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The strategic move for services firms

Professional and business services catch their breath and stay agile

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Multitasking of young female entrepreneur at work Professional and business services firms usually thrive on change – but maybe not this much change. The wide range of recent shifts have meant that most firms fared better or worse depending on the clients, markets and sectors they serve.

The recent impacts have varied for services in consulting, accounting, legal, architecture, engineering, real estate and other areas. For instance, commercial real estate is struggling to adjust as more companies consider a permanent shift to remote work. “That means architectural and engineering firms which serve that industry need to adjust to the shifting economic climate," said Grant Thornton Global and US Business Services Industry Leader Sean Denham.

Amidst these dynamic shifts, there are factors that services firms should consider and adjustments that firms can make to reposition themselves. At the same time, though, a firm’s leaders and board members must remain focused on profitability and long-term growth. “When organizations focus internally on the issue of the day, such as the pandemic, they tend to lose focus on other parts of the business and the strategic plan,” Denham said.

The strategic factors to consider To help keep firms focused on profitability and long-term growth while building agility and ongoing success, firms often benefit from an outside perspective on their strategy. A firm’s strategy must identify possible levers to pull, plan the best approach and navigate the related complexities and crossovers. Firms must consider strategic factors like:

Growth As markets, sectors and business models have shifted, the biggest impacts have been in the lower middle market. “The professional services firms that serve clients under $100 million in revenue have been much more affected – because some of their client base is slower to come back. When companies are tight on cash, they will postpone third-party projects and may request concessions,” Denham said. “Those impacts go all the way through the supply chain and have a major impact on all companies – but especially smaller companies.”

  • Customers
    Assess the long-term viability of your customers, analyzing their resiliency in terms of where they fall in their supply chains. Segment your customers and determine which ones to prioritize for retention and development.
  • M&A
    Now can be an opportunity to pursue inorganic growth through mergers and acquisitions, or to divest businesses deemed to be no longer strategic. As with your customer analysis, this requires an analysis of the long-term viability, resiliency and value of these businesses.

Cash management/operating expenses Professional and business services firms can often be flexible when they need to adapt. For instance, manufacturers typically have millions of dollars tied up in inventory, with constrained debt leverage covenants and limited levers that they can pull to manage their cash and expenses. Manufacturers can also be more subject to supply chain issues and other external factors. But, for services firms, the inventory is people and the product is knowledge. “Firms can look at their pipeline, forecast that demand and adjust resources or compensation as necessary,” Denham said.

However, firms must manage cash and expenses with comprehensive planning. This planning not only sets your direction but also demonstrates your resilience to lenders. “We have found that companies that walked arm-in-arm with their consultant or advisor to their lender have created much more credibility, compared to when the CFO goes solo hat-in-hand to the lender, saying ‘This is what we think our needs are,’” Denham said. “With cash management, you can say, ‘We've worked with advisors and actually done the financial scenario modeling.’ It adds that extra level of confidence.” Savvy companies and boards often ask advisors for assistance with a range of planning activities, such as:

  • Financial modeling
  • Cash reforecasting
  • Tax-related debt restructuring with banks
  • Distressed-related options
  • Deferred compensation plans for executives
  • Human capital compensation adjustments

Technology The technology for remote work and remote client services has been a critical enabler and differentiator for services firms. The firms which did not have this technology in place have struggled to adapt while also maintaining their business. Now, firms must take a fresh look at which technology solutions might be a priority for taking market share today and which initiatives they should defer for the future, such as enterprise resource planning systems or other large investments. “As businesses re-evaluate their needs, they’re asking “Is it a need or a want, and can I push that off 6, 12 or 18 months?” Denham said.

Stakeholder management and communications Change management and communication can be especially difficult in turbulent times, when firms might need to negotiate and implement changes that they have not confronted before. As services firms update their strategic plans, they can benefit from proactively managing, communicating and measuring change adoption to and by board members, leaders and employees.

The start of recovery Overall, professional and business services firms have fared better than many other sectors. The US Bureau of Labor Statistics shows that professional and business services has been the fifth highest industry for job growth.

Employment change from July

The growth in professional and business services is important, because these services can play an important role in fueling broader economic recovery.

In particular, consulting, accounting and legal firms have quickly adapted to offer resiliency services and tailor their resiliency model as the pandemic evolved. “A lot of consulting firms quickly shifted their offerings, like helping clients work with their banks, financial modeling, cash forecasting, advising on human capital and compensation considerations,” Denham said. Cash management services also paired well with resiliency, and firms can offer some of the same advice that they have considered for their own businesses. “It starts with modeling, understanding what the demand pipeline looks like and then re-forecasting,” Denham said. Companies need to ask “What does a dip in revenue mean? What are the triggers?”

Even in troubled times – or especially in troubled times – the best businesses seek perspective. “They want the best thoughts, best talent, best minds – and often, that fresh perspective and insight can come from outside the organization,” Denham said. Practical and savvy leaders are still calling upon key outside service providers. “These issues are too complex to say, ‘I have all the answers, and I'm going to take my business down this road without talking to anyone.’ You still need those advisors, to help you think through the difficult issues,” Denham said. “The best businesses are doing that.”

Contact:

Sean Denham Sean Denham
Global and US Business Services Industry Leader
T +1 215 376 6010