Expertise Marketplace - Professional Service Firm Marketing Blog

Pricing: An Elephant in the Professional Services Room?

Kudos to RainToday for launching a study on pricing in professional services (even though it only covers U.S. firms).  Some of the things the study will cover include:

• firms that have been able to charge higher prices to see what they do differently than those with average and lower fees
• how brand recognition affects the ability of firms to charge higher prices

But for me, especially as I dive into writing my next book about erasing the silos between marketing and selling in PSFs, the really big questions are these:  How do firms go about coming up with their fees, and what's the role of pricing research? I wonder how much PSFs are doing, at the executive or practice level, to understand where the market is (clients' feelings about prices, competitors' pricing practices and oh, of course, THE ECONOMY).  Do business developers and marketers actually work together on this issue? 

The answer is, I'll bet: NOT ENOUGH.  Complete the questionnaire and please prove me wrong.

I think the findings will corroborate my own research that there's not nearly enough rigor being applied to this huge marketing and selling integration issue.  Talk about a functional disconnect:  Most PSFs' pricing policies aren't policies at all.  Prices are still set too tactically.  Many hard-working business developers are charged with the huge responsibility of morphing their firms' fee structures on the fly, and justifying their decisions later.  And there isn't enough focus on the marketplace ramifications of shifts in pricing.

Can PSFs "PSF" themselves?

Tom Peters has invented a new verb: to PSF.  I love it! 

Tom Peters has a slew of posts this week here, here, here, and especially here, about how companies can PSF themselves, essentially creating a new internal department or initiative that brings new and very unique value, and innovation to an enterprise and to the marketplace. 

Peters writes breathlessly about what's happening at Schlumberger:

As I see it, and you doubtless know my longterm, noisy bias toward the "PSF-as-center-of-value-added" (PSF = Professional Service Firm), Schlumberger is transforming itself into the biggest and most powerful "PSF" in history. Moreover, paths like this, from IBM and UPS and Best-Buy to Schlumberger, are open to many firms.

So right!  Now, can PSFs bring this same excited professional passion to transforming THEMSELVES?  Do you see this happening at your PSF?  Could you outstrip your rival if your PSF "PSFs" itself, as Peters urges?  Is your PSF doing Peters' WWPF - Work Worth Paying For?  Is your PSF "destroying organizational barriers?  ... Wholly reimagining the entire enterprise?"   

It's an exciting, yes, even thrilling, notion.  (Or do I need to switch to decaf?)

Do tell, readers and fellow bloggers: Are PSFs PSF-ing themselves?   

I'm tracking others' insights -- on Economics

Here's a roundup of some important insights I've found on others' blogs, with my remarks about why you should read their posts.  These posts are about economics, which is a terribly under-considered subject in the professional services arena.

• Knowledge Management Yesterday and Today -- Bruce MacEwen, writing in his Adam Smith Esq blog, has recently posted another gem.   His focus is on the economics of law firms, but he makes great points on the economics of any professional service firm.  This post, about knowledge management, reminds us again about the critical link between marketing and intellectual capital. If your marketing purview DOESN'T include shaping your firm's intellectual capital, or if no one else at your company is leading this effort formally, it will be increasingly hard to maintain your competitive edge.
• Take a look at the remarks of another law-firm thought leader and blogger, Gerry Riskin.  In his review of an article about the the impact of offshoring for law firms, Riskin cites "sobering information especially for those who hope that it means offshoring will just fade away sooner or later."  I've tried to raise awareness about this issue, too.  How many professional service firms are working TODAY to consider the impact that offshoring will have on their firms' future marketplace position and economic health?    

Professional services offshoring: Friend or foe?

I had lunch recently with one of my mentors, a retired Booz Allen & Hamilton partner. One of the things I like best about this man is his very direct encouragement of me, always delivered with respect and affection. In this case, his query occurred about five minutes after we'd greeted each other and exchanged news about each other's families. 

"So," he said, "how come you haven't written on your blog yet about the impact of offshoring on professional service firms?"  My immediate reaction was gratitude, for he clearly reads what I write, and also for the absolutely right-on nudge to deal with this strategically important issue.  My second reaction was "Hmmm, why have I not seen this topic being significantly discussed elsewhere?  (And it's not because I haven't been watching...)." 

First, some clarification about terms:  outsourcing (NOT what I will address here, but a topic I have addressed in previous blogs) is what a professional service firm does when it takes a piece of a non-core competency and hires outside for it.  Marketers know a good example of outsourcing is when the media relations function is implemented by an outside PR firm.  A common understanding of outsourcing also includes when a function is implemented from a remote location, such as IT services being delivered from India.  In this case, though, my friend referred to the hiring and retention of a firm's core functions to an off-shore professional. 

My friend fears that as more professional firms use this model, mostly to enhance their own profit margins, they will inevitably undermine the very core of their economic foundation, ultimately to their own detriment.  He intimated that the practice of offshoring was addictive, and that professional firms will find it impossible to go back to hiring their domestically based mainstay talent for the high prices they have paid heretofore. 

I have not heard any of my clients saying theyr're worried about offshoring.  Should they be worried?  If so, why aren't they?

I asked a few of my connections.  One friend suggested that offshoring was a big concern for professional service firm executives five years ago, but not now, because firms' initial thrall with offshoring proved not to be so workable after all, and they collectively decided not to get too far in. 

My mind is buzzing about this and other globalization trends in the professional services arena.  Is offshoring a model used a little, or a lot?  How was the decision to offshore made, and how was offshoring's impact evaluated? 

Where is your firm going with this model of implementing business?  What changes are being undertaken in order to embrace offshoring?  Does the practice of offshoring vary by industry? 

What is YOUR firm's experience with offshoring? 

Social Networking and Professional Services: an oxymoron? Part 6 of 6

Here's Part Six of my six-part conversation about professional services firms and social networking, with Microengagement’s Tim Gilchrist and Steve Fisher.

Lowe: What are your predictions for the way the professional services will or will not embrace social networking and its byproduct, social media?

Gilchrist: You have a fundamental change in the way people prefer to do business.  For example, in the legal services arena, you have LegalZoom, a semi-crowdsource entity gobbling up market share in the legal services world; what they have done is simplify the process.  [For traditional law firms] 70% of their effort is expended in selling the product, and the other 30% is in the execution.  Now, take that model and flip it upside down, and you get 99% execution and 1% sales.  and it is extremely effective.  I think that will be replicated across many, many other type of services.

Fisher: Whether it is going to be two years, five years, or ten years –leading edge firms are going to embrace this.  How quickly the rest of the firms are going to catch up, I just don't know.  The ones that do are going to have the competitive advantage.

Social Networking and Professional Services: an oxymoron? Part 5 of 6

Here’s Part Five of my six-part conversation about professional services firms and social networking, with Microengagement’s Tim Gilchrist and Steve Fisher.

Lowe: In many professions, there is almost a procurement mentality, where potential clients issue RFPs and firms respond.  Will social networking change the way professional or business-to-business services are purchased?

Fisher:  It doesn't have to change unless businesses want to be more efficient about [purchasing their professional services].  If businesses don't take advantage of [a social networking model], they are not going to be leveraging speed-to-market, flexibility and different strategic solutions.  And that is about competitive advantage.

Tomorrow: Fisher and Gilchrist make predictions about professional service firms and social networking 

Social Networking and Professional Services: an oxymoron? Part 4 of 6

Here’s Part Four of my six-part conversation about professional services firms and social networking, with Microengagement’s Tim Gilchrist and Steve Fisher.

Lowe: Professional service firms are very client-oriented.  But in order for this social networking paradigm shift to occur, it's got to be the client of the professional service firms who wants to work differently, or who wants to receive value differently.  Will the clients of law firms, accounting firms, architecture firms be willing to receive value differently; value that they collaboratively develop with their professional service providers?

Gilchrist:  Either in product development or service delivery, you have 'x' number of staff who are smart about such-and-such.  That level of experience and intelligence stays relatively the same, even as the company progresses in time.  If you engage in a social networking-like exchange of knowledge [like Microengagement's Virtual Executive Roundtable], you stand to geometrically increase the amount of knowledge you can deliver to your customer.  And, you gain the advantage of stepping outside the boundaries of the company and bringing ideas in.  That is a lot about what 'crowdsourcing' social media is.  It starts very organically, with people who are willing to exchange knowledge rather than the people who are forced into a dog and pony show.  Social networking is based on a partnership mindset; it's not anything that is staged.

Fisher: There are many different avenues today – some more focused than others – to try and access subject matter experts.  [An example of social networking could be a brainstorming session [in which a] business leader has access to four or five trusted friends or colleagues.  One perspective might be customers or consumers.  Another might be distribution channels.  Another perspective might be from an organizational development standpoint.  You could bring these people together and spend a couple of hours bouncing ideas off of them, not only getting their individual perspectives, but getting their discussion among themselves that adds value to their perspectives.  From the result of that conversation, you are a whole lot smarter about specific issues. 

Monday: Will social networking change the way professional services are purchased? 

Social Networking and Professional Services: an oxymoron? Part 3 of 6

Here’s Part Three of my six-part conversation about professional services firms and social networking, with Microengagement’s Tim Gilchrist and Steve Fisher.

Lowe: When do you think the business world is going to "get it" about social networking, and what will it take?  Do you know of any good examples of social networking from the professions?

Fisher: Whenever you have a profession that depends on that certificate on the wall that says, "I have the degree," you tend to think you know more than the customer does, and in many cases, you do.  But I think you become less sensitive at looking at customer needs. 

Gilchrist: You can see the flip side of that in consulting as well, through the Ernst & Young product called Ernie, where they are trying to get more contact with the customer and have sacrificed a great degree of control to extend the customer relationship.  Then there are all the new companies (like ourselves) where you cannibalize traditional value chains, leaving only the customer interface.  This is a very close parallel to what happened in software 15 years ago, where the value chain moves up to the customer, and everything else becomes vended out.

Tomorrow: Will professional service firms' clients want to be socially networked? 

Social Networking and Professional Services: an oxymoron? Part 2 of 6

Here’s Part Two of my six-part conversation about professional services firms and social networking, with Microengagement’s Tim Gilchrist and Steve Fisher.

Lowe: I’ve watched as professional firms are beginning to embrace blogs, podcasting or other social media techniques. Do you think these firms have embraced a strategy of social networking, or do you think they are just feeling their way?

Gilchrist: Part of the beauty of the whole movement toward social networking is that a lot of these companies are left with no choice. Look at YouTube, which sold for $1.65 Billion; you can’t ignore that. In the end, it’s a good thing. Companies that otherwise would not engage their customers at all now are having to do so. The market conversation will continue with or without them. The smart ones are going to sit down and think ahead about things that might happen, like when customers design and produce TV commercials [about their firm] and put them on the Internet. Look at the example of Microsoft’s Channel 9 and Lego: at first suing their own customers for hacking software and then embracing them and turning it into part of their production (Lego).

Lowe: When do you think the business world is going to “get it” about social networking, and what will it take?

Fisher: A lot of business-to-business companies I dealt with did not “get” even talking to their customers on a regular basis, even through just traditional media: getting on the phone or conducting a feedback survey, let alone leveraging the new social media. So the answer to the question is: it depends upon the company and how customer-oriented it is. You might find that 20-25% of companies say they are really close to their customer, and the other 75%, to varying degrees, are either not that close or don’t even bother to talk to the customers at all. It’s not in their comfort level. Inertia is a big factor.

Gilchrist: The thing I like to focus on is the new crop of kids, call them Gen Y or whatever. I refer to them as ‘natural born crowd sourcers.’ Think about just a few of the facts of their upbringing and how they think. Look at Gen-Y’ers, and contrast that to a 40-year-old. We did our homework alone. They wouldn’t know what that is. For us, ‘play’ involved getting on a bike and riding. They just jump online. So they really do approach collaboration differently. Their heroes are not the sort of brilliant misunderstood geniuses that overcame everything; their heroes are more the (famous) people who got where they are by collaboration.

Tomorrow:  Are professional service firms less sensitive to clients' needs than they could be?

Social Networking and Professional Services: an oxymoron? Part 1 of 6

Many of my readers know I publish a newsletter called The Marketplace Master™ as a companion to my book, Marketplace Masters, How Professional Service Firms Compete to Win.

The focus of my May 2007 issue was social networking -- arguably the strategic springboard for professional service firms’ embrace of social media – blogging, podcasts and other digital conversations. I figured I’d have an easy time finding firms that have considered the strategic implications of deploying digital “conversational” marketing and business development vehicles before plunging ahead.

I figured they’d have thought about how profoundly “social networking” is already changing their marketplace (actually, I believe, for the good), with the way it breaks down the barriers between the exchange of knowledge, and the way it stimulates a two-way, community-oriented conversation.

I had a devil of a time finding a professional firm that has devoted substantial thought to social networking. As I engaged in my own social networking to find the best examples I could find, I bumped into Tim Gilchrist and Stephen Fisher, co-founders of Microengagement. They had some fascinating observations that deserve some air time. Here’s Part 1 of my 6-part Q&A with them.

Lowe: My impression is that professional service firms are enormously unprepared for how social networking will shift their marketplace. Is this your experience? Why do you think this is so?

Fisher: That rings so true, based on my experience of about 12-13 years of consulting. Some of the reasons have to do with pride: “We are very smart guys and we can figure this out ourselves”. There is very much inertia against getting on board with social media and I think that is going to change over time.

Gilchrist: There is a certain hubris going on in the business world, where people in positions of control do not want to include even their own customers in the decision making process. A book I was interviewed for, The Cluetrain Manifesto, really turned me on to the power of seeing the market as a conversation (a conversation with your customers), and the power that that has. The fact is: most professional firms actually lock their customers OUT from idea / brainstorming parts of product development and service development.

Fisher: It very much is the “not invented here” mindset. The idea of calling somebody for additional expertise beyond what we had was very much an anathema to us.

Lowe: I’ve watched as professional firms are beginning to embrace blogs, podcasting or other social media techniques. Do you think these firms have embraced a strategy of social networking, or do you think they are just feeling their way?

Fisher: I think a lot of people are very overwhelmed by all the different choices. A lot of them don’t completely understand the differences between the types of social media and, from a strategy perspective, what will really fit their business, as opposed to my experience at my consulting firm years ago.  We wrote a quarterly newsletter. We put in some neat charts and graphs and wrote about timely topics. We sent them out to existing clients and we got some phone calls. Or we conducted seminars where we would invite clients to come together and share information. These were very much ‘old media’ techniques and it still does not mean they are not relevant. But this is a whole new world.

Tomorrow:  crowd-sourcing, Gen-Y'ers and how professional service firms should move with their market