This is one of the points that came out in the fascinating conversation I had with Daniel Newman, Principal Analyst of Futurum Research and Hans Kroes, Global VP and Head of the Industry Business Unit for Professional Services at SAP in a webcast on Transformative Trends Influencing the Professional Services Industry. 

You can watch the full webcast below. More comments on the intensifying role of networks in professional services below.

One of the most important points is that we must understand professional services firms fundamentally as talent networks. If they are not richly networked then they are essentially a set of individuals, and there is no value to dealing with the firm with its overheads rather than a best-of-breed professionals. Firms amplify the value of their professionals by how they connect them so they can share knowledge, learn from each other, and complement each others’ skills to create composite value.

As we world becomes increasingly complex, no organization can have all the talent required to deal with the most challenging problems. Even the largest firms need to access external networks in order to fully meet their clients’ needs. A good example is Deloitte Pixel, which offers ‘enterprise crowdsourcing’ to its clients, tapping the best and most relevant talent in the world to service its clients.

This requires rich networks not just inside the firm, but also beyond. The nature of these networks is not just one of connection, but also one of trust, the ability not just to know who to draw on, but to get them to want to participate in your projects.

Firms must also structure themselves and work to amplify the value of connections between themselves and their clients. They must help their clients be better networked, and build stronger and more interlaced ties between the capabilities of both organizations. All the highest-value professional engagements are designed as co-creation, generating outcomes that neither professional firm or client could create on their own.

Economies and societies are becoming ever-more intensely networked. This creates enormous opportunities for the professional firms that have the capabilities to amplify value-creating networks, within their firms, extending to global talent networks, with their clients, and across industries.

A central theme to our discussion was the role of data in professional services and the broader implications. 

Analytics and measuring value creation

Many professional firms, not just those focusing on analytics, are helping their clients to capture and leverage data in their operations, sometimes in very specific domains such as legal or engineering. 

Analytics can help measure the value created by the professional services engagement. This can enable innovative pricing structures related to the outcomes achieved, even in complex situations. The extended shift to alternative fee models can now accelerate with the richer data available, with the potential for greater upside for both service firms and their clients. 

Knowledge-based relationships

For these kinds of relationships to work they must be true partnerships, ‘knowledge-based relationships’ built on the trust that enables data sharing and deep collaboration to correlate it with value creation.

One great example of a professional-client partnership is KLM and Boston Consulting Group’s joint venture that has developed data analytics systems for airline operations, first to optimize KLM’s operations, and then to sell those capabilities to other airlines.

Platforms for service delivery

Rather than pulling together ad-hoc teams for projects, professional services can increasingly be delivered over platforms. Services such as KPMG Spark can scale delivery and extend the addressable market. Platforms can tap external as well as internal talent, for example Deloitte Pixel. Distributed organizations such as Axiom Law are in essence platforms to aggregate talented professionals. 

Many major firms in IT services, strategy, and other domains including legal services, are now offering AI platforms to help their clients efficiently leverage the power of their data. These are usually not offered on their own, but as an essential complement to traditional service delivery in large-scale engagements. 

Value in ecosystems

As business shifts to ecosystems the clients of professional firms are more often consortia or other collaborative organizations. They create value for the collective through sharing data and applying lessons learned. Sophisticated professional firms can help them to optimize, not just at the firm level, but at the consortium level.

When we consider the economy as a whole, the most powerful application of professional expertise is at industry level, optimizing value through collaboration. Bringing together what are in some ways competitors requires leadership, which can often best be provided by trusted external parties that can leverage their broad relationships and industry expertise. 

Expert humans plus technology

What distinguishes professional services is the value created by people with deep domain expertise, creativity, and valuable relationships.

The positioning of many professional firms is increasingly adjacent to some software-as-a-service providers. Yet the unique value of professional firms stems from how well they tap the capabilities of their staff as well as a wider network of talent. That requires effective implementation of technology, to build networks, complement human expertise, and offer clients integrated offerings that can amplify their success as never before.

These shifts offer professional services firms the opportunity to generate heightened value for their clients, entire industries, and the economy as a whole. 

Professional services are, by definition, delivered by experienced professionals. While there are significant reasons for teams of professionals creating value for clients to be co-located, they very often are not, even in traditional firms.

From the beginning of our highly connected century companies like Axiom Legal have been helping clients access top-tier professionals without the unnecessary and substantial costs of office space and partner leverage (i.e. paying for the partners’ new sports cars when an associate is doing the work).

I must acknowledge that I have been consistently surprised at how slow the shift from legacy to virtual professional service firms has been. Traditional firms will exist indefinitely, but they have only more recently begun to be challenged by new configurations of talent.

Having now run my own primarily virtual organizations for many years, I do have a better understanding of the challenges.

However we are gradually transcending the difficulties, not least through both professionals and clients having learned over the last year that massive businesses can function admirably in an entirely virtual environment, if well managed.

Given this shift, we have just published an article on 8 leading virtual firms shaping the future of professional services, digging into a diverse selection of leading virtual professional firms. Check it out if you want to see some great examples and insights from what they’ve achieved.

It is probably fair to say that the majority of professionals and their clients are conservative in their business practices.

Yet as we shift to an increasingly virtual work environment, it is an immense opportunity both for incumbents and their challengers to change their working assumptions on the need for large-scale offices.

Professionals will still visit their clients, but as the case of Axiom Legal and others show, that doesn’t require offices, in fact it can facilitate spending more time with clients.

Carefully designed teams of world-leading specialist talent are increasingly required for high-value professional engagements. A virtualised model makes that far easier.

The key question is whether upstart firms that start with a different premise can provide a disruptive level of competition to established firms. Or whether today’s large professional firms will redesign themselves first.

I’ll be watching it closely.

The session was primarily framed around helping the partners understand the degree and nature of the shifts impacting their major clients in industries such as financial services, mining, construction, and infrastructure.

However I also delved into the impact of new technologies including AI on the delivery of high-end professional services, a topic I have been doing substantial work on recently with several clients.

The impact of AI on professional services

There are many specific issues stemming from the rise of AI and automation in professional services delivery, including the modularization of what have often been aggregated services, increased choice on service providers, changes in pricing models, and shifts in the relative roles of junior and senior professionals.

However arguably the biggest single impact is on the scope of the firm-client relationship.

The core of this was described in detail in the first edition of my book Developing Knowledge-Based Client Relationships: The Future of Professional Services, published in 2000, which described the relationship impact of new technologies in ways that are completely relevant today.

The spectrum of relationship styles

There is a spectrum of relationship styles, as shown in the figure below taken from the book.

Over the last decade and more many corporations have been actively pushing their professional services providers towards commoditization, for example through the use of panels and bringing in the procurement function to administer their relationships.

However many firms have in any case implicitly acted as commoditized providers, attempting to respond competitively to requests for services rather than helping clients frame the strategic intent that precedes looking for professional services.

All of the variables that shift between commoditized and partner relationships described in the diagram are important. However arguably the most important one is relationship scope.

Relationship scope in an AI world

The tools and approaches of machine learning and related technologies are proving to be incredible powerful. However for the meantime their application is always within a highly defined domain.

This allows specific service domains to be shifted to other service providers, brought in-house, or repriced. Each time this erodes the scope of the client relationship.

There are increasingly distinct strategic positions possible around service, industry and outcome specialization or generalization.

Broadening strategic scope

The greatest value will accrue to those firms that move to a broader relationship scope, not so much in numbers of different services being provided, but in the strategic scope.

More than ever in an age of AI, professionals need to be working alongside their clients in framing their strategic needs, responding to shifts in the business environment, and acting as a true partner.

Having been involved in the events, thought leadership initiatives and awards of a wide variety of associations over the years, I have long thought that there is massive untapped potential value in many associations’ member networks.

The disruption of associations

Over the last 5-10 years many associations have been challenged by a confluence of powerful forces undermining their established positions.

Most notably, in a connected world relevant content is far more accessible, individuals and organizations can readily build their own networks, and special interest groups can self-organize.

However in an increasingly networked world many associations have continued to maintain a hub and spoke mentality, gradually eroding the value of their established model.

The role of serendipity

The greatest potential of a group with aligned interests is very often in enabling valuable connections.

In a world driven by innovation the most value is often created by bringing together two or more people, ideas, organizations, or association members that have not previously been connected.

Serendipity has long been a key theme of my work. In 2006 on this blog I described how to create enhanced serendipity and told the delightful origin of the word.

I have always preferred the term ‘enhanced serendipity’, however I have also dug into the role of social networks and engineering serendipity in the workplace, which has drawn increasing attention recently.

Communities and beyond

As the value of proprietary content and resources is eroded, many people and organizations are remaining members of associations for the potential of high-value connections between peers.

The role of government and community representation for industry sectors is important and will remain, but this has lower value as a stand-alone offering, rather than bundled with content, education, research, and events as is the case for most associations.

Where well-established associations can thrive in a rapidly changing world is in pro-actively building value through connections within their communities.

Enabling ‘happy accidents’

Engineering serendipity is about creating the conditions within which the ‘happy accidents’ of useful connections happen.

This is a significantly different frame from where most associations have come from. It certainly represents a significant part of their future.

This was my contribution to the ebook (5MB pdf):

Often the key value futurists bring is in helping executives fully acknowledge the forces of change in their industry, to the point of taking concerted action.

For example, I ran a workshop for all the partners in a large professional service firm, to frame and bring home the powerful challenges their industry and organization are facing, including the rise of workflow automation and new competitive business models based on global works.

While some in the firm understood these issues, many had simply believed that their industry would continue to function as it had before, not perceiving the need to change.

After bringing home the import of the shifts in their industry, using highly relevant examples they could relate to, we used electronic facilitation platforms where partners could use their mobile phones to offer their opinions and outlook, submit possible responses, and prioritize actions moving forward.

Further work was required after the workshop to build and implement a clear plan, but the most important outcome was in the collective shift in how the partnership thought about change and the necessity of action.

I have used many approaches to engage with a wide variety of organizations and industries, almost always with the intent of broadening the thinking of key executives.

The value from this is in enhanced strategic thinking and better actions taken to drive future success.

Specific projects can usefully pull down to an analytical approach to exploring the future of industries and the implications, however facilitating executives into thinking deeper and more usefully about the future offers probably the highest value.

George has long expressed his view that the traditional “BigLaw” model for legal services firms is under severe threat. He has just launched his latest book Remaking Law Firms to provide clear guidance on how law firms can adjust and reshape themselves for success in a rapidly changing world.

Drawing on the concept of my Newspaper Extinction Timeline, George and I collaborated to create a timeline for the changing structure of the legal services industry over the next decade and beyond across different geographies.

The full description to the legal services timeline describes in detail the mega-forces shaping the industry, the research methodology, and the outcomes.

Here are the legal services industry timelines we created for five regions, with below the charts descriptions of the types of legal services providers referenced.

Types of Legal Services Provider
Building on the taxonomy in ‘Fresh thinking on the evolving BigLaw–NewLaw taxonomy‘ (January 2015) and Remaking Law Firms (March 2016) we examined these five types of legal services provider:

1. Traditional law firms based on partnership, lawyer-centricty, leverage, and input-based pricing (known as BigLaw numbering at least 100,000 in the five regions) .
2. Remade law firms (probably better expressed as BigLaw firms in the process of being remade such as Allen & Overy and Seyfarth Shaw – both of which are featured in Remaking Law Firms).
3. NewLaw firms based on a quite different business model to BigLaw (read these posts for a deeper understanding of the range of NewLaw providers such Elevate, Conduit (recently acquired by Deloitte), and LOD).
4. Standalone automated legal services (based on information technology and artificial intelligence such as Lex Machina and KIM).
5. Legal departments rendering a wide range of legal services to their owner corporation.

For more details see the original post.

After opening with a discussion of connected work and marketplaces such as Freelancer.com and Upwork, the article goes on:

According to business consultant and futurist, Ross Dawson it’s a trend gathering pace within professional services like business consultancy, marketing strategy, IT services, even engineering and law. “Knowledge work can now be done anywhere.” he says.

It appears that this is another emerging sector where Australia is leading the way.

Sydney-based firms Expert360 and Skillsapien support two of the leading digital marketplaces for professional services, both of which Dawson sees as signalling a transition to “virtual” organisations.

“What is the role of the organisation today?” he asks. “Do they need to have offices with people sitting together? Is that the best way to source the best ideas?”

With the emergence of massive online platforms connecting millions of people it would seem not.

The article goes on to draw on my comments to look at many of the examples of how connected work is disrupting health, including CrowdMed, Doctus.com.au, and Dr Sicknote, and then closes with my comments on the impact on education, from an Australian perspective.

In the case of education, the online learning genie is out of the bottle, Dawson notes, with Australian institutions well placed to capitalise on it.

MOOCs (massive open online courses) have been around for some time with a fair degree of competition. But new opportunities are appearing in areas like professional certification, for which Australian institutions are well regarded.

“Education is and will continue to be one of Australia’s greatest exports,” Dawson says, noting that Australia’s fondness for and skills in developing digital channels will breed further opportunities in this and other knowledge-driven sectors.

Work can be done anywhere. We have reached the point where professions of all kinds will be increasingly practised remotely. While we need to ensure that potential problems are minimized, we also need to acknowledge the massive social upsides. This shift is inevitable.

I spent some time giving the partners current perspectives on both disruption and innovation in professional services, with the rest of the time spent facilitating the group in generating and prioritizing initiatives to drive the members firms’ future.

I ran through the domains in which they can enhance their business models and performance. However in professional services probably the most important domain is service delivery, in which extraordinary possibilities for innovation have opened up in the network economy.

I have just recalled that eight years ago I co-authored a white paper for SAP titled Service Delivery Innovation: Creating Client Value and Enhancing Profitability. While it is not recent, the issues I covered are still completely relevant today, so I thought I’d share a section from the white paper here:

Characteristics of Successful Service Delivery Innovation

Professional services firms that excel at service delivery innovation demonstrate six key characteristics:
• A networked organization
• Flexible workflows
• Global sourcing
• Client and supplier collaboration
• Continuous innovation
• Enabling technology

A Networked Organization

Professional services organizations are ultimately collections of people: deeply specialized professionals who bring together their expertise to create value for clients. As such, the relationships and networks that link individual professionals are at the heart of the organization. Siloed professional organizations are ineffective. Successful organizational networks rely on human capital policies and technologies that quickly and effectively locate expertise, support project teams, and encourage collaboration throughout the organization.

Flexible Workflows

Streamlined and effective workflows are a vital component of service delivery innovation within a professional services firm. However, this workflow is markedly different from the workflow required by a routine operation, such as processing an invoice for payment. Workflows within innovative professional services firms need to be readily reconfigured to adapt to different projects, situations, and emerging market needs. Workflows need to support the firm’s efforts to identify talent, create marketplaces, establish pricing mechanisms, enhance client relationships, and integrate quality assurance processes into workflows. The systems and processes in place should support the introduction of new services and products across the organization.

Global Sourcing

Both internal and external sourcing strategies are critical to the success of a global professional services firm, and work and resources need to flow across boundaries. To succeed at global sourcing, professional services firms must undertake several initiatives. First, they must consistently implement highly effective processes for identifying and applying internal talent. Secondly, firms must establish an approach for drawing on external talent as soon as required. Professional services firms must master this complex activity in order to compete in a global market influenced by low-cost labor and emerging pools of expertise. Firms need integrated workflow technologies, available collaboration spaces, appropriate organizational design, and a professional culture that supports work across borders. Firms must also adapt and mesh the work and social attitudes of its home country with the very different cultures of colleagues and clients on other continents.

Client and Supplier Collaboration

If a firm provides “black box” services – characteristic of no collaboration with clients – it will rapidly become a commoditized service provider. Professional services firms need to effectively and continuously collaborate with their clients to build greater value and lock in clients for the long term. Firms must also achieve outstanding collaboration with their talent suppliers. In a modularized economy, receiving the greatest value from external talent requires bringing them into the firm’s processes rather than contracting for work piecemeal. To enable external collaboration, professional services firms can use technology that allows remote professionals to view and participate in key business processes.

Continuous Innovation

Service delivery innovation is an ongoing process; it must be embedded into the way a professional services firm functions and develops new products and services. Some initiatives – such as implementing global processes, developing client collaboration, or creating a more networked organization – are ongoing as well. There is always room for improvement. Other strategies, such as productizing services, may evolve in stages, building on existing capabilities and firm maturity. Most importantly, everyone in the company, from the executive team on down, must continually seek better ways to deliver services.

Enabling Technology

Technology is a key enabler of service delivery innovation – as shown by the overwhelming response of 93% of the professional services firms surveyed. Each of the characteristics of service delivery innovation discussed so far requires a technology platform that is modular, flexible, and reconfigurable. In addition, this platform must integrate easily with external systems and processes to support client and supplier collaboration and to draw on global best-of-breed resources.

You can read the full white paper here.

The article opens:

Virtual firms, legal outsourcing. It’s the future, and it’s coming to your firm now. Futurist and author Ross Dawson shares his thoughts on where the legal industry is heading.

The impact of connectivity, particularly through artificial intelligence and globalisation, has meant greater choice and control in deciding how legal services are carried out. Future changes will go further – influencing the traditional model of how a firm’s services are structured and delivered, according to Ross Dawson, futurist and author of The Seven MegaTrends of Professional Services.

The article later continues by describing :

Dawson offers a range of future scenarios for the traditional law firm faced with increasing competition from this offshore legal process outsourcing (LPO). First, they can wave their business goodbye as their competitors, who offer this cheap and efficient alternative, undercut their service.

“If you are a large firm with high overheads, you can’t compete on price,” he says.

Or firms can make the most of the opportunity to specialise in their chosen area of law, leaving the process-oriented work to their competitors and the LPO service providers. The final option is to embrace this external service and offer clients ‘the lot’. Law firms can choose to draw on this cheaper LPO resource to complement the firm’s full service, one-stop shop. Firms then manage both the client’s complex and mundane work – setting the firm’s best lawyers onto the complex work and outsourcing the rest.

It goes on to delve into the issue of where and how the most talented lawyers want to work:

The element that’s critical to this amalgam is the talent. Understandably, the traditional staff model is also facing a shaky future. Young lawyers have classically accepted terrible hours and a high-pressure work environment in the hierarchical firm structure in exchange for the gains of reaching partner status. In law, it’s seen as the price you pay. The problem with the traditional model is that partner profits are dwindling due to margins being squeezed, as well as the impact of globalisation and competition.

“We are seeing an increasing flow of lawyers who don’t want to work under the traditional legal model.”

Dawson predicts that the best lawyers will increasingly choose to leave behind the hostile working environment – and join emerging virtual law firms.

That means in future, firms will need to work to fulfil both the needs of more demanding and price-driven clients, as well as appeal to a talent pool of lawyers who have more options than ever before. It augurs the end of the traditional staff model.

“There is a cycle where you need to attract the best people to charge the highest fees and attract the best clients. If you’re not able to attract people with the right pay and conditions, that cycle starts to break down. Although they have the big clients, the capabilities and the solid foundation, large law firms also have the legacy of the partnership structure, staff practices and overheads.

New industry structures will emerge including changing relationships between large and niche firms:

Dawson predicts that clients will start to shift how they purchase legal services, not necessarily depending on the large law firms as they have in the past. But he sees it as unlikely that large firms will crumble, at least in Australia.

“What we are beginning to see here is that big firms are managing to transform themselves. But we’re also seeing the rise of smaller niche legal firms that are very well positioned.”

Increasingly it’s these nimble firms that are better placed to adapt to the new paradigm. “For the clients, they’re able to provide a quality service at an attractive price.”

Social media-driven reputation will allow networks of legal expertise to emerge:

Looking further into the crystal ball, Dawson confirms the role of social media in the legal landscape.

“All professional work will be determined by personal brands and presence that are significantly driven by social media, so these are critical capabilities for any lawyer in any firm.”

Finally, the big change for lawyers will be in how legal information is accessed. Dawson says that in the future he can see clients engaging an expert or broker to complement their online search for legal information.

“You’re not hiring a lawyer, per se. You need an expert as opposed to a search engine to say, ‘This is the most relevant reference. This is the info you need to consider.’ There is now also an opportunity for access to network experts who can engage clients in conversations and communities from which lawyers and their clients can discover the best information – a fundamental shift from the database aspect that has been so much of the legal information industry to date.”