Engaging Executives

Hollywood and the Future of Professional Services

Mark S. Bonchek, Ph.D.
June 2002

A revolution is underway in professional services. The old models of professional services – built for the industrial age – are obsolete. New models are needed that are appropriate to a knowledge-based economy built on ideas and relationships, not products and equipment.

In the industrial economy, disciplinary boundaries between professional service sectors made sense. Corporations were organized by function. Each functional head was a client for a corresponding discipline: CFO’s with accountants, CEO’s with strategy, marketing officers with advertisers, etc.

Professional service firms mirrored the hierarchies of their clients. Partners sat at the top of the pyramid, holding out the brass ring of partnership for the managers below.  In turn, these managers directed a cadre of junior apprentices fresh out of professional school. The career ladder was as rigid as any in their client organizations.  The information age has changed the structure of the global economy. Companies are shifting from functional hierachies to networks – clusters of competencies surrounded by outsourcing relationships, strategic alliances, and integrated supply chains.

Just as the structure of professional service firms echoed the structure of industrial corporations, so too must the structure now echo that of the networked enterprise.  Professional service firms must become networked themselves, organized around cross-disciplinary competencies.

The future of professional services looks very much like Hollywood today. In Hollywood, top production companies like Dreamworks orchestrate an elite set of contractors across a diverse set of competencies. Directors, producers, cinematographers, actors, and designers gather together for individual movies and
then disperse.  Some individuals work together repeatedly over time, not because they have to, but because they choose to and because they produce better work that way.

The professional service firm of the future will be a production company.  Twenty years from now, we will look back on the professional services industry at the turn of the century the way we look back on the Hollywood studio system of the 1950s.  Back then, the major studios ruled the industry. Studios were vertically integrated monopolists. They locked talent with long-term contracts, churned out formulaic scripts, and distributed films through their own theaters to captive audiences.  But television and deregulation changed all that.  The studio system soon collapsed.

Comparing the Hollywood studio system of the 1950s and the professional services industry of today is not that far a stretch. Today’s professionals are like Hollywood stars in the 1940s – locked into long-term contracts. Most services today are as undistinguished and formulaic as scripts of yesteryear. And clients are like the captive movie audiences with nowhere else to go.

But not for long. The Internet has enabled new forms of communication, collaboration and networked organization. Virtual organizations are now possible in ways that were unimaginable a decade ago. The professional services industry has also matured.  Methods and skills that were once proprietary to organizations are now standard practice. World-class public relations or web site development is now available as easily from an independent professional as from a large firm. Regulatory changes are also afoot. The Enron scandal has already initiatied changes to accounting, consulting, and investment banking.

Ironically, professional service firms have been instrumental in enabling corporations to make the transition to a knowledge-based economy. They have developed the strategies, executed the deals, built the technology, and created the marketing that has reshaped entire industries. It is now time for these same changes to reshape professional services. If experience is any guide, these changes will be highly
disruptive and the outcomes unpredictable. We shall see if professional service organizations find their own medicine as palatable as it has been profitable.