According to Dave Montez, CFO of Gunter Group's management consultancy firm, professional services companies are evolving their revenue models, presenting new challenges to industry CFOs.
Professional Services CFOs traditionally needed a variety of tools and know-how to generate predictable revenue streams. “Professional service companies sell labor, hours, hours and expertise,” Montes told Katie Kuhner Hebert. “Among many other things, CFOs had to be very involved in ensuring proper time tracking and billing, not to mention implementing discipline regarding entering data across the organization.”
However, many service CFOs are entering a new world where clocks are not mastered and billable times are no longer the only determinant of revenue forecasts. In the new template, the output of the project will promote financial success rather than time it takes.
In the next interview, we ask Montes to dive deeper into this dramatic change and the role of AI in accelerating it.
The professional services industry has undergone several changes to its model. Can you explain what they are?
Many professional services companies are moving towards a project-based approach rather than an hourly billing. By charging a flat rate for project outcomes, CFOs can take lessons and apply their expertise from product-centric businesses. This change could simplify the invoice, but a strategic CFO is required to determine how the shift will affect overall revenue and predictability.
These CFOs need to create a highly sophisticated approach to project scoping and billing. For example, the scope of work must be specific to avoid creep and output must be prespecified. Scoping and billing seem like an account management role, but you need to have the CFO involved in ensuring that project scoping matches the expected labor costs, margins and overhead.
What role does AI play in these changes to our professional services business?
AI has influenced how professional services companies move from labor-based to a project-based approach in two important ways.
First, much of the work done in traditional professional services companies, which companies charge timely, can be done in minutes with trained AI tools. Therefore, professional services companies cannot rely on time that requires tasks to be a revenue stream any longer. That trend only grows to make AI tools more specialized and tailored to a particular industry.
Second, AI, the most important thing for CFOs overseeing labor-based project-based shifts, can help them find sweet spots where revenue, strategy, labor output and costs intersect. Ultimately, AI is a valuable tool in ensuring that CFOs will benefit clients and businesses while creating a smooth transition to a project-based revenue model.
Shift the gear. When should CFOs think about hiring external consultants?
Many CFOs avoid it outside of consulting support. This is left to C-Suite's other business strategies, as the main role of finance is often seen as the role of nuts and bolts. CFOs often view themselves as the executor of strategy. I disagree. CFOs should be important and influential voices in setting strategies.
For example, CFOs must be crucial for strategic decisions on broad technology adoption, growth and expansion efforts, sales strategies, marketing investments, HR, real estate acquisitions, and more. CFOs bring an essential perspective to all of these decisions.
Sometimes, the CFO's perspective is limited to individual experiences. External consulting and management strategies can be a valuable guide if so.
What are the most common mistakes CFOs make when hiring consultants?
I'm thinking too narrowly. I've seen CFOs hire consultants to help with specific projects. For example, a digital transformation project designed to increase the efficiency of monthly billing. The CFO is [available] I hired technical tools and employment consultants to implement and optimize the organization's tools. However, in that case, the CFO is not thinking enough.
Yes, the tools that help streamline your invoices make sense. However, when coordinating all revenue-generating capabilities, CFOs and consultants need to take a holistic approach across the company's people, processes, data and technology.
