Re-thinking business models in a digital world
77% of professional services CEOs believe that their business will be disrupted by digital transformation in the next 12 months.1 Witness some of the larger Professional Services firms creating subsidiaries focused entirely on Digital Transformation such as Deloitte Digital, Accenture Digital to name but a few. Professional Services firms cannot afford to lag behind with Digital Transformation and their business is undergoing unprecedented change as disruptors are entering the market.
Transforming a firm’s business model may be more challenging than product or process innovation, but it also delivers greater returns. Companies with innovative business models average five times the premiums of product or process innovators as demonstrated by SAP Performance Benchmarking analysis.
“We can testify that digital transformation and constant innovation are definitely not ‘nice to have’ but rather ‘essential to survive”. 2
–Deloitte Digital GmbH and Heads! Executive Consulting
There are 3 priorities for successful digital transformation in the professional services sector:
- Transforming business models, combining services, projects and products into new offerings
- Becoming more customer centric, delivering a consistent digital experience across all aspects of business
- Achieving operational excellence, streamlining services portfolio and leveraging standardized, automated end-to-end processes on a global scale
Professional Services firms need to invest in technology and business models to more effectively engage digital customers at every touch point in the customer experience lifecycle. Savvy entrants to the market are able to take advantage of lower costs and scalability of digital delivery to penetrate new customers and geographies. We have seen that some firms are creating digital subsidiaries for greater focus on digital business transformation but what are they doing to transform knowledge transfer and delivery of expertise?
In the domain of IP consulting and delivery, new business models are emerging in which expertise is codified and bundled into, for example, a subscription based service combined with analytics that can be installed at a customer site. McKinsey Solutions is a good example of this. Here is McKinsey’s description of it on their web site: “McKinsey Solutions is a new kind of service from McKinsey & Company, combining 85 years of industry and functional expertise with data science. “ It is complementary to their project-based client service and while appearing to cannibalize traditional consulting revenue, it can help ensure long term customer engagement and loyalty.
For Professional Services firms to become more customer centric, they need to think about deepening customer relationships by offering a custom solution experience, rather than simply selling a collection of underlying components. For example, a point of sale (POS) solution might combine a mobile register (hardware), the software to run it, maintenance services, plus a migration project to roll out the solution to all stores in a region. Bundling these components to fit the individual customer both maximizes personalization and drives margin growth by selling higher-value services.
We are also seeing the emergence of outcome-based revenue models where the service provider’s revenue is totally or partially related to the outcome of their services. Take the example of Serco, who among other things work with providers and partners to help job seekers back into work as part of a UK government initiative, “The Work Programme”. Their revenue is based on the successful support of the long term unemployed and their rate of return to work.
All this requires significant change to traditional business models. An integrated solution based approach enables firms to design, package, sell and bill the right solutions for the right clients. Usage and subscription based models are emerging rather than a single product or service approach with a single invoice.
In pursuit of operational excellence, firms are re-thinking the way they deliver services. For example, audit firms are starting to leverage in memory technology to automate audit processes. Traditional audits where it used to take weeks to analyze the integrity of financial reporting can now be automated with more extensive results in just a matter of hours. This type of digitalization provides great savings for both the audit firm and the customer, and represents a key differentiator against competitors. In another example of digitalization in this industry, call center support has moved from simple call handling to requesting callers to digitally enter information to streamline the handling of the calls, assignment of the right expert or even provide an automated solution.
Firms who want to stay ahead of the competition by supporting non-linear growth, streamline their solution business processes and benefit from powerful analytical insights need to re-invent their business models to support solution oriented and outcome based revenue models.
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1. Based on SAP Performance Benchmark data and Boston Consulting Group, Innovation 2009: Making Hard Decisions in the Downturn, November 2009
2. Deloitte Digital GmbH and Heads! Executive Consulting, Survival Through Digital Leadership, March 2015