On 12th January Keith Hardie at the PM Forum hosted a presentation by Alastair Beddow of Meridian West on the 11th Annual International Marketing Benchmark. Law firm panel members Tom Newman-Young, CMO of Moore Barlow and Deborah Fleming, M&BD Director at Walker Morris discussed their views after the presentation. I’ve added my reflections.
The benchmark provided a snapshot of the views of 112 marketing and business development (M&BD) leaders at professional service firms (PSF). 75% were from the UK, 14% Australia, 3% Ireland, 3% Canada and 5% from the rest of the world. 56% represented law firms, 18% accountancy firms, 9% property and construction firms, 5% management consultancy, 5% intellectual property and 8% other. Alastair will be writing an article for a future edition of PM Forum magazine.
1. Sentiment and outlook are down year-on-year
Over 70% anticipate a downturn in the economy in 2023 compared to 2022, but respondents believe that professional services will be more resilient than other sectors. The majority (73%) anticipate a decline in the economy as a whole, 14% a decline in professional services and only 7% in their firms (where 40% expect an improvement).
I wonder whether belief in the resilience of the professional services sector is justified. In past recessions, the UK professional services weathered tough economic times well – albeit with significant redundancies and restructurings and some consolidation/mergers. The latest economic results show an unexpected increase in UK GDP in November – although technically recession is judged on quarterly figures for which we will need to wait a further month. Inflation appears to have plateaued. The post-Covid bounce back looks like continuing. Yet the continuing conflict in Ukraine, the cost-of-living crisis, recent interest rate increases, industrial unrest, unemployment increases and issues caused by Brexit remain and may continue to have a recessionary impact.
2. Firms anticipate multiple constraints on their growth
Over half (57%) say the poor economic outlook will be a major constraint on growth this year. The top three constraints were rated as follows:
- 57% Poor economic outlook
- 43% Lack of skills and talent
- 43% Fee pressures
- 36% Margin erosion
- 34% Employee turnover
- 34% Financial health of clients
- 21% Political uncertainty
- 13% Lack of client instructions
- 10% Remote/hybrid working
- 9% Regulatory pressures
The importance of the lack of skills and talent – whether in candidates or existing staff – is an interesting observation. Professional services firms rely on a supply of high-quality candidates in both fee-earning and support roles for growth. Many firms across the sector are struggling to recruit at the required levels presenting capacity and potential service issues. Higher salary demands will put further pressure on profits/margins unless firms raise prices significantly (which some are doing).
3. Operational efficiency rises up the strategic agenda
Nearly two-third of firms (63%) place this among their top three management priorities. The top three management priorities were ranked as follows:
- Increase operational efficiency
- Develop people’s commerciality
- Develop a clear purpose and strategy
- Differentiate the brand
- Develop people’s skills and capabilities
- Increase use of technology
- Increase profile through thought leadership
- Exploit niche opportunities
- Develop new services
- Alter firm’s business model
It is a natural reaction in tough times to focus on operational efficiency – it is a prudent and standard response of professional services firms during recessions. Although I always wonder why managing efficiency takes precedence over growing revenues and profits – at a time when perhaps competitors might limit investment so those bold enough to do so obtain a “bigger bang for their buck”. I’m surprised at inward looking nature of the highest-ranked factors and how low both technology and innovation appear to be on firms’ agendas.
4. Client Experience (CX) and thought leadership remain top business development priorities
Researching growth markets and client segments are also up on previous years. Priority activities were ranked as follows:
- Making improvements to client service/experience
- Creating thought leadership and insight campaigns
- Obtaining feedback from clients
- Research in growth markets and client segments
- Providing training and support to fee-earners
- Marketing via social and digital channels
- Improving/establishing account management
- Relaunching or refreshing the firm’s brand
- Launching new products and services
- Investing in automation and artificial intelligence (AI)
- Improving project management on client engagements
I’m surprised at the apparent relative lack of innovation and creativity here. I’m also surprised that there wasn’t greater emphasis on collaboration and co-creation with clients, on improving data which is vitally important in the digital environment and in terms of client and referrer relationship management. There’s also no mention of pricing or sales management which are fundamental to marketing effectiveness in B2B environments.
5. Marketing and BD spend as a percentage of revenue falls back
Only 30% anticipate this to increase further this year. 57% think it will stay the same and 10% anticipate a decline.
The total M&BD budget as a percentage of total revenue at 2.88% was down on 2022 (where it was 3.35%) and also 2021 (where it was 2.92%) but slightly higher than 2020 (2.15%) which was when Covid struck and most M&BD budgets were slashed.
Whilst recognising the importance of fee-earner time investment in M&BD, which often does not appear in budget figures, the overall decline in budgets is worrying. Whether the economy continues to decline (as expected) or starts to improve, I would have expected firms to be investing in ensuring future streams of clients, revenue and profits.
6. Firms anticipate an average 8.5% increase in marketing budget
A smaller increase than last year, against a backdrop of high inflation. The figures were 2.3% in 2020, -1.3% in 2021 and 11.2% in 2022.
This indicates a reduction in real terms and relates to point 5 above.
7. Spend focused on BD technology, social media/web site and thought leadership
Investments in events and sponsorships are being scaled back. Increased spending was most likely in the following ranked areas:
- Business development technology and systems
- Social media and web site
- Thought leadership/content marketing campaigns
- Client listening initiatives
- Skills development for your team
- Sponsorships (although 31% saw this area decreasing)
- Virtual events (although 23% saw this area decreasing)
This result was a surprise – especially with research highlighted as a priority in earlier questions. There also appears to be a focus on marketing communications whilst personal selling and relationship management are not on the list. In many firms I have spoken to there is a drive to get people out and talking to clients, referrers and prospects for relationship management to a much higher extent than since the Covid pandemic.
8. Most firms anticipate BD headcount to remain stable and spend on BD salaries expected to keep pace with inflation
38% expect headcounts to be higher in Jan 2023, 57% see no change and 5% anticipate a decline. The average increase in spend on marketing and BD salaries anticipated for 2023 is 13.8%
A slight increase in headcounts is encouraging – particularly in view of the larger workloads many M&D teams are facing. Perhaps automation will be helping here as well. It’s good to see that salaries will increase above inflation which will be required to continue to attract quality candidates.
9. M&BD increasingly being asked to lead the ESG agenda
Many more firms expect to report publicly on this during 2023. In terms of the M&BD function’s current role in developing firms’ ESG (Environment Social & Governance) strategy and goals:
- 12% Limited
- 29% Consulted
- 34% Collaborative
- 14% Leading
- 12% Firms do not have an ESG strategy or clearly defined goals
Further results in this category looks at what firms have or are likely to implement in future: paid for services for clients to help them improve their ESG outcomes (41% have already), public report on firm’s ESG/sustainability progress (35%), third party ESG certifications (22%), requirement of outsourced BD and marketing providers to demonstrate commitment to ESG goals (16%) and assessment of client fit based on ESG criteria (13%).
The interesting point here is that we are witnessing the shift from opportunity to threat. At present, leading firms are seizing the opportunity to work with clients or suppliers on ESG, but when we reach a critical mass ESG credentials and strategies will become a threat or barrier to entry with those who don’t. There are numerous highly-regarded management courses addressing sustainability and the Cambridge Marketing College has some great material on sustainability for marketing professionals. Sustainability | Cambridge Marketing College (including a toolkit).
10. Marketing and BD leaders actively addressing D&I within their own functions
45% have strategies in place today, with a further 39% working towards this.
Another interesting result as this might be considered an area where human resources teams lead. I also wondered whether this is driven by the need of large, global clients rather than in response to other strategic intentions and/or the requirements of other client segments.
Discussion panel topics included
- Shift from last year’s focus on brand to current focus on client experience
- Cost increases and pricing implications
- Continuing strength in engineering, design and building and built environment sectors
- More emphasis on purpose – especially in sustainability (climate control was mentioned) and the use of storytelling
- Role of new service or product development
- Lessons from previous recessions
- Technology investment – particularly in client experience friction points, empowering clints and within M&BD
The survey is – as always – excellent quality and insightful. But I can’t help wonder whether the dominance of large, law firm respondents has somehow skewed the results and whether they reflect the views of those in smaller firms and/or those with less global/institutional clients.
Marketers beyond the professions
Talking to marketers outside the professional services sector, the main trends (albeit more tactical) they see are as follows:
- Purpose – standing out for standing for something
- Accelerated digital experience
- especially UGC, e-commerce, interactive (especially video) and experiential marketing
- Reaching modern flexible workers
- VR, AR, ER, the metaverse and gamification
- Content and channel context
- Automation and collaboration
- New skills (especially data analytics and digital)
- Account Based Marketing (ABM)
- Dashboards and ROMI accountability
- Influencer marketing
Views from firm leaders – Professional and Business Services Council (PBSC)
You may wish to also see the latest results of the Managing Partners’ Forum (mpfglobal.com) /PBSC consultation in terms of what 112 firms (55% SMEs, 48% law firms – of which 65% are firm wide leaders) want the government to know about the needs of Professional Services sector.
Professional and Business Services Council is the main independent forum for the Professional & Business Services (PBS) sector and the UK Government, working together to promote the long term success of the sector in the UK and globally. Comprised of a diverse range of subsectors, the PBSC includes the following among its members: Accountancy, Actuarial, Advertising, Architecture, Consultancy, Engineering, Law, Recruitment and Surveying.
Professional and Business services employs over 4.9m people and is worth over £238.4 billion to the British economy. Membership | PBSC
Be more strategic – PESTLE, Positioning and Plans (kimtasso.com) December 2022 – which includes The Economist forecasts for 2023 – with global growth projected as 1.5% – 3%