Disruption is today’s business ‘buzzword’ – writ ever larger by the escalating impact of technological progress.
Across literally all of industry and commerce, the work and payment environment is in continual transition – from fin-tech in the world of finance to Amazon’s march across the consumer landscape.
Professional services firms have not escaped, either; although lawyers and accountants and the like have been quietly dealing with their own form of disruption – and its impact on clients – for more than 20 years.
In this special report, The Ledge Bulletin examines the payment paradigm that is bringing change to the service providers who touch virtually all businesses.
Let’s start with Fred’s kitchen.
Fred is a cabinetmaker and quotes a completed price for every job. He arrives on site, measures up and does all his calculations relating to time, materials, the costs of a plumber and electrician, etc, and then provides a quote to the customer.
If you are the homeowner, you know what you are going to pay.
The traditional method
Higher up the business ladder, it is not how it works – billable hours are the metric … a metric which has for many years been challenging both the professional services providers and their clients.
As one managing partner of a law firm put it almost a decade ago:
“Clients have long hated the billable hour, and I understand why. The hours seem to pile up to fill the available space. The clients feel they have no control, that there is no correlation between cost and quality.”
Billable hours still remain a major feature of the payments paradigm for professional services, although firms are modernising and evolving. The Australian Financial Review’s 2016 Law Partnership Survey reported that “the majority of firms said they worked with clients and offered alternative fee arrangements if suitable.”
The purpose is two-fold: to satisfy the commercial needs of clients and to reflect the value the firms bring to the matter at hand.
American consultant Tim Williams says valuing professional services as a function of labour costs is wrong, and he was quoted recently as saying that firms must stop giving away what he calls their “magic”; their high-value, problem-solving, innovative work.
The global management consulting company, McKinsey, two years ago probed the pricing issue in an article titled: Understanding your options: Proven pricing strategies and how they work.
While the article was focused on products and retailing, McKinsey noted that disruptive pricing strategies “are often founded on a belief that more value can be unlocked for the customer and the supplier through a new model that reduces the downside or increases the upside for either party.”
McKinsey said, that from the firm’s experience, effective pricing strategies and tactics generated an increase in return on sales of between two to seven percent.
The numbers assume growing importance in today’s professional services environment.
No longer a gentleman’s game
“In the past, the work of (professional services firms) was a gentleman’s game – now it’s a blood sport,” says Professor Thomas J. DeLong of the Harvard Business School.
DeLong says the entire professional services landscape is in upheaval. Associates are harder to recruit and keep; competition for clients is increasing from boutiques below and global firms above; the clients themselves are more demanding; management time is focused on short-term issues rather than long-term strategy.
Williams says a key issue is for firms to meet the challenge of courage in persuading clients to creative pricing which more appropriately reflects their high-value expertise.
He references the example of renowned graphic designer Paula Scher in creating the logo for global bank Citigroup which was formed in 1998 by the merger of Citicorp and Travelers Group.
Meeting with executives at the time, Scher picked up a napkin and instantaneously combined elements of both companies’ logos.
Says Scher: “I solved it too fast. A lot of clients like to buy process and think they’re not getting their money’s worth. It [takes] a second, and it’s all over the world. But it’s not done in a second, it’s done in a second and 34 years.”
Scher’s 34 years of experience, that is.
To learn more about what Ledge can do for you, contact us today.