How large professional service firms are shifting to networked services and open innovation

I recently ran a workshop on the future of business at the strategy offsite of one of the world’s largest professional services firm.

During the evening I had a very interesting conversation with one of the regional directors about how professional service firms are tapping external networks.

For over a decade I have written and spoken about the rise of networked professional services, looking at the trend for independent professionals to collaborate in order to compete with large firms. As I wrote in Chapter 9 of Living Networks:

Professional networks, although hardly a new phenomenon, are rapidly rising in importance. Their evolution is being driven by both the new ways of working enabled by connectivity, and the swift shift to professionals working as free agents. Corporate clients are increasingly happy to consider independent professionals as service providers, and in some cases actually prefer effective professional networks to expensive global firms with cookie-cutter approaches. The bottom-line is that for many types of business, professional networks are increasingly viable competitors to large, established firms. This is already apparent, but will become more obvious in coming years.

There are a variety of different models for these professional networks, from ad-hoc project teams through to a new breed of virtualized professional firms such as Axiom Legal.

Now it seems that large firms are learning to do the same thing. Perhaps most obviously, we are now routinely seeing collaboration between the big 4 audit firms and the top-tier strategy firms on client projects, where they recognize complementary capabilities. However there are now far more diverse external networks being formed to win clients and perform work, with research institutions, design firms, and even individuals being brought in as client delivery networks.

Just as massive firms such as IBM, Procter & Gamble, and Boeing have realized they must go outside to tap the best expertise, large professional firms are realizing they too must learn the licks of open innovation.

Not surprisingly there are cultural challenges. The way this is working is through internal innovators pushing through specific collaborations to drive value, and letting the results speak for themselves. Change will be gradual, but is happening.

There are a number of implications. One is that, if they do this well, large firms will be less threatened by the highly dynamics professional networks that are forming, though they certainly will remain a significant element of the professional landscape. Another is that large firms need to shift both culture and processes to become better at external networks. While many large firms have for some time adopted the rhetoric of external networks, they have a long way to go relative to some of their peers in other industries.

The point is, it is the most interesting, attractive, high-margin work that spans boundaries and requires a network approach. Firms large and small can comfortably do process work internally, but to get the ground-breaking work they must learn to use open innovation and build external networks into the core of how they work.