rethinking PSOs post 2020

Rethinking PSOs post-2020

Professional services organizations (PSOs) are currently facing substantial business disruptions. 

It was the arrival of COVID-19 earlier this year that led to lockdowns around the globe that have curtailed client demand and hampered project delivery. Those same lockdowns have also restricted project staff to their homes for the most part, slowing down client projects and impacting billable work. Finally, a rising economic downturn is wreaking havoc both in client budgets as well as the PSO firms’ own finances, leading to urgent calls for cost-cutting and new efficiencies. 

It’s the proverbial perfect storm of significant challenges and it’s leading to a dramatic impact on customer success as well as affecting the morale of the talent base in most PSOs. This has resulted in calls for a widespread push within firms to rapidly rethink and update their operating models to determine the right mitigations and respond effectively. 

Except, as many have found, responding quickly and effectively to these challenges is hard to do when so much uncontrolled change is currently taking place.  

In fact, many PSOs will be tempted to focus first on cost control to ensure short-term survival. While this is a natural response that does offer immediate and tangible control over a once-in-a-lifetime event filled with uncertainty, organizations must also remain mindful of the vital characteristics of professional services firms. Overly enthusiastic responses to this year’s disruptions can adversely impact an organization’s strategic operating models in the long term. 

Sustaining a Bridge to a Better Future 

The risk is in affecting the overarching characteristics of professional services firms. In particular, it is two stand-out characteristics that make them unique in the industry: One is the nature of the highly bespoke work they do that is specially tailored for each client regardless of tools, services model or data. The second is the special nature of cultivating successful long-term client relationships. Both of these characteristics require intensive and skilled delivery capabilities. Finally, underpinning both of these foundational characteristics is the high leverage human capital model that determines both revenue and profit for the PSO, and which needs to be finely tuned across the many layers of the organization. 

There was a painful lesson learned across the PSO industry from the 2008-2009 financial crisis. Decisions made too quickly negatively impacted firms long after the crisis had passed.  Studies have shown that decisions to reduce talent or cut compensation and billable time impacted their client relationships as well as their brand image for many years. Conversely, the firms that weathered the short-term pressure and managed to keep hard-to-replace human capital prospered as the economy recovered. In this same vein, organizations with a clear sense of post-2020 strategy will be in the best position to prosper. 

Model of PSOs
Figure 1: The Pre-2020 Model of PSOs is Giving Way to a New Client/Talent Focused Model
 
First priorities: Update the firm to reflect new realities 

It’s therefore paramount that any cost control discussions be viewed through the constructive lens of the organization’s business and talent strategy, along with its future operating model. To do that, businesses must first recalibrate their core strategy and execution with today’s current realities in mind: 

  • Clients will be more selective and demanding about projects going forward.
  • Deal flows and talent sourcing will be more turbulent until the pandemic passes.
  • Delivery talent will require better enablement and support for their new daily work realities.
  • Significant opportunities now exist in creating a more holistic and dynamic PSO operating model that can cost less and with less talent loss, while increasing margin.
  • Significant new types of business and growth opportunities are arising to offset recent revenue impacts.

In other words, there are major prospects to do more than just survive through brute force cost-cutting. Instead, more elegant solutions are possible if PSOs engage in a rapid rethink of what is possible. In essence, a combined business and digital transformation. This transformation will generally consist of a combination of bold new ideas, better integration and consolidation of operational activities, and powerful new technology tools, including automation, holistic user experience upgradesand powerful new concepts from the realm of digital business. 

The Evolution of the PSO Through Proactive, Targeted Transformation 

As it turns out, the typical PSO has been experiencing quite a bit of change in the last couple of years anyway. Trends like more dynamic staffing approaches, better automation of delivery, and more project analytics and diagnostics, have all led to improved services, higher margins, and greater customer success. Often driven by technology, resulting in simultaneous advances in re-imagining the operational models of PSOs through new capabilities, a new type of PSO is emerging that is more agile, lean, digitally-infused, and experience-centric. 

Here are the fundamental shifts occurring in PSO organizations in response to the events of 2020.  

The Business of PSO: Trends 

  • Predictive operations. Projects are planned well enough today, while sufficient historical project baseline data is now available to routinely predict risks and anticipate opportunities before they actually happen. Using these insights can lead to significant cost savings, higher success rates, and quality improvements.
  • Merger & Acquisition (M&A) support. A wave of mergers and acquisitions will inevitably occur out of the events of 2020, particularly of smaller PS firms. PSOs that have sophisticated infrastructure and processes for managing the financial, operational, and structural merging of clients will have an advantage.
  • Large portfolio management. Most PSOs are not yet taking advantage of the ability to manage large project portfolios across a client to maximize talent reuse, achieve economies of scale, and improve delivery.
  • Next-generation client engagement. As the industry becomes hypercompetitive, the time is right for a more engaging, sustained, informative, and transparent connection to the client, using a combination of technology, user experience, and real-time data flows. This higher quality delivery approach will result in an increase in project share within clients against other PSO firms.
  • New growth models. Most PSOs have readily available untapped growth opportunities, which they can add to their existing portfolios to increase sales.
  • New business models. The time is ripe for PSOs to move into adjacent business models such as subscriptions, IP licensing, strategic data services, and annual recurring revenue that can provide vital new green fields for resilience and expansion.

PSO Career trends 

  • Smart recruitment. New models exist for recruiting and project matching via AI, while talent screening and the pre/onboarding processes can be made more intelligent and automated. This will drive bottom-line business benefits while increasing acquisition and retention.
  • Better talent experiences. The top workers will have expectations of a return to the quality of work-life they had before 2020. PSOs that proactively deliver on this in remote work scenarios, while also improving the overall worker experience, will retain more staff.
  • Learning the future of PS. The changes and new opportunities PSOs must be better communicated to workers, helping them to realize (as well as reap) the benefits.
  • Hybrid talent sourcing. New dynamic staffing models (aka the gig economy for professional services) will mix with full-time employment to create much stronger, cost-contoured teams, while attracting new types of diverse talent.

Health and Wellbeing trends 

  • Delivery team engagement. Creating and enabling more connected working environments for remote employees, particularly for delivery teams, is essential to preserve a connection to the ‘mothership’ while also nurturing workers through tough and challenging times.
  • Wellbeing tracking. Tools and processes that track the physical, mental, and psychological health of PSO stakeholders, from project staff, back office, to clients — and provide appropriate assistance when needed — will be increasingly expected and has already become a hallmark of best-in-class employers.

In summary, PSOs have a historic opportunity to pivot and adapt to the significant disruptions they have faced so far in 2020.  

By adopting an updated operating model and quickly delivering on it with clients and talent using new solutions, PSOs can avoid the most damaging types of cost-cutting while being positioned for growth in 2021 and beyond.  

That is, as long as they are willing to think outside the box and adopt sensible yet far-reaching shifts in their strategies, tools, and operating models. 

Rethinking PSOs post-2020

Dion Hinchcliffe

Dion Hinchcliffe is Vice President and Principal Analyst at Constellation Research. He covers leadership strategies for The New C-Suite, Digital Workplace, and Internet of Things (IoT). Hinchcliffe is an internationally recognized business strategist, bestselling author, enterprise architect, industry analyst, and noted keynote speaker. He is widely regarded as one of the most influential figures in digital strategy, the future of work, and enterprise IT.

At Constellation, Hinchcliffe advises senior executives and top industry vendors on the strategies necessary to confront change and thrive in the digital era.