How to Turn Professional Services Into Products
MIT Sloan Management Review|Fall 2024
Product-based business models can help services firms achieve greater scale and profitability. But the transformation can be challenging.
Mohanbir Sawhney
How to Turn Professional Services Into Products

PRODUCT MANAGEMENT IS ONE OF the fastest-growing roles in business, having gained increased scope and importance in Silicon Valley. While product managers used to be hired almost exclusively by technology companies, they are now being recruited in growing numbers by service-oriented businesses as well, with firms such as Accenture, Chase, JPMorgan, Optum, and Vanguard adding product management functions in the past few years. Why are services companies looking to add product capabilities to their organizations?

Professional services firms, which span a wide range of sectors, including IT, legal, marketing, and tax and accounting services, face two major growth challenges. Owing to the significant human involvement in service delivery, their gross margins are low, and their head counts scale linearly with increases in revenue. Product companies enjoy much higher growth margins and revenue per employee. This explains why startups that offer software-as-a-service products are valued at six to eight times their annual revenues, whereas startups that offer project-based services are valued at one to two times their annual revenues.

Recognizing the challenges of margins and scalability, professional services firms are trying to evolve into product-like companies by productizing their services. This involves automating, standardizing, and packaging aspects of a service into a tangible, repeatable, and scalable offering that is efficient to produce and easier to scale.

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