by Alastair Ross, Director, Codexx Associates Ltd

Part 1. Setting the scene – when business as usual is not enough

Introduction

Increasingly in organizations, ‘business as usual’, the amalgam of existing thinking, value propositions and ways of working is not enough. What delivered commercial success in the past is not going to do so in the future, for the competitive environment is becoming more challenging – customers and clients increasingly want more for less, new competitors are arriving and technological advancement offers new forms of competition. The result is that businesses are seeing the need for increased levels of innovation to effectively compete.

All the above is now also true for professional service firms, many of whom have been relatively insulated from such commercial pressures due to their high-value offerings which were not easily replicated or automated and for some professions, such as law, enjoyed regulatory barriers to entry. But this is changing and innovation is moving up the agenda for management teams in these firms. This creates a major challenge for many firms with limited experience or capabilities in effective innovation.

Welcome to the first of a series of seven short articles on innovation in professional service firms. The objective of this series is to provide a foundation for partners, managers, and change leaders working in professional service firms on the opportunities, approaches and challenges for using innovation to improve their firm’s competitiveness. The series is based on my work on innovation and re-engineering projects with major UK and European professional services firms over the past ten years. The series will be published over the next three months with the planned contents as follows:

Part 1: Setting the scene – when business as usual is not enough

Part 2: Identifying innovation opportunities

Part 3: Establishing an effective system for innovation

Part 4: Innovating to reduce costs

Part 5: Innovating to increase value

Part 6: Starting your innovation journey

Part 7: Key challenges and sustaining innovation

So let’s get started:

Professional services – drivers for innovation

Professional service firms, such as lawyers, accountants and management consultants, are facing new challenges driven by fundamental trends, which have been accelerated by the economic weaknesses in western economies triggered by the 2008 financial crisis and resulting business downturn. These trends include:

• Price-down pressures from clients seeking to reduce their supplier spend.
• Deregulation (such as in the UK and Australian legal sectors) enabling new market entrants.
• Service commoditization through the application of standardisation and IT.
• Increasing competition from lower cost economies – such as India and China
• New internet and mobile technology-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, progressive firms are recognizing the need to innovate the services they provide and their ways of working. Such innovation enables them to reduce costs through more effective and efficient working and increases the value they provide to clients through new and enhanced services.

Let’s be clear on innovation

It’s important to have a clear view of innovation to help in developing the most effective approach to enabling and managing it. Defining innovation can become an almost religious debate for innovation consultants, who often end up excluding ‘normal’ business improvement activities. In my view, a more inclusive definition is of most use when seeking to manage innovation programmes within businesses. With this in mind I find the most effective definition is: ‘Innovation delivers value from ideas’. This definition includes small and large innovations and those conceived in your own business as well as those copied from others, i.e. that is new to you. To consider that innovation is only about ‘radical new ideas’ would lead to incremental improvements receiving insufficient focus within the business – and high engagement incremental improvement is very powerful (just ask Toyota who have built their business success on their Lean business model driving continuous improvement with high engagement of their workforce). A view that innovation only covers things that are ‘new to the world’ would drastically diminish the powerful benefits of adopting best practice methods proven elsewhere (aka ‘copy with pride’).

So innovation is about creating or using an idea and generating value from it (e.g. increased profitability). Successful exploitation of an idea is a key requirement for innovation. This is why innovation is more than just creativity – for many new ideas and inventions fail to deliver value and thus cannot be considered innovative. In the journey to realizing value from ideas, activities such as idea exploration, selection, development, implementation and learning are as important as creativity. And thus successful innovation within your firm needs the developers, the project managers and the trainers as much as the idea generators….

Institutional v Individual Innovation

In developing effective innovation within a firm it is vital to differentiate between ‘individual innovation’ and ‘institutional Innovation’. Many business professionals would claim that they innovate regularly in their work, in their methods or in what they deliver to clients. However, this type of innovation is primarily individual innovation. Such ‘innovation’ is personal, it is not codified or easily scalable (it may not even be valuable) across the wider organisation. Therefore the impact of such individual innovation is very limited in comparison to institutional innovation. Institutional innovation engages other personnel within the firm and outside it through codified, scaled and deployed innovations such as new or enhanced services, new ways of working and new strategies that deliver increased value. Institutional innovation may well start as individual innovation, but the lone innovator creates something that can be used by others and not just themselves, something that can be developed and deployed into an institutional innovation. For a firm to be effective in using innovation to improve its competitiveness, it must master institutional innovation. And in addition it must establish a systematic approach to effectively manage its innovation activities.

Key items for management’s innovation agenda

When a firm is seeking to significantly enhance its innovation capabilities, there are some key questions that need to be answered by the management team such as:

• Where should we focus our innovation activities?
• What’s slowing or preventing innovation today?
• How do we select the best ideas, develop and implement them?
• Who should get involved?
• How do we resource innovation?
• How do we encourage and reward participation?

I intend to guide readers in answering these questions in this series of articles.

In the next article I will show how firms can identify key opportunity areas for innovation in their firm by considering their key ‘dimensions for innovation’ and give examples of this in multiple professional service sectors.

References and further reading

This article and the others in the series are based on the approaches, references and case studies detailed in my new book ‘Innovating professional services – transforming value and efficiency’ published by Gower in May 2015. This provides in-depth coverage and case studies of the topics featured in this series. For more information go to: https://www.codexx.com/2015/innovating-professional-services-new-book/