In-Depth

Go Pro!

Technology spending in the professional services industry is on the rise. Here's how Microsoft partners can get in on the action.

In theory, selling technology to professional services firms ought to be an easy fit for channel partners. After all, most partners play the service role themselves. "It's what we do. We're professional services organizations for technology," says Arnie Bellini, president of ConnectWise Inc., a Gold Certified maker of professional services automation systems headquartered in Tampa, Fla.

In reality, however, many partners discover the hard way that serving the professional services industry isn't for the faint of heart. "It's a high-fallout market," says Whit McIsaac, president and CEO of Gold Certified Partner Client Profiles Inc., an Atlanta, Ga.-based vendor of customer relationship management (CRM) software for the legal industry. "A lot of partners look at it and see a lot of money, but if you're not prepared for it, it's tough."

Generally, professional services firms-a category that encompasses everything from legal practices and auditors to consultancies and engineering houses-are relative laggards technologically, rarely employing disciplined IT budgets or setting long-term plans. Cautious by nature, they take their sweet time about decision making. And because they specialize in meeting customer needs themselves, they can be especially demanding clients. "They'll tell you how well they serve their customers and [that] if you're not able to do that for them, you have no business talking to them," says Bellini.

Vertical Markets

In this series, Redmond Channel Partner takes a deep dive into specific vertical markets. Each installment examines one industry's IT spending trends, describes Microsoft's product strategies for customers in that field and explains how Microsoft partners can best position themselves to compete and win new business there. This month, we cover the pros and cons of serving professional services companies such as law practices, accounting firms and consultancies.

Still, while working with professional services firms can take some adjustment, the rewards can be worthwhile for partners willing to make the effort. Among the industries that Microsoft targets, professional services ranks fifth in IT outlays and has the highest IT spending growth rate. Eager to grab a piece of that rapidly expanding pie? The key, say partners and industry experts, is knowing where an industry that only recently began taking high tech seriously is spending its money -- and why it's doing so.

Competitive Forces
Companies that sell to professional services firms subdivide the industry in varying ways, but most list legal, management consulting and accounting firms as the top segments. Though the particulars differ, all three verticals now find themselves confronting new and intensifying business challenges.

In the legal segment, the largest professional services vertical by revenue, the slackening pace of corporate mergers and acquisitions is putting the brakes on growth. M&A activity has been responsible for as much as a third of the legal industry's business in recent years, according to Rick Buczynski, a senior vice president at New York City-based industry research and analysis firm IBISWorld Inc. "It just can't keep going at that pace," says Buczynski, who estimates the 2006 growth rate for legal revenues at 2 percent, versus 3.9 percent in 2005.

The U.S. Professional Services Industry
Legal* Consulting Accounting
Revenue (in millions)
$224,821
$113,702
$105,729
Revenue Growth
3.9%
3.2%
4.0%
Number of Establishments
402,368
632,360
459,379
Employment (in millions)
1.37
1.13
1.94

Source: IBISWorld Inc.
*All figures are from 2005, the most recent data available

Meanwhile, the proliferation of "boutique" law firms with expertise in intellectual property, medical malpractice and other legal specialties is driving heightened competition for clients. That, in turn, is changing customer defections from rarities to common occurrences. "There's not a whole lot of brand loyalty" to law firms today, says Tom O'Connor, co-author with Richard L. Robbins of The Automated Law Firm: A Complete Guide to Software and Systems (Aspen Law & Business Publishers, 1996) and a consultant on computerized litigation support systems. "Ten years ago, you could count on long-term relationships. That's not the case now."

Increased competition is roiling the consulting and accounting fields as well. In consulting, firms have finally recovered from a severe downturn earlier in the decade that cost roughly 100,000 consultants worldwide their jobs, according to Jess Scheer, a senior research analyst at Kennedy Information Inc., a Peter-borough, N.H.-based consulting and market analysis company. But now low-cost competitors in Asia and elsewhere are pressuring other firms everywhere to reduce their fees. "So what's happening is, firms are having to work 10 percent more to make the same money," Scheer observes. Ironically, he continues, larger firms are feeling the impact of heightened competition even more than midsize ones do. Looking to broaden their pool of potential consulting providers, many clients are breaking big projects into smaller chunks. "In many cases, the midsize firms are better able to be nimble and put their 'A' team on a project that might be below the sweet spot for a large firm," Scheer notes.

Medium-sized firms are doing better than their larger peers in the accounting segment too. The "Big Four" accounting firms controlled less than 25 percent of U.S. market share in 2005, according to IBISWorld, which expects that figure to continue declining slowly in future years as clients take more of their business to smaller players. As mid-tier practices become more competitive, accounting firms long used to bidding aggressively for audit work are facing continued battles on the pricing front. Moreover, with the Sarbanes-Oxley Act of 2002 and other regulations raising the requirements for financial accuracy, jittery corporate clients are now weighing accounting vendors on service quality as well as price.

All those competitive forces have professional services firms looking to technology for help in boosting operating efficiencies and customer retention rates. For the legal industry in particular, that's a significant departure from tradition. "Law firms have always lagged behind corporate America from the technology standpoint," McIsaac observes. Acutely aware that every dollar they spend on IT comes directly out of their year-end partnership payouts, lawyers have historically resisted any automation investment they can't charge back to a client. As a result, many practices have only recently begun deploying technologies their customers have been using for years.

"There's a huge pent up demand in the legal space right now," McIsaac says.

Opportunity Everywhere

Intensifying competition and years of underinvestment in technology are fueling heightened demand for portals, practice management applications, CRM systems and mobility solutions in the professional services industry.

Here are some additional revenue opportunities cited by partners, industry experts and Microsoft:

  • Security solutions. Lawyers, CPAs and consultants need help from partners with products designed for shielding confidential documents from prying eyes. Don't be surprised, though, if smaller firms in particular initially balk at the price tag. "They often don't want to foot the bill to really do security the right way," warns Arnie Bellini, president of ConnectWise Inc.
  • Corporate solutions. "The interesting thing about professional services is that there's typically a counterpart department in all the other industries," notes Norm Thomas, director of partner business development for Microsoft's Professional Services Industry Solutions group. For partners, that means almost anything law firms and accounting practices buy holds potential appeal for corporate legal and finance organizations too, opening up a wide range of new markets to their products and services.
  • Business intelligence solutions. Overseas competitors are bringing rapid change to the consulting world, leaving practice managers on unsettled ground. "Firms are struggling with basic benchmarking," says senior research analyst Jess Scheer of analyst firm Kennedy Information Inc. "How do you know if you're having a good year or a bad year?" Partners can help consultancies answer such questions by equipping them with business intelligence systems.
  • Team workplace solutions. Professional services firms typically generate massive amounts of documents, spreadsheets and other files. Team workspace solutions based on SharePoint and Windows Vista can help firms find and share information more easily. "The ability to collaborate is really predicated on having immediate access to prior work or work done by others," Thomas observes.

Information and Convenience
Other partners are seeing and profiting from the same kinds of patterns. "We're very busy," says Howard Cohen, president and COO of LAN Associates Inc., a Central Islip, N.Y.-based network systems integrator and Gold Certified Partner that works extensively with legal practices. "Our clients are trying to get a lot of infrastructure issues resolved now."

Firms are beginning to shell out cash for business applications, too. CRM systems, for example, are emerging as an increasingly lucrative partner opportunity. Professional service providers, of course, live and die by relationships. "CRM [software] allows them to capitalize on those relationships. It allows them to manage those relationships. It allows them to leverage those relationships, which is huge," McIsaac says. It also keeps valuable client information from walking out the door with retiring partners, and helps firms more easily manage the business development campaigns they increasingly rely on to attract new customers.

Of course, with cutthroat competition now the norm in the professional services world, retaining clients is often even harder than acquiring them. That's a potentially expensive problem, because statistics from customer satisfaction research firm TARP Worldwide, of Arlington, Va., hold that it costs businesses anywhere from two to 20 times more to attain new customers than to maintain existing ones. According to Bellini, many partners are using SharePoint to build portal solutions for their professional services clients, to help them increase customer loyalty. Such systems give clients anytime-anywhere access to key files, billing information and status reports. "They allow [firms] to interact with their clients on the Internet and provide tremendous amounts of information and convenience," Bellini says.

Phillip Hampton, president of LogicForce Consulting LLC, a Nashville, Tenn.-based Certified Partner that provides IT consulting services to law firms, sees practice-management software as another budding opportunity. Practice-management applications help firms better manage their projects, documents and people. They also typically provide functionality for tracking billable hours and maximizing utilization rates. Those are key concerns for professional service providers because time is the only inventory they stock-and, as Bellini notes, it's highly perishable: "If a day goes by and you've billed six out of eight hours, those two hours you didn't bill are gone forever."

Smartphone and PDA-based systems offering remote access to e-mail, business applications and the Web are also selling well, many partners report. "Attorneys are like any other road warriors. Most of their work takes place in the field, so they need all their tools available to them," says Cohen, of LAN Associates. Law-practice directors sometimes struggle to see the potential benefits of investing in CRM or a portal, but few are likely to have trouble understanding the ROI of a mobility solution. "Attorneys are all about their perks and their comfort," says Hampton. "Anything that makes their lives easier and allows them more flexibility in terms of scheduling is an easy sell."

Partners are more guarded about prospects for selling Office 2007 and Windows Vista to professional service providers. Such firms, they point out, are rarely early adopters of Microsoft's latest releases. Just the same, Cohen expects to earn consulting fees over the next year advising customers on upgrade timing, and then to generate additional income later performing the actual installations. Hampton, too, is cautiously upbeat: "We certainly are hoping to ride the Microsoft Vista wave and we anticipate [customer] uptake."

So does Microsoft. "This is a really great wave of products," says Norm Thomas, director of partner business development in Microsoft's Professional Services Industry Solutions group. Looking to drum up excitement among professional services firms, Microsoft is aggressively promoting an industry technology vision built around Vista, Office 2007, SharePoint, SQL Server and real-time communication technologies such as Office Communicator. Together, the company argues, those products can help professional service providers address three broad imperatives:

  • Service-delivery management (streamlining operational processes)
  • Practice-performance management (boosting revenue and margins)
  • Client-experience management (improving customer satisfaction and retention)

That's a compelling story, in Cohen's view. "The fundamental strategy of weaving together Office, SharePoint and the Internet is huge," he says. "If we do the right job of teaching our clients how to take advantage of that, it can occupy us for years to come-and be incredibly beneficial to our clients." According to Microsoft, professional services firms are giving the software giant's strategy high marks, too. "We've found customers taking it up wholeheartedly," Thomas says.

Sales Tips from Pro Services Pros

Selling to professional services firms takes a delicate touch.

Lawyers, accountants and consultants act as trusted advisors to their clients and want technology partners to do the same for them. Consequently, blatant product pitches are a major turnoff.

"Nobody likes to be sold, and those of us in the professional services [industry] don't do a lot of selling. It's really about counseling our clients," notes Howard Cohen, president and COO of LAN Associates Inc. Phillip Hampton, president of LogicForce Consulting LLC, agrees. His firm uses technology seminars structured to resemble continuing legal-education courses in place of conventional sales presentations. "We've been told that approach is a lot more palatable than someone coming in and trying to sell them a product," Hampton says.

Arnie Bellini, president of ConnectWise Inc., encourages salespeople look in the mirror before calling on a client. "Just pretend you're selling to yourself," he says; after all, you're in professional services too. "The needs and requirements you have are going to be very similar to those of a CPA firm or a law firm," he observes.

However, at least one partner executive disagrees with that assessment based on what he's seen happen when Microsoft presents at legal-industry trade shows. "People will get up and walk out simply because it becomes obvious that Microsoft doesn't understand what law firms are looking for," says Jeff Wolf, vice president of product management and marketing for Canton, Mass.-based XMLAW Inc., a Gold Certified vendor of portal solutions for law firms. The concepts Microsoft discusses are sound, Wolf emphasizes, but legal-practice directors have trouble connecting with unfamiliar phrases such as "service-delivery management." As a result, XMLAW's salespeople and marketers often have to rearticulate Microsoft's strategy in terms professional services firms use themselves, such as case management or document management. "We're constantly translating," Wolf says.

Microsoft's efforts to build a robust professional services partner channel are generating similarly mixed responses. LogicForce, for one, makes regular use of Microsoft's industry-specific brochures, direct-mail templates and other marketing resources (available in the Partner Vertical Resource Center, in the Sales and Marketing section of Microsoft's partner Web site). "They're very helpful," Hampton says of those tools. Just the same, he continues, Microsoft's collateral rarely displays the deep vertical expertise that LogicForce's legal customers look for in a technology vendor. "What would be really nice is having some marketing material geared to the legal market," he says. "What we've seen so far has been kind of generic."

You won't hear any complaints about Microsoft from Client Profiles' McIsaac, however. Looking to fill a gap in its lineup of professional services partner solutions, Microsoft recently helped Client Profiles adapt Dynamics CRM for the legal market. "We took the Microsoft CRM application, changed all their terminology and nomenclature, stripped out the stuff that law firms don't use and added a bunch of stuff that law firms do need," McIsaac explains. For example, Client Profiles added functionality that searches client data for potential conflicts of interest, and a "matter integration" feature that tracks connections between people, companies and legal matters, such as testimony and judicial rulings. Microsoft contributed vital development and go-to-market funding to the project. "It allowed us to get into a new market without the degree of risk we would have had if we were going all alone," McIsaac says.

Thomas advises firms looking for similar support from Microsoft to get behind its latest product releases. Key offerings currently on Microsoft's radar include Office 2007, Windows Vista, the BI features of SQL Server 2005 and Business Scorecard Manager, Thomas adds.

O'Connor, the legal industry consultant and author, discourages vendors from fixating excessively on platform decisions and marketing strategies. If you're supporting professional services practices, he says, you have responsibilities that go far beyond the bottom line: "[Legal] technology is important because what attorneys do is important to society as a whole." By extension, one might add, accounting practices play a vital role in keeping the wheels of commerce grinding and confidence in the stock market high. That's what makes working with professional services firms so different, OConnor argues: "It matters that we get this stuff right."