Automation of knowledge work, platforms to connect freelance knowledge workers, cost cutting at major companies and the development of internal consulting services will all put professional services firms under pressure in 2016.

Please take our short survey What skills are relevant in 2016.

There are only four real business models for professional services. Most companies lead with one and follow with one or two others.

1. I do what you do and I do it cheaper

2. I do what you do and can help you scale

3. My skills complement your skills

4. I can give you insights that will change your business

As this is written for consultants let’s put it into a 2×2 matrix.

Two of these models are under stress.

The business process outsourcing boom is on the wane. The low hanging fruit have been harvested, labor costs are rising in the major outsourcing nations and most important the most cost intensive and routine functions are being replaced by software. This is eroding demand for the “I do what you do cheaper” model that drove so much growth between 1999 and 2012. Most BPO firms are working to move up the value chain and provide consulting services. The same is true of managed services vendors. This could have been predicted of course. Price/cost based strategies generally fail to create differentiated value and without differentiated value there is not enough profit to invest in innovation and to stay ahead of the curve (this opens the question of what it means for a professional services firm to invest in innovation, a subject for a future post).

The “we help you to scale” model is also showing cracks. The main reason is that companies have gotten better and better at scaling their business without scaling their workforce. This has been problematic at a social level, it is behind the ‘jobless recovery,’ but it has been good for the bottom line and return on investment.

Buyers of professional services are well aware of these trends. They are watching (or hopefully shaping) change in their own industries. Software as a Service has made more software solving more business problems available than could be imagined ten years ago, and the pace of development has become so rapid that consultants cannot keep up. Clients are applying the same technologies as their consulting partners. Software was once a dark art (“The Pattern on a Stone” in the words of innovation luminary Danny Hillis). It is now taught to six year olds, a hobby for grandmothers, and the subject of numerous bootcamps.

At the same time, the nature of software is changing. Deep learning means that software platforms can be trained to improve constantly and adapt to users. Predictive analytics makes it possible to develop pricing models based on value provided, something many professional services companies have struggled to do (see Slack is Rewriting the Rulebook on SaaS Pricing).

Smart professional services companies are now doing three things. They are

1. Building skills that complement those of their key customers

2. Looking for new ways to provide insight

3. Investing in their own software platforms and databases

To execute on these strategies you have to be able to find complementary skills. Complementary skills are skills where the combination of the two skill sets creates greater value than either applied separately. Examples are ‘front end’ and ‘back end’ developer, ‘UX and UI,’ or ‘Market Segmentation’ and ‘Pricing Strategy.’

Many companies are not sure what the complementary skills help them add value to their clients. How do you find them?

1. Choose your three most successful projects

2. Ask what skills on your part contributed to project success

3. Ask what skills on your client’s part contributed to project success

4. Focus on the more technical skills (soft skills are critical to project success but they are not what generally leads to differentiation)

The other strategy that you can pursue is to provide unique insights to your customers, the kinds of insights that can transform their business. This is not easy. It requires deep expertise in specific fields plus a broad understanding of business. The most successful approaches to delivering this are highly skilled individuals (sometimes these people are professors at leading business schools), focused boutiques, and leading firms with the resources to invest in thought leadership.

There are ways for mid-sized companies to play. You can do this by knowing what your trace skills are. Trace skills are like trace minerals, you don’t need a lot of them but they make a big difference. They are those skills that you insert into otherwise standard projects to enhance value.

It can be hard to know what your trace skills are as they are often hidden down the list of and can be hard to distinguish from other rare skills that may be unimportant, or new, or ready to be retired.

So how do you find the trace skills that drive differentiation and can help you provide real insights to clients?

1. Take ten (or if you can thirty) typical projects

2. Rank them in order of success(Are you talking about success for you or success for the clients, to focus on client insights you have to also focus on client success not project success.)

3. Look for common skills across all projects

4. Look for the unique skills in the projects

5. See if there there unique skills that are associated with success

6. Talk to the client, see if these unique skills link to insights

7. Make sure these skills are inserted into similar projects

Our goal at TeamFit is to build a platform that will help you to identify trace skills and complementary skills so that you can build a more successful professional services business. One that helps you complement your clients and deliver the insights that will impact your business (and that they will pay well for).

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