How to ride the wave of disruption in the DACH region
The Professional Services sector has long been a vital part of the DACH region’s economic success. Based on Teknowlogy Group research and the latest statistics from the OECD, the management consulting, IT services, and architecture & engineering sectors employ more than 600,000 across Austria, Germany, and Switzerland, with the three countries home to more than 150,000 businesses operating in this space.
There is a huge diversity in the supplier community's makeup, with more than three quarters of Professional Services firms in the region having less than 50 employees. But DACH has also been a breeding ground for some larger organizations that have made their mark on the global stage. Munich’s strategy consulting firm Roland Berger now operates across 36 countries worldwide, while Bilfinger and Hochtief are well established international engineering brands. T-Systems, Swisscom, and Kapsch BusinessCom have all expanded beyond their domestic markets in the IT services arena, delivering critical network and IT infrastructure support and transformation to their clients. This sector has performed very well in recent years.
Teknowlogy Group research shows that the region’s IT services vendors have collectively grown their revenue by more than €15bn in the last decade, and there are many standout stories across the wider sector. Munich-based IT services provider Cancom has more than doubled revenue to more than €1.5bn in the last six years thanks to soaring demand for cloud computing services. Porsche Consulting has more than doubled its revenue to over €200m in the last four years, helping its parent company and external clients pursue opportunities in the electric/autonomous vehicle market.
But there are some seismic shifts beneath the surface, driven by changing customer demands, evolving employee workstyles, and the impact of technology. The Professional Services sector is a “people” industry. Employees account for most of the cost base, and the ability to attract and retain the best is critical to success. Despite the current market volatility, the DACH’s region’s leading firms remain locked in a war for talent, with huge demand for skills in areas such as cybersecurity, AI, and cloud development outweighing the available personnel. According to the IW Economic Institute in Cologne, Germany already has a shortage of 340,000 experts in engineering and technology positions, which is expected to increase in the coming years. There is a similar picture in Switzerland, where a study by Adecco and Zurich University found that the shortage of professionals i ever n areas such as electrical engineering, accountants, and software developers had worsened by as much as 40% in recent years.
As a result, Professional Services businesses are working harder than to attract and look after the best candidates. And this is a major challenge at a time when the makeup of the professional services workforce in the region is also evolving. Generation Z employees will soon account for more than a quarter of the total workforce and become a key influence at a boardroom level. At the same time, many professional services firms are also seeing their more experienced staff extend their working lives, particularly in Germany, with the planned raising of the pension age from 2031. Businesses now have to ensure that they provide the kind of environment, training, tools, and working practices that are agile enough to support increasingly diverse demands. One key aspect of this change will be ensuring they can provide their employees with more flexible roles and workstyles. The German Ministry of Labour and Social Affairs (BMAS) recently proposed that employees should work from home where technically possible. The proposal follows a BMAS study, which found that 40% of Germans would like to continue to work from home at least occasionally. A study by the Swiss arm of Deloitte found that as many as 60% of employees in the country’s IT services industry were already regularly working from home before the pandemic.
The business models that sustain the DACH region's Professional Services market today are largely unchanged for the best part of a century. But there are signs that new models, enabled by digital platforms, are starting to challenge the traditional practices of full-time workers and time-and-materials pricing. eWork has become one of the largest IT services providers in Northern Europe, with more than 10,000 independent consultants having found assignments through its job/skills matching platform. Several new companies with a similar model have emerged in the DACH region in recent years, the largest of which is Germany’s Comatch.
One of the features of the evolution of the region’s Professional Services model has been the surge in the use of collaborative ecosystems between firms to increase the speed and effectiveness in the way that they deliver to the customer. One example is the Terra Numerata open innovation network built by Roland Berger, which brings together more than 90 start-ups, data science specialists, and design thinking agencies. The companies collaborate on more than 20 projects annually, developing solutions in areas such as deep learning and blockchain. Assisting clients with new and emerging technology has been a huge growth opportunity for the Professional Services sector, but it is also having an increasingly profound impact on transforming firms’ day-to-day operations.
The use of robotic process automation (RPA) has established real momentum in the sector in the last couple of years, helping to release high-value workers from performing mundane, repetitive tasks. There are some truly ground-breaking examples of automation emerging in the architecture and engineering space, with the ETH Zurich University working with commercial sector partner ERNE AG to use robots to saw, drill, and position timber without the need for manual intervention. The pace of technology change is accelerating, and Professional Services firms need to adapt to capitalize on new opportunities quickly. This means being able to stand up new service offerings of business vehicles in a matter of days or weeks rather than months.
One interesting example is Deutsche Vermögensberatung AG, the largest financial consulting firm in Germany, which launched a new digital platform for its financial advisors that enabled them to perform virtual consultations for customers and prospects for the very first time. The platform's launch was pushed forward by several months due to the need to connect remotely with customers during lockdown.
Professional Services businesses must also be responsive to changes in an increasingly competitive landscape. In the DACH region's IT services market, 40% of the vendors that were positioned in the top 50 rankings for the region in 2010 no longer feature in 2020's top 50 (source: teknowlogy Group). Amazon Web Services, which now ranks as one of Germany’s ten largest IT services providers, only entered the DACH region in 2014. The shape of the region's Professional Services sector has changed considerably, but the pace of transformation will only accelerate in the years to come.