For professional services firm leaders who continue to search for that elusive growth formula, it’s time to ask a fundamental question: Is your firm sufficiently focused? Our experience is that many firms, large and small alike, are spread far too thinly. Investments in service delivery (R&D, methodology development, training and development, and recruiting) and marketing/ sales are made across too many service offerings and industries to build superior expertise and effective marketing programs in any one of them.
This is what led to the demise of several once-high- flying Internet consulting firms, in our estimation. During their firm’s heyday, management’s belief was that the Internet was changing every facet of business in every industry—and that they could help any company with that change. Of course, what they underestimated was the depth of industry, functional and other expertise required to do this work. How could a $20 million (or even a $200 million) Internet consulting firm possibly have the depth of expertise in every major industry, business function, and Internet technology required to create superior services for all companies and all business problems in which the Net was part of the solution? In hindsight, it was a pipe dream. When Internet fever ran its course, those consulting firms that survived shriveled quickly back to the one or two areas in which they did have some deep expertise.
This is the services industry equivalent to the product rationalization that’s going on in the consumer products industry. (Just ask companies like Unilever how many brands and products they have killed over the past decade because their broad product portfolio was diluting R&D and marketing initiatives). Given the nature of the services business—particularly consulting, and accounting—it’s easy for firms to lose focus and offer too many services. Why?
First, every new partner a firm brings in may represent a new service offering. So adding new offerings can happen easily. Second, one of the hazards of being responsive to clients is doing new things they ask you to do. Third is the boredom factor. Many professionals burn out doing the same thing for years. And fourth is the dry pipeline factor: When times get tough, the tendency is to take on any work, whether or not deep expertise exists.
So if focus and superior expertise are where growth begins, how does a firm regain focus? In our experience, the process begins by mapping out one’s marketplace, segmenting the firm’s client work in a way that sheds insights into the core skills and expertise necessary to compete in any segment. Then, by categorizing the firm’s work and placing projects in different segments, firm management will invariably see where its expertise clusters. The next step is to assess how well the firm sells and delivers services in each of the segments. Tracking project win/loss ratios is valuable input here, as is tracking project outcomes. The more objective and quantifiable the assessment, the better.
With this data in hand, the firm’s pockets of expertise are likely to emerge. Of course, the market segments of strength also must be viewed from the basis of their long-term growth prospects and competitors’ capabilities. Then the question becomes: In how many segments and services can the firm generate superior expertise? The answer can be found by creating fully loaded estimates of investments required for any one service in:
- Service delivery - This includes R&D activities required to develop new approaches, initiatives to create methodologies, and recruiting and training professionals.
- Demand-creation - This involves sales and marketing activities and programs such as publications, events, PR, public speaking, Web presence, brochures and other collaterals, prospect databases, proposal development, and meetings.
A firm that has a $30 million annual budget for those activities and has calculated that any one service requires a $5 million investment in delivery and demand creation will quickly see that supporting 20 service offerings is infeasible. So some hard choices must be made about which services and markets will be actively supported and which will be treated opportunistically.
But rationalizing the service portfolio will not be easy. Significant resistance should be expected on the part of professionals whose expertise doesn’t fall in the winning categories. The shift must be managed carefully. For example, during the phase-in period, the firm should not stop accepting work outside its new core until its focused marketing and sales programs are delivering a sufficient number of leads within the core. Professional services firms are not immune to the forces that govern demand and supply in other industries. When customers aren’t buying expertise in the magnitude that they used to (but still have substantial business problems), they are in effect saying they believe such expertise is not sufficient to meet their business issues. The place for firms to take control of their destinies is by examining just how much expertise they bring to the table, how to develop superior expertise, and how to effectively communicate the value of that expertise to client executives.