The professional services sector, encompassing fields like law, accounting, and management consulting, has historically been characterized by its conservative nature, slow pace of change, and reliance on reputation and relationships. However, these industries are no longer immune to the external disruptions transforming other sectors of the economy. Technology, particularly general automation and generative AI is significantly impacting these traditionally conservative industries. Additionally, ongoing client pressure to contain costs and enhance dynamism is compelling services firms to adopt new approaches.
These powerful forces are prompting a critical question for many professional services firms: what changes lie ahead, and how will existing business models be affected? While durable dynamics like face-to-face client relationships—built on deep advisory and trust over extended periods—are likely to endure, other aspects of the traditional professional services model are facing considerable challenges.
The Erosion of the Traditional Pyramid Model
A key area of disruption centres on the traditional pyramid business model, which leverages junior staff for labour-intensive tasks and senior partners for relationship building and complex advisory work. This model’s sustainability is increasingly being questioned as technology, offshoring, and changing client expectations begin to erode the arbitrage of labour value at the junior levels.
The legal sector, for instance, offers a clear example of this shift. Historically, corporate legal departments relied solely on traditional law firms for external legal support. Today, alternative legal service providers (ALSPs) have emerged as a significant force, growing to an estimated $29 billion sector and expanding at approximately 18% annually since 2021. Both in-house counsel and even some law firms are leveraging ALSPs for routine, lower-end legal activities such as research, document review, and contract management, which ALSPs can execute faster and more cost-effectively. This directly impacts the entry-level work that traditionally allowed new associates in law, consulting, and accounting firms to build their skills.
Workflow Vulnerabilities and the Rise of Platforms
Professional services businesses have traditionally viewed their models through a client-centric lens, focusing on sector specialization or specific legal or accounting areas. However, the increasing challenge comes from specific workflows or “jobs to be done” within their economic engine, rather than solely from sector or client relationships. Routine tasks like tax advice, form preparation, or accounting analysis are particularly susceptible to disruption.
Firms that do not view themselves through the lens of workflows leave themselves vulnerable to platform providers. These platforms standardize workflows, enabling them to be scaled extensively, accumulate data, and gradually displace in-firm tasks through technology, automation, AI, or expanded labour arbitrage in lower-cost regions like the Philippines or India. This results in a significantly lower cost proposition for clients, effectively hollowing out capabilities at the firm’s lower tiers. Some smaller law firms, for example, have already begun outsourcing junior associate work to the Philippines and India due to lower rates and good quality of service.
Firms now face a strategic decision: outsource to a SaaS provider or offshore BPO, implement AI solutions like chatbots, or exit lower-value services to focus on premium offerings. Many firms are employing a combination of these strategies. However, these choices carry consequences, including data security risks and increased dependency on external capabilities when offshoring or using SaaS solutions. The commoditization of these services means clients are increasingly questioning the need for a firm to act as an intermediary, leading to more insourcing and further hollowing out the lower levels of value for professional services firms. This trend threatens the traditional engine for creating future partners, which is integral to the existing economic model.
Emerging Competition and Shifting Landscapes
Beyond automation and offshoring, competition from non-traditional areas is also impacting the professional services sector. For instance, accounting firms are increasingly venturing into legal services. KPMG U.S. Law’s recent launch in Arizona is a notable example, marking the first of the Big Four to enter the legal space in the USA. This intensifies the pricing pressure and the demand for faster delivery from clients, further compounded by accelerating automation driven by AI advancements.
While this pressure can be a tailwind for some professional services firms that advise clients on these very issues, a more significant disruption is the accruing of value from monetizing workflows to platform providers rather than to the traditional consultants, accountants, or lawyers. These platforms often boast significantly higher valuations compared to professional services firms.
In the current “co-pilot” phase, firms are utilizing technology to augment existing capabilities, enabling them to operate more efficiently or displace lower-cost labour. This shifts the leverage from people to technology, but as these utilities become commoditized and more accessible to clients, maintaining economic growth will become challenging.
The accounting sector faces additional pressures. The use of AI bots for real-time transaction auditing, for example, is making traditional manual sampling methods obsolete, leading to cheaper, faster, and more comprehensive audits. Concurrently, a decline in young people pursuing CPA credentials has created a talent crunch in accounting and audit, further driving the adoption of technology and the need for leverage in the sector. Despite a 7-8% annual growth in demand for accounting services in Australia, there is a similar deficit in supply, creating a significant talent gap. This gap allows for higher rates, providing some breathing room for firms to adapt. However, the demand for highly analytical talent, often suited for accounting, is also being met by higher-paying roles in tech firms, drawing potential CPAs away from traditional accounting careers.
Furthermore, private equity money is increasingly flowing into the U.S. accounting space, leading to the rollup of small and medium-sized firms. This investment is used to acquire smaller firms for capacity, invest in technology, and attract talent with more competitive pay packages. This marks a shift from the traditional partnership model to one influenced by private equity, which sees value in consolidating firms, automating workflows, and leveraging technology to scale operations. This gives professional services a level of scalability it historically lacked, moving beyond the linear growth tied directly to units of labour.
Lessons from Other Sectors
The marketing professional services sector has already undergone significant disruption, with its operational methods drastically different from five or ten years ago. The shift has been towards hiring specialists, often younger professionals (22-24 years old) with specific skills in digital marketing or social media, who are highly technology-enabled. While traditional marketing and PR firms still exist, they are heavily reliant on these discrete skills and the rapid velocity of technological change.
In the HR and recruiting space, while face-to-face contact remains crucial for vetting candidates, particularly for upper-tier roles, technology platforms play a significant role in providing utilities for recruiters and facilitating independent hiring. Elite recruiting firms are also diversifying into adjacent consulting services to monetize senior client relationships. This lateral movement into HR consulting, governance, and eventually broader business strategy is a logical pathway for such firms. However, the continued existence of these firms for high-stakes executive placements underscores the enduring value of human judgment in critical decisions.
A Playbook for Future Success
To navigate these disruptions, professional services firms must step back and identify higher-value activities that technology or automated solutions cannot replicate as effectively as human experts. The opportunity lies in reimagining their offerings, focusing on new activities and deliverables that create value for clients going forward.
If the bottom of the traditional pyramid model is indeed being hollowed out, firms must retreat upwards to higher value. This involves maximizing economic value from client relationships through high-end advice. However, this shift towards a “diamond” rather than a pyramid structure can erode critical leverage, impacting firm economics unless technology can replace that leverage and maintain gross rates.
Secondly, firms need to adopt a new lens for self-assessment, viewing themselves not just as a collection of clients, sectors, and domain expertise, but as a collection of workflows. Understanding and standardizing these workflows is crucial for monetizing them effectively and identifying opportunities for technology or offshoring. The challenge lies in extracting more value from these workflows, as much of this value is currently accruing to platform firms rather than the professional services firms themselves.
Thirdly, firms must focus on extracting intellectual property (IP) from their advice and workflows and transforming it into scalable utilities. This concept of creating scalable models is an area where professional services firms, despite advising others on it, often struggle internally. An example could be an engineering services firm seeking to distil the IP created from historical advice to clients into scalable offerings relevant to a broader global audience.
Finally, firms must cautiously consider diversification. This includes lateral moves, such as a top tier recruiting firm entering HR consulting or an accounting giant like KPMG venturing into law. The assumption that existing models, used for decades, will remain relevant and robust in the current market environment is a high-risk strategy.
Leading accounting firms like Deloitte and PwC are making substantial investments in technology, data sciences, and acquiring technological capabilities to differentiate themselves. This indicates that technological capability is essential for long-term success. Firms may need to compete with, or risk being consumed by, these technological advancements. Partnerships, such as traditional law firms collaborating with ALSPs to outsource lower-end work while retaining a share of the value, could be a pragmatic starting point. These significant investments by large firms will not only enable their consultants but also potentially lead to the incubation and extrapolation of new capabilities. Even smaller firms need to adopt this forward-thinking approach.
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