Professional services organizations operate in a wide range of industries, but they all share one common bond: they provide knowledge-based services to their clients. They include law firms that provide legal expertise, marketing agencies that develop and implement campaigns, and human resources consulting firms that provide HR support to other companies.
Like many industry sectors, professional services firms have been through some fluctuations over the last few years. The global pandemic, persistent labor shortage, high inflation rates, and rising business costs have all put new challenges and opportunities in front of these service-focused organizations.
Here are five ways professional organizations changed in 2023:
- The sector expanded. The professional services industry grew from $6.023 trillion in 2022 to $6.382 trillion in 2023. The sector is experiencing a compound annual growth rate (CAGR) of 6%, expected to continue through 2026.[1]
- Market growth created more competition. More professional service organizations entered the market, thus expanding the number of service providers clients can choose from. “From IT and engineering to accounting, financial services, and legal services, firms in every sector will have to compete for market share with new and established players,” CRM software provider Act! States.[2]
- More clients take the DIY approach. A new startup can use a design tool like Canva to make website banners, basic content can be developed using ChatGPT, and artificial intelligence (AI) is used to automate everything from customer service to data entry to accounting. “As technology makes customers more self-sufficient, they’ll need compelling reasons to hire professional services firms,” Act! points out.[3]
- A new focus on saving money. Like most industry sectors, professional services firms were impacted by inflation, high interest rates, and cost of living increases in 2023. This forced companies to cut costs and find other ways to boost their bottom lines as clients experienced cutbacks and higher business costs.
- Firms continue to invest in technology. As technology evolves and client expectations change, professional services firms are investing in more software, hardware, and applications. According to The Consulting Report, consultants use advanced analytics and digital tools to collaborate with clients and drive sustainable change. “As businesses continue to face new opportunities and obstacles, the most advanced consulting firms remain a critical resource, empowering organizations to thrive in a competitive global environment,” it says.[4]
Adopting a Digital Mindset
The future of the professional services sector will be shaped by several notable trends, including increased technology usage, clients’ ever-changing needs, and a global economy that’s becoming increasingly interconnected. These trends present opportunities and challenges for firms in a world where uncertainty has become the “new normal.”
“The pace of change is accelerating. Technology has enabled faster, more flexible service delivery—and client expectations are evolving rapidly,” PwC says, noting that those organizations that embrace digital transformation will be better positioned to uncover more creative, efficient ways to serve their clients.
The global consultancy expects that trend to continue over the next few years. “By 2025, firms that cling to old ways of working will likely have fallen by the wayside,” PwC states. “Those that adapt will be the ones that can survive.”[5]
Technology not only helps lower costs but also allows professionals to spend more time helping clients in higher-margin activities. “Investment in technology remains one of the top ways for firms in any industry to improve their productivity, especially in a competitive labor market,” says RSM US, which sees automation, AI, and data analytics as three key tech areas that professional services firms can focus on in the year ahead.
Put Your People First
Finally, because the success of any professional services firm is directly tied to its employees’ skills and experience, continued investment in—and support of—those associates will be crucial going forward. Firms should create a positive work environment, offer training and development opportunities, and provide competitive compensation and benefits.
“Consider paths to success other than the billable hour. This may mean hiring talent on a project basis or finding creative ways to work with younger talent,” RSM advises. “Younger talent doesn’t want to put in 3,000 hours of work a year, always from an office and with no opportunity for a real vacation. Appealing to them may mean breaking away from years of tradition and providing alternate paths.”[6]
For more tips and ideas for professional service businesses, visit our Solutions for Professional Services.
