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The Innovation Potential of Professional Service Organizations

Did you know that there are 760,000 professional service firms in the US, with a total annual revenue of $1.3 trillion dollars? And that the department of commerce expects that 50% of all new employment between 2012 and 2022 will be created in the health and professional services industries?Innovation potential

Is your organization going to drive this growth? Or are you currently in cost-cutting mode because your revenues are under pressure? To benefit from this growth you will have to innovate, but how good are you at innovating?


Here are some numbers to benchmark your performance. In total, the National Institute of Standards and Technology estimates that the professional services industry spends to $11.8 billion on R&D annually, which implies that on average each firm spends 0.9% of its revenues on innovation. As an example, if your firm had $10 million in revenues in 2013, your R&D budget would have been $90,000. What could you have achieved with this budget?

With a budget for innovation of $90,000, you should have been able to create $106,200 in revenues related to new business, based on Nagji and Tuff’s article in the Harvard Business Review. Are you having an average return on investment of 18% for your innovation efforts?

Likely not; professional service firms are rarely known for their innovativeness. This lack of innovation is actually kind of odd, since creativity is linked to knowledge. Moreover, most professional service organizations have decentralized and flexible organizational structures that are ideal for innovation. So, why are professional service organizations not more innovative? Probably, because they don’t know how to organize and manage innovation.

Innovation management has its origins in the manufacturing industry. Hence, innovation management methods are based on the needs of the General Motors and Proctor & Gambles of this world. However, the main assets of manufacturing firms are products, while the main assets of professional service organizations are people. To innovate, your organization thus needs an innovation framework that is structured around your people, not your products or services. Without such a framework, it will be a challenge to live up to the innovation and growth potential of your organization.

Interested in knowing how to become a top innovator as a professional service organization? Please visit our website or contact us by e-mail at info “at” organizing4innovation “dot” com. 



Census employment projections 2014

Nagji, B. and G. Tuff, Managing Your Innovation Portfolio. Harvard Business Review, 2012. 90(5): p. 67-74.

NSF and NIST planning report 05-1 Measuring Service-Sector Research and Development