In deciding where to focus the firm’s service development efforts, the skillful professional services firm will attempt to determine its relevant knowledge, how to offer this knowledge so that the marketplace deems it of value, and thus where to focus the firm’s new service development effort.
Further, the firm will make efforts to ensure that the knowledge is instu-tionalized so that the firm professionals “know where to find it.” To this end, the firm should endeavor to understand key dynamics that represent the firm’s challenge, the client’s challenge, and the firm’s response to these challenges. Three related questions arise:
1. What forces are impacting the firm’s development of new services?
2. What are client organizations experiencing and how are they
responding?
3. How will the firm respond as it relates to developing new services and products for its clients?
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The Firm’s Challenge
Professional services firms face multiple forces that drive the need for innovation in the services they offer to the marketplace. These forces include competition, market trends, regulatory changes, and rapid improvements in technology. In addition, the services firm’s clients continue to adjust their buying tendencies over time, as well as respond to their own marketplace pressures. These adjustments include: (1) the capability/desire to provide their own solutions, (2) changes in discretionary spending levels due to market economics, and (3) the extent of client deal-making or shopping around, especially as choices in services are deemed to be more widely available.
Combined, these forces lead to difficulties in retaining long-term customers that consistently buy predictable levels of professional services and pressures to create new and enhance existing services that will lead to steady streams of revenue.
The Client’s Challenge
Change is as inevitable for client organizations as it is for the professional services firm. As the new millennium dawned, noted marketing expert and the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management at Northwestern University, Philip Kotler3
identified general trends in the way companies are responding to their customers’ increasing demands. Kotler ’s analysis is shown in Exhibit 6.2.
The Firm’s Response
Professional services firms are in the sometimes unenviable and yet potentially profitable position of responding simultaneously to their own as well as their clients’ challenges. In developing a response, a firm may elect to develop its new service offerings using a mixture of reactionary, opportunistic, and forward-looking strategic approaches. These can be a function of work the firm is performing for current clients as well as work it hopes to do for clients in the future. Although described as three separate approaches, many firms find it desirable to blend the following approaches, as there are certainly valid reasons to adopt a portion of each approach.
CLIENT-BASED OPPORTUNITY. This approach views the development of
new services as a reactionary response to existing client work. Existing engagements serve as a model for new service offering development. One example is the use of existing client projects to codify best practices to support the delivery of future engagements. A second example is the use of multiple similar engagements to justify the establishment of a new service line, practice,
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TREND
FROM
TO
Reengineering
Functional departments
Process teams
Outsourcing
Internal services and goods
External if it can be done
cheaper or better
e-commerce
Brick and mortar store-fronts
Internet for products, specs,
and face-to-face
terms, prices
Benchmarking
World-class
Best practices
Alliances
Winning alone
Networks of partner firms
Partner-suppliers
Many suppliers
Fewer but more reliable
Market-centered
Product emphasis
Industry segment
Global and local
Local only
Both global and local
Decentralized
Managed from top
Local level control
Exhibit 6.2
Organizational Responses and Adjustments
or business unit. This approach has the advantage of being relatively low cost and highly successful because the service offering is field-proven and clear empirical demand exists for the service. Disadvantages include the risk that this approach is unlikely to lead the firm into innovative service areas, and there also may be issues with scalability due to firm constraints and tendencies. Furthermore, it is likely that other competing services firms will have identified the same need and will be moving to create similar service offerings, resulting in rapid competitive parity in the area.
COMPLIANCE-BASED OPPORTUNITY.
This approach views the develop-
ment of new services as an opportunistic response to client needs as these organizations strive to respond to changing regulatory, statutory, and compliance demands. Examples of these demands include financial reporting
requirements and state and federal legislation (e.g. Sarbanes-Oxley compliance, or the Year 2000 system compliance problem). This approach has the advantage that nearly all client organizations face some need for outside help especially as the compliance burden continues to grow. The disadvantage is that it can take years to get individual employees up to speed on the intrica-cies of a given industry and its associated nuances. Furthermore, there has been a proven “gold-rush” mentality for some of the larger compliance-based service initiatives, making it difficult for a firm to have its services stand out from the crowd. While this pursuit can be very profitable, it can be highly competitive as well.
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MARKET-BASED OPPORTUNITY.
This approach views service develop-
ment as a forward-looking response to anticipated market changes. In the vein of a venture capital model, the firm chooses among competing ideas and supports those ideas that are deemed most advantageous. Competing ideas, for example, may include modifying existing services to enter new industries or introducing completely new services. The advantage of this approach is that it can be growth-oriented especially if existing capabilities are included in the new service offering. The primary disadvantage is that it may become inordinately expensive especially if the firm chooses the wrong services to invest its resources. Building new service lines without market validation can be risky. Firms considering pursuit of market-based opportunities should explore ways to validate demand for the service line with potential customers prior to investing significant capital in the new offering.
The remainder of this chapter is organized into two sections. The first section provides rationale, context, and suggested processes and roles for supporting the creation of service offerings. The second section discusses the various types of intellectual property and its protection once it has been created.
Service Line/Service Offering
Creation and Development
Each firm has differing needs both for the outcomes and associated processes for new service creation. The level of process formalization is largely dependent on the intended outcomes. In keeping with general management principles, large intended outcomes tend to require more formal processes. Process formalization has two primary benefits. First, it is useful for helping ensure successful outcomes. Second, formalization may be used as evidence to assert the firm’s ownership rights over its intellectual property.
This section provides a discussion of several interrelated topics—benefits, definitions, expectations, processes, and roles. Benefits associated with formality in the service offering creation are presented followed by a distinction among three terms (service lines, service offerings, and capabilities).
Setting expectations for the firm’s service offering creation effort is then discussed. Finally, a proposed process to support the creation of new service offerings and the associated roles needed to support the creation process are discussed.
Benefits
Focusing the firm’s attention and resources on the underlying development process for the creation of new service offerings may provide some of the following benefits:
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• Improves the likelihood of successfully launching new ideas
• Formalizes and rewards the generation of and competition between
new ideas
• Reduces wasteful spending on unprofitable ideas
• Improves time-to-market response for new ideas
• Integrates new idea generation with the firm’s financial targets
• Provides a differentiating advantage as a given services market becomes more crowded and thus more competitive
The Cost of Ignoring Service Offering Development
In addition to potentially foregoing the preceding benefits, the firm that elects to underemphasize its service creation process may incur negative consequences. The application of investment dollars toward new service offerings, like all firm assets, can be an indication of a firm’s priorities, values, and outlook for the future. Even those firms that do make significant investments toward new service offerings take a risk if a structured process is not utilized. Without a consistently understood and applied process, the firm’s investment-allocation practices may be internally viewed as a form of selective favoritism between competing business units.
Defining the Terms
One of the first issues with adopting any process is the difficulty in reaching agreement on terminology. Though reaching this agreement may seem tedious and somewhat unfulfilling, it is recommended that a firm endeavoring to formalize its new service creation process make the effort to agree on the meaning of key terms. For purposes of this discussion, three terms are defined:
• Service line: A combination of multiple offerings to improve organizational efficiency in sales and delivery and demonstrate comprehensiveness of services to the marketplace.
• Service offering: The specific service that is marketed by the firm.