This post is part of the series: Managing the Professional Service Firm.
Managers of professional service firms face many challenges. This series attempts to provide a helpful collection of resources, concepts, and frameworks for understanding and addressing them.
The business model answers the question, “How do we create value for our customers and our firm?”
Value = Benefits – Costs
The purpose of this article is to canvas the the business model of the professional service firm. This method identifies the key partners, activities, resources, value propositions, customer relationships, channels, customer segments, cost structures, and revenue streams that make up the business model in a concise and easy to understand method.
The business model canvas — as opposed to the traditional, intricate business plan — helps organizations conduct structured, tangible, and strategic conversations around new businesses or existing ones. Leading global companies like GE, P&G, and Nestlé use the canvas to manage strategy or create new growth engines, while start-ups use it in their search for the right business model. The canvas’s main objective is to help companies move beyond product-centric thinking and towards business model thinking.
Alexander Osterwalder, HBR
The business model canvas helps us to define the strategy. Picking markets, target clients, differentiators and services based on a clear and easily understood strategy is invaluable in getting everyone in the firm headed in the right direction. Without a well-conceived strategy everything else suffers.
Definition: The Professional Service Firm (PSF)
One of my favorite reads on professional service is by David Maister; the following definitions are from his book Managing the Professional Service Firm:
A professional service firm (PSF) is a firm in which professional skills form the basis of its offering to customers. Examples of such PSFs are lawyers, consultants and IT service firms.
Two aspects of professional work create the special management challenges of PSFs:
- Customization. Professional services require a high degree of customization, so that approaches from the industrial or mass consumer sectors, based on the standardization, supervision and marketing of repetitive tasks and products are difficult to apply.
- Client contact. Most professional services have a strong component of face-to-face interaction with the client.
In order to meet these challenges, a professional service firm must hire and retain highly skilled individuals, the firm’s talents. This means that the PSF must actively compete in two markets simultaneously: the product market for its services, and the factor market for its productive resources, the professional work force.
David Maister, Managing the Professional Service Firm
Modeling the Professional Service Firm
The following is a breakdown of the professional service firm into the business model canvas components. There are distinct differences between a service firm and other business models like manufacturing. This article highlights these differences and offers some tips.