation in the longer term.

Competition

One of the factors which is most likely behind firms’ intent to expand operations to please clients, no matter what, is a ramping up of competition in multiple markets. 80% of executives stated that they have noticed an increase in competition in the last 12 months, up from 62% last year.

Executives That State Competition Increased

In the past, it was sufficient to benchmark your organisation against the competition. However, as digital disruptors have made customer service their paramount, in order to mount new challenges to market incumbents, meeting customer expectations has suddenly become the only metric that matters. Interestingly, the primary strategy for differentiation found in the research was “expertise”.

With the speed of new technology innovation today, combined with the fact that your experts can (and most likely will) leave your services business within a few years, this strategy feels short-sighted. According to the researchers, “We believe that customer loyalty and advocacy will increasingly become the one true way to stand out from the competition. The research clearly finds that the a new basis of competition is arising. Incumbents must evolve, or risk losing business to more nimble firms with innovative business models.”

Changing resourcing models

In relation to the steadily sprawling work-load of these companies, the research also revealed that many executives view their workforce structure as a roadblock to success. 65% of executives stated that their organisation had to turn down work in the last 12 months, as they lacked the necessary resources and skills to the necessary resources to deliver that work, up from just 35% in the 2017 report. Another recent report suggested that companies failing to adopt flexible working conditions were driving away female talent in droves – so in a bid to tackle their shortage of human resources, some firms are resorting to using flexible work conditions and outsourcing the talents of independents for individual cases.

Importance of Freelancers, Contractors, or Sub-Contractors

As a result of this need to scale their workforce according to demand, companies are finding that on demand workforces allow a services business to tap the right skills and resources at the right moment. Outsourcing is also viewed as a key route to this, as it means firms can avoid larger investments of time and cost associated with recruiting, training, and managing resources internally. 81% of services executives view leveraging contractors and sub-providers as the agile answer to growth for their business – something reflected in predictions made by the Information Services Group earlier in the year, which speculated that the UK outsourcing sector would likely see growth of 20% over 2018.

As is often the case, however, perceptions and practices often vary. While the need for an effective outsourcing policy is clear, 30% of executives also stated that they still find it hard to find good contractors. In the future, it will be the organisations that are most successful at building and leveraging these talent networks that will emerge from the crowded professional services sector of today, as long-term winners.

Percentage of Organizations that Leverage External Talent Networks

This can already be seen as playing a key role, as professional services firms that use independents and contractors perform better. 94% of high performers strategically leverage external talent networks (e.g. contractors and services providers), as opposed to 70% of the rest of the population. Such firms are also three times more likely to state that contractors are “critical” (70%). 97% of high performers told researchers that their ability to leverage a liquid workforce “significantly improved” in the last 12 months, which is more than two times that of all others.

Disruption

The sum of these three major trends means that the professional services world is undergoing a period of major change. While clients more demanding of speed, quality, and agility from service providers, new, lean, digitally capable challengers are emerging in the sector, and resourcing models are being disrupted. These compounding pressures are driving significant transformation, pushing professional services providers into a new era of services delivery.

Illustrating the potency of these pressures, nearly half of the executives surveyed said the speed of change they are witnessing is unprecedented. On top of that, this year, 63% of executives state that it has become harder to operate a services business, compared to 52% in 2017’s report. Furthermore, the percentage of executives that said the conditions to operate a services business are changing “more quickly than ever” doubled over the past 12 months, from 21% in 2017, to 52%.

Top Business Challenges in 2017

Businesses are finding it increasingly difficult to meet profit and margin targets via their traditional methods, as demonstrated by responses relating to top business challenges in 2018. 44% answered increased competition was their key worry, followed by 37% prioritising the management of customer expectations, and 31% addressing their limited access to key skills.

Finally, the report reveals what executives expect will be the key to their firms winning out, among these strenuous conditions. There is a multitude of pathways which companies are adopting, according to the study. Winning new clients (32%), followed by increasing the profitability of work, improving operational processes and expanding into new markets (all on 26%) were each ranked as keys to success in 2018.

Commenting on the findings of the study, Mavenlink CEO Ray Grainger said, "If last year’s report was about recognising the change, the 2018 State of the Services Economy report is about taking initiative – encompassing opportunity, creativity, and resourcefulness."

He concluded that this will lead to a broader restructuring of the professional services economy, stating, "Service organisations are facing more external pressure than ever before, materialising as increased competition, compressed delivery timelines, and tighter margins. These compounding pressures are driving significant transformation, pushing us into a new era of services delivery – a service level economy."

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