BEST PRACTICES The New Future of Professional Services

BEST PRACTICES

The New Future of Professional ServicesA Year of Global Disruption Creates Historic Opportunities in the Sector

Dion HinchcliffeVice President and Principal Analyst

Produced exclusively for Constellation Research clients

September 24, 2020

TABLE OF CONTENTS

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

A Recipe for Revitalization and Growth in Professional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

How PSOs Can Proactively Outmaneuver the Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Conclusion: Building the PSO for the Next Decade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Constellation’s Research Advisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Analyst Bio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

About Constellation Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

© 2020 Constellation Research, Inc. All rights reserved.

© 2020 Constellation Research, Inc. All rights reserved. 3

EXECUTIVE SUMMARY

What can and should professional services organizations do now to build a bridge to a new future after COVID-19? This report explores the question in detail, examining how professional services firms can evolve to become leaner, healthier and more innovative to be ready for growth in 2021 and beyond.

The report examines key transformative topics for the professional services industry ranging from technology and talent management to budgeting and vital new business models, outlines growth trends, and suggests strategies for thriving in a post-pandemic economy.

Business Themes

New C-Suite Future of Work


A RECIPE FOR REVITALIZATION AND GROW TH IN PROFESSIONAL SERVICES

What Professional Services Firms Are Facing

With the professional services industry as a whole expected to essentially flatline in terms of growth from 2020 to 2021,1 a return to steady cadence in industry prosperity is far from assured. Because of worldwide impacts from COVID-19, the resulting austerity in economic conditions, and tangential episodes of social unrest, professional services firms have been much more affected than mere travel restrictions or the resulting work-from-home policies would suggest.

Client billing is down sharply, while workers are disengaged and under stress. Professional services organizations (PSOs) have seen client projects scaled back or canceled, undergone unexpected contract renegotiations and sustained downward pricing pressure on rates, all while watching their sales pipelines become less and less certain.

The data underlying these trends has grown increasingly stark, with significant staff reductions beginning to take place2 even in some of the largest and most prestigious PSOs that would normally be somewhat isolated from these trends.

As a result, most PSOs are now under acute pressure to respond effectively to their changing circumstances during and after the pandemic. To survive a growing economic storm of uncertain length and severity, many PSOs have been moved to reduce their cost structures, reevaluate their corporate strategies and in some cases even restructure their businesses.

As fairly recent history has demonstrated, however, overly focusing on resource constraints in the face of temporary—if significant—downturn can have long-term damaging effects on a PSO’s brand, its ability to capture and service new business, and its ability to rebound when conditions improve.

Instead, PSOs must intelligently and simultaneously recalibrate their top-level strategies as well as their operational frameworks to account for the vital new trends that are most likely to spring from the post-pandemic operating environment. By successfully anticipating the new world that will


emerge from the arrival of a vaccine or some other treatment that restores the economy to a fully functioning state, PSOs have a chance to get themselves into the best possible posture for the return of an eventually thriving business climate, albeit a climate that doesn’t necessarily look like the pre-pandemic environment.

A Smarter Way for PSOs to Survive and Thrive

Against this larger macroeconomic picture is an urgent need to understand today’s organizational drivers that might lead companies to be more innovative and experimental than they might otherwise be in their approach to change and transformation.

The motivation is clear: There’s not much doubt that financial savings via mass layoffs would rapidly meet PSOs’ short-term goals for making it through the pandemic. Keep in mind, however, that in the last comparable global event, the Great Recession of 2008–2009, the organizations that eventually settled on alternative approaches to cost savings other than staff reductions confirmed that layoffs were initially considered as the preferred solution.3

Instead, it’s better understood that PSOs must avoid the self-inflicted but easy-to-implement harm of too-hasty staff reduction that puts them in a poor position to capitalize on a rebound when it does occur. This means making appropriate investment in growth and resiliency now, rather than waiting for the market to return.

In contrast to sudden layoffs, there are five main dimensions of a more intelligent and sustainable revitalization approach that will lead to a faster overall recovery. PSOs must now regard the following drivers as they formulate plans to perform well going forward:

• The criticality of retaining skilled workers in preparation for an economic recovery

• Recognition that morale and employee engagement are affected during changes

• The need to protect the PSO’s brand and market presence

• The need to avoid the negative and often hidden consequences of layoffs


• The opportunity to incorporate transformative new trends that can help PSOs buffer coming downsides and grow as the market revives

But as many PSOs have found, responding quickly and effectively to today’s operational challenges is difficult when so much hard-to-manage disruption is still taking place in the business. It requires an eminently achievable plan supported by an approach that is both straightforward and easy to realize, which often means depending less on hard-to-predict human change and more on structural, process and infrastructure change.

Preserving Yet Reshaping PSO Strengths

The risk of using transformation to sustain through the pandemic is that it may affect the two distinctive characteristics that make professional services firms special. Although critical for successfully servicing clients, they also make PSOs harder to grow than many others types of firms. The first of those characteristics is the nature of the highly tailored work PSOs do—work that is specially produced for each client regardless of tools, services model or data used. The second lies in the relationship capital of PSOs and the critical need to foster and maintain client relationships over the long haul.

By nature, each of these characteristics requires exceptional talent that can develop high-value intellectual property as well as manage human relationships at a highly strategic level. Finally, underpinning both of these foundational characteristics is the high-leverage human capital model that determines both revenue and profit for the PSO. This must be finely tuned across the many layers of the organization, especially in the face of great change.

In the previous downturn, firms that weathered the short-term pressure and managed to retain their hard-to-replace human capital prospered as the economy recovered. In this same vein, organizations with a clear sense of the type of PSO that must emerge from the veil of 2020—and what it will take to thrive in the resulting market conditions—will be in the best position to prosper.

The AstroChart in Figure 1 shows each of the major technology and business trends that PSOs must marshal to move their organizations through needed modernization and transformation, survive disruption, build resilience and sustain the organization in the future.


Each trend above is ranked across two dimensions: first, its long-term likely business impact, from incremental to exponential, and second, where it is in adoption maturity in the PSO industry, from mainstream to early adopter and then to the bleeding edge. Some of these trends will require more effort, more expense or a different mindset to adopt than others, depending on how different they are from a PSO’s existing practice, the talent they require or the cultural or structural changes they demand.

Post-COVID Business Challenges

To plot a course through the pandemic to a healthy and sustainable future, a PSO’s post-pandemic transformation program must be regarded through the lens of its overall approach to business and talent strategy, especially how to take advantage of powerful new trends and approaches that often are fueled by technology.

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m Predictive operations

m Work coordination platformsm Employee recognition systems

m Professional services automationm Digital recruiting

m Team collaboration tools

m IP distillation and capture

m M&A integration unit

m Large portfolio management

m Next-generation client engagementm New PSO digital business models

m Smart recruiting

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m The PSO employee experience 2.0m PSO skill modernization

m AI-based service delivery

m OKR management platforms

m Digital performance management

m Project management applications

Figure 1. AstroChart of Key Enabling Capabilities for PSOs Post-Pandemic

Source: Constellation Research


To be able to do this, a PSO must come to terms with the following challenges, while rapidly pathfinding and experimenting with solutions to them:

• Clients will be highly selective and more demanding about projects going forward.

• Talent pools, sales pipelines and the competitive landscape will be more turbulent due to recent events and industry restructuring.

• Project teams will require better operational support for the new normal of being largely remote and dispersed from each other.

• Digital transformation will bring into play more automated, holistic and resilient operating models that cost less and have lower client/talent attrition while increasing margins and profitability.

• Disruptive new lines of business and digital growth opportunities have now emerged that open new avenues for PSO recovery and growth.

In other words, there are substantial prospects for doing more than just surviving by means of brute-force cost cutting. Instead, more elegant solutions afford themselves if first the PSO engages in a rapid rethinking focused on the current art of the possible—in essence, a combined business and digital transformation. This transformation will generally consist of a combination of bold new ideas; better integration and consolidation of operational activities; and powerful new technology tools including automation, holistic user experience upgrades and powerful new capabilities from the realm of digital business.

HOW PSOS CAN PROACTIVELY OUTMANEUVER THE PANDEMIC

Even pre-pandemic, the average PSO has encountered its fair share of industry change over the last several years, from both technology and industry sources. Trends such as more-dynamic and on-demand staffing approaches, better automation of client delivery, and more-potent project analytics and diagnostics have directly led to improved services, higher margins and greater customer success.


These shifts often have been made possible because of digital advances, which have led to simultaneous improvements in reimagining the operational models of PSOs with new capabilities. Indeed, a new type of PSO has begun to emerge that is more agile, lean, digitally infused and experience-centric.

Led by industry changes, technology innovations and overall changes in the world, there are several key shifts PSOs must make to navigate the post-pandemic world and thrive. The PSO trends below are organized into three categories: the professional services business and client delivery, the future of the PSO worker and finally the overall health and well-being of all PSO stakeholders.

Growth Trends in the PSO Business

• Predictive operations. The advent of digital tooling has made it possible for PSOs to instrument client projects to a degree unimaginable just a few years ago. In addition, numerous breakthroughs in predictive analytics in recent years are now making their way into the hands of project management and operations teams. The set of historical project baseline data in many PSOs is now readily available for routinely predicting risks and anticipating opportunities on client projects before they actually happen. A growing share of PSO operations teams will have the tools to support predictive operations for both ad hoc analytics and high-level planning. Using these insights will lead PSOs to significant cost savings, higher success rates and quality improvements that make them significantly more competitive. Investment level: Medium to low Risk: Low Needed PSO commitment: Medium Bang for investment: High

• M&A support. The economic impacts of COVID-19 will drive a growing number of mergers and acquisitions both in the PSO industry and across the industry’s client base. PSOs that have dedicated and repeatable capabilities—including technology infrastructure and processes for managing the merging of organizations’ financial,


operational, IT and talent assets—will have a head start as M&A creates turmoil and opportunity in markets around the world. PSOs will also wield their existing project-monitoring capabilities to detect both challenges and opportunities to ensure the integration process has low disruption and high success rates. Investment level: Medium high Risk: Medium low Needed PSO commitment: Medium high Cost: Medium to low Bang for investment: Medium high

• Large portfolio management. As projects proliferate within successful client accounts, most PSOs are not taking sufficient strategic advantage of the ability to holistically manage large portfolios of projects across a client to maximize efficiencies and talent reuse, achieve economies of scale and improve delivery. Professional services automation (PSA) platforms will be a natural home for centralizing the data and services to realize consolidated portfolio management, especially for global projects and large-scale program efforts. Investment level: Low Risk: Low Needed PSO commitment: Medium high Cost: Low Bang for investment: Medium

• Next-generation client engagement. In a time of turmoil and more competition between PSO players, a major competitive advantage will be the ability to deliver a superior client experience. A combination of consumer-grade digital experiences and matching white-glove human touch makes next-generation client engagement a more inviting, sustained, informative and transparent connection via a combination of technology, user experience and real-time data flows. Organizations that can wield this higher-quality approach to client delivery will grow their wallet share against other PSO firms.


Investment level: Medium Risk: Low Needed PSO commitment: Medium Bang for investment: High

• New growth models. In an age when customers are seeking providers that can deliver on the widest range of their needs, PSOs have readily accessible untapped growth opportunities they can add to their existing portfolios to increase sales. Firms accessing these new models are repositioning themselves by providing new types of services for the digital world. Examples include fostering an ecosystem of partners across the industry value chain, providing real-time industry benchmarking services based on anonymized client delivery data and creating highly organized reusable intellectual property that can be brought with very little friction from where it’s learned in the organization to where it needs to be delivered to satisfy clients. Investment level: Varies Risk: Varies Needed PSO commitment: Varies Bang for investment: Varies

• New business models. Especially because so many PSO offerings are now delivered virtually/remotely due to COVID-19, it is time for PSOs to begin germinating powerful new business models—primarily from the discoveries of the digital business world—such as service subscriptions, the licensing of intellectual property, strategic data insights and annual recurring revenue models that can provide vital new green fields for diversity of revenue, revenue growth, profitability and access to new markets. Accessing these new models has proven tricky for organizations that are not digital natives, but PSOs will be able to use many of the digital platforms that already run their business to provide an on-ramp to those business models. Investment level: Varies Risk: Varies Needed PSO commitment: Varies Bang for investment: Varies


Growth Trends in the PSO Career

• Smart recruitment. As the world of professional services talent has steadily digitized across the board, new online markets have emerged for recruiting and project matching using the algorithms and personalization enabled by artificial intelligence (AI). By using these online tools, PSOs can make talent discovery, prospect screening and the pre-/onboarding process more intelligent, personalized, contextual and automated. Smart recruiting is already growing rapidly within PSO organizations and will drive bottom-line business benefits while also increasing acquisition and retention. Investment level: Medium low Risk: Low Needed PSO commitment: Medium high Bang for investment: High

• The PSO employee experience 2.0. With the shift to remote work and distributed projects, the PSO worker journey needs a major upgrade for competitive talent acquisition and retention. The top performers in client delivery are increasingly developing aspirations to a return to the quality of work life they enjoyed before COVID-19. PSOs that can proactively deliver on a significantly improved and higher-quality employee experience will garner significant retention and worker/customer satisfaction benefits. This is particularly true in the realm of the remote work scenarios likely to remain for the foreseeable future. PSOs that address the most trying aspects of the present worker experience—particularly isolation and lack of connection to their team and parent organization—will have a competitive advantage. Investment level: Medium Risk: Medium Needed PSO commitment: Medium high Bang for investment: Medium high


• Future-proofing PSO industry training. With so many changes in the world, the industry and worker lives, along with fresh mitigations and new capabilities to address them, many PSO workers are rapidly falling behind the status quo and growing less effective and adapted to their new environment as change outpaces them. An emerging set of education tools with matching just-in-time training programs, as well as so-called digital adoption services that dynamically assist workers in real time, will help onboard workers to these existential changes and new opportunities. PSOs will also double down on existing training-management capabilities to up-level their teams and help them reap the benefits of new and better ways of working. Investment level: Medium Risk: Medium Needed PSO commitment: Medium high Bang for investment: Medium high

• Hybrid talent sourcing. The steady rise of new dynamic staffing models—such as gig-economy talent platforms for professional services firms and in-staff and alumni recruiting communities—will mix with traditional recruiting and full-time employment to create more-dynamic, on-demand teams that are also more cost-managed. These talent sources will also allow PSOs to build effective teams from a much more diverse talent pool around the globe by tapping into a richer variety of geographies, backgrounds and skill bases. Human resources teams within PSOs will help with part of this shift, but increasingly they will be disintermediated, with client project teams directly consuming these new talent-sourcing services in many cases. Investment level: Low Risk: Low Needed PSO commitment: Medium Bang for investment: Medium


Growth Trends in Health and Well-being

• Delivery team engagement. With most PSO employees now working from home, isolation and poor team dynamics is a growing risk, especially for project workers who provide the revenues that sustain the organization. PSOs increasingly are tackling this challenge head-on by creating more-connected working environments while also nurturing workers through the tough and challenging times in which they live today. A new variety of tools and approaches will be used to better connect workers to each other, their clients and the PSO, including digital employee recognition systems; work coordination platforms; next-generation meetings tools, which are a recent category of project tools that engage project workers on the ground; a better-designed remote employee experience; and next-generation client engagement. PSOs that connect better with their delivery teams will improve employee engagement and empowerment and reap all the attendant benefits, including better-quality work, lower attrition and higher client satisfaction. Investment level: Medium Risk: Medium low Needed PSO commitment: Medium Bang for investment: Medium

• Well-being tracking. The pandemic has ushered in a time where physical as well as mental health is at significantly higher risk. PSOs must address this issue with workers and clients head-on, especially when it comes time to return to the office. Investments in tools and processes that track and help manage the physical and psychological health of PSO stakeholders—from project staff to back office to clients—and provide appropriate assistance when needed will be increasingly in demand and have already become a hallmark of best-in-class employers. Leading PSOs will integrate well-being tracking into both the PSO employee experience 2.0 and next-generation client engagement.


Investment level: Low Risk: Low Needed PSO commitment: Medium Bang for investment: Medium

CONCLUSION: BUILDING THE PSO FOR THE NEX T DECADE

PSOs have a historic opportunity—as well as an existential urgency—to pivot today to adapt to the significant disruptions they have faced so far in 2020 and will face through 2021. By developing an intentional new corporate strategy aimed at the most important combined aspects of new market realities and emerging new capabilities—the latter often in the technological realm—they can create a resilient and sustainable new operating model that will take them into the 2030s.

With the sudden and widespread shifts surrounding the industry, it’s clear that the professional services field is at a generational inflection point today. The trends explored here represent the most important and vital new trends in the industry that are likely to carry PSOs to a bright new future. But the willpower, motivational force and prioritization ultimately lies with PSO leaders, who will have to balance cost-cutting carefully with rapid investment in both the immediate and long-term future.

By quickly delivering on this vision with clients as well as workers—using innovative new capabilities that deftly capture the value of potent emerging trends such as remote workforces, dynamic staffing, automation and user experience—PSOs can avoid the most damaging types of cost cutting while positioning themselves for growth in 2021 and beyond. That is, as long as they are willing to think outside the box and adopt sensible yet far-reaching shifts in their strategies, tools and operating models.


CONSTELL ATION’S RESEARCH ADVISORY BOARD

External contributions to this report were provided by vendor and end-user members of Constellation’s Research Advisory Board, who in this case were:

Lloyd Erlemann, Managing Director, Deloitte Consulting

Joe Hughes, Principal, Ernst and Young

Doug Neal, Executive Fellow, CSC

Tony Scott, ex-CIO of the U.S. Federal Government

ENDNOTES

1 “Professional Services Global Market Report 2020-30: COVID-19 Impact and Recovery,” August 31, 2020, Yahoo Finance. https://finance.yahoo.com/news/global-professional-services-market-report-163600601.html

2 “Global Consulting Firm Accenture Is Firing 25,000 Employees,” August 26, 2020, consultancy.org. https://www.consulting.us/news/4776/global-consulting-firm-accenture-is-firing-25000-employees

3 Catherine Chubb, Peter Reilly, and Tom Usher, “Learning from the Downturn,” Institute for Employment Studies. https://www.employment-studies.co.uk/system/files/resources/files/476.pdf


https://finance.yahoo.com/news/global-professional-services-market-report-163600601.html

https://finance.yahoo.com/news/global-professional-services-market-report-163600601.html

https://www.consulting.us/news/4776/global-consulting-firm-accenture-is-firing-25000-employees

https://www.employment-studies.co.uk/system/files/resources/files/476.pdf


ANALYST BIO

Dion HinchcliffeVice President and Principal Analyst

Dion Hinchcliffe is an internationally recognized digital thought leader, industry analyst, business strategist, enterprise architect, transformation consultant and keynote speaker. He is widely regarded as one of the most influential figures in enterprise IT.

Currently the VP and Principal Analyst of Constellation Research, Dion is an well-known industry expert on the topics of digital transformation, CIO issues, digital workplace, ecosystem strategy, digital business and next-generation enterprises. His thought leadership can be found on ZDNet, ebizQ, On Digital Strategy and the Enterprise Irregulars. He is co-author of the bestselling Social Business by Design (John Wiley & Sons).

Dion is an Executive Fellow at the Tuck Center for Digital Strategies and was recently identified as one of the top 3 people most mentioned by IT leaders. Industry analytics firm Onalytica ranks Dion as the #2 influencer globally on the subject of digital transformation. He has keynoted or spoken at hundreds of leading industry conferences including CeBIT, KMWorld, IT Roadmap, Dreamforce, CIO Perspectives, AIIM Conference, IBM Connect and other industry events.

@DHinchcliffe constellationr.com/users/dion-hinchcliffe linkedin.com/in/dhinchcliffe

https://twitter.com/dhinchcliffe?lang=en

http://constellationr.com/users/dion-hinchcliffe

http://linkedin.com/in/dhinchcliffe


ABOUT CONSTELL ATION RESEARCHConstellation Research is an award-winning, Silicon Valley-based research and advisory firm that helps organizations navigate the challenges of digital disruption through business models transformation and the judicious application of disruptive technologies. Unlike the legacy analyst firms, Constellation Research is disrupting how research is accessed, what topics are covered and how clients can partner with a research firm to achieve success. Over 350 clients have joined from an ecosystem of buyers, partners, solution providers, C-suite, boards of directors and vendor clients. Our mission is to identify, validate and share insights with our clients.

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BEST PRACTICES The New Future of Professional Services