A report on industry megatrends: but which industry?

May 17, 2011 | Author: Tim Williams

Describing a series of business trends in one particular industry, The Economist made some insightful observations in its May 7, 2011 issue.  How would you fill in these blanks?

"Clients became keener to query their bills – and to demand alternatives to the convention of charging by the hour.  Small and innovative firms began obliging them, and big firms increasingly felt forced to follow."

"All this took a toll on the labor market … employment in America’s ___ industry, the world’s biggest, has declined for the past three years.  The 250 biggest firms … shed more than 9,500 … nearly 8% of the total."

"The growth of outsourcing to places like India is not lost on money-conscious clients, some of whom are demanding that their _____ pass certain routine work to cheaper contractors.  …outsourcing firms, which do routine work … put further downward pressure on the demand for their talents …"

"A … trend is the growth of technology in an industry long synonymous with trained human judgment.  Software that can perform routine tasks … is saving firms money.  It has also make it harder to sustain a business model in which partners sit atop a pyramid with a fat base of associates who carry out expensively billed work, some of which is routine and repetitive. "

"Because the American market cannot grow as it used to, firms will have to find new strategies … to stand out.  If revenue is not growing as quickly as it used it to, more firms must … compete for market share as never before."

"What kind of firm is likely to thrive in this environment?  They don’t try to be everywhere … Nor do they try to do everything … likely to do well are tightly focused firms that concentrate on only a few fields. "

" …Offering anything anywhere has pitfalls for more expensive integrated firms"

"Trends that were not part of the recession will not disappear with the recovery.  Some will even strengthen … Not all firms will survive, and those that do will not all prosper equally."

Is the topic of this article advertising agencies?  It certainly could be.  But this piece is actually about the legal industry, which is suffering from the exact same megatrends affecting advertising, accounting, architecture, and other professional service industries. 

In law, the fastest-growing and most profitable firms are those that are:

1. Focusing on what they do best (instead of attempting to be “full service”)
2. Delivering mostly higher-value services and finding lower-cost provides for lower-value services (instead of trying to convince clients to pay some kind of “blended” rate for both kinds of services)
3. Aggressively leveraging technology (instead of wasting intellectual capital on tasks better done by software)
4. Taking creative approaches to compensation (instead of trying to perpetuate the pernicious hourly-rate system)

It’s no coincidence that the advertising agencies that are prospering are following a similar path.