Professional services organizations deliver specialty services including consulting, research, legal, accounting, and other professional, scientific, and technical functions. They range from large enterprises to small and medium firms.
Over the last few years, the COVID-19 pandemic, which restricted travel and the ability to visit and work with clients, negatively impacted the market for professional services. Today, however, the global professional services market is in the midst of a rebound, hitting $6.8 billion in overall revenue in 2022, a growth rate of 6%, and is expected to reach $7.8 billion by 2027.
Despite the projected growth, there are looming challenges common to virtually all professional services organizations. At the center of managing through them is the CFO, who’s being asked to build and drive a strategic growth agenda supported by technology and data. In this analysis, I’ll lay out why these organizations increasingly look to their CFO to navigate their most pressing challenges.
Obstacles to Professional Services Growth
Professional services organizations face several barriers to growth and success. Given the people-centric nature of the business, profitable scale has been difficult to achieve. In addition, these firms, perhaps uniquely among industries, are often helping customers manage through digital transformations at the same time their businesses are going through digital transformations of their own.
Some of the other big challenges these organizations confront are:
- Attracting and Retaining Top Talent: They rely on their people to deliver services, so attracting and retaining the right employees is essential. This can be a challenge, however, as many professional services organizations are organized as limited liability partnerships (LLPs) which, while lucrative for partners, can be problematic when it comes to attracting and retaining younger talent who may feel that the path to partnership is simply too long. There is also the legacy concern of burnout due to what can be significant travel and long hours. Young employees can also be recruited by customers, exacerbating the challenge of attracting and retaining talent.
- Maintaining Profitability: They are often project-based businesses; managing project margins and ensuring that resources are utilized effectively can be difficult.
- Managing Client Expectations: Professional services organizations often work on complex projects with multiple stakeholders, where managing client expectations can be difficult, especially when projects are subject to change.
- Balancing Growth and Quality: As the organizations grow, maintaining quality can be a challenge, as it can be difficult to scale processes and systems that support growth.
- Keeping Up with Changing Market Conditions: Professional services organizations must stay current with industry trends and technology to remain competitive, which is more difficult in a rapidly changing market. As an example, many professional services organizations have developed practices that specialize in using technology to solve a customer’s problem or help with a complicated technology implementation. Larger and specialized organizations offer advanced technology services from artificial intelligence (AI) to cloud, cybersecurity, IoT (Internet of Things), 5G, edge computing and crypto technologies.
Why The CFO Role Is So Strategic
Digital transformation is impacting every industry and every job function, perhaps none more so than professional services organizations and their chief financial officers (CFOs). Long considered financial gatekeepers, CFOs have ensured financial figures were accurate and company finances in strong condition. Today, that role is expanding: CFOs need to operate as strategic partners for professional services organizations, with a focus on growth and scale. This shift is being driven by several factors:
- Increased Importance of Financial Management: As organizations grow, the need for sound financial management increases. They require CFOs that have a strong understanding of the industry and the ability to navigate complex financial scenarios.
- Greater Involvement in Business Strategy: CFOs are increasingly seen as key players in developing and executing business strategy. They bring a unique perspective to the table, with expertise in financial management and analysis that can help organizations make better decisions regarding resource deployment to drive strategy.
- Increased Focus on Data and Technology: The rise of data analytics and technology has made it possible for CFOs to gain a more complete, accurate, and real-time understanding of their organization’s financial performance. This data-driven approach to financial management allows CFOs to make far more informed, timely, and strategic decisions.
- Need for Cost Control and Profitability: In a competitive industry like professional services, it’s essential for organizations to focus on controlling costs and maximizing profitability. The CFO plays a critical role by helping to identify cost-saving opportunities and ensuring that the organization operates as efficiently as possible.
The growing importance of financial management and strategic decision-making in professional services organizations is making the CFO role even more vital than it has historically been. As professional services organizations look to stay competitive and achieve their financial goals, CFOs will continue to assume expanded responsibility in driving their success.
Want more tech insights for the top execs? Visit the Leadership channel: