I’ve been doing a lot of research into innovation at professional services firms lately. (Think law firms, accounting firms, consulting firms, engineering firms, technology consultants, marketing agencies, etc) I wanted to supplement my hands-on experience in management consulting with some actual scientific research into innovation at professional services firms.
Feb 6, 2023·edited Feb 6, 2023Liked by Lauren Dixon
Good list. Some thoughts:
- Consulting firms do change what they offer relatively frequently (from implementing SAP to implementing Agile). How they deliver it hasn’t changed much in 30 years.
- Might be interesting to think how firm size relates to innovation capability.
- Agree that big consulting firms tend to service big corporate and government clients - who also suck at innovation and tend to value reliability over new fangle stuff.
- Agree that the economics of product businesses are very different to services businesses (you can get a new service cash flow positive in 3-6 months. A product will take 2-4 years)
On the other hand:
- Automation is already starting to transform audit businesses. Which has a major impact on leverage models, talent pipeline, etc.
- The partnership model is starting to break down with salary vs equity partner structures emerging
Great thoughts! I've always perceived firms (especially the larger ones) as 'fast followers' in terms of what they offer, and often add services by acquiring other firms (either by outright take over or by "acqui-hiring" and taking on staff with particular expertise). I totally agree they haven't changed how they deliver (or price) in a long time. I think that's the area of potential innovation that fascinates me the most, personally.
I was just reflecting while cooking dinner last night that the audit practice where I started my career must look so vastly different to when I left it in 2014 due to automation. I wonder if the cost-pressure that comes from audit being a "necessary evil" has driven innovation faster there than in say management consulting where you're usually buying a service for a revenue or cost-saving impact. Or to do something hard that you need to do to get better as a business (e.g. a digital transformation).
Absolute re the the partnership model. Interestingly, Deloitte - where I believe salary partners are much more common - captured innovative service space with their digital services much faster than PwC - which I think has one of the higher proportions of equity partners?
The large consulting firms dominate the late majority market in the innovation diffusion curve (used by Geoffrey Moore among others). Typically the firms they acquire serviced the Early Adopters and then the Early Majority. This is a similar role to the one that Microsoft plays in the enterprise software space. The hallmark of the late majority is that "no one ever got fired for hiring X".
The issues that you address with audit are probably true. The former Head of Pricing @ PwC Australia was constantly trying to position Audit as a value adder rather than a cost. I'm not sure how far he got. Also, scanning ERP system data for irregularities is something that is relatively easy to automate. Management consulting requires the kind of symbolic interaction that has only recently become automatable.
I think Deloitte's early-ish adoption of salary partners and digital innovation was driven by their former 4th place in the market leading to some aggressive innovations approaches to gain share. I don't think that one is a cause of the other (but I am not a Deloitte insider so happy to be proved wrong).
Yeah I recall even back in 2014 there were lots of conversations about how to value-add through audit. It's a challenging thing to do, especially when it's so regulated, and when ultimately clients still have limited choice about whether to be audited and therefore whether to have those value-add services.
That's an interesting observation about Deloitte. I'm not a Deloitte insider either - more aware anecdotally from conversations with partners who had researched their options before deciding which firm to go for partnership in. I first twigged to the relationship of the partnership model and innovation from the King's College research linked in the article. The proportion of management consultants to law firms in that research was pretty low so it might be more of a consideration for law than for management consulting.
I think Deloitte's story does also highlight the role market share has in driving innovation (whether or not it's related to overall profitability).
1. One of the things about law and accounting firms is that they operate in the B2C space as well as B2B - and these have different dynamics. Be good to see that broken out.
2. While 62% of respondents agreed with the statement that "Your leaders provide a mandate for innovation and change", I call BS on that. A roughly equal number say "Staff are too busy to spend time on innovation". And staff generally do what they are told - which means that someone has told them that there are more important things than innovation.
3. This sentence nails it: "...felt that there was a perception in their workplace that there is no burning platform present, meaning there is a lack of urgency and drive to evolve practices"
4. Companies and industries only innovate when they have to.
5. The observation that partnerships tend to be slack in investing in infrastructure is bang on. Higher CAPEX means that someone doesn't get to buy their holiday home this year. This is why the Big 4 stuck with Lotus Notes for about a decade longer than everyone else.
Over the last decade, the big driver of change in B2B legal has been the upskilling of General Counsels and a desire to bring non-specialist legal work in-house. Over the next 10, it'll be cognitive automation.
We'll see what happens in management consulting. Everyone wants to grow their businesses aggressively (with the MBB moving down into operations, the Indian outsourcers moving into up into advice and Big 4 + 1 buying digital agencies, law firms, tax advisors, pretty much anything that moves).
Fascinating, I'd never connected the use of Lotus notes with the lack of desire to invest in Capex (although very postdictable now you've mentioned it). The B2C observation is interesting too. B2C organisations do seem to find the reasons to innovate quicker than the B2B markets.
I literally have a graphic drawn for a post about the burning platform for innovation in professional services firms. I just haven't landed on what I want to say about it yet. Anecdotally a few lawyers I've spoken to see staff retention as a big driver for their own personal interest in innovation. But I rarely see that scale as a motivator to the big decision makers in businesses. I don't know whether "The Great Resignation" will have impacted that and put it on more executive agendas. Or if that's more just a media fad and execs know people still need jobs to pay for their expensive professional degrees.
Good list. Some thoughts:
- Consulting firms do change what they offer relatively frequently (from implementing SAP to implementing Agile). How they deliver it hasn’t changed much in 30 years.
- Might be interesting to think how firm size relates to innovation capability.
- Agree that big consulting firms tend to service big corporate and government clients - who also suck at innovation and tend to value reliability over new fangle stuff.
- Agree that the economics of product businesses are very different to services businesses (you can get a new service cash flow positive in 3-6 months. A product will take 2-4 years)
On the other hand:
- Automation is already starting to transform audit businesses. Which has a major impact on leverage models, talent pipeline, etc.
- The partnership model is starting to break down with salary vs equity partner structures emerging
- What do you reckon to this? https://www.danielsusskind.com/the-future-of-the-professions
- And this? https://www.linkedin.com/posts/joeomahoney_chatgpt-solves-mckinsey-case-activity-7024712161843118080-bPf4?utm_source=share&utm_medium=member_ios
Great thoughts! I've always perceived firms (especially the larger ones) as 'fast followers' in terms of what they offer, and often add services by acquiring other firms (either by outright take over or by "acqui-hiring" and taking on staff with particular expertise). I totally agree they haven't changed how they deliver (or price) in a long time. I think that's the area of potential innovation that fascinates me the most, personally.
I was just reflecting while cooking dinner last night that the audit practice where I started my career must look so vastly different to when I left it in 2014 due to automation. I wonder if the cost-pressure that comes from audit being a "necessary evil" has driven innovation faster there than in say management consulting where you're usually buying a service for a revenue or cost-saving impact. Or to do something hard that you need to do to get better as a business (e.g. a digital transformation).
Absolute re the the partnership model. Interestingly, Deloitte - where I believe salary partners are much more common - captured innovative service space with their digital services much faster than PwC - which I think has one of the higher proportions of equity partners?
I'll check out those two resources as well!
The large consulting firms dominate the late majority market in the innovation diffusion curve (used by Geoffrey Moore among others). Typically the firms they acquire serviced the Early Adopters and then the Early Majority. This is a similar role to the one that Microsoft plays in the enterprise software space. The hallmark of the late majority is that "no one ever got fired for hiring X".
The issues that you address with audit are probably true. The former Head of Pricing @ PwC Australia was constantly trying to position Audit as a value adder rather than a cost. I'm not sure how far he got. Also, scanning ERP system data for irregularities is something that is relatively easy to automate. Management consulting requires the kind of symbolic interaction that has only recently become automatable.
I think Deloitte's early-ish adoption of salary partners and digital innovation was driven by their former 4th place in the market leading to some aggressive innovations approaches to gain share. I don't think that one is a cause of the other (but I am not a Deloitte insider so happy to be proved wrong).
Yeah I recall even back in 2014 there were lots of conversations about how to value-add through audit. It's a challenging thing to do, especially when it's so regulated, and when ultimately clients still have limited choice about whether to be audited and therefore whether to have those value-add services.
That's an interesting observation about Deloitte. I'm not a Deloitte insider either - more aware anecdotally from conversations with partners who had researched their options before deciding which firm to go for partnership in. I first twigged to the relationship of the partnership model and innovation from the King's College research linked in the article. The proportion of management consultants to law firms in that research was pretty low so it might be more of a consideration for law than for management consulting.
I think Deloitte's story does also highlight the role market share has in driving innovation (whether or not it's related to overall profitability).
Re: The KCL research.
1. One of the things about law and accounting firms is that they operate in the B2C space as well as B2B - and these have different dynamics. Be good to see that broken out.
2. While 62% of respondents agreed with the statement that "Your leaders provide a mandate for innovation and change", I call BS on that. A roughly equal number say "Staff are too busy to spend time on innovation". And staff generally do what they are told - which means that someone has told them that there are more important things than innovation.
3. This sentence nails it: "...felt that there was a perception in their workplace that there is no burning platform present, meaning there is a lack of urgency and drive to evolve practices"
4. Companies and industries only innovate when they have to.
5. The observation that partnerships tend to be slack in investing in infrastructure is bang on. Higher CAPEX means that someone doesn't get to buy their holiday home this year. This is why the Big 4 stuck with Lotus Notes for about a decade longer than everyone else.
Over the last decade, the big driver of change in B2B legal has been the upskilling of General Counsels and a desire to bring non-specialist legal work in-house. Over the next 10, it'll be cognitive automation.
We'll see what happens in management consulting. Everyone wants to grow their businesses aggressively (with the MBB moving down into operations, the Indian outsourcers moving into up into advice and Big 4 + 1 buying digital agencies, law firms, tax advisors, pretty much anything that moves).
Fascinating, I'd never connected the use of Lotus notes with the lack of desire to invest in Capex (although very postdictable now you've mentioned it). The B2C observation is interesting too. B2C organisations do seem to find the reasons to innovate quicker than the B2B markets.
I literally have a graphic drawn for a post about the burning platform for innovation in professional services firms. I just haven't landed on what I want to say about it yet. Anecdotally a few lawyers I've spoken to see staff retention as a big driver for their own personal interest in innovation. But I rarely see that scale as a motivator to the big decision makers in businesses. I don't know whether "The Great Resignation" will have impacted that and put it on more executive agendas. Or if that's more just a media fad and execs know people still need jobs to pay for their expensive professional degrees.