Professional Services Innovation: Customer Insight, Expertise, and Technology

Professional services innovation requires deepening your understanding of customer needs and emerging problem areas, deepening expertise, and incorporating technology and specialized tools into service delivery.

Professional Services Innovation is Enabled by Customer Insight, Expertise, and Technology

Q: We are a small professional services firm that wants to compete by out-innovating our more established competitors. What advice do you have for incorporating Lean Startup principles or other applicable methodologies to professional services innovation? What have you seen accounting, legal, management consulting, and engineering services do to innovate?

We encounter this question on a regular basis in our practice in two ways: we have helped a number of professional services firms–in particular in specialized medical services, legal services, and engineering services–innovate their offerings and service delivery models, and a number of bootstrapping startups will often start out by “keeping their technology behind their backs” and just selling the results they an achieve using it without trying to get their customers adopt it or pay for it directly. One analogy is to “sell the copies not the copier” which is in fact how Xerox was able to establish a foothold in the market. If only the team is interacting directly with the technology they can protect their customers from the sharp edges of tomorrow, for example: error messages or output that is hard to decipher, user interface or configuration options that are poorly explained, actual errors of operation that can be detected and corrected before they are presented to the customer. This can also simplify pricing in that prospects can often easily price a particular transaction or result but can find it difficult to assign a value to incorporating a new capability directly into their business.

Allocating Time Between Revenue Generation, Lead Generation, and New Service Development

Consultants in professional services firms need to allocate their time to a number of distinct activities with the three most important being billable work, lead generation, and new capability or new service development.

• Billable work generates revenue today.
• Lead generation, whether it’s by what you say, what you write, what others say about you, or getting found when and where prospects are looking, replenishes your pipeline of future business.
• Developing new capabilities and new services lays the groundwork for increased differentiation of your practice which may allow you to charge more and attract new types of clients.

When you don’t have enough billable work you have more time for lead generation activities but the impetus for innovation is to increase the value of your offer compared to competitors as an alternative to cutting fees. Where it becomes more challenging is when your firm is doing well: then investing time in some time in lead generation and new capability development comes at the expense of some fraction of billable work. The alternative is a dry period: managing this balance can be very challenging. Unlike billable work where time invested commonly leads to a predictable return both lead generation and professional services innovation efforts don’t always pay off immediately or directly.

Three Dimensions to Innovation: Customer Insight, Expertise, and Technology

You really have three axes of advance to consider to innovate:

1. Deepening understanding of customer needs and emerging problem areas: this understanding enables you to focus and differentiate your offerings whether they are fully customized services (which may or may not involve active co-creation with your customers or simply strong diagnostic skills and ongoing situational awareness), modular or configurable service offerings, or standard packages that require little interaction with customer beyond an initial diagnosis of needs or statement of requirements. Four analogies from David Maister’s “True Professionalism” (see his “Anatomy of a Consulting Firm” for a useful summary.)
   • fully customized  / low customer interaction: brain surgeon
   • fully customized / high customer interaction and co-creation of value: psychotherapist (or management consultant)
   • modular or configurable service offers with high client involvement: nurse, physical therapist
   • standard packages with little customer interaction: pharmacist (filling a prescription, although to the extent they also provide guidance on when to take, potential side effects may have client involvement)
2. Deepening expertise–human skills that drive individual and shared practice. There a “learning curve” effects–the more and more varied cases / situations / problems you see the more skilled you become provided you learn from mistakes and continue to experiment with improvements to current methods and exploring new methods. Here deliberate practice, advance preparation and rehearsal, and ongoing postmortems or after action reviews all help to speed learning. Also checklists, formalized diagnostic or fault trees, and other structured approaches to client engagement allow you to better align your efforts with the customer’s needs and to lay the groundwork for specialized tooling and automation.
3. Incorporating technology into a service offering, can be software or physical tools or equipment normally has three targets:
   • Reduce or eliminate low or non-value add labor hours currently invested in service delivery.
   • Reduce or eliminate types of errors that current methods may risk or even routinely encounter: there are benefits to attacking both frequent but low impact errors and infrequent but high severity ones. If your current service is subject to frequent high severity errors (e.g. the first two decades of aviation) then the field may be very new or lack a deep understanding of fundamentals.
   • Enable novel service offerings that manual methods cannot obtain or only duplicate at very high cost. To the extent that they obsolete existing competitive offering, they don’t require a deep understanding of customer needs. But if they involve migration into new markets (for you) or emerging markets (new for everyone) then a parallel investment in understanding customer needs normally pays high dividends.

Lean Startup and Customer Development offer tools for the first and third axes but tend to ignore the value of expertise and investing in learning curve activities. It’s my belief that a considerable amount of innovation is enabled by translating deep domain expertise that allows a service provider (or team) to navigate complex situations into tools that reduce the cognitive overhead, enabling new levels of performance by experts and better initial performance by those with some experience and novices.

Some Authors to Consider

• David Maister in particular “True Professionalism” (understanding business models and organizational structures for service firms)
• Gerald Weinberg in particular “Secrets of Consulting” (for diagnosis)
• Gary Klein “Seeing What Others Don’t” (for insight on expertise)
• Eric von Hippel “Sources of Innovation” (for co-creating value with customers, it’s more broadly applicable than service firms).

Related Blog Posts

Here are five blog post related to professional services innovation that involve software-enabled services and the evolution of service offerings to configurable/standardized products.

• Common Evolution: Service to System Integration to Product
• How Can I Maximize ROI and Minimize Risk?
• Pretotyping: Techniques for Building the Right Product
• Entrepreneurs Blend Passion and Prudent Risk Taking
• Small Wins Enable Larger Wins

Photo Credit Balance by Andy Brandon.