For Professional Service Firms, A Promising New Pathway To High-Margin, Non-Linear Growth

By Matt Emmert

Amid a broad and apparently deepening skills shortage, the pressure is on professional services firms — consultants, tax, legal and financial professionals, etc. — to find new ways to grow revenue without necessarily growing their workforce.

Meanwhile, these same companies are feeling pressure from clients and market disruptors to expand their service platforms beyond the traditional time-and-expense, leveraged talent model, to include a new breed of outcome-based, by-subscription and as-a-service types of business models.

And here’s where the interests of firm and client intersect to create opportunity. As it turns out, the new types of “productized” services for which clients have a growing appetite are exactly the kinds of offerings that can provide professional services firms with the non-linear growth they seek.

These new business models can provide a powerful strategic counter to a deepening talent shortage in the professional services segment, where, for example, one in five consulting firms say they had to turn down work because they don’t have enough staff, and 17% say consultants are leaving to pursue careers elsewhere or to do something different, according to results of survey by Source Global Research. “So, while 2021 was the year in which the talent war went nuclear,” Source Global Research’s Fiona Czerniawska writes in recent blog post, “2022 will be the year in which the consulting industry has to create a better, more coherent, and more sustainable response.”

Rolling out new revenue sources that produce nonlinear growth can be a big part of that response. The challenge lies in identifying the business models and approaches that will be most sustainably profitable, and provide clients with the most value, over the long run. One is XaaS, or everything as a service. Rolls Royce sells aircraft engines by the hour “as a service.” HP charges for printers by the copy. Software companies charge for cloud solutions on a subscription or pay-per-use basis. And in the professional services realm, that model could look like Deloitte’s Reimagine platform, which gives clients access to ready-to-deploy business blueprints, accelerators and SaaS products, or Insight Enterprises’ procurement-as-a-service platform. There’s also great promise for on-demand productized offerings like knowledge “vaults” with digital content and/or data, prepackaged tax advice, business analytics, research, etc., delivered digitally as a service, typically by subscription. These solutions can stand alone or be bundled with software, AI technologies, data, analytics, hosting, support and traditional people-based consulting services. 

Pursuing new revenue streams like these makes strategic sense because doing so enables firms to leverage and monetize their specialized in-house knowledge and deliver it digitally in a way that complements their in-person consulting services. What’s more, it gives firms a new, diversified source of recurring, sustainable, reliable and potentially high-margin revenue, potentially without hiring additional talent. These productized offerings also can open doors to full-blown engagements and stickier customers. Clients, meanwhile, gain greater certainty because they’re charged based on usage or business outcomes, and because they’re transferring a measure of risk to their service provider. They get a discrete, highly specialized service rather than having to commit to a full-blown engagement. 

A few foundational elements need to be in place to bring these XaaS, outcome-based and by-subscription revenue models to life. One is an R&D organization staffed by service experts who know your clients and their business inside-out. Firms also need to equip their sales teams to sell products and solutions bundles as well alongside traditional engagement-related services. And in terms of digital infrastructure, they’ll need the capabilities to manage and support the full lifecycle of these new delivery models and make them available via a user-friendly e-commerce experience.

Once these elements are in place, a firm can begin to test the waters by prototyping new business processes and enabling enterprise solutions within targeted areas — analytics as a service, for example. Whatever the starting point, experience in other industries tells us that the success of these new models will be predicated on a firm’s ability to seamlessly integrate, operate, scale and refine their productized offerings. They’ll need the ability to optimize the pricing of these offerings, manage the fulfillment of subscription- or usage-based XaaS, integrate new forms of revenue recognition and billing, monitor performance, and adjust these product bundles as the needs of customers and the business change. 

As promising as XaaS and other productized offerings are for their customer appeal and their long-term growth and profit potential, the edge will go to first movers — professional services firms that figure out how to successfully and sustainably operate them at scale. And so the race to productize begins.
About the author:

Matt Emmert is a Solution Director on SAP’s Professional Services Industry Team. He has been at SAP for 15 years in industry and solution advisory roles.