Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 300 | June 9-15, 2023.
How Professional Services Firms Dodged Disruption
By Julian Birkinshaw and David Lancefield | MIT Sloan Management Review | June 13, 2023
Professional services firms have been threatened with disruption for a long time as predicted by many. In 2015, Richard and Daniel Susskind foresaw that technology would cause a “steady decline in the need for traditional flesh-and-blood professionals,” while more recently, CB Insights said that “a tectonic disruption is hitting management consulting.” Even earlier, Clayton Christensen and colleagues warned, “Although we cannot forecast the exact progress of disruption in the consulting industry, we can say with utter confidence that whatever its pace, some incumbents will be caught by surprise.
But things have not played out as predicted. In consulting and law, the established firms are as influential and profitable as ever. Four types of potential threat in consulting and law are:
- AI undermines the business model. Generative AI has accelerated the ongoing transformation of many aspects of professional services work, enabling greater accuracy and significant cost savings. Established firms have taken on the threat by building up their own AI capabilities through acquisitions and in-house development. Incumbents are also enhancing their role as high-touch trusted advisers, which AI cannot replicate.
- Clients take control: unbundling the service. The most profound demand-side threat is unbundling, as increasingly savvy clients look for ways to cut costs and exert greater influence over their relationships with services firms. This can mean reclaiming activities previously handled by outside firms or turning to specialists instead of the broad offering of a large professional firm. Unbundling threatens the incumbent firms’ leverage model by taking away work that would typically be assigned to a lot of their junior — and lower-paid — generalists.
- Boutiques and specialists find strength in market focus. The successful ones take market share in specific niches but rarely cause much concern to top-tier firms. They cause limited disruption on either the demand or supply side, and they simply reflect the heterogeneity and complexity of the market.
- Would-be disrupters that pose supply- and demand-side risk.
The big professional services firms have been able to avoid disruption because of three strategic choices: Innovation efforts are devoted to solving client problems, Partners and their juniors work closely together with clients, and firms take a cautious approach to investing in new activities. Four actions that firms in other sectors can take to prepare for and respond to change are: diagnose the threat, match the response to the challenge, stay focused on the organization’s true mission, and balance pragmatism with a healthy paranoia
3 key takeaways from the article
- In consulting and law, the established firms are as influential and profitable as ever brushing off the notion that professional services firms have been threatened with disruption
- Four types of potential threats in consulting and law are: AI undermines the business model, clients seeking greater control over how they buy and use professional services, would-be disrupters challenge incumbents from both the supply and demand sides at the same time and new boutique and specialist firms have cropped up to serve particular client needs in lucrative business segments.
- The big professional services firms have been able to avoid disruption because of three strategic choices: innovation efforts are devoted to solving client problems, partners and their juniors work closely together with clients, and firms take a cautious approach to investing in new activities. Four actions that firms in other sectors can take to prepare for and respond to such change are: diagnose the threat, match the response to the challenge, stay focused on the organization’s true mission, and balance pragmatism with a healthy paranoia.
Topics: Strategy, Business Model, Consulting, Technology, Disruption