Professional service firms face an uncomfortable strategic reality. The economics of traditional compliance work are changing. AI and automation will allow firms to perform more work with fewer people. Routine activities that historically consumed thousands of professional billable hours will increasingly be performed by technology. Clients will expect faster service, greater insight and potentially lower prices for work they increasingly perceive as automated. The immediate response is obvious:
Become more efficient.
Automate processes.
Increase professional leverage.
Reduce headcount. Protect margins.
Those actions may be necessary. However, they raise a much bigger question:
What exactly are you trying to become?
There is an enormous difference between using technology to build the next generation of your firm and using technology to manage the gradual decline of the existing business model.
You Can Cut Your Way to Flatline Margins. You Cannot Cut Your Way to a Better Business.
Imagine a firm that becomes 10% more productive every year. That sounds terrific. But if most of that productivity is used to eliminate positions while revenue remains relatively stagnant, the firm isn't necessarily becoming more valuable. It may simply be becoming smaller and more efficient. A vicious cycle occurs.
Year One: automate and reduce headcount. Year Two: automate more and reduce headcount again. Year Three: repeat. Margins may temporarily improve. Eventually there is an uncomfortable question:
Where does the growth come from?
More importantly:
What replaces the economic value of the work technology is eliminating?
For many firms, the answer is supposed to be advisory. That's easy to say. It's considerably harder to build.
The Advisory Problem Nobody Likes to Discuss
Most professional firms weren't designed to create enterprise value for their clients.
They were organized around specialties.
Tax.
Audit.
Accounting.
Legal.
Wealth management.
Technology.
Transactions.
Consulting.
Each specialty may contain outstanding professionals. However, having excellent specialists is not the same as having a system for creating enterprise value. That requires the ability to look across the entire business and determine:
What is constraining growth?
Which organizational capabilities are missing?
Where is risk suppressing value?
Which strategic and operating assets need strengthening?
What interventions would produce the greatest economic return?
Which specialists are required?
What should happen first?
How do we measure whether the intervention worked?
And ultimately:
Did we make the business more valuable?
That is a very different advisory capability.
Building it creates a difficult strategic problem.
The Three Traditional Choices Aren't Particularly Attractive
A firm can build an advisory practice internally.
Hire people. Develop methodologies. Build technology. Train partners. Recruit specialists. Create services. Develop delivery processes. Experiment with pricing. Learn how to sell the work.
Then wait. It could easily take three years or longer before those pieces mature into a functioning multi-specialty advisory business. Those three years matter.
Every year spent building is another year competitors are learning, clients are developing relationships elsewhere and technology is changing the economics of the traditional practice.
Delay itself has become a strategic risk.
There is also a financial and psychological problem.
It is difficult to patiently invest in building a new business while margins in the existing business are under pressure.
When profitability disappoints, long-term investment suddenly becomes discretionary.
Management starts asking:
How much have we spent?
Where is the revenue?
When will we see a return?
The temptation to slow the investment becomes enormous.
The second alternative is to buy the capability.
Acquire an advisory firm.
Acquire a consulting business.
Acquire a team.
This can accelerate capability development, but now the firm accepts a different collection of risks.
Purchase price.
Retention.
Culture.
Compensation.
Integration.
Client migration.
Methodology integration.
And the possibility that what looked like a sophisticated advisory practice was actually several talented individuals generating revenue independently.
At exactly the moment traditional practice economics are becoming less predictable, the firm may be placing one of its largest strategic bets.
The third alternative is to refer the work elsewhere.
This is financially safer.
The firm does not get much out of it.
The outside advisor develops the expertise.
The outside advisor earns most of the money.
The outside advisor develops the strategic relationship.
And your firm remains the organization performing the compliance work.
You may eventually discover that you introduced another advisor into your most valuable client relationships precisely when those relationships were becoming more important.
There Is a Fourth Path
What if you didn't have to spend the next three years building the enterprise-value creation system?
What if the system were already built?
Then the objective changes.
Instead of spending three years inventing methodologies, assembling tools, developing intellectual property and figuring out how the pieces fit together, you spend those three years doing something far more valuable:
Building the capabilities of your people to operate the system.
That is the idea behind the STAR Capability Transfer System.
And it fundamentally changes the economics and risk of building an advisory practice.
Year One: Earn While You Learn
We begin with real clients.
Your firm maintains the client relationship.
Your professionals participate in every engagement.
STAR provides the enterprise-value creation system and much of the initial multidisciplinary capability required to deliver it.
We lead.
Your people work beside us.
And your firm earns money from the engagements.
That last point is important.
Instead of spending Year One investing in a business you hope will eventually produce revenue, revenue begins while capability is still being developed.
Your professionals learn enterprise-value advisory by practicing enterprise-value advisory.
Not simulations.
Not seminars.
Not certifications disconnected from actual client problems.
Real companies.
Real owners.
Real decisions.
Real results.
Year Two: Take the Controls
As your professionals develop demonstrated capability, responsibility begins shifting.
They lead more of the client discussions.
They conduct more of the analysis.
They manage more of the interventions.
They coordinate specialists.
They oversee implementation.
We increasingly move from doing the work to supporting, coaching and providing expertise where required.
And as your contribution increases, your share of the economics increases with it.
Capability and economics migrate together.
Year Three: Own the Practice
By Year Three, the objective is clear:
Your people lead.
The firm manages the advisory relationship, leads engagements, orchestrates specialists and drives the enterprise-value creation process.
STAR remains underneath the practice as the system, technology, intellectual property, AI, benchmarking, advanced expertise and specialty infrastructure.
But your firm increasingly owns the delivery capability.
At the end of three years, you haven't purchased a collection of consultants.
You haven't referred your strategic relationships away.
And you haven't spent three years experimenting with how to build an advisory business.
You have created a new business inside your existing firm.
A business with trained professionals.
Experienced engagement leaders.
Established clients.
Recurring advisory revenue.
Multi-specialty capabilities.
Repeatable delivery systems.
And the ability to help business owners answer one of the most important questions they can ask:
How do we systematically make this company more valuable?
The Goal Is to Stop Needing Us
That may sound strange coming from someone proposing a three-year relationship.
But it is fundamental to the model.
Our objective isn't to create permanent dependence on our people.
Our objective is to develop the capabilities of yours.
At the beginning, we do much of the work.
Over time, you do increasingly more.
Eventually, your firm should be capable of operating the practice without depending upon us to deliver it.
You may continue using STAR because the system, technology, AI, methodologies, benchmarking and specialist network make your practice substantially better.
That is different from needing our people to run your business.
The handoff isn't something we figure out in Year Three.
It begins in Year One.
Consider Where You Want to Be Three Years From Now
This may ultimately be the most important question.
Three years are going to pass regardless.
One firm may spend those years making its compliance business increasingly efficient.
It may automate more work.
Require fewer people.
Reduce costs.
Protect margins.
And three years from now, it may operate an extraordinarily efficient version of essentially the same business.
Another firm may use those same three years differently.
It may continue improving its compliance business while simultaneously building an entirely new economic engine.
Its partners may have learned how to lead enterprise-value conversations.
Its professionals may have developed sophisticated advisory judgment.
Its clients may now view the firm not primarily as the organization that records what happened last year, but as the organization helping determine what happens over the next five.
And its revenue mix, client relationships, talent model and economics may look fundamentally different.
That's why the decision facing professional firms isn't simply:
Should we get into advisory?
The more important question is:
What business do we want to own three years from now?
Because efficiency alone doesn't answer that question.
Neither does AI.
Technology can make the current practice dramatically more productive.
But management still has to decide what to do with that productivity.
One path uses it primarily to reduce the resources required to operate yesterday's business.
The other uses this extraordinary technological transition to help finance and build tomorrow's.
You can spend the next three years cutting your way to the end of the current model.
Or you can spend those same three years building the next one.