Episode 83 Transcript

Banoo Behboodi: Hi everyone, and welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. Thank you for joining me today. I'm Banoo, one of your co-hosts, and today, we're thrilled to have a group of remarkable guests joining us as we conclude our series on Gen Z in the workplace.

Brent Trimble: Welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. Happy New Year, everyone! Welcome to another engaging episode featuring both Banoo and myself. We truly enjoy these episodes together. It's always great to bring both hosts of our long-running podcast together to discuss market observations, guest interviews, and upcoming trends and predictions for the year ahead.

2024 was quite a roller coaster. There were economic fluctuations and significant geopolitical events, including wars. We witnessed remarkable innovations in AI, which will be a major topic in our conversation. Throughout these challenges, professional services firms—whether consulting, systems integration, change management, or software implementation—continue to navigate through a complex macroeconomic and political environment. They find ways to stay relevant, deliver and exceed client expectations, and meet profit and revenue goals. Finding the right balance of capability, service, talent, pricing, and go-to-market strategy has never been more critical.

Banoo, Happy New Year to you. We are recording this as we all prepare for the holiday break. Let's discuss some recent news and your plans for the holidays. Looking back, what stands out to you in this tumultuous year?

Banoo Behboodi: Well, first of all, let me wish everyone a Happy New Year. We appreciate all of you taking the time to listen to our podcast. It excites us and motivates us, so thank you for that.

But what a year, Brent. What a year. It has been exciting and scary, invoking every conceivable emotion regarding the world, the US, and the industry. At the beginning of the year, there was strong anxiety about a recession and AI's implications. Now, we are transitioning from anxiety to excitement about what AI will mean for all of us, including the service industry.

I attended the TSIA in November, and the predominant theme was the application of AI. The number of startups presenting AI-embedded solutions to address pain points in the professional services industry was impressive. These are truly exciting times, and it will be interesting to see how next year unfolds. But having had a year like this, it's hard to imagine topping it.

Brent Trimble: Indeed, it has been quite a year. The election, particularly in the battleground states, dominated much of the narrative. For our listeners outside the US, the election's conclusion has brought a sense of finality. Business colleagues and leaders seem to be exhaling, moving forward, and adapting to the new political landscape.

Globally, we witnessed significant elections in the UK, affecting many of our listeners and colleagues. This election cycle's resolution came after an immense amount of advertising spending, which is finally over. We also noticed that leaders in the US technology industry are weighing in more than before, discussing economic complexities and capital markets. Recently, the Federal Reserve announced a slowdown in the pace of interest rate cuts, impacting macroeconomic conditions and business expectations.

Let's delve into predictions for technology in the coming year. Considering our conversations with business leaders, conference insights, and the vast amount of information on AI's transformative potential, what are your predictions? Specifically, how do you foresee the deployment of technology for clients in professional services, and how will professional services themselves evolve to drive transformative change for clients?

Banoo Behboodi: From all of the exchanges we’re having, it’s clear that while the theme is not new going into 2025, the excitement and interest are being supercharged with AI. The transparency and predictability of business decisions rely heavily on actionable insights derived from data, which requires the right technology stack. AI, without quality data, cannot perform its functions effectively. Therefore, it’s crucial to ensure that the technology stack is structured to provide rich data for AI applications.

Predictability is a theme that leaders and professional services organizations have long desired. The advent and increased applicability of AI will fuel this desire, making it even more critical to ensure that the technology stack is equipped to deliver quality data. This leads to the consideration of vertical SaaS versus horizontal SaaS. My prediction is that the move towards AI will make vertical SaaS even more powerful. This is because vertical SaaS, with its purpose-built capabilities for specific industries like professional services, will provide richer data compared to horizontal SaaS, which touches many areas but lacks the same depth. That’s one of my key thoughts on the matter.

Brent Trimble: We have lived through several technology boom and bust cycles. In one of our previous episodes, we discussed the early stages of our careers and the Y2K phenomenon. I recently attended a conference in New York about eight weeks ago, where consulting and marketing services CEOs discussed AI's transformative impact on their businesses.

During a panel discussion, I mentioned how just 24 months earlier, conference conversations centered around NFTs and their potential to revolutionize various landscapes. I acknowledged that while NFTs appeared somewhat frothy, apologies to enthusiasts, the current AI wave feels significantly more substantive.

Having utilized AI technology in diverse ways, it is intriguing to see how service firms are leveraging it. Internally, they're exploring use cases such as accelerating services with commercially available large language models, analyzing data sets, and applying agentic applications. Rather than replacing people, AI helps reallocate tasks, allowing personnel to focus on higher-value activities.

I'm excited about these developments. Many professional service firms are now building AI-driven products for clients, which directly impacts their economic outlook. The rapid adoption of AI within these firms is both acute and exhilarating to observe.

As I noted, we're recording prior to leaving on the break, but there was an evocative, provocative soundbite, and I encourage everyone to take a look at it. The BG2 Pod, they get great guests, like founders and big hitters in the technology world.

Satya Nadella, the CEO of Microsoft, noted that he sees an evolution in SaaS and application development coming where the business logic—and I'm paraphrasing him here, I encourage everyone to listen to the podcast—agentic AI has the potential to take the logic that's now contained within a lot of applications and apply that over these massive databases. Most SaaS platforms are containers of lots of data, and the application layer provides the logic. This has real profound implications for the SaaS industry.

I think it's interesting to hear that coming from him. It was a wide-ranging conversation, nearly an hour in the BG2 Pod. As we're sitting here getting ready for the New Year break, if your road trip or drive time takes you on some miles to visit family or go on vacation—we're going skiing—I may throw this pod in.

Of course, I put our pod in to get the eyerolls from my pre-teen and teenage son. I encourage everyone to listen to that. It's interesting how someone who's the CEO of a massive, intertwined, legacy technology company is looking at how business logic could move to agentic frameworks and potentially transform SaaS.

Banoo Behboodi: I personally will definitely listen to it. But also, please do listen to our own podcast.

Brent Trimble: Oh, absolutely. Sometimes I like to put one on and see if the kids are paying attention.

Banoo Behboodi: Certainly, my children are older, but we do that all the time. It is quite daring of you to do that with teenage sons in the car, but it's great. Other aspects I wonder about include how much more push we will need to make towards responding to customer needs or requests for more hyper-personalized experiences. I believe these are areas where AI capabilities will allow us to provide higher quality, more personalized, targeted solutions to our customers. What is your perspective on how we will evolve our solutions and delivery methods going into 2025?

Brent Trimble: Well, the expectations will always be through the lens of personalization and targeting. Can the solution be more granular, contextual, and relevant? The answer to these questions often involves AI.

We see this clearly as we deliver SaaS solutions with AI enablement to clients in the professional services space. These clients demand operational solutions with greater velocity, personalization, and responsiveness, while also creating AI-driven solutions for their own customers. The economic growth in this area is evident in the earnings statements of major consultancies.

At recent conferences, the foundational aspects of AI were emphasized. In client engagement, AI tools help with capturing data, creating conference reports, action plans, and project management. These tools are becoming essential for being anticipatory, tracking client sentiment in real time, and enhancing overall responsiveness. This shift towards AI integration is becoming the norm, replacing older methods of operation.

Banoo Behboodi: Yes, I agree. I want to focus, Brent, on the core aspect of our professional services: our talent. What are the major themes for the next year regarding talent management? A few points I want to highlight include the critical need to future-proof our talent. Things are moving rapidly, and our employees expect us to support their knowledge evolution to stay relevant. If they don't find this support, they will seek opportunities elsewhere, as staying relevant is paramount. Becoming irrelevant can happen quickly. Therefore, it's essential to have an agile environment with well-defined processes to ensure we are future-proofing our talents. I would be interested in your thoughts on this.

Brent Trimble: There's reason for optimism on several fronts. First, looking at the business indices as we approach the holiday break, there's an uptick in hiring predicted in professional services firms. If you look at data from Robert Half, which focuses on IT sourcing, placement, and long-term hiring, they indicate that 63% of firms in their purview are considering permanent placements. This is a positive sign. We also see this in the quarterly reports and earnings statements of some professional services firms. It seems we've reached a backstop from the overhiring during the COVID years, leading to a healthier hiring outlook.

When it comes to relevance, I'll refer back to conversations with leaders at various conferences. They emphasize future-proofing and training their workforce, building a culture of experimentation, and funding upskilling initiatives. Taking classes in basic prompt engineering is a low investment with great returns. There are excellent platforms available for this. Personally, in my spare time when I'm not preparing for podcast recordings, I go through foundational courses to learn how to interact with large language models. You don't need a computer science degree for this, and you can advance to more complex topics.

Carving out time for professional development is crucial. In professional services firms, leaders focus on capacity: how many working weeks are in a year, how many working hours in a day we expect our folks to be productive, and how to carve out time for professional development. You can't improve what you don't measure, so setting standards for professional development certification, upskilling, and AI experimentation is essential. As the workforce becomes more adept at using these platforms, they can identify and deploy use cases for clients and within consulting firms.

For example, one firm tackled the mundane task of filling out RFIs and RFPs. This process is time-consuming, and everyone goes to their repository of recently completed RFIs and RFPs to find relevant answers. They built lightweight utilities and simple AI tools to speed up this process. This initiative started with funding some basic prompt engineering classes and carving out an hour or two a day for employees to work on it. From these basic underpinnings, they advanced, and as you mentioned, the pace at which skills can atrophy is rapid, so staying relevant is critical.

I'm hopeful and encouraged by the larger firms like Accenture, IBM, and PwC, which have rigorous continuous learning platforms. For the myriad of other professional services firms out there, I encourage similar efforts. It's great to see these initiatives taking off, sometimes organically and sometimes in a more structured manner.

Banoo Behboodi: Yes, we did a series this year, or I should say in 2024, about Generation Z and what it means to hire and retain more Generation Z talent. If there are any points we should be intentional about regarding managing Generation Z, I invite everyone to listen to those podcasts. We did a series of three, the last one featuring interviews with some bright Generation Z individuals, including my daughter. It was fascinating to hear what interests them and how their motivations differ from mine at that age. Anticipating generational changes in our workforce and preparing for them is crucial. Ensuring we are technology-enabled, minimizing low-value tasks, and preventing frustration from repetitive tasks are essential. On the other hand, providing meaningful work and the sense that they are adding value to clients will motivate them. Future-proofing them through technology will continue to be important going into 2025.

Brent Trimble: This has profound implications for how technology is crafted and deployed. The expectations for user interface design and applications are increasingly anticipatory, elegant, and fast, with minimal latency. This generation has grown up with iOS interfaces and various technologies consumed by the minute. This affects both our services firms and the leaders we engage with in delivering services, as well as the technologies we build to enable that.

Thinking back, we just finished integrating the millennial population, dealing with news about parents showing up at interviews alongside their children. I did experience that, onboarding waves of millennials, with parents sometimes negotiating starting salaries. Now, millennials hold senior positions, and it's time to focus on the next generation.

AI and the relationship with technology are crucial. Automating what was once considered rote, mundane tasks and giving this generation purpose and high-value work is essential.

Banoo Behboodi: Yeah, it's interesting. As you said, this generation feels enabled and empowered because they are so tech-savvy. They don't need their parents to negotiate for them, which is exciting to see evolve.

Another important topic is the evolution of revenue models within the services industry. Traditionally, we've talked about time and material engagements, fixed price engagements, and annuities. These are common business models. Some have explored value-based pricing and subscription pricing, as discussed in some of our podcasts this year.

With advancing technology, part of the challenge in value-based pricing and commercial models has been the ease of execution and risk-sharing. I believe that with technological evolution, it will become easier to adopt these models. Subscription commercial models offer much more predictability. I wonder how much more we'll see a shift toward subscription-based models.

I'd be interested in your thoughts.

Brent Trimble: We have had several guests who advocate for the shift to value-based productization of services on the client side, and we see this trend accelerating into 2025. For example, Caroline Johnson re-architects business models for consulting and marketing services firms to productize their offerings. Upcoming guests who have successfully implemented this strategy will share their experiences. This transition requires changing established practices like revenue recognition, accounting standards, and ASC 606 compliance. However, firms that specialize and adopt this approach can future-proof their businesses. The perceived value of billable hours, especially with AI automating many tasks, is decreasing. Therefore, the convergence of AI, economic conditions, and careful client spending will continue to drive this shift.

On the flip side, I'm interested in understanding your thoughts. As part of a vertical SaaS platform for professional services, there's been considerable discussion around our pricing models and structure. I've come across some insightful pieces, particularly by Thoma Bravo, a private equity firm with a substantial SaaS portfolio. They discuss the future of SaaS consumption and the move beyond per-seat pricing models.

Thoma Bravo's article, "Beyond the Seat: The Future of SaaS Business Models," explores innovative thinking around SaaS consumption and pricing. They highlight companies like Twilio, Snowflake, and iPipeline that are experimenting with sharing risk with clients and committing to specific outcomes. This shift could lead to more creative pricing models where outcomes and client success are prioritized.

In conversations about SaaS investments, the notion of sharing risk with clients and ensuring a return on investment is gaining traction. Traditionally, enterprise software required businesses to conform to it, but now there's a shift towards software that adapts to business needs.

Have you encountered similar discussions in your recent engagements, perhaps at the TSIA conference, about evolving pricing models and sharing risk with clients?

Banoo Behboodi: I don't have any specific points to share from the TSIA conference or other sources. However, in general, there's an ongoing evolution from focusing on customer experience to subscription SaaS models, and now towards outcomes-based models. We've made that transition ourselves this year, shifting our conversations to align with customer outcomes and ensuring that their investments deliver the desired business results.

It's going to be interesting to see how SaaS pricing models evolve to be more outcomes-based. We are getting closer to achieving this with our service delivery models. Sharing risk with clients becomes more feasible when we have confidence in our solutions' ability to provide the desired outcomes.This gives us a controlled risk environment and the willingness to adopt outcome - based models.

While I don't have a specific prediction, I believe our traditional models will be challenged. How exactly this evolution will unfold will be fascinating to observe when we revisit this topic in 2025.

Brent Trimble: It certainly bears watching, and I think it could be something that begins to emerge more particularly with the investment community that fuels the growth of many technology companies, including ours. If they pay attention to this, it could have significant implications.

Wrapping up our predictions with some optimism and potential growth, we see a business cycle of flat to tepid growth over the past two years.Looking at the quarterly earnings of major consulting firms, such as Accenture, is interesting.They drive the market in professional services, offering not just transformation consulting but also managed services and product development for clients.

As we prepare for the holiday break, Accenture has beaten their quarterly revenue estimates, driven by strong demand for generative AI services and transformation products.Their shares rose by 5% to 8%, according to the data sources we monitor.We've had guests from Kennedy Intel, like Tom and Ramone, who discussed the consulting outlook, forecasting mid-single-digit growth in 2025. Services firms are investing in upskilling and new capabilities in response to market demands, with clients potentially increasing their spending.

There are modest but promising signs of growth in the year ahead.Consulting clients I talk to at Kantata echo this sentiment.What are your news sources and anecdotes from discussing clients' growth plans for the coming year?

Banoo Behboodi: I think everyone is looking at 2025 with a lot of optimism. As you know, 2024 saw significant rightsizing across our customer base, but there is widespread anticipation of growth in the coming year. The recent political decisions and voting outcomes may lead to more mergers and acquisitions, increasing flexibility and presenting interesting opportunities.

We are closing 2024 with strong economic projections, and it will be exciting to see how these play out in 2025. There is a palpable energy among our customers about their performance and outlook for the upcoming year. Engaging with them reveals a shared enthusiasm for the possibilities that 2025 holds.

Brent Trimble: That's great, and we'll look back at this episode to see if these predictions were accurate. I share that sentiment. In our different roles in the firm, we both talk to many clients daily, particularly in the services sector. We are seeing a guarded optimism. While Wall Street isn't the only indicator, the reporting from public companies, such as Accenture's $1.5 billion generative AI business, shows healthy growth.

Our hope is that we look back at this year as one of steady, temperate growth for professional services firms, our technology, and our partners.These shared episodes we do are extremely enjoyable.I'm excited to have a bit of a break. What are your holiday plans with your globetrotting family?

Banoo Behboodi: Not to be global. Everyone's coming home, which is exciting. We are spending it in California together, which is the best time. As you said, we are very distributed. For you to be driving up and skiing, I know you love skiing and outdoor activities. That should be exciting.

Brent Trimble: It will be. Christmas on the East Coast, affectionately called the Ice Coast, is always touch and go, but we get out there, put on our skis, and enjoy the slopes. After a day of skiing, everyone gathers at the lodge to share their stories and enjoy some rest. We are looking forward to a fast-paced January.

Banoo Behboodi: Exactly. Enjoy those podcasts with your son, but don't overdo it. I wish you a great holiday season. Happy New Year to everyone. Brent, it's been a pleasure.

Brent Trimble: Likewise, I look forward to our next co-host pairing episode.

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