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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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September 7th, 2011

Professional service firms need business model innovation too.

Being a smart professional is no protection from commodity competition.

Commodity is likely the last word that attorneys, accountants, marketing agencies and other professional service providers would use to describe their services and knowledge. Their advanced degrees and personalized, professional approaches suggest just the opposite.

But professional services are becoming commoditized because clients increasingly see the outcome of a service as standard; that is, differences from one qualified service provider to the next are irrelevant to the client’s desired outcomes. And some professional services are being transformed into on-line products.

For example, QuickBooksTM and TurboTax® reduced very small companies’ use of accounting services.  With the law, we see LegalZoom.com, an Internet-based law firm that commoditized straightforward legal procedures like wills and business formations, offering them online at substantial discounts. Companies are sending attorneys Requests for Proposals (RFPs) to take a company public or arrange financing, another signal that even more legal services are being commoditized. The RFP details the desired legal services and documents, leaving far less room for the lawyer’s advice as to the resolution of a legal matter.

Debunking Commodity Market Myths

Professional service providers assume their services won’t become commodities because they’ve mistaken commoditization myths for market truths. Providers who understand why these myths are false are one step closer to retaining or building a differentiated professional practice.

Myth: You need many competitors for a price-driven commodity market to emerge.

Fact: As few as two practices meeting clients’ requirements can give rise to commodity-like, price-driven competition. In fact detailed requirement descriptions in RFPs “productize” the desired services, making price the only differentiator among qualified service providers.

Myth: Relationships keep a professional practice from becoming commoditized.

Fact: Relationships that don’t provide real benefits or cost savings won’t influence selection, unless everything else including price is comparable.

Myth: A customized service is unique by definition. Thus, it can’t become a commodity.

Fact: Customization does not preclude commoditization in professional services. Clients focus on outcomes, not on how the outcome is reached.

Any professional service is at risk of being commoditized. And with searchable information bases, much of the data mining and basic work will likely be shifted offshore or managed by software programs. Professional service providers who fail to think proactively about what might differentiate their firm’s services should be prepared to lose clients or be forced to lower prices to hold onto them.

Before you create your next marketing plan or annual strategic plan, step back and ask the following questions:

Why should clients work with you versus another firm that meets their needs? Be careful to answer this question from the client’s perspective. A business client, for example, most values business services that will increase his company’s revenue, reduce its costs or risks, increase its asset productivity, strengthen its market position, or enhance its reputation in the eyes of its customers. Your firm’s attributes create these benefits. Are your benefits stronger or unique? If not, you’re in commodity territory. Marketing agencies are increasingly being asked to prove return from the campaigns they create for clients. This trend is likely to extend to other professional service areas.

If you have a differentiated value promise, don’t rest on your laurels. What skills can you develop to make your value promise even more relevant, compelling, unique, and hard to copy? We work in a copycat economy. The commoditization process pulling down prices is the gravitational force of the economy. You must keep improving your advantages to offset its pull.

If you lack a differentiated value promise, explore problems and frustrations that clients face. What unique product or service could your organization offer that would address these challenges and greatly benefit current or potential clients? Accounting firms leverage deep experience in industry verticals to advance clients’ business strategies, not just their financial strategies.

How might you disrupt your own services to significantly decrease some or several charges to clients? Paragon Legal hires well-trained women lawyers with kids who will work at a lower fee for desired flexibility. LawPivot is a Q&A website that matches cash-sensitive start-ups with lawyers (ranked by LawPivot) willing to provide advice in exchange for strong leads.

Would a different revenue model build a higher value with key clients? Some law and accounting firms trade services for shares of start-up companies.

With these answers in hand, step back and identify your organization’s business model today and envision what you’d like it to be in the future. Then identify changes needed to move from your me-too business model to one that sets your firm apart.


3 comments to Professional service firms need business model innovation too.

  • Kay, This is a very timely post on an important topic. In my area, Internet marketing, we’ve seen all kinds of online systems sprout up that attempt to eliminate the need for an agency. For instance there are formulaic, Web-based search engine optimization tools that bloggers and webmasters can use for strategic and tactical purposes. The level of effectiveness offered by these tools varies according to the requirements of the user, but it’s up to the agency to help the user understand why it delivers a greater value – if it does. Technology is giving users (customers) greater and greater ability to do the work themselves. We find ourselves focusing more on the “work behind the work” – client strategy, long term planning, research, etc. In our world, you can’t get by with a haphazard or fuzzy value proposition. Customers have far too many alternatives.

  • Kay,
    Good message for all of us who think that we are unique. Looking at our services through client eyes may be (and is) rather humbling when we realize that although WE are unique, the outcomes we provide are too often rightly viewed as “usual.”
    Bill

  • Thanks Bill and Brad. The outside-in view is critical. Being honest about what is best done with software and what you need talented people working together to do on behalf of the client is also important. We need to be comfortable disrupting ourselves to deliver value to our clients.
    Kay Plantes´s last [type] ..Professional service firms need business model innovation too.

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