Tunneling in Product Management: Why Teams Miss the Bigger Play

Tunneling is one of the quietest and most corrosive forces in product management. I was gifted Upstream by Dan Heath from a product leader, and of course it was full of amazing product insights. The section on tunneling really stood out to me and was the inspiration for the following article.

Tunneling is one of the quietest and most corrosive forces in product management. Dan Heath defines tunneling in Upstream as the cognitive trap where people become so overwhelmed by immediate demands that they become blind to long term thinking. They fall into a tunnel, focusing narrowly on the urgent problem in front of them, while losing the ability to lift their head and see the structural issues that created the problem in the first place. It is not a failure of talent. It is a failure of operating conditions and incentives that reward survival over strategy.

Product teams fall into tunneling more easily than almost any other function. Shipping deadlines, stakeholder escalations, outages, bugs, demos, and endless “quick requests” push teams into a survival mindset. When tunneling sets in, teams stop working on the product and start working for the product. Their world collapses into keeping the next release alive, rather than increasing the long term value of the system.

This post examines tunneling in product management, how to recognize it, and why great leaders act aggressively to eliminate it.

The Moments That Signal You Are Already in the Tunnel

Product managers rarely admit tunneling. Instead, it shows up in subtle but repeatable patterns. When I work with teams, these are the red flags that appear most often.

1. Roadmaps turn into triage boards

When 80 percent of your roadmap is filled with fixes, quick wins, client escalations, and “urgent but unplanned” work, you are not prioritizing. You are reacting. Teams justify this by saying “we need to unblock the business” or “this customer is at risk,” but in practice they have ceded control of the roadmap to whoever yells the loudest.

2. PMs stop asking why

Tunneling pushes PMs to accept problem statements exactly as the stakeholder phrases them. A leader says “We need this report,” and the PM rushes to gather requirements without asking why the report is needed or whether the underlying decision process is broken. When discovery collapses, product strategy collapses with it.

3. Success becomes defined as getting through the week

Teams celebrate surviving releases instead of celebrating impact. A product manager who once talked passionately about the user journey now only talks about the number of tickets closed. The organization confuses motion with progress.

How Tunneling Shows Up in Real Product Teams

Example 1: The never ending backlog of “critical blockers”

A global platform team once showed me a backlog where more than half the tickets were marked critical. When everything is critical, nothing is strategic. The team had allowed sales, implementation, and operations to treat the product organization as an on demand task force. The underlying issue was a lack of intake governance and a failure to push accountability back to the functions generating the noise.

Example 2: Feature requests that mask system design flaws

A financial services product team spent months building “one off” compliance features for clients. Each request seemed reasonable. But the real problem was that the product lacked a generalizable compliance framework. Because they tunneled into each request, they burned time and budget without improving the architecture that created the issue.

Example 3: PMs becoming project managers instead of product leaders

A consumer health startup repeatedly missed growth targets because PMs were buried in ceremonies, reporting, and release wrangling. The root cause was not team incompetence. It was tunneling. They simply had no time or space to do discovery, validate assumptions, or pressure test the business model. The result was a product team optimized for administration instead of insight.

Why Product Organizations Tunnel

Tunneling is not caused by weak product managers. It is caused by weak product environments.

Three culprits show up most often.

1. Leadership prioritizing urgency over clarity

When leaders create a culture where speed trumps direction, tunneling becomes inevitable. A team cannot think long term when every week introduces the next emergency.

2. Lack of a stable operating model

Teams tunnel when they lack clear intake processes, prioritization frameworks, definitions of done, and release rhythms. Without structure, chaos becomes normal and the tunnel becomes the only way to cope.

3. Poor metrics

If the organization only measures output rather than outcomes, tunneling is rewarded. Dashboards that track ticket counts, velocity points, or story volume push teams to optimize for the wrong thing.

How to Break Out of the Tunnel

Escaping the tunnel is not an act of heroism. It is an act of design. Leaders must create conditions that prevent tunneling from taking hold.

1. Build guardrails around urgent work

Urgent work should be explicitly capped. High maturity product organizations use capacity allocation models where only a defined percentage of engineering time can be consumed by unplanned work. Everything else must go through discovery and prioritization.

2. Make problem framing a mandatory step

Teams must never act on a request until they have clarified the root problem. This single discipline cuts tunneling dramatically. Questions like “What is your real desired outcome” and “What are the alternatives you considered” shift the team from reaction to inquiry.

3. Shift the narrative from firefighting to systems thinking

Tunneling thrives when teams believe the world is a series of unconnected fires. Leadership must consistently redirect conversations toward structural fixes. What is the design gap? What is the long term win? What investment eliminates this class of issues forever?

4. Protect strategic time

Every product manager should have non negotiable time for discovery, research, client conversations, and exploration. Tunneling destroys creativity because it destroys time.

The Hard Truth: You Cannot Innovate While Tunneling

A product team inside a tunnel may survive, but it cannot innovate. It cannot design the next generation platform. It cannot shift the market. It cannot see around corners. Innovation requires space. Tunneling removes space. As Dan Heath notes, people in tunnels are not irrational. They are constrained. They are operating under scarcity of time, attention, and emotional bandwidth.

Great product leaders treat tunneling as an existential risk. They eliminate it with the same intensity they eliminate technical debt or security vulnerabilities. Because tunneling is not just a cognitive trap. It is a strategy trap. The longer the organization stays in the tunnel, the more it drifts toward mediocrity.

The highest performing product teams have one thing in common. They refuse to let the urgent consume the important. They protect clarity. They reject chaos. They create the conditions for long term thinking. And because of that, they build products that move markets.

References

  1. Dan Heath, Upstream: The Quest to Solve Problems Before They Happen, Avid Reader Press, 2020.
  2. Mullainathan, Sendhil and Shafir, Eldar. Scarcity: Why Having Too Little Means So Much, Times Books, 2013. (Referenced indirectly in Upstream regarding tunneling psychology.)

Aesthetic Force: The Hidden Gravity Warping Your Product and Your Organization

Every product and engineering organization wrestles with obvious problems. Technical debt. Conflicting priorities. Underpowered infrastructure. Inefficient processes. Those are solvable with time, attention, and a bit of management maturity.

The harder problems are the invisible ones. The ones that warp decisions without anyone saying a word. The ones that produce outcomes nobody intended. These are driven by what I call aesthetic force. Aesthetic force is the unseen pull created by taste, culture, prestige, identity, and politics. It is the gravity field beneath a product organization that shapes what gets built, who gets heard, and what becomes “the way we do things.” It is not logical. It is not measurable. Yet it is incredibly powerful.

Aesthetic force is why teams ship features that do not matter. It is why leaders chase elegant architectures that never reach production. It is why organizations obsess over frameworks rather than outcomes. It is why a simple decision becomes a six week debate. It is taste dressed up as strategy.

If you do not understand aesthetic force, it will run your organization without your consent.

Below is how to spot it, how to avoid it when it becomes toxic, and the few cases when you should embrace it.

How To Identify Aesthetic Force

Aesthetic force reveals itself through behavior, not words. Look for these patterns.

1. The Team Loves the Work More Than the Result

When engineers argue passionately for a solution that adds risk, time, or complexity, not because the customer needs it but because it is “clean,” “pure,” or “the right pattern,” you are witnessing aesthetic force.

2. Prestige Projects Receive Irrational Protection

If a feature or platform strand gets defended with the same fervor as a personal reputation, someone’s identity is tied to it. They are protecting an aesthetic ideal rather than the truth of the market.

3. Process Shifts Without Actual Improvement

If a new methodology, tool, or workflow gains traction before it proves value, you are watching aesthetic force in action. People are choosing the thing that looks modern or elite.

4. You Hear Phrases That Signal Taste Over Impact

“Elegant.”
“Beautiful.”
“Clean.”
“We should do it the right way.”
“When we rewrite it the right way.”

Any time you hear “right way” without specificity, aesthetic force is speaking.

5. Decisions Drift Toward What the Loudest Experts Prefer

Aesthetic force often hides behind seniority. If the organization defaults to the preferences of one influential architect or PM without evidence, the force is winning.

What To Do To Avoid Aesthetic Force Taking Over

Aesthetic force itself is not bad. Unchecked, it is destructive. You avoid that through intentional leadership.

1. Anchor Everything to Measurable Impact

Every debate should be grounded in a measurable outcome. If someone proposes a new pattern, integration, rewrite, or workflow, the burden of proof is on them to show how it improves speed, quality, reliability, or client experience.

Opinions are welcome. Impact determines direction.

2. Make Tradeoffs Explicit

Aesthetic force thrives in ambiguity. When you turn decisions into explicit tradeoffs, the fog clears.
Example:
Option A is more elegant but will delay us eight weeks. Option B is less elegant but gets us to market before busy season, improves adoption, and unblocks another team.

Elegance loses unless it delivers value.

3. Demand Evidence Before Evangelism

If someone champions a new tool, standard, or strategy, require a working example, a pilot, or a small-scale win. No more slideware revolutions.

4. Reward Shipping Over Posturing

Promote leaders who deliver outcomes, not theory. Teams emulate what they see rewarded. If prestige attaches to execution rather than aesthetic purity, the organization rebalances itself.

5. Break Identity Attachment

If someone’s identity is fused with a product, codebase, or architecture, rotate responsibilities or pair them with a peer reviewer. Aesthetic force is strongest when people believe their reputation depends on decisions staying a certain way.

When To Accept Aesthetic Force

There are rare moments when you should allow aesthetic force to influence the product. Doing so without awareness is reckless. Doing so intentionally can be powerful.

1. When You Are Establishing Product Taste

Every great product has an opinionated aesthetic at its core. Some teams call this product feel. Others call it craftsmanship. When aesthetics drive coherence, speed, and clarity, the force is working in your favor.

2. When the Aesthetic Attracts and Retains Exceptional Talent

Some technical choices create a virtuous cycle. A beautiful architecture can inspire great developers to join or stay. A well crafted experience can rally designers and PMs. Occasionally, embracing aesthetic force elevates the culture.

3. When It Becomes a Strategic Differentiator

If aesthetic excellence creates client trust, increases adoption, or reduces friction, it becomes a strategic tool. Apple’s product aesthetic is not a luxury. It is part of its moat.

4. When Shipping Fast Would Create Long Term Chaos

Sometimes the shortcut buries you later. Aesthetic force is useful when it protects you from reckless short term thinking. The key is to treat it as a conscious decision, not a reflex.

Thought

Aesthetic force is not a harmless quirk. It is a silent operator that will hijack your roadmap, distort your priorities, and convince smart people to pour months into work that has no strategic value. Leaders who ignore it end up managing an organization that behaves irrationally while believing it is acting with discipline.

If you want a product team that delivers results instead of beautiful distractions, you cannot treat aesthetic force as a background influence. You must surface it, confront it, and regulate it. When you do, the organization becomes sharper, faster, and far more honest about what matters. When you do not, aesthetic force becomes the real head of product, and it will not care about your clients, your deadlines, or your strategy.

The gravity is already pulling. Strong leaders decide the direction.

#ProductStrategy #EngineeringCulture #ProductThinking #CTO #CIO

The leadership myth: “I just know”

In product engineering leadership circles, people love to talk about instinct. The knowing glance at a roadmap item that feels wrong. The uneasy sense that a design review is glossing over real risk. The internal alarm that goes off the moment someone says, “We can just replatform it in a few weeks”.

That instinct gets labeled “Spidey sense”. It sounds cool. It implies mastery. It suggests your leadership capability has evolved into a sixth sense.

But in practice, treating intuition like a superpower is one of the fastest ways an engineering leader can misjudge risk, overrule teams incorrectly, or derail prioritization.

The popular interpretation of “Spidey sense” as mystical foresight hides the real mechanism: pattern recognition built over years, now masquerading as magic. As one perspective puts it, intuition is simply “a strong feeling guiding you toward an advantageous choice or warning you of a roadblock”. (mindvalley.com)

Inside a leadership context, relying on that feeling without discipline can create more harm than clarity.

The uncomfortable truth: your intuition has limits

1. Your instincts reflect your past, not your present environment
A study on engineering intuition shows that intuitive judgment comes from familiar patterns, not universal truths. (onlinelibrary.wiley.com)

As a leader, your “sense” might be tuned to a monolith world when your team is operating in microservices. Or it might be shaped by on-prem realities while your teams build cloud native platforms.

If the context has moved and your instincts have not, you become the roadblock.

2. Intuition often substitutes for process at the exact moment you need more structure
Leaders fall into the trap of shortcutting with phrases like “I’ve seen this fail before” or “Trust me, this architecture won’t scale”. That feels efficient. It is not.

Product engineering leadership requires visible reasoning, measurable outcomes, and collaborative decision making. A product sense article puts it well: intuition can be a compass but is not a map. (medium.productcoalition.com)

Compasses help you orient. Maps help an entire organization move.

3. Intuition collapses under novelty
Product engineering lives in novelty: new cloud services, AI architectures, shifting security expectations, fast-changing user expectations. Research on the metacognition of intuition shows that instincts fail in unfamiliar environments. (researchgate.net)

As a leader, if you rely on intuition in novel or high-ambiguity situations, you risk overconfidence right when the team needs structured exploration.

Where engineering leaders should actually use intuition

A. Early risk detection
A raised eyebrow during a design review can be valuable. Leaders with deep experience often sense when a team is assuming too much, skipping load testing, or building a brittle dependency chain. That gut feeling should trigger investigation, not fiat decisions.

B. Team health and dynamics
Signal detection around team morale, interpersonal friction, or a pattern of missed commitments is one of the most defensible uses of leadership intuition. People rarely surface these problems directly. Leaders who sense early disruption can intervene before a team loses velocity or trust.

C. Prioritization under real uncertainty
Sometimes the data is thin, the timelines are compressed, and the decision cannot wait.
Intuition, shaped by past experience, lets leaders choose a direction and commit. But that choice must be paired with measurable checkpoints, telemetry, and a willingness to pivot.

A leadership article on intuition describes it as a feedback loop that adapts with new data.
(archbridgecoaching.com) The best engineering leaders operate exactly that way.

Where engineering leaders misuse intuition and damage teams

  • Declaring architectural truths without evidence
    Saying “that pattern won’t scale” without benchmarks undermines engineering autonomy and starves the team of real learning.
  • Using instinct to override user research
    Leaders who “feel” the user flow is fine even when research says otherwise end up owning failed adoption and churn.
  • Blocking progress with outdated mental models
    Your past experience is not invalid, but it is incomplete. When leaders default to “my instinct says no”, they lock teams into the past.
  • Confusing speed with correctness
    Leaders shortcutting due diligence because “something feels off” or “this feels right” often introduce risk debt that shows up months later.

The disciplined leader’s approach to intuition

1. Translate the sense into a testable hypothesis
Instead of “I don’t like this architecture”, say: “I suspect this component will become a single point of failure. Let’s validate that with a quick load simulation.”

2. Invite team challenge
If your intuition cannot survive healthy debate, it is not insight; it is ego.

3. Verify with data
Telemetry, benchmarking, user tests, scoring matrices, risk assessments. Leaders build confidence through evidence.

4. Tie intuition to a learning loop
After the decision, ask: Did my instinct help? Did it mislead?
Leaders who evaluate their own judgment evolve faster than those who worship their gut.

5. Make intuition transparent
Explain the reasoning, patterns and risks behind the feeling. This grows organizational judgment rather than centralizing it.

Closing argument

Spidey sense is not a leadership trait. It is a signal. It is an early warning system that tells you when to look closer. But it is not a substitute for data, rigorous engineering practice, or transparent decision making.

Great product engineering leaders do not trust their instincts blindly. They use their instincts to decide what questions to ask, what risks to probe, what patterns to explore, and where to apply pressure.

When intuition triggers structured action, it becomes a leadership accelerant. When intuition replaces structure, it becomes a liability.

Treat your Spidey sense as a flashlight, not a compass. It helps you see what you might have missed. It does not tell you where to go.

The PE effect on the Tax Industry

Private equity is not “coming” for the tax industry. It is already setting the pace, and 2026 is the year the gap becomes visible to clients.

The Thomson Reuters Institute put hard numbers behind what many leaders feel in the field: roughly half of the top 25 US tax, audit, and accounting firms have completed or are pursuing a private equity transaction. That is no longer a niche experiment. It is a structural shift.

What is fascinating is the split-screen reality inside the profession. The same research shows most professionals are not chasing PE. 57% say it is not even on their radar, and another 30% say they are not interested even if approached. The survey also breaks down how few firms are actually “in market” today: 5% completed a PE deal, 11% are actively looking (or plan to), 8% are open if approached, and 76% are uninterested or unprepared.

That divergence is exactly why 2026 will be a forcing function.

PE changes the operating model, not just the cap table. The report calls out why partners say yes: capital to modernize, automate, and consolidate, plus faster decision-making and more corporate leadership structures. It also highlights a blunt incentive: retiring partners can see payouts that are often two to three times higher than traditional internal buyouts. That money does not just reward the past. It funds the next playbook: AI, workflow automation, and acquisition-driven scale.

You can see the playbook in the market. Grant Thornton closed a “significant growth investment” led by New Mountain Capital in May 2024, explicitly positioning it to accelerate its strategy. (Grant Thornton) Citrin Cooperman became a case study in roll-up velocity after New Mountain’s 2021 investment, and in January 2025 it announced a new investment as Blackstone acquired a stake from New Mountain. (Citrin Cooperman)

Here is my bet for 2026: the winners will not be “PE-backed firms” versus “independent firms.” The winners will be firms that treat tax as a technology-enabled product and treat delivery as an engineered system.

In 2026, clients will increasingly buy outcomes, not hours. They will expect proactive, data-driven guidance, faster cycle times, and cleaner digital experiences. The firms that can invest aggressively in automation, data platforms, and AI-enabled delivery will compress turnaround times and expand margins at the same time. PE makes that acceleration easier because it can bankroll the modernization debt that partner-led models have historically struggled to fund at speed.

But PE also introduces real risk. Culture can get commoditized when ROI timelines dominate the conversation, and there are growing concerns about auditor independence as financial ownership structures evolve. If you lead a firm, you do not get to ignore that tension. You have to design around it.

If you are a technology leader inside a tax or professional services firm, I would frame 2026 as three non-negotiables:

  • Industrialize delivery. Standardize data intake, workflow, and quality controls so you can scale expertise without burning out your best people.
  • Invest like a product company. Build reusable platforms, not one-off solutions. Your differentiator is your system of work, not your slide deck.
  • Be explicit about trust. Independence, security, and governance cannot be “handled later,” especially when ownership models evolve.

The uncomfortable truth is that “standing still” is no longer a neutral choice. The Thomson Reuters report says it plainly: standing still is not a viable strategy. In 2026, the market will reward firms that can deliver faster, more predictably, and more digitally, while still protecting the core trust that makes tax work valuable.

If you are leading a firm that is not taking PE, what is your counter-move this year: an ESOP, strategic M&A, bank financing, or a real commitment to self-funded modernization?

Because clients will not care how you funded the transformation. They will only feel whether it happened.

Revealed Preferences vs Stated Preferences: The Silent Killer of Product and Organizational Strategy

Every product and engineering leader has seen this pattern. A room full of smart people declares:

  • “We want fewer priorities.”
  • “We will follow the operating model.”
  • “This initiative is the top strategic priority.”
  • “We are committed to data-driven decisions.”

Then, within days, behavior contradicts what was said. Side work appears. Priorities shift. Leaders quietly push their pet projects. Teams say yes to everything. Decisions made on Monday fall apart by Thursday.

This gap between what people say and what they do is the difference between stated preferences and revealed preferences, a concept rooted in behavioral economics from Paul Samuelson and Gary Becker.

Stated preferences are what people wish were true. Revealed preferences are what they act on. Organizations that ignore this gap drift. Organizations that confront it deliver.

How to Identify Revealed Preferences Inside Your Organization

1. Follow the time, not the talk

Calendars reveal priorities better than strategy decks.

Andy Grove captured this in High Output Management, noting that leaders often claim architectural work is vital while spending all their time on escalations. [Link]

At Google, teams optimized for leadership product reviews, not roadmaps. Those meetings became the real forcing function. [Link]

2. Look for quiet work multipliers

Yahoo pre Marissa Mayer is a classic case. Leaders stated they supported focus while creating hundreds of priorities behind the scenes. [Link]

3. Examine who gets rewarded

Values are revealed through promotions and praise.

Netflix states this clearly in its culture memo: “Values are shown by who gets rewarded and who gets let go.” [Link]

If heroics get rewarded while platform discipline gets ignored, heroics become the true preference.

4. Check what gets escalated

Teams escalate what they believe matters. If pet projects escalate faster than roadmap work, the hidden priorities are obvious.

5. Listen for the quiet “yes, but”

  • “Yes, we support the model, but I need this done outside it.”
  • “Yes, we want fewer priorities, but we need this exception.”

Chris Argyris documented this pattern as “espoused theory versus theory in use.” [Link]

The truth lives in behavior, not statements.

How to Avoid the Trap: Turning Revealed Preferences Into Better Decisions

1. Stop accepting verbal alignment as alignment

Amazon solved this by requiring written alignment through six page narratives. [Link] If someone will not commit in writing, they are not aligned.

2. Run decision pre mortems

Based on Gary Klein’s research, pre mortems force hidden risks and incentives into the open.[Link] Ask:

  • What behavior would contradict this
  • Who benefits if this fails
  • What incentive might undermine it

3. Build friction into special requests

Atlassian and Shopify use portfolio scorecards that require public tradeoffs for every exception. [Link, Link] This prevents hidden work from overwhelming teams.

4. Tie every priority to measurable outcomes

Google’s Project Aristotle showed that clarity and structure drive performance. Link Metrics force real preferences into daylight.

5. Ask for preferred failure mode

The UK Government Digital Service used this approach to uncover real priorities, often revealing that speed and usability mattered more than perfect accuracy. [Link]

When to Accept Revealed Preferences Instead of Fighting Them

1. Accept it when executive behavior is consistent

If leaders consistently act one way, that behavior is the strategy. Microsoft under Steve Ballmer said innovation mattered, but behavior optimized for Windows and Office. Satya Nadella highlighted this in Hit Refresh. [Link]

2. Accept it when culture contradicts the stated strategy

Clayton Christensen’s The Innovator’s Dilemma shows that organizations follow cultural and economic incentives, not aspirational strategy. [Link]

If firefighting culture dominates, you will get firefighting, not platforms.

3. Accept it when it reveals real power structures

The real org chart is the list of who can successfully redirect a team’s time.

4. Accept it when it reflects external pressure

Fintech leaders stated that velocity mattered until regulators forced compliance to become the true priority. [Link]

Sometimes the revealed preference is survival.

Delivery Happens When You Lead With Reality, Not Rhetoric

Every organization claims it values delivery. Yet delivery consistently fails in the gap between what leaders say they want and what their behavior actually supports.

If a leader claims focus but adds side work, delivery slips.
If a sponsor claims predictability but changes scope constantly, delivery stalls.
If a steering group claims platform maturity but rewards firefighting, delivery dies.

Delivery is not about tools or talent.
Delivery is a revealed preference problem.

Organizations deliver when behavior aligns with the strategy.
When calendars match the roadmap.
When exceptions have a cost.
When incentives reinforce the plan.

Great organizations feel calm and predictable because behavior supports commitments.
Weak organizations feel chaotic because behavior contradicts them.

Closing the gap between stated and revealed preferences is the single most important delivery intervention a leader can make.

Delivery Is What You Prove, Not What You Announce

Every organization carries two delivery strategies:

  1. The one written in slides.
  2. The one enforced through behavior.

Only the second one ships.

If you want real delivery, build around what people actually do.
Hold leaders accountable to behavioral alignment.
Confront contradictions early.
Design your operating model around reality, not aspiration.

Once behavior and strategy match, delivery stops being a goal and becomes the natural byproduct of how the organization works.

From Middle-to-Middle to End-to-End

Most product organizations are structured to work middle to middle. Product managers gather requirements from the market, engineering teams build features, customer success teaches clients how to use them, and support handles escalations. It is an elegant theory of specialization. And yet, in practice, this model often creates distance from the reality of the problem being solved.

The result is predictable. Products become polished abstractions of customer needs rather than tools that solve real work. Teams optimize for roadmaps instead of outcomes. Everyone is busy, but few are solving the actual problem in the environment where it exists. Velocity, ironically, slows.

This is where forward deployed engineers change everything.

What Forward Deployed Engineers Are

Forward deployed engineers are technical practitioners who sit directly in the workflow of the customer environment. They operate where the real work happens. They are not receiving requirements secondhand through a product manager translation layer. They see the work. They see the constraints. They see the friction. And they can change it.

This model is not theoretical. It has been battle-tested.

The term “forward deployed” has roots in consulting engineers embedded in critical operations. The difference is that now this model applies to software products that are not simply tools but operational systems for entire industries.

The Structural Shift: End to End vs Middle to Middle

When engineers work directly with customers, the company moves from middle to middle (internal teams trading artifacts) to end to end (engineers embedded where value is created and value is delivered). This rewires incentives.

The goal is no longer to ship features. The goal is to remove friction from the customer journey. Every day. Continuously.

Organizations that embrace this model are being honest about the nature of software. Software is not static. Software is the operational model of a business. It has to reflect real workflows, real constraints, real incentives. The only way to do that is to put engineers in the real environment.

Ben Thompson has written about the power of integration when companies own the full problem surface: https://stratechery.com/2020/the-end-of-the-beginning/

Forward deployment collapses the gap between intention and reality.

Why This Compounds

Forward deployment creates:

  • Shorter feedback loops
  • Real customer empathy
  • Outcome alignment
  • Systems-level understanding

This is the foundation for compounding advantage. Learning loops accelerate. Context depth compounds. Solutions reflect the real system rather than an imagined one.

The Cost

None of this is free.

You have to hire differently. Not just strong engineers, but engineers comfortable with ambiguity, autonomy, and external-facing collaboration. You have to measure differently. Value delivered matters more than story points burned. You have to empower teams.

The Bet

If you view software as a finished product, forward deployment looks inefficient.

If you view software as the operating system of your customers’ business, forward deployment is the only rational structure.

The companies that win over the next decade will be the ones whose engineers work where the work is, who ship change into reality, and who build end to end.

Why First Principles Thinking Matters More Than Ever in the Age of AI

It sounds a bit dramatic to argue that how you think about building products will determine whether you succeed or fail in an AI-infused world. But that is exactly the argument: in the age of AI, a first principles approach is not just a mental model; it is essential to cut through hype, complexity, and noise to deliver real, defensible value.

As AI systems become commoditized, and as frameworks, APIs, and pretrained models become widely accessible, the margin of differentiation will not come from simply adding AI or copying what others have done. What matters is how you define the core problem, what you choose to build or not build, and how you design systems to leverage AI without being controlled by it. Doing that well requires going back to basics through first principles.

What Do We Mean by “First Principles” in Product Development?

The notion of first principles thinking goes back to Aristotle. A “first principle” is a foundational assumption or truth that cannot be deduced from anything more basic. Over time, modern thinkers have used this as a tool: instead of reasoning by analogy (“this is like X”), they break down a problem into its core elements, discard inherited assumptions, and reason upward from those fundamentals. (fs.blog) (jamesclear.com)

In product development, that means:

  • Identifying the core problem rather than symptoms or surface constraints
  • Questioning assumptions and conventions such as legacy technology, market norms, or cost structures
  • Rebuilding upward to design architecture, flows, or experiences based on what truly matters

Instead of asking “What is the standard architecture?” or “What are competitors doing?”, a first principles mindset asks, “What is the minimal behavior that must exist for this product to deliver value?” Once that is clear, everything else can be layered on top.

This approach differs from incremental or analogy-driven innovation, which often traps teams within industry norms. In product terms, first principles thinking helps teams:

  • Scope MVPs more tightly by distinguishing essentials from optional features
  • Choose architectures that can evolve over time
  • Design experiments to test core hypotheses
  • Avoid being locked into suboptimal assumptions

As one product management blog puts it: “First principles thinking is about breaking down problems or systems into smaller pieces. Instead of following what others are doing, you create your own hypothesis-based path to innovation.” (productled.com)

How to Define Your First Principles

Before applying first principles thinking, a team must first define what their first principles are. These are the non-negotiable truths, constraints, and goals that form the foundation for every design, architectural, and product decision. Defining them clearly gives teams a common compass and prevents decision-making drift as AI complexity increases.

Here is a practical process for identifying your first principles:

  1. Start from the user, not the system.
    Ask: What does the user absolutely need to achieve their goal? Strip away “nice-to-haves” or inherited design conventions. For example, users may not need “a chatbot”; they need fast, reliable answers.
  2. List all assumptions and challenge each one.
    Gather your team and write down every assumption about your product, market, and technical approach. For each, ask:
    • What evidence supports this?
    • What if the opposite were true?
    • Would this still hold if AI or automation disappeared tomorrow?
  3. Distinguish facts from beliefs.
    Separate proven facts (user data, compliance requirements, physical limits) from opinions or “tribal knowledge.” Facts form your foundation; beliefs are candidates for testing.
  4. Identify invariants.
    Invariants are truths that must always hold. Examples might include:
    • The product must maintain data privacy and accuracy.
    • The user must understand why an AI-generated output was made.
    • Performance must stay within a given latency threshold.
      These invariants become your design guardrails.
  5. Test by reasoning upward.
    Once you have defined your base principles, rebuild your solution from them. Each feature, model, or interface choice should trace back to a first principle. If it cannot, it likely does not belong.
  6. Revisit regularly.
    First principles are not static. AI tools, user expectations, and regulations evolve. Reassess periodically to ensure your foundations still hold true.

A helpful litmus test: if someone new joined your product team, could they understand your product’s first principles in one page? If not, they are not yet clear enough.

Why First Principles Thinking Is More Critical in the AI Era

You might ask: “Is this just philosophy? Why now?” The answer lies in how AI changes the product landscape.

1. AI is a powerful tool, but not a substitute for clarity

Because we can embed AI into many systems does not mean we should. AI has costs such as latency, interpretability, data needs, and hallucinations. If you do not understand what the product must fundamentally do, you risk misusing AI or overcomplicating the design. First principles thinking helps determine where AI truly adds leverage instead of risk.

2. The barrier to entry is collapsing, and differentiation is harder

Capabilities that once took years to build are now available through APIs and pretrained models. As more teams embed AI, competition grows. Differentiation will come from how AI is integrated: the system design, feedback loops, and human-AI boundaries. Teams that reason from first principles will design cleaner, safer, and more effective products.

3. Complexity and coupling risks are magnified

AI systems are inherently interconnected. Data pipelines, embeddings, and model interfaces all affect each other. If your architecture relies on unexamined assumptions, it becomes brittle. First principles thinking uncovers hidden dependencies and clarifies boundaries so teams can reason about failures before they occur.

AI also introduces probabilistic behavior and non-determinism. To guard against drift or hallucinations, teams must rely on fundamentals, not assumptions.

In short, AI expands what is possible but also multiplies risk. The only stable foundation is clear, grounded reasoning.

Examples of First Principles in Action

SpaceX and Elon Musk

Elon Musk often cites that he rejects “reasoning by analogy” and instead breaks down systems to their physical and cost components. (jamesclear.com) Rather than asking “How do other aerospace companies make rockets cheaply?”, he asked, “What are rockets made of, and what are the true material costs?” That approach led to rethinking supply chains, reuse, and design.

While this is not an AI product, it illustrates the method of reimagining from fundamentals.

SaaS and Product Teams

  • ProductLed demonstrates how first principles thinking leads to hypothesis-driven innovation. (productled.com)
  • UX Collective emphasizes designing from core user truths such as minimizing friction, rather than copying design conventions. (uxdesign.cc)
  • Starnavi discusses how questioning inherited constraints improves scope and architecture. (starnavi.io)

AI Product Teams

  • AI chat and agent teams that focus only on the essential set of user skills and resist the urge to “make the model do everything” tend to build more reliable systems.
  • Some companies over-embed AI without understanding boundaries, leading to hallucinations, high maintenance costs, and user distrust. Later teams often rebuild from clearer principles.
  • A study on responsible AI found that product teams lacking foundational constraints struggle to define what “responsible use” means. (arxiv.org)

How to Apply First Principles Thinking in AI-Driven Products

  1. Start with “Why.” Define the true user job to be done and the metrics that represent success.
  2. Strip the problem to its essentials. Identify what must exist for the product to function correctly. Use tools like Socratic questioning or “Five Whys.”
  3. Define invariants and constraints. Specify what must always hold true, such as reliability, interpretability, or latency limits.
  4. Design from the bottom up. Compose modules with clear interfaces and minimal coupling, using AI only where it adds value.
  5. Experiment and instrument. Create tests for your hypotheses and monitor drift or failure behavior.
  6. Challenge assumptions regularly. Avoid copying competitors or defaulting to convention.
  7. Layer sophistication gradually. Build the minimal viable product first and only then add features that enhance user value.

A Thought Experiment: An AI Summarization Tool

Imagine building an AI summarization tool. Many teams start by choosing a large language model, then add features like rewrite or highlight. That is analogy-driven thinking.

A first principles approach would look like this:

  • Mission: Help users extract key highlights from a document quickly and accurately.
  • Minimal behavior: Always produce a summary that covers the main points and references the source without hallucinations.
  • Constraints: The summary must not invent information. If confidence is low, flag the uncertainty.
  • Architecture: Build a pipeline that extracts and re-ranks sentences instead of relying entirely on the model.
  • Testing: A/B test summaries for accuracy and reliability.
  • Scope: Add advanced features only after the core summary works consistently.

This disciplined process prevents the tool from drifting away from its purpose or producing unreliable results.

Addressing Common Objections

“This takes too long.”
Going one or two layers deeper into your reasoning is usually enough to uncover blind spots. You can still move fast while staying deliberate.

“Competitors are releasing features quickly.”
First principles help decide which features are critical versus distractions. It keeps you focused on sustainable differentiation.

“What if our assumptions are wrong?”
First principles are not fixed truths but starting hypotheses. They evolve as you learn.

“We lack enough data to know the fundamentals.”
Questioning assumptions early and structuring experiments around those questions accelerates learning even in uncertainty.

From Hype to Foundation

In an era where AI capabilities are widely available, the difference between good and exceptional products lies in clarity, reliability, and alignment with core user value.

A first principles mindset is no longer a philosophical exercise; it is the foundation of every sustainable product built in the age of AI. It forces teams to slow down just enough to think clearly, define what truly matters, and build systems that can evolve rather than erode.

The best AI products will not be the ones with the largest models or the most features. They will be the ones built from a deep understanding of what must be true for the product to deliver lasting value.

Before you think about model fine-tuning or feature lists, pause. Deconstruct your domain. Identify your invariants. Question every assumption. That disciplined thinking is how you build products that not only survive the AI era but define it.

Drucker and the AI Disruption: Why Landmarks of Tomorrow Still Predicts Today

When Peter Drucker published The Landmarks of Tomorrow in 1959, he was writing about the future, but not this future. He saw the rise of knowledge work, the end of mechanical thinking, and the dawn of a new age organized around patterns, processes, and purpose. What he didn’t foresee was artificial intelligence, a force capable of accelerating his “landmarks” faster than even he could have imagined.

Today, AI isn’t simply automating tasks or assisting humans. It is disrupting the foundations of how enterprises are built, governed, and led. Drucker’s framework, written for the post-industrial age, has suddenly become the survival manual for the AI-powered one.

From Mechanistic Control to Pattern Intelligence

Drucker warned that the industrial worldview, which was linear, predictable, and mechanistic, was ending. In its place would rise a world defined by feedback loops, patterns, and living systems.

That is precisely the shift AI has unleashed.

Enterprise leaders still talk about “projects,” “pipelines,” and “processes,” but AI doesn’t play by those rules. It learns, adapts, and rewires itself continuously. The organizations that treat AI as a static tool will be replaced by those that treat it as an intelligent process, one that learns as it runs.

Companies used to manage through reporting lines. Now they must manage through data flows. AI has become the nervous system, the pattern recognizer, the process optimizer, and the hidden hand that connects the enterprise’s conscious mind (its strategy) with its reflexes (its operations).

If Drucker described management as the art of “doing things right,” AI has made that art probabilistic. The managers who ignore this are already obsolete.

The Knowledge Worker Meets the Algorithm

Drucker’s greatest prediction, the rise of the “knowledge worker,” is being rewritten in real time. For 70 years, the knowledge worker has been the enterprise’s most precious asset. But now, the knowledge itself has become the product, processed, synthesized, and recombined by large language models.

We are entering what might be called the algorithmic knowledge economy. AI doesn’t just help the lawyer draft faster or the developer code better. It competes with their very value proposition.

Yet, rather than eliminating knowledge work, AI is forcing it to evolve. Drucker said productivity in knowledge work was the greatest management challenge of the 21st century. He was right, but AI is solving that challenge by redefining the role itself.

The best knowledge workers of tomorrow will not just do the work. They will design, supervise, and refine the AI that does it. The new productivity frontier isn’t about faster execution. It is about orchestrating intelligence, both human and machine, into systems that learn faster than competitors can.

AI as a Management Disruptor

If Drucker saw management as a discipline of purpose, structure, and responsibility, AI is now testing every one of those principles.

  • Purpose: AI can optimize toward any goal, but which one? Efficiency, profitability, fairness, sustainability? The model will not decide that for you. Leadership will.
  • Structure: Hierarchies are collapsing under the speed of decision loops that AI can execute autonomously. The most adaptive enterprises are building networked systems that behave more like ecosystems than bureaucracies.
  • Responsibility: Drucker believed ethics and purpose were the essence of management. In AI, that moral compass can no longer be implied. It must be engineered into the system itself.

In other words, AI does not just change how we manage. It challenges what management even means.

From Centralized Control to Federated Intelligence

Drucker predicted that traditional bureaucracies would give way to decentralized, knowledge-based organizations. That is exactly what is happening, except now it is not just humans at the edge of the organization, but algorithms.

AI is enabling every business unit, every function, every product team to have its own localized intelligence. The new question isn’t “how do we scale AI?” It is “how do we coordinate dozens of semi-autonomous AI systems working in parallel?”

Enterprise leaders who cling to centralization will find themselves trapped in a paradox. They want control, but AI thrives on freedom. Drucker would call this the new frontier of management: creating governance that empowers autonomy without sacrificing accountability.

This is why the AI-first enterprise of the future will look less like a corporation and more like a distributed cognitive organism, one where humans and machines make up a shared nervous system of learning, adaptation, and decision-making.

Values as the Ultimate Competitive Edge

Drucker wrote that the “next society” would have to rediscover meaning, that economic progress without moral purpose would collapse under its own weight.

AI is testing that thesis daily.

Enterprises racing to deploy AI without a value compass are discovering that technological advantage is fleeting. The companies that will endure are those that turn ethics into an operating principle, not a compliance checklist.

Trust is now a competitive differentiator. The winners will not just have the best models. They will have the most trustworthy ones, and the culture to use them wisely.

AI does not absolve leaders of responsibility. It multiplies it.

AI Is Drucker’s “Next Society” Arriving Early

If Drucker were alive today, he would say the AI revolution is not a technological shift, but a civilizational one. His “Next Society” has arrived early, and it is powered by algorithms that behave more like collaborators than tools.

The irony is that Drucker’s warnings were not about machines. They were about people: how we adapt, organize, and lead when the rules change. AI is simply the latest, most unforgiving test of that adaptability.

The enterprises that survive will not be those with the most advanced AI infrastructure. They will be those that rethink their management philosophy, shifting from command and control to purpose and orchestration, from metrics to meaning.

Wrapping Up

AI is Drucker’s world accelerated, a management revolution disguised as a technology trend.
Those who still see AI as just another tool are missing the point.

AI is the most profound management disruptor of our generation, and Landmarks of Tomorrow remains the best playbook we never realized we already had.

The question isn’t whether AI will reshape the enterprise. It already has.
The real question is whether leaders will evolve fast enough to manage the world Drucker saw coming, and which AI has now made real.

The Future of AI UX: Why Chat Isn’t Enough

For the last two years, AI design has been dominated by chat. Chatbots, copilots, and assistants are all different names for the same experience. We type, it responds. It feels futuristic because it talks back.

But here’s the truth: chat is not the future of AI.

It’s the training wheels phase of intelligent interaction, a bridge from how we once used computers to how we soon will. The real future is intent-based AI, where systems understand what we need before we even ask. That’s the leap that will separate enterprises merely using AI from those transformed by it.

Chat-Based UX: The Beginning, Not the Destination

Chat has been a brilliant entry point. It’s intuitive, universal, and democratizing. Employees can simply ask questions in plain language:

“Summarize this week’s client updates.”
“Generate a response to this RFP.”
“Explain this error in our data pipeline.”

And the AI responds. It’s accessible. It’s flexible. It’s even fun.

But it’s also inherently reactive. The user still carries the cognitive load. You have to know what to ask. You have to remember context. You have to steer the conversation toward the output you want. That works for casual exploration, but in enterprise environments, it’s a tax on productivity.

The irony is that while chat interfaces promise simplicity, they actually add a new layer of friction. They make you the project manager of your own AI interactions.

In short, chat is useful for discovery, but it’s inefficient for doing.

The Rise of Intent-Based AI

Intent-based UX flips the equation. Instead of waiting for a prompt, the system understands context, interprets intent, and takes initiative.

It doesn’t ask, “What do you want to do today?”
It knows, “You’re preparing for a client meeting, here’s what you’ll need.”

This shift moves AI from a tool you operate to an environment you inhabit.

Example: The Executive Assistant Reimagined

An executive with a chat assistant types:

“Create a summary of all open client escalations for tomorrow’s board meeting.”

An executive with an intent-based assistant never types anything. The AI:

  • Detects the upcoming board meeting from the calendar.
  • Gathers all open client escalations.
  • Drafts a slide deck and an email summary before the meeting.

The intent, prepare for the meeting, was never stated. It was inferred.

That’s the difference between a helpful assistant and an indispensable one.

Intent-Based Systems Drive Enterprise Productivity

This isn’t science fiction. The foundational pieces already exist: workflow signals, event streams, embeddings, and user behavior data. The only thing missing is design courage, the willingness to move beyond chat and rethink what a “user interface” even means in an AI-first enterprise.

Here’s what that shift enables:

  • Proactive workflows: A project manager receives an updated burn chart and recommended staffing adjustments when velocity drops, without asking for a report.
  • Contextual automation: A tax consultant reviewing a client case automatically sees pending compliance items, with drafts already prepared for submission.
  • Personalized foresight: A sales leader opening Salesforce doesn’t see dashboards; they see the top three accounts most likely to churn, with a prewritten email for each.

When designed around intent, AI stops being a destination. It becomes the invisible infrastructure of productivity.

Why Chat Will Eventually Fade

There’s a pattern in every major computing evolution. Command lines gave us precision but required expertise. GUIs gave us accessibility but required navigation. Chat gives us flexibility but still requires articulation.

Intent removes the requirement altogether.

Once systems understand context deeply enough, conversation becomes optional. You won’t chat with your CRM, ERP, or HR system. You’ll simply act, and it will act with you.

Enterprises that cling to chat interfaces as the primary AI channel will find themselves trapped in “talking productivity.” The real leap will belong to those who embrace systems that understand and anticipate.

What Intent-Based UX Unlocks

Imagine a workplace where:

  • Your data tools automatically build dashboards based on the story your CFO needs to tell this quarter.
  • Your engineering platform detects dependencies across services and generates a release readiness summary every Friday.
  • Your mobility platform (think global compliance, payroll, or travel) proactively drafts reminders, filings, and client updates before deadlines hit.

This isn’t about convenience. It’s about leverage.
Chat helps employees find information. Intent helps them create outcomes.

The Takeaway

The next phase of enterprise AI design is not conversational. It’s contextual.

Chatbots were the classroom where we learned to speak to machines. Intent-based AI is where machines finally learn to speak our language — the language of goals, outcomes, and priorities.

The companies that build for intent will define the productivity curve for the next decade. They won’t ask their employees to chat with AI. They’ll empower them to work alongside AI — fluidly, naturally, and with purpose.

Because the future of AI UX isn’t about talking to your tools.
It’s about your tools understanding what you’re here to achieve.

How AI Is Opening New Markets for Professional Services

The professional services industry, including consulting, legal, accounting, audit, tax, advisory, engineering, and related knowledge-intensive sectors, stands on the cusp of transformation. Historically, many firms have viewed AI primarily as a tool to boost efficiency or reduce cost. But increasingly, forward-thinking firms are discovering that AI enables them to expand into new offerings, customer segments, and business models.

Below I survey trends, opportunities, challenges, and strategic considerations for professional services firms that aim to go beyond optimization and into market creation.

Key Trends Shaping the Opportunity Landscape

Before diving into opportunities, it helps to frame the underlying dynamics.

Rapid Growth in AI-Driven Markets

  • The global Artificial Intelligence as a Service (AIaaS) market is projected to grow strongly, from about USD 16.08 billion in 2024 to USD 105 billion by 2030 (CAGR ~36.1%) (grandviewresearch.com)
  • Some forecasts push even more aggressively. Markets & Markets estimates AIaaS will grow from about USD 20.26 billion in 2025 to about USD 91.2 billion by 2030 (CAGR ~35.1%) (marketsandmarkets.com)
  • The AI consulting services market is also booming. One forecast places the global market at USD 16.4 billion in 2024, expanding to USD 257.6 billion by 2033 (CAGR ~35.8%) (marketdataforecast.com)
  • Another projection suggests the AI consulting market could reach USD 58.19 billion by 2034, from about USD 8.75 billion in 2024 (zionmarketresearch.com)
  • Meanwhile, the professional services sector itself is expected to grow by USD 2.07 trillion between 2024 and 2028 (CAGR ~5.7%), with digital and AI-led transformation as a core driver (prnewswire.com)

These macro trends suggest that both supply (consulting and integration) and demand (client AI adoption) are expanding in parallel, creating a rising tide on which professional services can paddle into new spaces.

From Efficiency to Innovation and Revenue Growth

In many firms, early AI adoption has followed a standard path: use tools to automate document drafting, data extraction, analytics, or search. But new reports and surveys suggest that adoption is maturing into more strategic use.

  • The Udacity “AI at Work” research finds a striking “trust gap.” While about 90% of workers use AI in some form, fewer trust its outputs fully. (udacity.com) That suggests substantial room for firms to intervene through governance, assurance, audits, training, and oversight services.
  • The Thomson Reuters 2025 Generative AI in Professional Services report notes that many firms are using GenAI, but far fewer are tracking ROI or embedding it in strategy (thomsonreuters.com)
  • An article from OC&C Strategy observes that an over-focus on “perfect bespoke solutions” can stall value capture; instead, a pragmatic “good-but-not-perfect” deployment mindset allows earlier revenue and learning (occstrategy.com)
  • According to RSM, professional services firms are rethinking workforce models as AI automates traditionally junior tasks, pressing senior staff into more strategic work (rsmus.com)

These signals show that we are approaching a second wave of AI in professional services, where firms seek to monetize AI not just as a cost lever but as a growth engine.

Four Categories of Market-Building Opportunity

Here are ways professional services firms can go beyond automation to build new markets.

Opportunity TypeDescriptionExamples / Use Cases
1. AI-Powered Advisory and “AI-as-a-Service” OfferingsFirms package domain expertise and AI models into products or subscription servicesA legal firm builds a contract-analysis engine and offers subscription access; accounting firms provide continuous anomaly detection on client ERP data
2. Assurance, Audit, and AI Governance ServicesAs AI becomes embedded in client systems, demand for auditing, validation, model governance, compliance, and trust frameworks will growAuditing AI outputs in regulated sectors, reviewing model fairness, or certifying an AI deployment
3. Vertical or Niche Micro-Vertical AI SolutionsRather than broad horizontal tools, build AI models specialized for particular industries or subdomainsA consulting firm builds an AI tool for energy forecasting in renewable businesses, or an AI model for real estate appraisal
4. Platform, API, or Marketplace EnablementFirms act as intermediaries or enablers, connecting client data to AI tools or building marketplaces of agentic AI servicesA tax firm builds a plugin marketplace for tax-relevant AI agents; a legal tech incubator curates AI modules

Let’s look at each in more depth.

1. AI-Powered Advisory or Embedded AI Products

One of the most direct routes is embedding AI into the service deliverable, turning part of the deliverable from human labor to intelligent automation, and then charging for it. Some possible models:

  • Subscription or SaaS model: tax, audit, or legal firms package their AI engine behind a SaaS interface and charge clients on a recurring basis.
  • Outcome-based models: pricing tied to detected savings or improved accuracy from AI insights.
  • Embedded models: AI acts as a “co-pilot” or second reviewer, but service teams retain oversight.

By moving in this direction, professional services firms evolve into AI product companies with recurring revenues instead of purely project-based revenue.

A notable example is the accounting roll-up Crete Professionals Alliance, which announced plans to invest $500M to acquire smaller firms and embed OpenAI-powered tools for tasks such as audit memo writing and data mapping. (reuters.com) This shows how firms see value in integrating AI into service platforms.

2. Assurance, Audit, and AI Governance Services

As clients deploy more AI, they will demand greater trust, transparency, and compliance, especially in regulated sectors such as finance, healthcare, and government. Professional services firms are well positioned to provide:

  • AI audits and validation: ensuring models work as intended, detecting bias, assessing robustness under adversarial conditions.
  • Governance and ethics frameworks: helping clients define guardrails, checklists, model review boards, or monitoring regimes.
  • Regulation compliance and certification: as governments begin regulating high-risk AI, firms can audit or certify client systems.
  • Trust as a service: maintaining ongoing oversight, monitors, and health-checks of deployed AI.

Because many organizations lack internal AI expertise or governance functions, this becomes a natural extension of traditional audit, risk, or compliance practices.

3. Vertical or Niche AI Solutions

A generic AI tool is valuable, but its economics often require scale. Professional services firms can differentiate by combining domain depth, industry data, and AI. Some advantages:

  • Better accuracy and relevance: domain knowledge helps build more precise models.
  • Reduced client friction: clients are comfortable trusting domain specialists.
  • Fewer competitors: domain-focused models are harder to replicate.

Examples:

  • A consulting firm builds an AI model for commodity price forecasting in mining clients.
  • A legal practice builds a specialized AI tool for pharmaceutical patent litigation.
  • An audit firm builds fraud detection models tuned to logistics or supply chain clients.

The combination of domain consulting and AI product is a powerful differentiator.

4. Platform, Agentic, or Marketplace Models

Instead of delivering all AI themselves, firms can act as platforms or intermediaries:

  • Agent marketplace: firms curate AI “agents” or microservices that clients can pick, configure, and combine.
  • Data and AI orchestration layers: firms build middleware or connectors that integrate client systems with AI tools.
  • Ecosystem partnerships: incubate AI startups or partner with AI vendors, taking a share of commercialization revenue.

In this model, the professional services firm becomes the AI integrator or aggregator, operating a marketplace that others plug into. Over time, this can generate network effects and recurring margins.

What Existing Evidence and Practitioner Moves Show

To validate that these ideas are more than theoretical, here are illustrative data points and real-world moves.

  • Over 70% of large professional services firms plan to integrate AI in workflows by 2025 (Thomson Reuters).
  • In a survey by Harvest, smaller firms report agility in adopting AI and experimentation, possibly making them early movers in new value models. (getharvest.com)
  • Law firms such as Simmons & Simmons and Baker McKenzie are converting into hybrid legal-tech consultancies, offering AI-driven legal services and consultative tech advice. (ft.com)
  • Accenture has rebranded its consulting arm to “reinvention services” to highlight AI-driven transformation at scale. (businessinsider.com)
  • RSM US announced plans to invest $1 billion in AI over the next three years to build client platforms, predictive models, and internal infrastructure. (wsj.com)
  • In Europe, concern is rising that AI adoption will be concentrated in large firms. Ensuring regional and mid-tier consultancies can access infrastructure and training is becoming a policy conversation. (europeanbusinessmagazine.com)

These moves show that leading firms are actively shifting strategy to capture AI-driven revenue models, not just internal efficiency gains.

Strategic Considerations and Challenges

While the opportunity is large, executing this transformation requires careful thinking. Below are key enablers and risks.

Key Strategic Enablers

  1. Leadership alignment and vision
    AI transformation must be anchored at the top. PwC’s predictions emphasize that AI success is as much about vision as adoption. (pwc.com)
  2. Data infrastructure and hygiene
    Clean, well-governed data is the foundation. Without that, AI models falter. OC&C warns that focusing too much on perfect models before data readiness may stall adoption.
  3. Cross-disciplinary teams
    Firms need domain specialists, data scientists, engineers, legal and compliance experts, and product managers working together, not in silos.
  4. Iterative, minimum viable product (MVP) mindset
    Instead of waiting for a perfect AI tool, launch early, learn, iterate, and scale.
  5. Trust, transparency, and ethics
    Given the trust gap highlighted by Udacity, firms need to embed explainability, human oversight, monitoring, and user education.
  6. Change management and talent upskilling
    Legacy staff need to adapt. As firms automate junior tasks, roles shift upward. RSM and others are already refocusing talent strategy.

Challenges and Risks

  • Regulation and liability: increasing scrutiny on AI’s safety, fairness, privacy, and robustness means potential legal risk for firms delivering AI-driven services.
  • Competition from tech-first entrants: pure AI-native firms may outpace traditional firms in speed and innovation.
  • Client reluctance and trust issues: many clients remain cautious about relying on AI, especially for mission-critical decisions.
  • ROI measurement difficulty: many firms currently fail to track ROI for AI initiatives (according to Thomson Reuters).
  • Skill and talent shortage: hiring and retaining AI-capable talent is a global challenge.
  • Integration complexity: AI tools must integrate with legacy systems, data sources, and client workflows.

Suggested Roadmap for Firms

Below is a high-level phased roadmap for a professional services firm seeking to evolve from AI-enabled efficiency to market creation.

  1. Diagnostic and capability audit
    • Assess data infrastructure, AI readiness, analytics capabilities, and talent gaps.
    • Map internal use cases (where AI is already helping) and potential external transitions.
  2. Pilot external offerings or productize internal tools
    • Identify one or two internal tools (for example, document summarization or anomaly detection) and wrap them as client offerings.
    • Test with early adopters, track outcomes, pricing, and adoption friction.
  3. Develop governance and assurance capability
    • Build modular governance frameworks (explainability, audit trails, human review).
    • Offer these modules to clients as part of service packages.
  4. Expand domain-specific products and verticals
    • Use domain expertise to build specialized AI models for client sectors.
    • Build go-to-market and sales enablement geared to those verticals.
  5. Launch platform or marketplace approaches
    • Once you have multiple AI modules, offer them via API, plugin, or marketplace architecture.
    • Partner with technology vendors and startup ecosystems.
  6. Scale, monitor, and iterate
    • Invest in legal, compliance, and continuous monitoring.
    • Refine pricing, SLAs, user experience, and robustness.
    • Use client feedback loops to improve.
  7. Institutionalize AI culture
    • Upskill all talent, both domain and technical.
    • Embed reward structures for productization and value creation, not just billable hours.

Why This Matters for Clients and Firms

  • Clients are demanding more value, faster insight, and continuous intelligence. They will value service providers who deliver outcomes, not just advice.
  • Firms that remain purely labor or consulting based risk commoditization, margin pressure, and competition from AI-native entrants. The firms that lean into AI productization will differentiate and open new revenue streams.
  • Societal and regulatory forces will strengthen the demand for trustworthy, auditable, and ethically-built AI systems, and professional service firms are well placed to help govern those systems.

Conclusion

AI is not just another technology wave for professional services. It is a market reset. Firms that continue to treat AI as a back-office efficiency play will slowly fade into irrelevance, while those that see it as a platform for creating new markets will define the next generation of the industry.

The firms that win will not be the ones with the best slide decks or the largest data lakes. They will be the ones that productize their expertise, embed AI into their client experiences, and lead with trust and transparency as differentiators.

AI is now the new delivery model for professional judgment. It allows firms to turn knowledge into scalable and monetizable assets, from predictive insights and continuous assurance to entirely new advisory categories.

The choice is clear: evolve from service provider to AI-powered market maker, or risk becoming a subcontractor in someone else’s digital ecosystem. The professional services firms that act decisively today will own the playbooks, platforms, and profits of tomorrow.