Service offerings

Intellectual property

Exhibit 6.1 The Service Firms Creative Process

view, he believes it is the skillful worker who focuses solely on relevant knowledge. Similarly, Albert Einstein was reputed, when asked for his phone number, to have looked it up in the phone book. When asked why he did not know his own phone number, Einstein allegedly replied Why should I memorize something, when I know where to find it?

In deciding where to focus the firms 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 firms 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 firms challenge, the clients challenge, and the firms response to these challenges. Three related questions arise:

1. What forces are impacting the firms 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?

The Firms 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 firms 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 Clients 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. Kotlers analysis is shown in Exhibit 6.2.

The Firms 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,

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 development 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 intricacies 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.