Most professional service firms have woken up to the reality that if you’re changing slower than your competitive environment you’re going backwards. So the next question is, how do we change, or better still, how do we change faster?

This post offers a simple step-by-step guide to address this question.

Step 1: Choose your firm’s innovation approach and risk appetite

There are four broad options for consideration:

1. Pioneer – seek to create a first-mover advantage by inventing new things of value.
2. Fast follower – seek to adopt emerging ideas that appear to be working and allow others to bear the risk of failure.
3. Sync with majority – seek to be part of the majority of firms that adopt new ideas when there is a clear and compelling case to do so.
4. Laggard – seek to adopt new ideas when the opportunity cost of retaining the status quo becomes unbearable.

It is important recognise that in the absence of an active choice, the Laggard option is the default position for most professional service firm partnerships. There are many well-documented reasons for this, but perhaps the most compelling is that most of these firms have cash-hungry shareholders unwilling to invest meaningfully in long-term R&D.

Step 2: Choose the type of innovation

Many firms tend to think of innovation as the invention of new products or services. This is just one of many types of innovation available along a firm’s value chain. A really useful typology has been put forward by Larry Keely and others in their book: 10 Types of Innovation:

For professional firms, the only thing I’d add to the Keeley model is “Pricing, risk and value” in the Offering (yellow-shaded) section. This will include innovating on pricing structures, risk and reward sharing models, and value creation/ communication/ demonstration.

Step 3: Choose the focus of innovation

Adopting new information and communications technology (ICT) is often thought of as the primary way to innovate. There are countless examples of ICT being used to offer something new, to improve service or take-out cost, eg. smartphone apps, online stores, workflow tools, document assembly software, cognitive technologies, e-discovery, client portals, etc.

Before leaping head first into high-tech solutions, it’s important to recognise there are two other options available:

• High-touch. This type of innovation involves changing the way you recruit, induct, train, develop, career manage, lead and motivate your people. It does not necessarily involve new software or hardware, but rather novel ways of getting your top talent to stay and perform to their full potential.  A recent example of this is Grant Thornton Australia and Gadens who now offer all their staff 6-months paid parental leave.
• High-design. This type of innovation involves addressing the underlying client problem by making a change in the process or approach. A famous illustration of this, is the case of the engineers who were asked to quote on upgrading the lifts in an old building after a string of complaints from tenants. The engineers offered two solutions: a multi-million dollar lift upgrade or a $1K solution that involved placing mirrors in each foyer to distract waiting tenants. The client opted for the second solution and complaints dropped off markedly. In reviewing the list of recentAustralian legal innovation award winners, many of the examples relate to co-designing or co-creating solutions with clients.

Firms seeking to innovate their client service experience might wish to think of a combined high-tech, high-touch and high-design solution, the combination making it truly distinctive and difficult to emulate.

Step 4: Calibrate the degree of change and align expectations

It’s important that firms calibrate the degree of change and align outcome expectations with all stakeholders. This involves agreeing where on this continuum are you seeking to play: from incremental tactical small-scale changes, through to large-scale transformational interventions that come with much bigger risks and returns. Creating alignment on this point is extremely important so as to ensure you under-promise and over-deliver.

Step 5: Choose innovation projects or process or both

The fifth step is to agree whether your firm will be focused on a series of discrete innovation projects, or to try to develop an innovation culture that will pervade everything the firm does? Most firms try do both simultaneously, but I observe that many professional service firms tend to do better when they start with a projects focus, get some early wins, and then extend their effort into adapting the firm’s culture.

A project-based approach can be more co-ordinated and discerning. For example, this method allowed one leading Australian law firm to create an internal competition for great ideas with a panel of experts deciding which ones to fund. The problem with a centralised approach is that it’s often biased towards big ideas rather than incremental improvements. Another issue is that a number of staff with great ideas might be intimidated by entering a tank full of sharks.

Adopting a culture-focus often means the innovation effort is decentralised and relatively uncoordinated. This bottom-up approach can free up everyone to be enterprising and yield a major benefit from diversity. It can also mean nothing actually happens because everyone’s so busy trying to meet their utilisation targets there’s no time nor incentive to try do anything different. It can also result in duplication and a waste of resources on well-intentioned, but strategically sub-standard ideas.

A subsequent post will explore the levers that firms can pull to accelerate their progress on the innovation culture journey.

In conclusion

Taking the five steps together, you might elect to become a Pioneer (#1), innovating around the client experience dimensions (#2), seeking a combination of high-tech, high-touch and high-design solutions (#3), open to transformational changes (#4), through a series of carefully selected projects (#5).

Or you might just remain a Laggard…

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