Strategy for Professional Services Firms
Professional services firms are one of the most challenging types of companies to create a winning strategy for. Professional services cover a broad spectrum of companies, from design agencies to law firms, accounting firms, technology consulting firms, architecture firms, and more. The thing that links professional services firms under the same category is that they trade expertise and time for money. The expertise, how they provide service, and how they charge for it can be different, but the essence is the same.
Professional services firms will typically try to compete on the prowess of their people, processes, and previous work. This is the competitive trident for professional services firms. A prospective client will want to work with a firm versus a competitor because their people are more experienced (i.e., better), their process is unique (i.e., better), and/or their previous work is outstanding (i.e., better). The rub is that every professional services firm believes and goes to market with the same trident of better, creating little differentiation from competitors and not powering a different strategy. Professional services firms don’t legitimately have the better trident as assets to leverage as part of a winning strategy. Most firms do, or they wouldn’t be in business. The better trident of assets is table stakes; more are likely to be needed to create a winning position and strategy to drive growth or increase profitability. Professional services firms tend to plateau, sans a merger or acquisition, because scaling is hard, but also because they never go beyond the trident of being better than all of their competitors also compete on. Professional services firms are hard to grow passed a certain point for several reasons. Still, the one I see most often is their inability to create a differentiated winning position and strategy.
So how does a professional services firm evolve beyond the undifferentiated, better trident of people, process, and previous work to create more assets and a winning strategy? Here are some options:
Visible marketing powerhouse: Professional services firms have to create differentiation, demonstrate expertise, initiate new relationships, and cement existing relationships by having team members be visible experts. Professional services firms with team members who write and speak about high-value topics are assets with which other firms will have difficulty directly competing. Why? Writing and speaking well is challenging and time-consuming. To do either consistently and well requires skill and intention, both of which are in shorter supply than they probably should be. This could be interpreted as thought leadership, and I won’t disagree with that label. Thought leadership has become a little watered down and muted, however. I also like the essence of being visible. For most services firms, a perspective has a tipping point when the client needs the services. Being visible allows firms to be in front of prospective clients when the tipping point happens. A visible expert is active, and thought leadership is more passive in my experience. Professional services firms that develop a visible expert mentality and execute around it create a differentiating asset that competitors can’t easily copy. Can competitors also write blog posts, write books, do talks, etc.? Sure, but most won’t, and even if they do, they are not likely to write about or talk about the same things.
Can out-marketing competitors be a differentiating strategic asset for professional services firms? Yes. Just as product companies can out-efficiency and execute competitors to win, professional services firms can out-market their competition to win. Professional services firms that unlock being a marketing powerhouse will capture more attention, build a stronger brand, and appear more prominent than a firm might be. Most professional service firms’ growth is driven by becoming better marketers than competitors. Service delivery and execution matter, but more is needed to drive differentiation and growth. Assuming a professional services firm is capable, marketing may be their only differentiating factor.
Become indispensable: Professional services firms that become deeply integrated with their clients create value that makes them indispensable to their clients. Many professional services firms say they are partners with their clients. Still, much of it is lip service and frankly undifferentiating because clients often hear this. Being a partner is also too generic to be an asset that can be leveraged as part of a winning position and strategy — being indispensable means a client either cannot imagine moving forward without a services firm being part of their plans or is locked in with a services firm because of something tangible such as an operational integration, financial construct, or person(s) dependency. However, becoming indispensable to a client takes time, and a services firm must develop credibility and trust for a client to acknowledge and agree to a consistent and hardened relationship. Services firms that want to leverage indispensability as a strategic asset must find a way to be repeatedly indispensable. Being indispensable with one or two clients is good but not enough to be considered a strategic asset. However, if what makes a firm indispensable with one or two clients can be replicated with other clients, it can become a high-leverage asset as part of an overall strategy.
Proprietary process or product: Professional services firms with a proprietary process or product have a differentiating, strategic asset. Proprietary processes are often the foundation for software products so that one can translate into the other. The key is that a process must be proprietary and unique. A design firm that implements design thinking isn’t. A software development firm that uses agile isn’t. A consulting firm that has created its methodology, content, and workflow is. To leverage a process as an asset, services firms must be honest about the proprietary nature of the process. Using a process used by many other firms is just part of the service aspect of the people, process, and previous work trident. However, a service firm has created a different and valuable working method. In that case, it can be a catalyst for growth. Creating a product is the next step beyond the proprietary process. A proprietary process can be monetized as part of a firm’s work with clients at higher rates or project fees, but commercialization beyond that is limited.
Whereas a product can be commercialized beyond the services of a firm. Creating a successful product for a services firm is complex and rare. This is also why when it succeeds, it is a significant lever of differentiation. A services firm with a scaleable product has business model, financial, and operational options a services-only firm doesn’t. A product becomes a fulcrum of power for services firms in a highly competitive space that is challenging to create differentiation and to have unique assets. Unlike most competitive firms, a services firm that becomes a hybrid services/product firm can define a winning position.
New line of service: Adding a new, high-value service can help a services firm break out of the competitive pack as long as the service is genuinely unique and not me too. Expanding services to be a follower will create little of an asset. Firms that are trailblazers in their field with new, high-value services can leverage the services as assets. Why does it seem the most successful firms in a field continue to remain in front while others are laggards? It is because the front runners continually evaluate and introduce new, tangential services that allow them to expand their work with existing clients while enabling conversations with prospective clients. A word of caution, though, is that professional services firms that expand their service offerings too fast or haphazardly will cause thrashing internally and with clients. Any service expansion must be strategic, coordinated, and communicated to deliver on the potential and avoid causing undue harm.
Vertical specialization: A high-value asset for services firms that can amplify their perceived value, expertise, and visibility is vertical specialization. Most professional services are market horizontal, meaning their services can be for any company. By serving only one type of company or organization, firms can be domain experts, which provides clarity and focus for services, marketing, and sales. Vertical specialization also often means less competition and price pressure leading to higher revenue and profit. Vertical specialization is a risk, and that’s why most service firms don’t do it. The proverbial all eggs in one basket scenario makes most services firms leery of foregoing, other types of clients for only one. The risk is deemed too great for most services unless they begin vertically specialized. Few services firms make the transition from being general to being specialized. More services firms should consider and make the transition to being vertically specialized. The more vertically specialized a services firm is, the more the specialization is a strategic asset to the firm. Vertical specialization also facilitates all of the above differentiating assets.
Professional services firms who are struggling strategically will often fall back on things like, “We provide a better client experience,” “Clients enjoy working with us more,” or “We’re a partner with our clients.” These are all good and true in some cases. Still, they aren’t differentiating assets that power a strategic, winning position. Anything a competitive firm can legitimately point to as a differentiating asset isn’t likely to be a differentiating asset for a firm.
It is possible for a professional services firm to differentiate through and have an asset in people, process, or previous work if one or more of these is genuinely differentiated, but I will make the case that if one of these areas is so differentiated that it is probably a different capability and asset than the base element. A world-renowned, specialized expert or ability stands apart from the rest of the firm’s team and services. Something unique will warrant its respect as an asset outside typical people, processes, and previous work categorization. A professional services firm with a rare person or capability has an asset. It can leverage to create a winning position. Still, the asset isn’t likely enough to support an overall firm strategy unless there is some repeatability. A one-off in people, processes, or previous work needs to be a solid enough asset to power a strategy. Strategic asset potential might exist if the one-off can be expanded upon and leveraged more broadly by a firm.
Some professional services firms attempt to use pricing models as a competitive differentiator. Value-based pricing, in particular, is becoming more prevalent among service firms. Can valued-based pricing and other types of pricing be competitive differentiators? Yes. Pricing models need to be more significant to be assets to underpin a strategy. Not all competitive differentiators raise the level of being strategic assets.
The options referenced above as strategic assets certainly aren’t a comprehensive list, but they can serve as a primer for professional services firms to begin to think about and assess as part of strategic work. Professional services firms must be willing to embrace new ways of thinking and acting to continue growing and breaking through the thresholds of stagnation. All options for professional services firms to create assets will require an investment of money, time, and energy. Assets that are strategic and differentiating don’t just happen for any company, let alone service firms. Leaders of professional services firms should ask themselves whether they have enough substantive assets to compete effectively. Suppose the answer is no, and they must work on defining and creating assets. In that case, service firm leaders must be honest with themselves if something new will be a strategic asset or an inconsequential activity with minimal impact.
