By Sebastian Hartmann and Madeleine Bernhardt.
Designing the next generation Workforce Ecosystem and Composability Strategy for Professional Services Firms
For most professional and B2B services firms, human capital constitutes the largest single cost driver of business activities. The current pace of change across consulting, legal, accounting services, and other professions is driving massive shifts in human capital requirements, skill transformation needs, and talent shortages. At the same time, top-tier talent is increasingly harder to recruit, develop and retain. Professional services firms are recognizing that they are not immune to the Great Resignation.
That's why more and more firms are beginning to leverage a mix of employees and contingent workers to meet their clients' needs, deliver competitive services and solutions and transform themselves. An extended workforce approach helps firms reduce fixed costs, leverage specialized skillsets for varying periods, increase capacity and individual flexibility or even innovate and grow in new markets. Building management capabilities for an extended workforce that combines internal and external resources will define the success of many professional services firms in the coming years. This article outlines some fundamental building blocks for designing a workforce ecosystem strategy and management capability.
What is driving the workforce transformation?
Like so many other industries, professional services have experienced an unprecedented acceleration of their own digital transformation throughout the pandemic or what may (hopefully soon) be called its aftermath now. The magnitude of change is best observed at the frontline: It is quickly visible in the nature and modes of operation for client and service delivery work – across firms, their workforces, and individual professionals (e.g., consultants, lawyers, tax advisors, auditors, and other experts) every day now:
Professionals collaborate with clients and colleagues virtually and remarkably well, as both sides acknowledge in recent surveys. And "many of the technologies and techniques that have been forged in the heat of the coronavirus crisis will usurp old ways of practicing when life returns to normal," says Professor Richard Susskind with an eye on the legal profession. So, the experiences and expectations of both clients and employees have not just changed – they have evolved too. Furthermore, clients' demands are increasingly digital at their core - with significant implications for service providers' business models. Let's take the consulting market as another example: Here, Gartner analysts expect more than 50% of all services delivered by 2023 to involve some form of digital asset. So, the architecture and composition of consulting services will continue not just to evolve but change at the core – the business model. In a nutshell: The pace of change across professional services will further increase in the coming months.
In order to win in this evolving and increasingly competitive landscape, professional services firms will need to develop a more adaptive, broader skilled, and very agile workforce.
So, how can firms build this next-generation workforce? How will HR management approaches and systems keep up with this change? How should CHRO and COO functions and teams transform themselves as the world defines its post-pandemic new normal?
Which factors redefine the workforce right now?
Across consulting, legal, accounting, tax, and related professional services, we can distill four major factors, which are redefining the workforce and shape the responses, strategies, and tactics over the coming 12-24 months for workforce, talent, and workplace management - and ultimately firm structures overall:
Virtual & digital delivery models are here to stay as both clients and services firms are realizing the potential in more virtual, remote, hybrid, and fully digital engagement models. After all, an overwhelming majority of companies across industries acknowledge that we will continue to see more remote and hybrid work arrangements – which must be met with similar models by the service providers. These models free firms to some degree from many capacity constraints (e.g., through improved availability of specific experts, accessibility of geographically dispersed talent, or even key players in client organizations). Virtual delivery also increases the ability to respond to changing demands and the delivery flexibility overall (according to 67% of consultants surveyed by Apadua in collaboration with EBS University), e.g., in resourcing expertise and leveraging virtual assistants and chatbots. All of this has far-reaching implications along the entire value chain of a professional services firm and its management.
Digital workplaces take center stage for professionals and clients alike. Working efficiently and effectively with an outstanding user experience across systems, geographies, clients, colleagues, and third parties is both an employee hygiene and a competitive factor in the market now, which has dramatic implications for firms' IT landscapes and tech spend. This includes the question of how digital workplaces are deployed, managed, and integrated across all elements of holistic solution delivery for a client and the workforce – both internal and external.
Contingent workforce integrations (including gig workers, subcontractors, vendors) across systems, e.g., for resource allocation, CRM, time capture, billing, policies, certifications, etc., will become a necessity in order to manage a firm in its entirety, fulfill client demands, deliver digital solutions and keep up with the pace of innovation, technological and regulatory changes and skill requirements of next-gen client solutions. "Circumstances have made remote work a basic requirement for almost all organizations, whether they planned to embrace it or not. In the future of work, CIOs will need to consider how technology can sustain a distributed workforce model that reaches beyond the restrictions of a traditional office environment and may be dispersed across geographies", says Gartner.
Next-generation business models will mature from niche to mainstream. Smarter and more digital managed services are outpacing traditional time and material models already. This includes many "X-as-a-Service" variations, too, such as BPaaS (business processes), KaaS (knowledge), or, of course, SaaS (software as a service). As a result, firms will rethink their core capabilities and focus on where they can truly differentiate themselves – and where they instead need to source capabilities intelligently. Following the mindset reflected by the "designed in California, assembled in China" -print on the back of many smartphones, the borders and self-perception of firms will evolve noticeably in the coming months.
So, in other words, "effectively managing a workforce comprising internal and external players in a way that is both aligned with an organization's strategic goals and consistent with its values is now a critical busines necessity."
"However, legacy management practices remain organized around an increasingly out-dated employee-focused view of the workforce — that it consists of a group of hired employees performing work along linear career paths to create value for their organization" (see this recent article in MIT SMR). This narrow and traditional view is likely to become not just an obstacle to innovation and growth but future-readiness and ultimately survival.
In response, we suggest a much broader definition of the workforce and resources in a professional and B2B services firm:
The workforce is defined through the whole ecosystem of both firm-internal and external resources (people, organizations, technologies), which are involved in the value creation for clients.
What are the implications of a workforce ecosystem approach?
In many ways, the ecosystem-based workforce definition is the necessary and logical counterpart of a "solution mindset", which many firms are (consciously or subconsciously) beginning to embrace and fold into their value proposition designs, processes, data, and structures. Of course, this expanded definition has many implications for how firms think about their strategy, resources and capabilities, data, technology, and even market environment in general.
While we clearly advocate this expanded view, we must also acknowledge that it creates a number of challenges, such as
the fundamental transparency about who really is working for a firm, who knows about it and, of course, manages it effectively,
the integration of third parties in firm systems (e.g., resource management, collaboration tools or entire digital workplaces, etc.),
ensuring appropriate skill levels and competencies (e.g., certifications, completed courses),
maintaining compliance (e.g., privacy, independence requirements, data management rights, certificates of competence, etc.)
or ensuring knowledge and content management lifecycles, which are crucial for the long-term success of knowledge-driven firms.
While many of these may seem daunting, they often can be addressed with existing technologies. Both smaller and specialized software vendors (e.g., Beeline, Procurence) and larger players (e.g., SAP Fieldglass) are already beginning to cater to this massive shift in thinking about a firm's resource foundations. But software alone rarely solves the underlying issues. So, …
What are the building blocks of next-gen workforce ecosystem management?
For the specific context of professional and other mainly knowledge-driven B2B services, we have identified the following critical design elements for managing the workforce, talent, and workplaces of next-generation firms:
1. Strategic business and technology alignment:
Workforce requirements, driven by awareness of the emerging competitive landscape and dynamics, will need much closer alignment with the strategic direction of the business. Certainly closer than the typical rough recruiting numbers estimate along traditional job profiles. As firms shift towards delivering holistic solutions, which are designed to involve not just employees but also third parties (technologies and alliance partners, gig workers or sub-contractors and service vendors), business and HR leaders must jointly assess and consciously use a much broader set of management levers (e.g., outsourcing, automation, training, M&A, …).
The innovation success of many firms also depends increasingly on their technology leaders' ability to orchestrate a range of technology and related service providers and vendors in particular. Managing this ecosystem of often critical "co-innovation" partners (e.g., cloud and software platforms, outsourcers, etc.) must now be incorporated in the workforce perspective – because it increasingly determines a firm's ability and capacity to deliver to clients.
So, the involvement in workforce discussions and planning of many often-separated functions such as HR, IT, Procurement, Alliance Management, leaders and managers in Service Lines, Practice Groups, and even individual Solutions or Services is necessary. These conversations must be taken to a new level of collaboration by diving deep into actual work requirements and types – and strategic scenario planning. The demanding nature of this management effort may further challenge firm structures and career paths too.
2. Ecosystem-connectivity for resource and financial management:
Resource planning and management must evolve to include external resourcing options by default (and within relevant systems). Only then will the firm orchestrate the best talent for its clients – and within the standard client engagement management procedures. This requires actionable transparency regarding contractual and financial implications as well as conflicts or compliance requirements, which need to be embedded in the decision-making process.
Furthermore, we can expect even more pronounced skills and experience profiling challenges for many firms: The database of skills or competencies must now include external parties (next to employees) – and therefore tap into a number of internal tools (e.g., time capture) and even external systems (e.g., LinkedIn or marketplaces). Again, automation is critical here to ensure up-to-date profiles when they are needed.
These ecosystem-enriched resourcing decisions and processes will echo much louder across functions like legal, risk management, and procurement too. They must now work hand in hand with HR and the business leaders to enable quick access, deployment, or phase-out of vendors, subcontractors, freelancers, etc., in line with all client, strategic, regulatory, and compliance requirements
3. Digital workplace management
To integrate third parties effectively in often highly collaborative client engagements, firms must develop more open digital workplaces, which can be deployed and managed effectively for both employees and third parties (e.g., Microsoft Teams environments). In addition, these workplaces must ensure seamless integration with the required internal service delivery systems and effective collaboration between a firm's internal employees and its external parties.
Clear governance, security, and compliance controls for accessing and using delivery systems must be integral to such a digital workplace strategy. Collaboration platforms such as Microsoft Teams, which has fortunately been designed for this, may need to be further enhanced and tailored to the needs of professional services firms through appropriate customizations or add-ons, like Repstor.
Last but not least, the emerging workplace and its key tools must be used and understood on commonly agreed digital collaboration principles – including the most senior leaders of the organization. They often feel less inclined to use a Microsoft Teams chat or channel post to discuss something asynchronously and often more openly with colleagues. The necessity to adapt organizational norms, work styles, principles and individual ways of working to a natively digital workplace should not be underestimated.
4. Embedded content lifecycle automation:
With more of the work taking place within collaboration platforms and digital tools, the mission for knowledge and content management within a B2B or professional management within a B2B or professional services firm has fundamentally changed: Formerly separate and often delayed or dispersed content management activities (e.g., document collection, sanitation, etc.) are naturally and automatically becoming integrated into the client-facing business processes. Driven by maturing collaboration and cloud platform adoptions as well as more intelligent ECM automation, this has long been underway. But the integration of third parties into this picture is now acting as an additional catalyst to enable organizational learning or ensuring complete data and content editing audit trails and compliance – all of which are critically important, especially for more regulated services (e.g., accounting/audit, tax, and legal services).
Last but not least, "robot advisors and colleagues" are also becoming a part of this workforce and content lifecycle equation. Gartner expects virtual assistants and chatbots to be present in all major business applications by 2025 – which will increasingly mean that these bots trigger services from the client-side (e.g., a difficult question to a tax advisor for a specific transaction) or even replace the professional altogether (e.g., for composing a standard NDA). In most cases, though, these virtual assistants will augment professionals and their services: Gartner predicts that by 2025, 50% of knowledge workers will use a virtual assistant daily, up from 2% in 2019. So, designing the resulting content-sensitive workflows across multiple interaction points with different chatbots, passing context and history from one bot to the next, or into human interactions will be a significant focus for ECM teams and enterprise architects in knowledge-driven firms.
5. Learning platforms and integration:
As the pandemic catapulted the world into the digital workplace transformation, something fundamental also changed for professionals: Learning. Learning by observing senior colleagues interacting with clients and teams or looking over the shoulder of colleagues, who work their magic in tools like PowerBI, etc., became impossible from one day to the next. However, steep learning curves are both a prerequisite to the traditional business model and a beloved characteristic of the professional services industry. But in a more virtual setting that even spans the firm's boundaries to include external experts, learning and development must now become embedded in digital business processes and workplaces too. This will undoubtedly change how the learning content is delivered and how learning journeys take shape, how progress or certifications are being tracked and maintained, and how firm-specific cultures and behaviors are formed.
Leveraging and integrating third-party learning platforms and content (e.g., by providers such as Coursera, EdX, or traditional universities) and certifications is a crucial ingredient and lever for the success of a more distributed and open workforce concept. External participants are easier to integrate (independent from their current status at the firm) when working with external learning providers, who can also ensure certification requirements and maintenance. Also, taking a certified course from a university is often valued much more by employees today than participating in an internal firm-specific course. Externally verified learning credentials can also be showcased on employees’ LinkedIn profiles and even improve the profile of the firm itself: Professional services sourcing platforms, like Apadua, already base their firm and demand-fit search algorithms on the social media profiles of firm’s employees – which in turn drive the credibility of the firm for specific client projects.
Last but not least, learning and development opportunities drive ecosystem gravity like nothing else: 76% of generation Z employees believe that learning is the key to professional success. In 2020 they had also spent about 50% more time on learning than in 2019, according to LinkedIn's 2021 Workplace Learning Report.
6. Designing composable solutions (services, products):
A growing share of firms has begun to embrace the term "solutions" to describe their offerings or value propositions. While it often has a connotation of some digital technology component to it, this does not have to be the case – and is not even the most important aspect of it: More importantly, the term "solution" represents a fundamental paradigm shift of the professions. It shows that the expertise of a professional in a specific area (e.g., labor law, process optimization, etc.) is not "the product." Instead, professional services must be about solving clients' problems and often their most pressing challenges. This naturally implies a decomposition of the service into methods, insights, and technologies, underpinned by internal and external capabilities coming together in a managed delivery process – targeted at clearly defined outcomes for clients.
Next-generation solutions are therefore more composable – and architected by consciously including and leveraging external capabilities too. This much more open and design-thinking-based mindset naturally opens up the firm. It will continue to drive hybrid and virtual delivery modes and technology-based augmentations, expansions, or enrichments (e.g., with citizen development capabilities) as a logical consequence. The management challenge will be to integrate diverse workforce and capability compositions, which are coming into play along the value chain – including seamless experiences for clients, employees, and involved third parties alike. Building strong Enterprise Architecture capabilities as a foundation will likely be mission-critical for many firms too.
7. Performance and incentive mechanisms:
Embracing an ecosystem-based workforce mindset for the firm will have to include adjustments to most firms' incentive schemes and performance review and development mechanisms. For example, feedback should not just be gathered from clients and superiors. It must include peers and entire teams as well as the involved third parties (freelancers, sub-contractors) to create the necessary performance and improvement insights. Probably even more important must be the removal of any hurdles, which prioritize a firm's internal resources over external ones. After all, success in the market will be determined by a firm's ability to orchestrate the best ecosystem capabilities for clients' satisfaction, experiences, and impact or value-add – not by the utilization statistics of its internal professionals.
In many firms, this will have far-reaching implications for the management reporting approach and systems – and therefore, the firm's regular operational and strategic steering input. A future-proof management reporting brings several dimensions into one cohesive picture: Clients, Engagements, Solutions, Technology, Capabilities, and the Ecosystem.
8. Rethinking resource relationship lifecycles and firm structures:
Expanding the firm's HR views beyond recruitment, development, and retention towards building, maintaining, and evolving relationships over longer periods is another more culture-centric consequence of the ecosystem workforce. In practice, this is about creating, nurturing, and systematically leveraging relationships with organizations and even individuals. For example, they may start as graduates, become employees, and then become freelancers (with more flexibility to accommodate different life choices or circumstances). Later they may become clients, who also turn into alliance partners – only to return as seasoned employees or freelancers once again. Such scenarios must be the norm and a standard chapter in the organization’s HR and ecosystem management playbook.
From a leadership angle, this represents a dramatic paradigm shift. It is about rethinking the firm as an ecosystem platform that facilitates success for all internal and external participants. This much more open-system design mindset for firm structures will likely gain more traction through the spreading concepts of "microservices" and "APIs". These concepts are typically used in a technology context. APIs are programming interfaces between technical systems. Microservices are an architectural style that structures an application as a collection of more loosely coupled services, which are independently deployable, and thus often owned by different teams or individuals. Microservice architectures enable the rapid, frequent, and reliable delivery and continuous evolution of large, complex applications. As these concepts gain traction in technology, they start to echo in organizational structures: Microservices and APIs can now be seen as emerging organizational design approaches, which can lower complexities, costs and improve the flexibility and adaptability of the firm.
In sum, these are only a few exemplary management responses and levers for leveraging an ecosystem approach to the workforce of professional services firms. But they highlight the potential and the wider implications for managing professional services firms in the years to come. It is imperative that managers and leaders across consulting, accounting, tax, or legal start to tackle these implications of „The Great Resignation“ and the rising war for talent, which is also fueled by recruiting competition from many other industries and a generational shift in worker demands.
Preview – Leadership challenges for executives who want to further leverage the current workforce transformation for organizational success
If we assume that professional services firms will need to develop a more adaptive and agile workforce, what will be the essential leadership implications?
In our upcoming article on challenges and requirements for strategic leadership in the frame of workforce ecosystems, we seek to answer some of the following pressing questions for executives and top leadership teams in professional service firms:
How can leaders develop a more holistic leadership approach to fully leverage the power of the new workforce ecosystem?
What mindsets and skills will leaders need to cultivate in order to lead their organization's transformation?
How will leaders create and maintain adaptive cultures [1] within the ecosystem which foster learning, knowledge sharing, and teamwork across internal and external boundaries?
How can leaders ensure alignment of the new culture and the company's strategy?
How can leaders empower employees to fully embrace collaboration beyond the internal cosmos of their firm?
How can leaders support the creation of psychological safety and trust within the whole ecosystem as a basis for high performance in (ever-changing) teams?
How will leaders design a next-level “learning organization” [2] that will be sufficiently permeable and dynamic to adapt to the increasing speed of change?
Our next article will explore these and further questions and their implications for the strategic leadership of professional service firms that strive to design their next-generation Workforce Ecosystem.
Notes:
[1] Stanford Business Insights: Charles O’Reilly (2014). Finding a Corporate Culture that Drives Growth – Adaptive cultures minimize predictability and encourage innovation. “Adaptive” cultures are those that encourage: Risk-taking, A willingness to experiment, Innovation, Personal initiative, Fast decision-making and execution, Ability to spot unique opportunities“. URL: https://www.gsb.stanford.edu/insights/charles-oreilly-finding-corporate-culture-drives-growth
[2] Reese, S. (2020). Taking the learning organization mainstream and beyond the organizational level: An interview with Peter Senge. In: The Learning Organization, Vol. 27 No. 1, pp. 6-16.
About the Authors
Sebastian Hartmann oversees KPMG’s global technology strategy and also leads the portfolio and investment steering team for KPMG International. Aside from his leadership and management roles, he advises leading technology companies and professional services firms (legal, engineering, consulting, accounting) on strategic management, innovation, ecosystem and operations challenges. Hartmann holds a master degree in service management, system information science, and international management from the Catholic University of Eichstätt-Ingolstadt.
Prof. Dr. jur. Madeleine Bernhardt, LL.M. is a lawyer, psychologist and certified Business Coach. She is the founder of Deep Human Science (www.deephumanscience.de), a consultancy that focuses on taking leadership in professional service firms to the next level. She is Director Strategic Leadership Development and member of the Executive Faculty of the Bucerius Center on the Legal Profession (Hamburg). Madeleine Bernhardt regularly conducts leadership development programs for professional service firms and consults to international law firm partners on the strategic development of leadership.