The global pandemic has had profound effects on the professional services industry. From forcing road warriors into home offices to disrupting the relative values of service offerings, the upheaval has left leaders of advisory businesses with no shortage of challenges. While the majority have mastered the initial adaptation phase, there are still many unknowns.
To get a better sense of how these leaders see the future of the industry playing out and how they expect to adapt, Russell Reynolds Associates recently spoke with more than 50 leaders from a wide range of business and professional services organizations around the globe, including strategy and IT consulting firms, IT services firms, business process management companies, and law firms, among others.
In this paper, we share the common themes that emerged from these conversations, including some of the decisions and learnings that have helped many succeed so far. Most would resonate with the words of this leader, who said: “This is a pivotal period that is going to change the way we act as a society.” We also share the tantalizing questions that are central to strategic future planning— yet remain unanswered with any certainty.
In brief, those questions are:
- What new opportunities do you see emerging or accelerating?
- How do you expect the structure of your industry to change?
- How will the mechanism of acquiring new work or delivery of your services change?
- What will change from the perspective of employees and business operations?
- What leadership qualities will be most relevant to your industry in the next three years?
We look at what leaders know, what they don’t know and how they’re planning to capture new opportunities, optimize operations, engage with customers, and empower their employees and leaders in the coming years. We then turn to the leadership qualities that are emerging as most relevant and necessary for leaders to help their firm succeed throughout this chaotic time.
Looking ahead, leading areas of opportunity include:
Many companies will look for a refresh of their strategy. Both governments and corporate clients will want advanced quantitative scenario planning to help them assess risk, country by country, broaden their revenue profiles and avoid supply chain failures and cash crunches. Governments will end up getting involved in various businesses, either as critical national resources with continued strategic and financial involvement, or just as short-time financial participants to bail out companies as needed. Full or partial nationalization of some industries means every consulting firm needs to understand how to work with local and national governments. Very few firms have robust federal practices, so these are likely to gain prominence as business, financial, governance and political risks get increasingly intertwined. A new way of doing business will emerge. With many organizations being forced into quick business model changes to deal with the current situation, “the business case for transformation is now easier to prove,” noted one group of executives from a leading strategy consulting firm.
Turnarounds and restructuring:
Faced with uncertain demand and supply in the wake of the pandemic, many clients are looking for advisory services around re-evaluating their supply chains. They are looking to apply AI to generate new insights and assist with demand prediction while also mitigating risk around locations and suppliers’ ability to withstand future shocks. Companies may take a different view of structuring their supply chain, one that balances economies in cost with continuity of operations, in a world with a different perception of risk. Make versus buy decisions will be taken with more vigor and with less respect for the holy cows. New questions around how much operational and financial risk one company should carry will force many to sharpen their view of their core competencies and look at a network of partners with complementary capabilities and shared risk.
Digital for the industrial sector:
The shift to the virtual organization will not just be about office workers joining video conferences from home. Many of the leaders we spoke with see their manufacturing clients moving quickly to digitize and automate shop floors and other facets of the industrial sector. The next wave of digital transformation is expected to go beyond enterprise processes; it will impact physical operations and “it’s possible that shift workers will only need access to consoles, rather than having to travel to the factory,” one leader said. As virtual reality overtakes physical reality, cyber protection will also become paramount, requiring a significant upgrade from the current state.
“It’s possible that shift workers will only need access to consoles, rather than having to travel to the factory.”
With contactless transactions rising in popularity, every company must be prepared to conduct business online, often across the globe. While most have an online presence now, few have the capabilities to acquire, cross-sell and up-sell customers as proficiently as digital natives. Almost all leaders we spoke with echoed that this trend will accelerate over the next few years.
Products and platforms:
All advisory firms have been looking to increase value to clients and their own profit potential by turning to scalable offerings such as more products and platforms. In the process of digitizing work, in particular, full-stack client solutions that include proprietary cloud offerings will play a fundamental role. “There won’t be as much “I finish a project and go,” but rather we will offer complete solutions where clients are invoiced in price per transaction, revenue sharing, or mutualization of costs and services,” said one leader. Given the recurring revenue streams and overall profitability profile associated with such offerings, “the pressure is on” to develop more, another leader noted.
“There won’t be as much “I finish a project and go,” but rather we will offer complete solutions where clients are invoiced in price per transaction, revenue sharing, or mutualization of costs and services.”
Business process outsourcing and offshoring:
Competing forces are at play here, leaving many advisory leaders uncertain about how demand will play out. On one hand, many firms will be looking for the benefits of outsourcing, such as access to greater specialization and cost advantage. At the same time, national pressures to hire locally, either from a practical or reputational standpoint, may act like an opposing force.
From an organizational standpoint, many of the executives we spoke with expect to see major consolidation in the industry, with stronger firms seizing opportunities to add niche talent and expand service offerings. “I see a brutal consolidation where customers consolidate with just two or three suppliers. Ten players can stay; the rest will be very small or irrelevant.” At the same time, many leaders expect new digital boutiques and other niche players to crop up as a result of the talent dispersion that may result from layoffs and the specialized needs emerging in some sectors. Mid-tier private partnerships are the most at-risk in this environment, particularly as capital dwindles and partners are faced with a choice of paying in more to remain independent or accepting a buyout from a large publicly-traded firm. “Think about the dynamics between junior versus senior partners at such firms,” one leader observed. “When firms with strong balance sheets knock on the door, ready to fund acquisitions, what do you think senior partners will choose?” While scale will remain a factor in these acquisitions, the opportunity to hire specialized talent will be an even bigger draw. “Lead with products, follow with people,” said one consulting firm executive. A number of deals along these lines are already underway: Accenture announced in early May its acquisition of Callisto Integration, a company that provides digital manufacturing services to large companies, while Capgemini purchased Whitesky Laboratories in March to expand its service offerings in Asia and Australia.
Throughout all of these areas, there is a new emphasis on leading with value, as clients look for quick and quantifiable benefits. “No one knows what will happen next season, so any project must have immediate impact,” said one IT consulting firm leader. “Clients are asking for explicit value delivery,” noted another, who expects consultants’ contributions to be “intensely scrutinized” in the coming months. “This is something we have been hearing over the past few years and the crisis has exacerbated it.”
“No one knows what will happen next season, so any project must have immediate impact.”
Engaging with customers in a virtual environment:
The billion-dollar question is how firms can win new clients through virtual interactions alone if travel and meeting restrictions persist long-term, or if preferences change to the extent that they are no longer desirable. One executive captured the conundrum this way: “There is no question that video is a more intimate conversation than being on the phone; what I can’t tell you is how it compares to lining up putts on the golf course.”
“Relationships will no longer be about people liking each other, it’ll be more about value.”
If faced with a protracted period of virtual-only communications, leaders expect partners’ personal reputations and relationships to become less important, and offerings to become commoditized. “Relationships will no longer be about people liking each other, it’ll be more about value,” noted one consulting leader. “Less custom is inevitable,” said another. These changes, if they come to pass, will be the result of pandemic-era restrictions as well as firms’ own efforts to improve efficiency and profitability through off-the-shelf platforms and products.
Yet some still see the opportunity for bespoke services built on personal interactions. At least one firm is already planning to reassign business development executives largely to accounts in the cities where they live, a change from past practice where clients were about half local and half out of town.
Optimizing operations: Leveraging new delivery models:
Project delivery models are also changing rapidly, as many firms adapted them for projects in process during quarantine periods. “Two months ago, we could never think of delivering a large-scale finance transformation and go-live virtually; now we’re doing it every week,” said one leader. Project delivery will be more agile, with new models, remote scrums, and interactive workshops becoming the new norm. Firms with past experience in this area are at a distinct advantage; one executive noted that was what set his firm apart from competitors in a recent pitch. Others are scrambling to enhance their abilities in this area, which often includes training clients on how to accept projects this way. Even firms that are tied to physical locations are finding ways to innovate in this area. The head of a firm that advises engineering and construction clients now runs virtual surveys and inspections, with clients filming the relevant areas, instead of dispatching a consultant to the site.
As with many other areas, the persistence of remote delivery is still unclear and will largely depend on client preferences. To that end, some plan to hire locally so consultants can drive to client sites and not have to rely on air travel. For the most part, though, the leaders we interviewed feel sure they will send fewer consultants out to clients in the future, if any at all. “Clients are going to learn they can get perfectly good service remotely and without rooms full of people in the office,” said one managing director. “Why pay for people to show up in person and pay for hotels down the road if we can deliver complex work virtually?”
Flexible workforce saves the day:
One advantage of the remote delivery approach is that teams can include experts from around the globe and with a more diverse array of perspectives on any project at little to no marginal cost, greatly expanding the pool of potential candidates. These forces combined mean many leaders expect their firms to lean more deeply into the gig economy, hiring talent on a freelance basis as needed to support new and emerging specialty areas. “There is a big benefit in being able to offer part-time work and pulling in skills whenever needed,” rather than adding to headcount in tenuous times, noted one executive. Some envision a new cadre of “multi-company gig workers” who offer their specialized services to competing firms simultaneously, each on a part-time basis. “Relationships will no longer be about people liking each other, it’ll be more about value.”
Professional service firms have largely worked through the first phase of virtualizing their workforces, with many leaders noting seamless or almost seamless transitions, thanks to long-standing distributed work models in the industry. With the necessary hardware and cybersecurity investments in place, most expect to stay fully virtual for the foreseeable future and bring people back to the office only as needed going forward. “We’re not going to be returning people to offices any time soon, and when we do it will be at a much-reduced rate and only for essential activities,” said one executive.
Yet few if any say they will do away with their offices all together. “We’ve known for a long time that professional services firm can work remotely, but the question is, do you want people to work remotely?” said the chair of a global law firm.
The question of how to build and foster culture without a shared space is a primary one for many leaders, particularly human resources executives. Business and professional services firms have typically relied heavily on their office space to distinguish their identities and attract talent. This has meant securing prime locations, creating an atmosphere that lends itself to both team huddles and private conversations, and offering abundant on-site perks, such as free snacks or gym classes. Beyond the look and feel of the firm, a huge selling point has traditionally been the opportunity to learn from successful partners and other colleagues in the office through both projects and informal conversations. In a remote environment, many wonder how—or if—they can recreate these benefits.
This concern extends particularly to recruiting and onboarding new hires. “It is a question mark how this will work, especially with campus recruits,” said one leader. The incoming recruits are likely well-equipped to handle virtual interactions, she noted, “but the generation responsible to hire, grow and retain top talents may, at least initially, lack the tools to do all of this remotely.”
Consulting firm cultures may also be threatened by an increased dependence on freelancers who work only part-time, and potentially for multiple firms. For all the benefits the gig economy offers, it also creates challenges around consistency in staffing and relationship-building. “In this emergency, we are all underestimating the importance of team working and the nuances that go with it,” one leader commented. In the same way partners’ relationships may fade in importance, recreating the intangibles to distinguish one firm over another in a distributed work environment will be a primary challenge in talent acquisition and retention.
For the short term or the long term, remote work also brings up questions of workplace norms, such as how to measure hours and performance, and how to avoid burnout. “All past “working” policies, including productivity measurements and pay, need to be disrupted,” noted one leader. The lack of mobility may also be a negative for employees in India, along with those in other offshore centers such as Mexico, China and the Philippines, where travel between countries is often viewed as a careerbuilding opportunity. As a result, “you need to rethink pay, and how you can offer leadership and career development in this new environment,” a CHRO in this situation said.
“All past “working” policies, including productivity measurements and pay, need to be disrupted.”
Over time, the virtual delivery model means firms can concentrate their hiring in lower-cost cities that might have once been off-limits. “Location requirements are no longer relevant,” said one firm leader. “You can now hire in Dallas, the Dakotas and Tennessee rather than New York.” The same holds true for office locations, to the extent they remain important.
Advisory services leaders also expressed great hope for integrating more diversity into their firm, particularly if travel requirements diminish, along “artificial barriers” like visas and a requirement to be close to a headquarters office. “We are already talking about hiring recent graduates outside of our headquarter cities, since we can diversify the talent and gain a competitive advantage by doing so.” Yet as casual opportunities to broaden networking circles suffer in a work-from-home environment, leaders will have to be intentional about keeping this commitment to diversity on their agendas.
Under pressure to grow and innovate in the face of rampant uncertainty, professional services firm executives are drawing on a particular set of core leadership skills to help their firms succeed. Based on our many conversations with executives across sectors, Russell Reynolds Associates has identified six competencies that are most essential in this time:
Executives need to be able to think independently and make very difficult decisions. Longer term, they will need to be resilient and able to withstand the resulting public scrutiny around their decisions.
In challenging times, the ability to show openness and vulnerability in all communications is critical for a leader to build rapport with others.
Leaders must be able to connect the organization to societal purpose and explain to employees its “reason for being.”
Offensive and defensive agility:
Knowing how and when to deploy “offensive” and “defensive” mindsets, leaders approach issues systematically and while thinking across multiple horizons.
Financial and operating sharpness:
To navigate the inevitable economic challenges, executives need to develop a strategy that is grounded in a strong understanding of operations and financial boundaries.
Forced digital acceleration:
From innovation to communication, digital is now critical to every leader’s goals. However, they must also get ahead of the challenges and threats associated with a reliance on technology.
The professional services industry will remain in flux as long its clients are, and no one yet knows exactly how long that will be. During this disruptive period, opportunities to gain advantages abound. To succeed, firms will need to transform their service offerings and consider more products and platforms to capture new markets; they will also need to re-learn how to build winning cultures in light of a distributed and often contract workforce. Despite significant pressure and uncertainty, those who come out as winners will lean on a particular set of leadership skills – including bravery, authenticity and agility—that allows them to stay ahead of the curve as myriad forces reshape the business world on all fronts.