In a 2017 benchmarking report by SPI Research published at the beginning of this year, industry growth was put at 9%, the first time it has dipped below 10% in the past five years. Profitability dropped slightly in 2016 from 2015 (15.5% to 14.2%) on those 416 PSOs who were surveyed, so what does 2017 hold for professional service organisations?
According to SPI – “There are issues facing the industry, selling have become more competitive as evidenced by a lower bid-to-win ratio, but the sales pipeline and quarterly backlog have risen hinting to a better 2017! Employee attrition continues to rise as it becomes more difficult to find, hire and retain talent. Many PS firms have embraced Cloud applications to improve communication and collaboration and overall productivity.”
In their UK Economic Outlook March 2017, PWC have stated “UK economic growth held up better than expected in the six months following the Brexit vote, but this began to ease in early 2017 as inflation has risen, squeezing household spending power.
In our main scenario, we project UK growth to slow to around 1.6% in 2017 and 1.4% in 2018 due to slower consumer spending growth and the drag on business investment from Brexit-related uncertainty.
Service sector growth will slow but remain positive in 2017-18, but construction may suffer from lower investment levels.”
Still a growing and important UK sector in 2017
As the first quarter drew to a close last week, the Financial Times commented on the services sector’s 12th consecutive positive quarterly results. In terms of where this stimulus is coming from, whilst financial services has contracted since the recession, it is the buoyancy of professional and IT services (25% growth) which is the major contributor of UK’s reliance on services.
The health of the sales pipeline and project backlog picture is certainly helped by the way in which many professional firms are reviewing their offering – and embracing diversification, as the FT article shows. Consumer confidence is also having an effect, with the bounce-back in Q4 last year. However, as we saw at a recent Chambers of Commerce event, it would be unwise to simply rely on this bullish spending throughout 2017 as inflation is trending upwards.
Because of the importance to the UK economy, the services industry will form an important focus for the UK government in their Brexit trade and labour negotiations with the EU and the wider world.
Innovation, disruption and best practice are key
As the FT article showed, firms who take a fresh look at their service offering, whether it is revisiting best practice or disrupting the market with a different proposition – can evolve quicker to cope with the emerging economy. The CityUK report on the concept of “service hubs” in the UK, talks about how better integration across financial and professional services geographically can also stimulate further growth in the services sector and UK economy as a whole. Digitalisation and the use of technology is seen as an enabler to this, and also as a way to link not just across UK but globally.
The “sharing economy” is also now having an effect within professional services as a disruptive model. In a recent blog, PWC estimate that online peer-to-peer transactions could increase by 60%. On-demand professional services (carried out by qualified experts) is one of the sectors included in this projection. PwC forecasts this to increase by 40% per year to €20bn of annual transactions in Europe by 2025. This growth is spurred by digitally savvy employers and customers, entrepreneurial approaches and the attractiveness of the UK in which to do business in.
How will your business adapt in 2017?
In light of what will be a progressive period, it’s important for professional service firms to review their employee recruitment and retention policies, what they want to be famous for in terms of core offerings and what tools they use in both back and front end.
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