by Maureen Broderick

“There’s no question that an important part of the equation for leading a professional service firm is the ability to ignite and then sustain innovation. It’s a key fundamental business process – easy to talk about and really hard to do.”   Jim Quigley, former CEO, Deloitte Touche Tohmatsu Limited

Developing and managing the service mix is challenging for many professional service firms. Even in the most sophisticated firms, service portfolio management is often a reactive rather than a proactive strategic priority. Few firms review their current service portfolios regularly, and even fewer have processes in place to capture, select, and commercialize innovative new offerings.

And, of course, change is difficult. Professionals, like all human beings, are often reluctant to change how they do things. Services and methodologies become entrenched, and even with compelling market reasons to upgrade or exit current approaches and offerings, it can be a painful process to convince people to do things differently. Rocking the service boat can be dangerous; a firm runs the risk of losing highly skilled performers who have an “I’ll do it my way” mentality.

So, how do you do it? In the course of interviewing leaders of professional service firms for the “The Art of Managing Professional Services  ”  , a comprehensive, research-based new book on firm management, a number of common best practices for effective service management and innovation emerged:

• Strategically plan and manage the service portfolio. The best firms incorporate service strategy into both their long-term and annual planning cycles. The portfolio is regularly reviewed and analyzed to assess market relevance, identify gaps, and purge nonproductive services. Criteria are clearly established that provide the rationale for making tough decisions to jettison offerings that are not profitable or that are of marginal value to the marketplace.
• Establish and follow a protocol for innovation. The firms that excel in this area have a well articulated and communicated process for stimulating, capturing, selecting, and transforming the best ideas into market offerings.
• Validate offerings with the market. Astute firms talk to clients and prospective clients to test and validate current services, identify gaps, and uncover ideas for new services. Some firms integrate clients into the service innovation process to provide advice and direction on development and to test, debug, and validate a new offering.
• Assign ownership and accountability. Like any other important activity with bottom-line impact, successful service management requires ownership and accountability. Responsibility for keeping current offerings fresh and generating potential new service offerings must be clearly defined.
   

Innovation and the service strategy cycle

“There are probably 20 client meetings and valuable discussions happening right this minute in this building alone which could positively impact our current service offerings.”

Successfully managing service development and renewal is a continuous cycle of activities. The process begins with a portfolio review to identify gaps and retire services that are no longer relevant. It continues with ideation, the often-complex task of stimulating and capturing new ideas. Then comes selecting the best candidates for development. And finally, ideas are transformed into viable service offerings, the professionals are trained on delivery, and the services are launched. Gathering and sharing knowledge and client experiences is integral to the ongoing success of a service strategy. Each step of the cycle is important in creating a consistent engine of innovation.

Professional service firms deploy three basic approaches to service innovation. They can build it themselves by incubating and developing new ideas internally. They can acquire it by buying or merging with businesses or practice groups that bring new or complementary experience and knowledge. Or they can redesign, repackage, or bundle current services to create a “new” service or deliverable.

Stimulating smart, ambitious professionals to think creatively about what they do and how they do it would seem like an easy task for firm management. Yet the leaders we interviewed agree that there is definitely an art and science to innovation and that it is, in fact, not easy. Most firms choose to develop services through a variety of formal and informal internal vehicles. The firms that do this best deploy a combination of cultural reinforcement and an appropriate amount of structure and process. It is extremely important to create a culture that supports exploration and rewards and recognizes good ideas. But without a well-defined process to capture and nurture ideas and manage the development process, a tremendous amount of value can be left on the table. As Lem Lasher, Chief Innovation Officer at consulting firm CSC, says, “The best approach is to assume that professionals are creative by nature. They want to innovate and do new things, and it’s our job to create the ecosystem – the governance, the leadership, the structure, and the process to support and nurture a culture of innovation.”

Select the best ideas, and take them to market

“The challenge is capturing the ideas, selecting those that have applicability to broad populations of clients, and then driving the investment and development process.”

The approaches that firms pursue to select the best new ideas vary widely by culture, size, and organizational style and range from a “gut decision” to a formal committee review and analysis. Arguably the most difficult step in the innovation process – and the one that leaders struggle with the most – is translating ideas into action.

Based on our interviews, a ten-step strategy for moving from concept to commercialization has been identified:

• Develop criteria for service viability. The first hurdle for a potential new service offering is to satisfy a predetermined set of criteria for applicability, marketability, and profitability. In the applicability arena, key questions typically include the following: How big an idea is this? Does it have cross-practice potential? Can it go global? Does it meet a compelling and substantial client need? Does it have enduring value from a service perspective?

  In terms of marketability, key questions are likely to include the following: Does this idea have potential for enhancing our brand and reputation as a thought leader? Is it easy to sell both internally and to clients? Will it be a major differentiator from a competitive standpoint? Can we get it into the marketplace quickly and efficiently enough to make it worth the investment of time and energy required? Does it have breakthrough, best-practice, performance-boosting potential?

  From a profitability standpoint, a baseline ROI analysis generally is conducted that objectively reviews direct development expenses, top-line revenue projections, gross margin, and other financial performance metrics. If an idea is given the green light for development, results are carefully tracked and measured against projections.

• Build a business case for potential service. After an idea is vetted for service viability, most firms construct a business case to sell it to a review committee or top management group. The business case may be extremely detailed or a concise four-to-five-page proposal. Whatever form it takes, generally the business case covers the service viability considerations just outlined and includes a development timeline and ramp-up requirements.

  To drive innovation within the firm, Booz Allen Hamilton created a formal service campaign program. When senior leaders in the market surface new service areas that they think will be big opportunities, they can garner investment dollars from the leadership team if they put together a good business case to justify the investment. To do so, they must spend time thinking about methodologies, people requirements, and projections for growth. Campaigns have a two- or three-year lifetime. The campaign either grows up and becomes an embedded service offering, or it becomes what Booz Allen calls a sunset: It makes a splash, but the result doesn’t rise to the level of refreshing the firm’s core service offerings. Partners are highly motivated to build a successful business, which can mean promotion within the partner rank.

• Select the best ideas. The management team responsible for the selection chooses the ideas that best meet the firm’s criteria for viability, timing, budget, and resources.
• Test-market for receptivity. At this stage, firms with well-developed innovation programs move from internal to external review. This may involve a range of activities: brainstorming with clients, submitting service concepts to a client advisory board, consulting with independent experts, researching the competitive landscape, and evaluating potential market use.
• Establish benchmarks for the launch plan. After the business case has been presented and the development process approved, the next step involves determining a time frame and project milestones. The time frame from planning to launch can extend anywhere from a matter of months to three years, with clearly defined benchmarks to measure progress along the way.
• Pilot service offering. As with any standard product or service, the next step generally involves testing with a limited number of client implementations and then rigorously evaluating the road test results. In most cases the original service viability criteria are revisited.
• Refine and blueprint offering. When the testing process is complete, the next step is to fine-tune the offering and map it fully, with an eye toward market introduction. At this stage, a marketing plan for communicating the new offering and its client benefits is developed. If the offering has brand enhancement and/or thought leadership potential, promoting these assets will be integral to the marketing communications mix.
• Train teams. As part of their go-to-market strategy, the best programs make sure that internal support and expertise are fully mobilized to give the new service offering the best possible chance for a successful market introduction. Practice leaders and their teams are fully briefed on the offering, instructed in effective service delivery, and given the communication tools they need to promote it to their client base.
• Launch. If all the other pieces are in place, the launch stage should unfold smoothly. In some cases the launch may involve introducing the service on a limited basis and then rolling it out nationally or globally. A strong marketing communications strategy and its aggressive implementation are critical for maximizing market impact.
• Monitor and refresh. The service is tracked and reviewed on a regular basis to continuously test its market acceptance and financial performance against plan. Clients are interviewed on the offering pros and cons, and adjustments are made as appropriate.

Maureen Broderick is founder and CEO of Broderick & Company (www.broderickco.com), a consulting firm specializing in strategy, training, and research for professional services. Her new book, The Art of Managing Professional Services: Insights from Leaders of the World’s Top Firms (www.theartofmanagingprofessionalservices.com), was published in November 2010 by Wharton School Publishing.