Forrester weighs in on how AI is transforming professional services

The current landscape: Professional service providers, from consultancies to law firms, are experiencing unprecedented disruption as genAI-powered digital assistants enhance human capabilities and automate routine tasks.

• These AI tools are enabling service providers to complete more work in less time with smaller teams, directly impacting the traditional billable hours model
• The transformation affects a broad spectrum of industries including systems integrators, business process outsourcers, management consultancies, marketing agencies, tax advisors, financial auditors, and legal firms

Historical context and future implications: Previous industry disruptions like offshore labor and cloud computing ultimately led to lower costs and increased demand for technology services.

• The next five years will be crucial for service providers to adapt and transform their business models
• Success in this new era requires a shift toward asset-based, solution-driven, and outcome-oriented approaches
• Organizations must be willing to cannibalize their existing time-and-materials commercial models while simultaneously reskilling their workforce

Market dynamics and competitive advantage: Scale and financial stability will play crucial roles in determining which service providers succeed in the AI era.

• Larger providers with strong balance sheets are better positioned to reinvent themselves as post-AI service providers
• Smaller or less adaptable providers may struggle to maintain competitiveness
• Successful transformation requires significant investment in new technologies and business model innovation

Strategic recommendations for technology executives: Rather than focusing solely on negotiating lower rates, technology leaders should seek broader value from their service providers.

• Look for providers who can deliver projects faster and at lower costs
• Seek opportunities for co-investment in intellectual property that provides mutual benefits
• Evaluate providers based on their ability to offer new managed services and guidance through AI transformation
• Prioritize ongoing partnerships that leverage providers’ current and future AI investments

Looking ahead: The transformation imperative: The evolution of professional services in response to genAI represents both a challenge and an opportunity for providers and their clients, with success hinging on the ability to embrace fundamental change while maintaining service quality and client value.

• Organizations that proactively adapt their business models and invest in AI capabilities will be better positioned for long-term success
• The focus on outcomes rather than billable hours marks a significant shift in how professional services will be valued and delivered
• The transformation will likely accelerate as AI technology continues to advance and mature