In my last post, I described how services businesses are being eroded by “Service-as-a-Software” Internet platforms.
It’s fairly obvious that Internet platforms will continue to infiltrate the high cost, knowledge-based Professional Services industries such as consulting, banking, investing, and law. A key factor in the disruption of Professional Services businesses is that many of these industries are based upon decades of trust – trust in confidentiality, trust in the value of opinion, and trust in the veracity of information. Professionals have spent their entire careers building this trust; it is often the cornerstone of their practice.
I believe we are in the midst of a generational shift in the way these service businesses use technology and the way people that interact with each other, and this shift is having a profound impact on the role of trust in the market. This thinking led me to the following thought:
Trust is the poor man’s analytics tool.
I’m not saying that trust is irrelevant in business (far from it), but for the past 50 years, trust has often been used in these industries as a substitute for the customer’s ability to conduct independent research and analysis. Sure, a customer would conduct their own diligence on a $100MM transaction, but how about for a $100K transaction? If the cost in time or resources to conduct one’s own research exceeded the value of the transaction, then traditional diligence was not a viable option.
This is why so many firms to date have focused on building trust in their brand, enabling customers to rely on longstanding relationships as a sort of low cost diligence. Investors’ established trust in their own ability to identify the right investment opportunities, bankers established trust in their ability to identify the right investors (and vice versa), consultants established trust in their commanding view of market and peer practices, and lawyers established trust in the value and necessity of their counsel and protection. The infamous 2010 New Yorker article “What Good is Wall Street” quoted a former banker turned blogger who explained the lack of price competition on Investment Banking fees with an old cliché, “When you need surgery, do you go to the discount surgeon or to the one you trust and know, who charges more?”
But times have changed. The Internet has opened a wide range of new data sources, and software is making it cheaper and faster than ever before to conduct analysis. Limited Partners are examining investment track records and detailed performance results; investors are researching companies online and interacting with specialists directly; corporate strategy groups are directly accessing best practices and market research to develop insights.
Conducting one’s own diligence is no longer cost prohibitive, pushing more and more service providers into a purely execution role, with commensurate impacts on market prices for those services. Firms are responding by cutting budgets and trimming costs where they can—but these measures merely buy time. At what point will they need to fundamentally reengineer their processes?
What does the future of Professional Services in an Internet-enabled world look like to you? We’d love to hear your opinions in the comments below.
Image credit: CC by Search Engine People Blog