Performance is an execution problem. Machine Learning, Artificial Intelligence and Augmented Reality will be the next disruptive game changers in the creation of intelligent applications that fundamentally change the way we work, collaborate and trade with partners and customers.
These disruptive technologies will provide opportunities to all professional services business, not just the high-end knowledge intensive professional services firms that are able to the charge premium fees and close to platform firms such as Oracle, Microsoft and SAP.
Traditionally, professional services firms have been able to grow only by selling more of their services. That means adding more people, with significant cost increases that keeps revenue growth linear. Smart software solutions like Hydra have begun to help professional services firms identify aspects of their work where performance can be precisely measured and combine this data with experience to deliver a better standardised service. This data can also be used to discover areas where software can replace process at lower cost, allowing firms to improve revenue by moving from billable hours to outcome based pricing.
IT based Professional Services firms who deliver standardized outcome based IT Projects should be in a much better position to double revenue or margin than a more traditional law practice which has to double its staff of attorneys to make such improvement. Traditionally consultancies, law firms and marketing agencies have struggled to deliver gross margins above 40% as they start to scale. By making a contrast with product companies like Oracle Microsoft and SAP which don’t have to deal with the same costs involved with the employment of people enjoy gross margins of between 50% and 80%.
New technologies offer professional services businesses new delivery methods where automation will allow them to “productise” some tasks in order to increase margins as they grow, whilst providing clients with improved, standardised quality service at prices that competitors can’t match whilst attaining superior margins. By productising high-volume tasks and removing risk from judgment-driven processes, improved efficiency and productivity, the company can focus well-paid professionals on jobs that require more sophistication and generate significantly better margins.
Successfully developing products to embed in services requires more than just a sound process. A firm’s culture and people’s mind sets have to change at the same time. Not only do businesses need to capture the data to identify high-volume activities which can be productised. The following images depict the conundrum that faces most professional services businesses graphically. Moving to figure 2 requires an organisation to communicate a strategy, identify the processes where automation delivers a benefit and then finally to efficiently adopt change to support outcome based pricing.
Primarily people need to be hyper-aligned across the entire project and laser-focused on delivering change. Important outcomes are often put at risk because strategy execution activities are glossed over or simply ignored. Too often even the best people are working at cross-purposes because of misalignment. It is critical that leadership focuses on strategy alongside the alignment of everyone’s efforts to help accomplish the development of products to embed in services.
The nature of a product and its role in a business’s value proposition are not the same for a professional services firm as they are for a company that manufactures goods. A services firm needs to take a different approach to creating, managing, and monetising products. In the following paragraphs, I will discuss the three key stages of the process:
- discovering potential products by identifying opportunities for automation;
- developing the products and enabling them to process, analyse, and learn from data;
- and monetising them by building a revenue model that captures benefits from automation and the application of analytics.
In a professional services firm, a product is created when some aspect of a delivery is automated by the usage of artificial intelligence or by the augmentation of experience in order for it to be monetised differently. This involves a process of standardising output, identifying areas where experience and learned knowledge exist, collecting and then leveraging this data to improve automation. Finally changing the method of pricing by relating it to an outcome rather than billing the effort to complete.
The product is embedded as a task in the service offering and sold as an element of it. The outcome of the project remains the end goal. Customers continue to buy the outcome and not the completion of the task. From the customer’s perspective, little changes other than the fact that the supplier has more freedom to reduce their price without reducing margin or profitability.
Professional services firms have the advantage of already knowing what and whom they are targeting. These companies are not just creating something completely new but they are transforming something (a service) into something else (a service with an embedded product).
This changes the process of developing and improving an offering. In early-stage development, a product company will design various prototypes and test them with a view to determining the key elements in the value proposition. At this stage, it is not important to identify detailed features but to use these prototypes as a foundation on which to build precision and sophistication into the product in order to reduce complexity.
Improvements are then typically driven by the ability to gather experience and replace as much as possible manual intervention with intelligent automation and therefore use technology-based innovation to create a “smart” product that improves the process itself.
When products that are embedded in a service are basically software-driven, improvements are more frequent than with stand-alone products where improvement usually involves the launch of a new generation or model. As the basic functionality of a product grows more sophisticated, the enabling technology can usually be expanded to other uses.
For an embedded product to be worth developing, you have to figure out how to capture its value. If your services have become more efficient or effective, it doesn’t make sense to continue pricing based on time and materials. Indeed, if the goal behind productising services is to reduce the relationship between revenue and the number of employee hours, pricing should evolve accordingly as you may end up performing something quicker and eventually charge less for delivering more at a higher quality.
Hydra elected to move away from a user-based pricing model for the service offered by linking the price to the project volume processed through the solution. It effectively allows our customers to monetise the use of the platform by providing the functionality to their customers whilst reducing the effort involved in keeping multiple plans and resources aligned. With productisation of services, productivity increases by 20% by reducing the complexity of keeping multiple plans aligned. Sharing experiences and capturing innovation faster results in increased efficiency alongside data which helps identify areas where automation and artificial intelligence will deliver the best rewards.
Once analytics are added customers see the improvements which allowed us to move to outcome-based pricing where both the vendor and the client reap the reward of the investment.
Professional services businesses stand to be transformed by the introduction of technologies like Machine Learning, Artificial Intelligence and Augmented Reality. Good news for those who have the ability to leverage the data they have at their fingertips from solutions like Hydra’s EXM. Breaking free from a linear-based pricing is perhaps more important than ever to stay ahead of competition as customers are increasingly demanding it.
About the author
Phil has a unique understanding of projects and processes, he works with project based businesses helping them innovate and improve efficiency whilst using his deep knowledge of what it takes to deliver value.
Most recently, Phil served as the Head the SAP’s Professional Services Business within the Corporate Business Team closing some of SAP’s most important net new name wins in recent years including Lloyds Register and High Speed 2.
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