Across the sprawling business sector known as professional services—a continent-sized region of the economy that encompasses accounting, advertising, law, and dozens of other non-physical industries—the leaders of midsize firms anticipate a year of tech-fueled growth, according to research by SAP Insights. And AI is only part of the story.

Professional services firms have emerged from the last few turbulent years in relatively good shape. The sector escaped the worst ravages of the pandemic, as companies in the wider economy enlisted consultants, recruiters, and other outside help to navigate those historic disruptions. They were then buoyed along with everyone else by the rising tide of the post-pandemic recovery. With fears of recession now easing and businesses retooling for an AI-powered digital future, market analysts anticipate growth. One forecast, by Business Research, estimates annual growth of about 5% for professional services (including both midsize and large enterprises) with a global market size approaching US$8 trillion by 2028.

To understand the challenges and priorities of midsize companies—defined as those having between 250 and 1,500 employees—SAP Insights conducted a global study in 2024, comprising 12,003 responses across numerous industries. Of those responses, 803 came from professional services company leaders—91.7% of whom cited growth as an organizational priority over the next 12 months, with 40.1% looking to new technology as a primary means of achieving business expansion.

However, drilling down into the numbers, we find that professional services leaders’ plans for harnessing new technology are characterized by more caution—with a wariness of AI in particular—than those of leaders in other sectors. Not only that, but the professional services sector’s new focus on technology is accompanied by fears of a looming talent crunch.

1. Playing tech catch-up

Leaders of professional services firms see technology as central to their plans for short-term growth. The SAP Insights survey found 40.1% citing the “increasing automation of business processes” among their top three most significant growth plans over the next 12 months, compared to only 37% for survey respondents from other industries.

Look more closely, though, and this tech enthusiasm seems fueled less by excitement at the business potential of new tools and technologies and more by a fear of being left behind. Among leaders of these companies, 31.8% cited “outdated or inefficient technology systems” as one of the top three impediments to growth, compared to 29.4% among the survey respondents in other industries.

Not only that, but professional services leaders were more likely than their counterparts in other sectors (by 39.7% to 36.5%) to value tech investment as a defensive strategy, as a hedge against the prospect of economic uncertainty, rather than a proactive play for growth and market share.

Given this somewhat conservative mindset, it’s perhaps not surprising that we find more than one-third of professional services organizations prioritizing such familiar digital transformation goals as increased automation of business processes. And, when asked to consider how they would use technology to reach their growth plans, that they would cite such pragmatic moves as:

• Using data more strategically, with 50.4% stating that investing in new or updated analytics and decision-making tools was among their top priorities
• Investing in new or updated business software systems (49.2%)
• Using technology to “improve the integration of systems” (44.3%)
• “Moving software systems to the cloud” being high on their priority list (39.7%)

What explains this defensive crouch? Why is it that professional services organizations find themselves playing technological catch-up with other sectors of the economy?

Most likely it’s a function of what professional services actually are. By definition, and especially for midsize companies, these enterprises don’t sell tangible products. Rather, their product is human knowledge, know-how, and the expertise that comes from experience. Technology can and does play an important role in enhancing, monetizing, and putting to use these human intangibles. But a professional services firm’s competitive advantage does not depend on technology the way that it does in, say, manufacturing or retail. By the very nature of the industry, professional services firms have always had the luxury of lagging a little, in their adoption of technological Next Big Things. (This research covers midsize firms; notably, large professional services firms have been known to acquire technology units, as McKinsey has done through the acquisition of an analytics company.)

2. Professional services leaders: “We’re AI cautious”

Nowhere is this conservative approach more apparent than in the sector’s cautious adoption of AI technology. Yet professional services firms haven’t been living under a rock. Indeed, more than 70% say they’re already using AI systems (including generative AI) to a moderate or strong degree across their business processes, with top activities including gathering market intelligence, monitoring for cybersecurity threats, developing sales content, and developing and testing software. However, the survey found that for every task—except for cybersecurity and gathering market intelligence—professional services firms trail other industries in their rates of AI adoption. For example, professional services firms lag in software application development, in interactions with customers and vendors, and in automating recruitment.

There may be more at play here than just this human-powered sector’s historically languid adoption of new technologies. Professional services leaders have particular concerns about AI. The potential for legal liability arising from AI inaccuracies is seen as a major risk by 33.6% of professional services leaders, compared to 30.4% of those in other sectors. A similar proportion (33.9% compared to 31.5% of other respondents in the survey) are worried about the “lack of transparency behind AI-generated results.”

Once again, these anxieties likely reflect the special nature of the practitioners in this industry. Unlike a vendor of physical merchandise, a consultant or lawyer needs to “show their work,” explaining the logic and wisdom behind an advised course of action. If any link in the chain of reasoning has occurred within the impenetrable black box of an AI large language model, needless to say, the client’s confidence in a recommendation will be diminished. And when a recommendation yields a bad outcome, the vendor may no longer be able to hide behind the shield of human fallibility.

3. The scramble for talent

While this cautious commitment to technology, and specific concerns about AI, holds sway within professional services firms, these firms are under no illusions that their clients share their wariness of these newest technologies. Indeed, as noted in Figure 2, 36.5% of professional services leaders said their primary concern about AI was the challenge of “finding, attracting, and retaining talent with AI skills” to help their clients forge a more active course into an AI future. That is markedly more than respondents in other industries (32.6%).

This may not seem like a large—or surprising—divergence from the average. Human talent, after all, has been the lifeblood of professional services from the beginning. It stands to reason that as leaders in the field prepare for anticipated years of growth, at the top of their minds they would have the challenge of finding and retaining talent.

But this deceptively modest figure obscures a pair of more dramatic, and offsetting, trends.

Trend one: the shift to remote work. Professional services leaders were more likely to rate “increasing remote and flexible work” as a priority than respondents from other industries (52.2% in professionals services rated this a high priority compared to 47.7% in others). It’s not difficult to see why. The work-from-home boom that outlasted the pandemic has made it easier than ever for professional services firms to find and hire talent to meet the needs of their clients. Consultancies in particular, prior to 2020, were notorious for their feast-or-famine hiring cycles: staffing up aggressively during times of macroeconomic growth, with sharp layoffs at the first sign of a slowdown. Today though, with so many professionals happily working remotely, often for multiple clients, consultancies have finally been able to unhitch their hiring patterns from the roller coaster of the business cycle. They can now retain talent as needed, on a short-term or contingent basis, per client or per contract, avoiding the cost and disruption of constantly having to onboard and terminate full-time employees.

Trend two: the rise of the boutique professional services firm. The steady drumbeat of digitalization over the last few decades has changed both the size and shape of the professional services sector.

Take consulting, again, as the emblematic example. The digital transformation era not only drove growth across the industry but triggered an explosion in the number of smaller, more specialized firms, as noted by research at Leland. Clients hire these smaller outfits to tackle technical aspects of a transformation more directly, and cheaply, than the industry’s behemoths. With AI now looming, that growth in boutique firms continues.

The difference between the boutiques and the behemoths isn’t as stark in professional services as it may be in other industries; management consultants, lawyers, and public relations firms come in every size. But with the sector’s future looking rosy and increasingly specialized, it is to be expected that the leaders of midsize professional services organizations are losing some sleep—not whole nights, perhaps, but a non-billable quarter-hour here and there—wondering how and where they can find more professionals.

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