The Most Complete Primer on Business Model Innovation for Service Businesses You'll Ever Read
A commodity is probably the last word you'd use to define your professional service business. You may not think of what your consultancy or firm offers as “basic goods and materials that are widely used and not meaningfully differentiated from one another,” as Investopedia defines a commodity.
And whether you believe us or not, the reality is that professional services are increasingly being commoditized, as clients expect standardization across service offerings. Even while more consultancies compete for top talent and butt up against difficulty proving their offerings’ return on investment.
Meanwhile, online systems and products are threatening to eliminate the need for professional services altogether. Take Amazon's Alexa who can now answer economic questions for Swiss global clients. And looking into the future, it's only a matter of time before AI will be booking appointments, managing complete client relationships, buying and selling stocks, and even analyzing markets.
As technology enables our clients to do more on their own, and searchable information and databases within Google’s vast knowledge graph make it easy to outsource less mission-critical tasks, it's time for professional practices to step back a moment and really think about their service differentiators. (Else risk losing clients or be forced to lower rates to keep them.)
So, how do you differentiate your team of consultants or solo consulting practice amid these evolutionary digital and other disruptions?
Let’s get to answering just that while we discuss innovative ways to re-think about your business model.
But First, What Defines a Professional Service?
A professional service relies on professional service providers to create and deliver value to clients (who typically pay for the perceived market value of that service).
Professional services can come in many shapes and forms, including knowledge-sharing, skill-sharing, data-sharing or insight-sharing. It can also take the form of a digital or physical product, a process, approach/methodology or any of the above organized as a course or a program.
The skillset of the firm's service professionals affects its:
- choice of clients and
- ability to deliver value to the said clients.
And your clientele base affects the firm's development and its evolution of professional skills (which, in turn, affects the type of clients the firm can retain now and well into the future).
While your professional practice can take many forms, getting serious about keeping a sharp focus is crucial. With focus comes clarity. And clarity begets:
- prospects who will know what services you offer
- leaders who are clear about which business performance levers to prioritize
- and professionals who will recognize the type of work to do.
Besides, our natural urge for specialization (as solopreneurs or service team/firm managers) is a key reason why professional practices even exist. We get really excited about creativity and innovation! And, since no single human, business or society can know everything about a topic, specialization (preferably combined with practical experience and some hard-won wisdom) organically emerges to help and guide our communities, systems and cultures.
To succeed make space for innovation.
Now, digital technology is drastically changing the way our clients use professional services. Some even predict that technology will (at some point) replace professional practices.
To succeed, then, you must make space for innovation.
“But how?!” you ask. Join us and we’ll learn together.
What Does it Mean to be Innovative?
Business innovation often sparks the creation of new services or processes to effect a positive change in your service business. It can center around:
- Optimizing existing channels
- Finding new revenue opportunities in new channels, etc.
Ultimately, the outcome of your efforts at innovation should do one of three things:
- reinvigorate your practice (whether by productivity, process, mindset or culture),
- create new value
- and boost growth.
Whether your particular efforts at business innovation are a case of necessity as you transition into a new industry or a reassessment of the ways your practice generates revenue — it really does pay to understand different business innovation models you might want to consider.
Revenue model innovation
When looking to increase profit, changing your revenue model should be the very first place you look for innovation opportunities. This can involve re-assessing your pricing strategy or re-evaluating your service offering, offers and conversion paths.
Industry model innovation
Industry model innovation involves redefining an existing niche/industry, moving into a new one or creating a new industry altogether. What a concept, right?! But again, this kind of blue sky strategy innovation is what empassions and ignites our inner-fires as consultants and coaches, no?
Business model innovation
Involves re-assessing your entire operational approach (and potentially your service offerings as an outcome) to boost your business profitability, reduce system bottlenecks or engage your team and/or clients in totally new ways. Think of reconfiguring your service design and delivery or specializing your practice to deliver the best value to your clients.
As indicated by its name, business model innovation is a pretty flexible and creative process. It's unique to your business and market. So, it can take different forms like:
- outsourcing specific tasks and functions,
- assessing services or product features based on a decision matrix,
- forming new partnerships or
- deploying new technologies.
So, how innovative is your practice or your firm?
Overall, practice leaders should foster an innovative work environment — which we realize is always easier said than done. But, it starts at new employee onboarding and extends into your firm’s values, vision, mission and organizational culture. Besides recruiting people with the right subject matter expertise, tech aptitude and soft skills aligned with your particular industry, fostering innovation should be modeled top-down, but stay open to ideas and influences from the bottom up. (One way to do this effectively and organically is with a community business model, which we go over in this article.)
What is Business Model Innovation, for Real Though?
There's no universal or agreed-on definition for business model innovation. (Which reflects the diversity of disciplines interested in this multifaceted concept.)
Khanagha et al. (2014)  define business model innovation as:
"Activities [that] can range from incremental changes in individual components of business models, the extension of the existing business model, introduction of parallel business models, right through to disruption of the business model, which may potentially entail replacing the existing model with a fundamentally different one."
Casadesus-Masanell and Zhu  refers to the same as:
"The search for new logic of the firm and new ways to create and capture value for its stakeholders. It focuses primarily on finding new ways to generate revenues and define value propositions for customers, suppliers, and partners."
And different definitions emphasize different aspects of business model innovation.
The common patterns we see include aspects like value, change, process, activities, discovery and core elements. Other aspect patterns include things like customer segments, value proposition, communication channels, customer relationships, revenue streams, essential resources, key activities, key partnerships, customer structure and more.
At its heart, business model innovation centers around how your practice creates, delivers and captures value.
Successful business model innovation is holistic, challenging you to take your business’s core strengths and build well-designed systems around those to produce more value for you and your clients.
Why is Business Model Innovation so Important?
Committing to your initial strengths is critical to innovate your business model effectively.
Often, many practices gradually drift from their clients’ core needs unless they explicitly maintain focus on avoiding that by defining their company value set, mission, mindset or mantra. For example, professional service orgs might prioritize service delivery, meanwhile forgetting what value creation looks like for their audience.
This gradual drift can sneak up on your practice and is often a result of copying competitors or optimizing for short-term profit instead of a longer-term vision and strategy.
Building business model innovation into your culture can help you build a professional practice that creates optimal value for everyone: customers, employees, shareholders and society. And this holistic, every-angled approach can result in:
- Increased growth
- An extended period of competitive advantage
- Positive brand recognition and reduced sales objections
- More robust practices that create business resilience in the face of fluctuating market cycles and unforeseen events, like the COVID-19 pandemic.
Overall, business model innovation is a critical tool for building a great service business in any industry. (And its the reason why the fastest growing consultancies include it as an essential part of their "innovation strategy.")
Should You Change Your Business Model?
In a reality of infinite possibilities, there are always opportunities to transform your service business through new revenue streams, by reducing costs, optimizing offers or moving to an open business model.
To determine whether you should innovate your business model, ask yourself:
- Are there signals that your service model needs changing?
Are you feeling up against a wall with the competition? Is your industry or niche ripe for digital disruption? What’s your blue ocean strategy canvas telling you?
- What makes your current model successful, if it is?
(And how do you define success relative to your competitors?)
- Would the effort of reinventing your existing model be worth the return?
(In terms of increasing growth, profit, brand awareness or creating a competitive advantage, etc.)
While you’re at it, we invite you to be reflective as a leader in your unique business offering and industry market by taking serious stock of your business and asking yourself the following questions.
1) Why should clients work with you versus another firm that meets their needs?
And please strive to answer this question from the client's perspective. You’ve got to really put yourself in your clients’ shoes. Brief interviews and surveys with your ICP are a great way to find out your blind spots. Are you increasing the client's revenue, strengthening their market position, or reducing the cost of risk for them?
If your resulting benefits are not unique for your clientele, it can be hard to prove the return from your services.
Profi Tip: If you have a unique value proposition, don't rest just yet. We invite you to go through the exercise of answering all of these questions to hone in on your differentiators from the typical service commodities.
2) What skills can you develop to make your value promise even more relevant, compelling, unique and hard to copy?
We're in a copycat economy. So, you must keep bettering your differentiation to offset the commoditization process.
Instead of just focusing on the core values of your practice, add soft skills such as project management and efficiency to better your offer.
Profi Tip: If you’re lacking in the unique offer department, exploring your client's problems, pain points and frustrations with existing products or service offerings in your industry or niche is a great place to start putting together a more compelling brand promise.
3) What unique product or service could your organization offer that would address these challenges and greatly benefit current or potential clients?
You can leverage your experience in different industry verticals to provide unique service offerings. Let your goal be to add 5-10x more value above and beyond what your current products or services deliver.
Profi Tip: When you think about client value, think first about 5 to 10xing your existing offerings! What gems (resources like content, insight or expertise) do you have hidden away that you can leverage right now and repurpose into more value?
4) How do you capture value in your industry in new ways that drive greater service differentiation and growth?
As we just shared, you can always leverage your existing industry knowledge to deliver more value. Take the example of accounting firms who are entering the consulting and legal markets as the audit market reacts to increased price pressures and tougher competition.
5) Do you solve and market a problem your customer is searching for?
Be honest with yourself. And, ask your clients! And when you have their answer, think bigger. More than just solving client problems, explore how you can leverage technology and data to adopt a more preventive approach to your client's potential challenges.
6) What solutions can you create that provide the 'greatest' customer value while locking out your competition?
Formulate a solution that addresses your clients' new needs, such as those resulting from the recent economic crisis. And while you’re at it, determine how to structure and deliver the solution(s) in a way that provides the best client value.
To lock out your competition, safeguard your service offerings by limiting knowledge leaks. You can achieve that by minimizing professional turnover, setting up technological barriers and impeding competitors' access to information.
Your professional service design will also need to innovate past offerings that are already commoditized.
7) How might you disrupt your services to significantly decrease charges to clients?
Can you hire professionals who are willing to work at a lower rate in exchange for a flexible work arrangement? Or adopt a strategy where you can exchange your advice for leads?
(Your quest — if you choose to accept it — is to disrupt your own service model and service design.)
8) Can any of your solutions be routinized or automated, and what is your plan for incorporating or defending against displacement?
There's a trend in professional practices: the evolution of services from pure craftsmanship to standardized and systemized operating procedures.
And it's likely that digital technology will speed up service automation and commoditization moving forward.
(After all, knowledge work automation systems and tools could take on tasks equivalent to the output of 110-140 million full-time human equivalents (FTEs).)
So, you’re going to need to leverage technology where you can automate repetitive tasks all along your value chain.
Take the standard professional services workflow and see where you can automate routine tasks across it. Using all-in-one platforms like Profi can make this even easier.
Here’s a few examples of how you can automate across the service workflow using Profi:
Client Acquisition -> Services Organization -> Service Delivery -> Billing
- Set up automatic email and SMS text message reminders about sessions, messages, invitations and progress for both your teammates and clients
- Automatically sync your external calendars with you and your service team’s calendars
- Auto-set your forms to be sent to clients for intake, progress tracking, etc.
- Link your payment accounts to enable automatic payment processing
- Set up a whole slew of Zapier workflow automations between Profi’s integrated operating system for service providers and 1000+ other apps
And, get real. If you can’t automate at least some of your non-mission-critical tasks, outsource them. (Use platforms like Verblio, Upwork and Fiverr to outsource time-consuming tasks.)
Profi Tip: If your clients' frustrations and problems are not fuel for inspiration, then it’s time to focus on your revenue model.
9) Would a different revenue model build a higher value with your key clients?
- Moving to value pricing and fixed fees
- Eliminating hourly billing
- Trading advice for shares at startup companies
- Embracing merit-based pricing
10) What is the likelihood that your customers will refer new customers to you?
Building a community of loyal followers around your practice is essential to gaining customer referrals. However, your services must meet the clients' needs, and the entire client experience must be just as satisfactory.
Models like talent marketplaces or community business models really come in for the win here. We cover these in more detail below, but models like these create an infrastructure that’s scalable and provides an ongoing feedback loop between you and your customers. So, if you’re listening, then you’re always improving your customer’s experience with your business by meeting their needs.
11) What is the ecosystem of stakeholders and partners that will create the most powerful business model?
Your business model innovating should factor in the wider ecosystem of potential partners and stakeholders unique to your industry or niche too. Think about your teams, stakeholders and partners as one in the same.
Here, the productized service business model is your powerhouse. We talk about the productized service business model more below, but in this model, you essentially productize and package your servicing frameworks into scalable virtual programs with blended learning modules, train your team, and then exponentially expand your referral network with certified consultants representing your business. Viola! Instant scalability.
If you’re considering how to rejig your internal team structure to better meet stakeholder, partner and client needs you can:
- Focus on client teams instead of practice groups
- Upgrade associate training. Utilize learner experience design techniques in a blended learning program format and offer brand or technology certifications tied to promotion paths
- Allow associates to self-organize and refer internally using a community business model (see more below)
How Do You Create Business Model Innovation? Is There a Right Method?
A research study published in Strategy & Leadership suggests that enterprise model innovation should be: aligned, analytical and adaptable. Still, there are hardly any fully integrated or holistic tools or methods for creating and implementing system-wide business model innovation.
So here's a quick overview of some proven methods you can combine to visualize your current model, generate ideas for new models and get busy implementing them.
Proven methods for evaluating and visualizing existing business models
To innovate your business model, you must first 'visualize' and 'evaluate' your existing models.
To do so:
Create a graphical representation of your existing business model
Depending on the details required, you can use the globally accepted business model canvas or business model navigator to visualize and evaluate your current model.
The Business Model Canvas provides deeper insights into your business model, making it the ideal choice when testing or designing a new model. It covers the model in nine blocks, including:
- Customer segments
- Value promises
- Customer relationships
- Revenue structure
- Key resources
- Key partners
- Key activities
- Cost structure
Stress test to surface strengths and blind spots
To determine where the priorities are, you need to evaluate the strengths and weaknesses of individual areas of your business model. Stress tests help you surface your assets and your blind spots and the critical factors you need to jump on first.
Note that you cannot view the model separately from its environment. You must factor in relevant trends in the market, technology, industry, culture and legislation. (You can achieve that through research or employee and expert discussions.)
Proven methods for generating business model innovation ideas
The following three methods will help examine your practice from different perspectives to highlight probable innovations.
#1: Business model innovation based on trends
You can use market, tech, industry or niche, cultural and legislative trends to derive different scenarios for your service business. Then use these scenarios to inform your business model innovation process.
With that, you can easily anticipate and address changes in your practice's environment.
Here, you can actively implement the model that you believe will be relevant soon. Or just observe the market and wait to implement the model when the market shows signs of heading in the projected direction.
#2: Business model innovation based on client needs throughout the customer journey
Customer experience design is grounded in the voice of your customer (or client, in this case) and you’re probably already hearing about your client needs across your business.
The voice of your client customer might be flooding in on the daily through channels like your website chat, by phone or via your support staff, in social media messengers, email or website surveys, discovery interviews or intake, experience and product feedback forms.
By investing in processes and tools that listen to or gather, look for patterns and prioritize client needs, you’ll discover both practical and sometimes surprising approaches to improve your client's experience. So, listen in carefully and then use those insights as the foundation of your new business model.
Here's a quick stepped process to get you started.
- Choose a specific client target persona, group, vertical or segment
- Detail out your customer’s journey
- Define every touchpoint and system your client may interact with during their experience with your service business, or their journey — whether on the front-end or back-end
- Identify client objections and preferences throughout the journey
- What are the existing problems and opportunities that begin to surface?
Professional service designs with homogeneous customer requirements can largely benefit from this approach, as customer experience design can make each customer persona or vertical’s unique path and story transparent across the whole of your business. Taking it a step further, blended service design can help you meet your clients where their at in a more scalable and personalized way. This gives you immediate insight into ways to innovate based on client needs.
#3: Creative imitation of innovative business model patterns
A study by the University of St. Gallen notes that 90% of business model innovations are formulated by recombining 55 business model patterns. Through creative imitation, you can systematically apply these patterns to your practice.
Proven methods for testing and implementing business models
Discovery-driven learning and prototyping
A market-ready business model is developed and sharpened in the market. That means embracing discovery-driven learning through trial and error or cost-effectively testing the selected business model as per your hypothesis and prototypes.
The goal is to leverage the practical knowledge gained to make your model more marketable.
Implementation strategy (Internal vs. external implementation)
Professor Markides proposes two dimensions of a business innovation model strategy. That is:
- Potential conflict with the existing business model
- Potential synergy with the current business model
From these dimensions, you can derive four implementation strategies, as outlined below.
Separation strategy: if the conflict and synergy potential are high, break down the new business model as a separate business unit.
Integration strategy: if the conflict potential is low and the synergy potential is high, implement the new model through yourself or your internal R&D department.
Phased separation strategy: if the synergy potential is high, you can implement the new model gradually in your practice before outsourcing it.
Phased integration strategy: if the anticipated conflict potential is high, establish the new model, then re-integrate the same into your practice in several phases.
In a nutshell, you can formulate a new business model by:
- Defining your client's value
- Defining your strengths
- Defining your business objectives
- Benchmarking with leading innovators
- Putting all the points above together to identify the 'right' model
- Validating and iterating as needed
Regardless of the method, you must improve your business model continuously. That calls for mindset and culture changes, as well as flexible organizational structures.
How Can You Use Your Business Model as the Engine for Sustainable Innovation?
To weave sustainability into your business model, think about it from every angle. Sustainable service models should:
- Scale effectively
- Increase competitiveness and differentiation
- Reduce the probability of commoditization
- Creates a societal and environmental surplus
- Remain durable against socio-environmental trends
- Exhibit network effects that reshape value chains
- Harness or reshape your practice ecosystems
- Increase returns to shareholders
- Animate the purpose of your practice
To make your business model innovation sustainable, combine societal, environmental and financial priorities. That is:
- Expand the service business's canvas by mapping your ecosystem of stakeholders and societal issues in which you operate
- Stress-test your model within the broader map
- Extrapolate trends and create/build materiality scenarios
- Explore while scaling up your practice
- Identify strategic intervention points or innovation opportunities
- Innovate for a robust and resilient business model
- Change your inputs to generate environmental and societal benefits
- Expand the societal and 'environmental' value of your services
- Expand your value chains (by layering onto your ecosystem of partners and customers in other industries)
- Re-localize and regionalize to bring the realized societal and environmental benefits closer to home
- Energize your brand (by encoding, promoting and monetizing the societal and 'environmental' value of your services)
- Build across sectors (by collaborating with non-profits and government agencies in rapidly developing economies)
- Link your model to drivers of client value and competitive advantage
- Finally, scale your initiative (to realize its potential value)
How Can You Use Services to Optimize Revenue and Profit?
I repeat: the professional service industry is not immune to disruption.
And the situation is compounded by the pandemic and the need to operate in completely virtual environments and deliver services digitally.
Fortunately, this kind of disruption is an opportunity long before it's a threat. (A chance for professional services to reinvent and emerge with new business models relevant to the new service economy.)
As a result, professional services are rethinking their business models, giving birth to:
Productizing expertise as a digital solution or service can provide you with a resilient and continuous revenue stream. (An essential requirement amid the pandemic.)
In a reverse trend, consultancies are building SaaS businesses and software to entrench their insights and practices.
However, this model is not without limitations. For one, the price of software subscriptions may pale compared to the high ticket project fees charged by consultants. So, quantity becomes the name of the acquisition game here.
Productized service business models
Fast gaining in popularity due to its effectiveness at scaling both a business and a more personalized client experience with your business is the productized service business model.
To scale this effectively you’re going to need to lean on an integrated tech stack. And, hopefully it’s less a stack and more an holistic service operating system. Software like Profi with its Teams plan quickly enables firms with the integrated infrastructure to run this type of model at a low investment.
Imagine you want to build a team of healthcare program instructors or consultants, like our client LigoLab’s Ligoverse of instructors. With the productized business model you would standardize and productize your servicing frameworks, methodologies and practices into blended learning programs, train-up and certify a team of consultants to then up-sell your offering for you, helping you quickly scale.
Let’s say you’ve now qualified and certified 10 consultants for your service delivery model. Now, you want to track performance and completely enable them to represent you well. So, now your tech stack needs to monitor their performance, activity, financials and provide them reviews. Productizing here means you’re pre-loading templated messaging, notes, forms, templated services and automation workflows the team can pick up quickly and run with.
Technology-based talent marketplaces (like Mindset Coach and Innovation Experts Online) help match independent consultants and on-demand talents. That allows professional practices to access skills and expertise beyond the traditional boundaries of a business.
Instead of employing more consultants with the hope of keeping them utilized, firms can deploy a core team and have an extended network of high-quality, on-demand professionals.
Clients are increasingly expecting more result-oriented, outcome-based engagements. So get comfortable charging that way, always highlighting what improvements your services have made to the client.
Linking your invoice to measured results makes you accountable.
Some other ways we see service providers using the Profi platform weaving the outcome-based model into their practices includes:
- Promise-based or time-boxed service packages or programs: like 'Become a great storyteller,’ ‘Transform your leadership skills in 8 days,’ ‘Time manage like a CEO,’ ‘Reduce client churn in 8 hours a week'
- Offering a discounted ‘discovery’ package or program where clients can upgrade/advance for more focused attention, insight or specific support if they’re seeing results.
- Offering access to a private community upon initial or discovery program completion
Ultimately, when management sees an improvement in their quarterly results, they become happy. When the board 'sees' an increase in profitability, they become pleased. Shareholders become content. And you gain the satisfaction of keeping your promise to your client.
Community-based business models are surging in popularity as professional services aim to intensify client engagement and double down on relationship-building. These models rely extensively on community members and community management to acquire customers and provide them support.
Just a few of realized benefits include:
- New opportunities for deeper client involvement
- Better offerings
- Lower costs
Be sure to check out our article on how community can be a major competitive advantage for your business model. In it we outline the almost infinite ways a community-based business model can drive client acquisition, growth and retention more organically than really any of these other models can.
And even better is to hear it from another consulting firm led by coaches and consultants who specialize in business model design who pivoted at the height of the pandemic hysteria and have integrated a community business model into their consultancy.
When consultancies engage clients in the long term, the effective daily work rate decreases significantly.
In its stead, professional services can focus on value, even when that manifests in shorter-term gigs. (The goal here is to deliver optimal value in the least time possible.)
High-value service isn’t just an offering, it can be how you set up your client experience and the technology you choose to deliver your services with.
For example, today’s clients and companies have higher expectations than ever about their privacy and the security and reliability of systems they do business in. Make sure the technology you choose to operate your service business meets and exceeds these critical needs of high-value clients.
Key areas to consider:
- Security & Privacy:
- HIPAA-compliant individual and group sessions
- Secure client messaging: give clients and teams their own portal where they can securely contact their professional service provider, book their services, etc.
- Reliability & Security: choose servicing tech with excellent uptime like Profi who boasts a system uptime SLA of 99.9% where data is stored in the US and encrypted when possible.
Embrace Innovation to Thrive
The future of professional services is blue ocean as far as the eye can see. Embracing business model innovation is critical to creating more resilience in your business and thriving (instead of just striving) your way through current and anticipated market disruptions.
To make the innovation process easy, try Profi yourself (free for 30 days). For teams and corporations of professionals, book a demo with us, and let's talk about all the unique ways you can innovate your business model strategy with the right technology and partnership. We can help solve the world's problems better together through creative and technological innovation in your service business.
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