VS1 Cloud Blog
When the going gets tough, companies often get desperate. So it should be no surprise that during the coronavirus pandemic and the concomitant economic crisis, professional service firms (PSFs) have been chasing after all kinds of business just to keep the lights on. We see this over and over: consultancies, law firms, accounting firms, and the like offering services and signing up clients they should never have considered. This approach to shoring up billings is perilous.
If a PSF’s constituent practices are diffuse in their strategic positioning or mix of clients, the firm ends up with a weak market profile, internal conflicts, and dissension among the leadership about the firm’s future direction. Conversely, if the practices are disciplined about their positioning and their client portfolio, the firm becomes stronger than the sum of its parts. In this article we’ll provide a framework that shows how PSF leaders can proactively position their practices and manage their client mix.
The Link Between Clients, Capabilities, and Strategy
At industrial or commercial companies, senior leaders can outline a strategy for a division and marshal support to execute it. But that top-down approach doesn’t work in a PSF, because of the fluid and constantly evolving nature of the PSF’s two strategic assets: its professionals and its clients.
A practice’s ability to deliver value to clients rests on the skills of its professionals, and the skill set of those professionals affects the choice of clients. In turn, the clients being served affect the development of the professionals’ skills. The strategy of a practice therefore is tightly linked to its clients and the professionals serving them. Whom a practice hires affects the clients it can serve, the clients it serves affect how the skills of its professionals evolve, how the skill set evolves affects the clients the practice can acquire in the future, and the cycle keeps repeating.
Practice leaders can use two tools—the practice spectrum and the client portfolio matrix—to assess, track, and make adjustments to the development and deployment of professionals and the management of the client portfolio and thus achieve lasting superior performance. These tools are based on our research over the past two decades, more than two dozen cases on PSFs that we have written, and our discussions with several thousand PSF leaders.
The Practice Spectrum
According to our colleague Jack Gabarro (who built on the ideas of former HBS professor David Maister), PSF practices fall on a spectrum of sophistication that ranges from “commodity” to “procedure” to “gray hair” to “rocket science.” Successful practices are clear about their position on this spectrum.
A commodity practice helps clients with relatively simple, routine problems by providing economical, expedient, and error-free service. The Big Three Indian outsourcing giants, Wipro, TCS, and Infosys, have gained scale and recognition while operating at this end of the spectrum.
A procedure practice offers a systematic approach to large, complicated problems that may not be cutting-edge but require attention to a plethora of considerations. Accenture’s Technology Consulting practice has long been an archetypal example of this.
A gray-hair practice provides seasoned counsel based on experience. Consulting firms like McKinsey, for instance, often market their strategy development advice to clients by noting that they have guided similar corporations through strategy exercises.
A rocket science practice addresses idiosyncratic, bet-the-company problems that require deep expertise and creative problem-solving. An example is the mergers and acquisitions practice of the boutique law firm Wachtell Lipton, famed for its cutting-edge work for businesses fighting hostile takeover bids.
Although a practice’s profile can extend across more than one type, we’ve found that the best-performing practices have a sharp focus. Clients know what services such practices offer, practice leaders which performance levers to pull, and recruits what type of work they’ll do. A diffuse profile dilutes a practice’s identity and renders it a jack of all trades and a master of none.
Plotting a practice’s profile on the spectrum enables its leaders to understand how to manage the practice, diagnose any misalignment, and shift its positioning if needed. It’s important to note, however, that practice profiles change as demands of the business and the environment change. During the 1970s the newly formed strategy consultancy Boston Consulting Group, not wanting to compete head-on with incumbents like McKinsey, chose to position itself more as a rocket science than a gray-hair practice. Unlike McKinsey, which offered experience-based, judgment-driven advice, BCG offered advice that drew on innovative empirical models such as its growth-share matrix and experience curve. By the 1980s, BCG had become more of a gray-hair practice. The transition was driven in part by its leaders’ recognition that rocket science practices, however successful, tend to remain small; BCG aspired to a growth rate and size that would provide ample career opportunities to its professionals.
The relevant organizational capabilities, professional skills, and impact of profitability levers vary across categories. Practice leaders must ensure that all those elements are aligned with the practice’s position on the spectrum.
Recruitment and development. A rocket science practice’s strategic assets are brilliant, creative professionals who deliver innovative solutions. Do their leaders care whether their recruits’ intellect is complemented by social grace? Not necessarily. The head of one rocket science legal practice described its approach to hiring this way: “We are not looking for ‘polished pebbles’ who come across as well-rounded and sophisticated. We seek to hire ‘splendid spikes,’ individuals who have extraordinary abilities on the dimensions that matter to us.”
Gray-hair practices seek wise counselors whose sound judgment and tailored advice reflect wisdom gleaned from experience. Where are such professionals recruited? Usually not laterally from other firms, because they may bring with them approaches and attitudes inimical to a practice’s culture. Instead these practices usually recruit individuals with an aptitude for “growing gray hair quickly,” as the director of one strategy consulting firm told us. McKinsey, for instance, typically hires top graduates of premier professional schools. Academic success demonstrates an ability to absorb and analyze information, consider it from different perspectives, and articulate one’s views cogently. It predicts that someone can learn quickly from experiences with senior partners and clients and develop judgment that he or she can apply in consulting engagements. Recruits are not only trained in the nuts and bolts of consulting work but also inculcated with the firm’s mores, particularly those related to client service. The goal is for consultants to come across as sage advisers in both the content of their advice and its delivery.
A procedure practice seeks individuals with “fire in the belly”—a desire to achieve through hard work and enterprise. This is evident in the reason one business process consulting firm turned down a recent candidate for an associate position. When he asked how to improve his prospects with similar firms, the interviewer told him, “Your résumé and your interview conveyed a sense of privilege. It was reflected in your schooling, your choice of a major in college, and your hobbies. We worry about recruiting professionals who, if asked to work an hour longer on an assignment, convert the conversation into a philosophical debate. We’re looking for individuals who have demonstrated in their background, activities, and interests a willingness to work hard and battle against adversity and the capacity to put in whatever hours the work might demand.”
Whereas procedure practices value drive and tenacity, commodity practices prefer dependability. They recruit steady individuals who will produce regular output at a reliable pace and quality. A human resources executive at a commodity practice explained, “We’re looking to hire people who have a minimum level of skill, are willing to undergo training to achieve proficiency, and are dependable. They do not absent themselves without notice and are not churning through organizations rapidly. Basically, we’re looking for qualified individuals who are glad to have the job and sincere about doing it well.”