Professional Service firms are facing a number of major competitive challenges including price-down pressures from clients, accelerated by the 2008 financial crash, deregulation in some markets (such as the UK and Australian legal sectors), increasing competition from lower cost economies (such as IT services from India) and new internet-enabled business models (such as Freelancer.com in IT and design services, Crunch.co.uk in accountancy and RocketLawyer.com in legal services).

In response to these challenges, firms are increasingly recognising the need to innovate both in the services they provide and in their ways of working, to increase value to clients whilst reducing cost of delivery. A key opportunity in all professional service firms is in process-based innovation, applying techniques such as waste elimination, standardisation and right-skilling to reduce cost and improve service. This requires firms to establish and operate a systematic approach to assessing the performance of their services (for example a Due Diligence service from a law firm, an Audit service from an accountant or an internal support process such as Invoicing) and to use this information to identify and execute process improvements. And there is major opportunity for improvement – my own experience in process innovation projects¹ in major UK law firms, is that a 25-45% reduction in the direct cost of performing the service (and as much as 75% on one occasion) can be achieved. In addition there is opportunity for enabling revenue increase through improved value and service to clients. So this is an area of significant opportunity for firms.

Process management is key to service innovation

However to realise these benefits on an ongoing basis (rather than in the occasional consulting-led project) firms need to develop internal capabilities in ‘process management’, a discipline that is well established in industry with its roots in work study and more recently in Lean thinking. But this discipline is typically absent in much of services as noted in a 2006 EU report on service innovation:

‘Analysis of services innovation suggests that often services do not capitalise on on-the-job innovations: the knowledge established during service production and delivery is not "captured” and “reproduced” in successive innovations.’² This resonates with my own experience and I have found that the common reasons for firms being ineffective in process learning are:

• There is often cultural resistance to systemization of their work, especially in ‘traditional’ sectors such as law and accounting.
• Fee earners are not motivated to take time to perform post-matter analysis and capture resulting learning – it is not typically chargeable and thus does not count towards their chargeable time targets.
• Firms lack the systems and resources for process innovation to enable the capture, codification and deployment of such ‘on-the-job’ innovations.
• Firms are often heavily siloed around content areas (for instance in law firms, teams in Employment, Commercial, Real Estate and Personal Injury) and so will have little cross-fertilisation in learning.

The result of this that every day professional service firms are effectively flushing knowledge down the drain, as they are not capturing or using process knowledge.

Knowledge-driven systemization in expert-based work

A good example of the effective use of the use of knowledge to improve systemization of work in an expert culture is from Intermountain Healthcare³.
Intermountain Healthcare is a not-for-profit healthcare provider in Utah and Idaho in the USA, managing 22 hospitals and employing 33,000 people at the time of writing. Its clinical outcomes are among the best in the USA whilst it is able to operate at much lower costs than many competitors. This performance is based on a long term best practice programme run between 1995 and 2005.

The key element in Intermountain’s best practice system is the Care Process Model (CPM). This is a file which covers all steps of care for a particular type of case from Admission to Discharge and beyond. It assembles best practice in the form of flow diagrams, Decision Support tools, Practice guidelines and management information. The CPM is a collaborative endeavour, and is constantly updated as new ideas evolve.  Doctors use the CPMs as a default but can always override them if they see fit. Over 60 CPMs are now in use in the hospital group covering cases such as insulin dosing, treatment of pneumonia and lung disease.

A new Director of Research was the trigger for the programme, seeing the opportunities for improvement by capturing and sharing best practices and establishing a fact-based culture. CPMs were introduced slowly never undermining doctor’s autonomy. The philosophy as defined by the Director was:

“We are not trying to control doctors but to get the doctors to control the system”. This was a key philosophy in gaining the engagement of doctors in an expert culture, relying on inherent evidence-based peer pressure to change professional behaviours.

Clinicians from all the hospitals meet regularly to review evidence of outcomes and to agree changes to CPMs. A culture of openness has developed. Auxiliary workers can question and suggest improvements to the CPM without problems of authority.

The benefits of the formalisation of best practice were dramatic. A study in 2008 by the Institute for Health Care Delivery Research concluded that the aggregate cost savings from improved clinical performance totalled $100 million a year.

This type of ‘evidence-based’ peer pressure can be applied in professional service firms to drive improvement.

In Part 2, I will explore how Knowledge Management can play a key role to support the application of process management practices in professional service firms.

Thanks to Trevor Comyn, Director Knowledge, Learning & Development for Mills & Reeve LLP for his input to this article.

Footnotes:

1 The author’s experience has been gained in his firm Codexx Associates Ltd, in consulting work with15 major firms in legal, insurance, consulting and technical services over the past decade and in studies with UK and German universities involving over 50 UK and German law firms. Project work has included the re-engineering of 20 legal services at a number of major UK law firms.
2 ‘The future of R&D in services: implications for EU research and innovation policy’, a report commissioned by the Science and Technology Foresight Unit of DG Research By PREST - Policy Research in Engineering, Science and Technology (UK) TNO (Netherlands) SERVILAB (Spain) ARCS (Austria) March 2006.
3 Case study summarised from pages 253-254 of  ‘Innovating professional services – transforming value and efficiency’ by Alastair Ross. Published May 2015 by Gower. ISBN-13: 978-1472427915

Alastair Ross is the Director of Codexx Associates Ltd, providing innovation and re-engineering services. His latest book ‘Innovating professional services – transforming value and efficiency’ was published by Gower in May 2015 and is available to KMI blog readers at a 35% discount.  Visit http://www.gowerpublishing.com/isbn/9781472427915 and use discount code G15JNW35.