According to Dave Montez, CFO of management consultancy The Gunter Group, professional service firms are evolving their revenue models, presenting a new challenge for the industry’s CFOs.
Professional services CFOs traditionally needed different tools and know-how to produce a predictable revenue stream. “A professional services firm sells labor, time, hours and expertise,” Montez told our Katie Kuehner-Hebert. “Among many other things, the professional services CFO needed to be highly involved in ensuring the proper time-tracking and invoicing, not to mention enforcing discipline about inputting that data across the organization.”
However, many services CFOs are entering a new world where the clock is not the master and billable time is no longer the sole determinant of the revenue forecast. In the new template, the project’s output, not the person-hours it takes, drives financial success.
In the following interview, we ask Montez to dive deeper into this dramatic shift and AI’s role in accelerating it.
The professional services industry is undergoing some changes in its model. Can you explain what those are?
Many professional services firms are transitioning to a project-based approach instead of hourly billing. By charging a flat fee for a project’s outcome, CFOs can take lessons from and apply expertise from goods-focused businesses. The change can simplify invoicing, but it takes a strategic CFO to determine how the shift will impact overall revenue and predictability.
These CFOs must create a highly refined approach to project scoping and billing. For instance, the scope of work must be particular to avoid creep, and the outputs must be specified in advance. While scoping and billing seem like account management roles, the CFO needs to be involved to ensure the project scoping aligns with expected labor costs, margins and overhead.
What role does AI play in these changes to the professional services business?
AI is influencing how professional services companies transition from a labor-based to a project-based approach in two critical ways.
First, much of the labor at a traditional professional services firm, for which companies would bill by the hour, can now be done in minutes with a trained AI tool. So, professional services firms can’t count on the time a task requires to be a revenue source any longer. That trend will only grow as AI tools become more specialized and tailored to specific industries.
Second, and most crucial for CFOs overseeing the labor-based to project-based shift, AI can help find the sweet spot where revenue, strategy, labor output and costs intersect. Ultimately, AI is a valuable tool in assisting a CFO in creating a smooth transition to a project-based revenue model while ensuring it benefits the clients and the firm.
Let’s shift gears. When does a CFO need to think about hiring an outside consultant?
Many CFOs eschew outside consulting support, often because the finance chief role is seen as a nuts-and-bolts one, while nebulous business strategy is left to others in the C-Suite. The CFO often considers themselves an executor of strategy. I disagree—CFOs should be a critical, influential voice in setting strategy.
For instance, a CFO should be integral to strategic decisions around widespread technology adoption, growth and expansion efforts, sales strategies, marketing investments, human resources, real estate acquisitions, etc. The CFO brings an essential perspective to all these decisions—a perspective other than the black-and-white financial impact.
At times, the CFO’s perspective is limited to their individual experience. Outside consulting and management strategy can be a valuable guide when that’s the case.
What is the most common mistake CFOs make when they hire consultants?
Thinking too narrowly. I’ve seen a CFO hire a consultant to help with a specific project; for example, a digital transformation project designed to increase the efficiency of monthly invoicing. The CFO has spent a lot of time considering the [available] tech tools and hired a consultant to implement and optimize the tool for the organization. But in that instance, the CFO is not thinking broadly enough.
Yes, a tool to help streamline invoicing makes sense. But in aligning all revenue-generating functions, the CFO and consultant should take a holistic approach across the company’s people, processes, data and technology—optimize everywhere rather than doing it function by function.
