Much has been written about how professional service firms win business, especially in today's tough times. However, most commentators fail to address the unique challenges that most firms face in positioning their services and subsequent business development efforts when they provide services of differing complexity targeted at very different client needs.
The very limited research and, critically, all of the anecdotal evidence associated with this dilemma is absolutely clear: To be successful, firms have go to market in substantially different ways depending on which market segment each service is competing in. In each of our over 20-plus years of experience working in professional service firms, we have seen some firms address this issue well, but most firms do it poorly. The successful ones always start by being absolutely clear which segments they are competing in and how their offer is differentiated from their competitors. So, if that is always the starting point, how do all firms make sure they know which segment they are competing in?
There are a number of segmentation models in use, but we will use the one Rob and Jack Gabarro created specifically for professional service firms, and which some readers will know from Harvard Business School's Leading Professional Service Firms program, and which Rob, Jack and Tom De Long included in their book When Professionals Have to Lead. In this model, the services offered by professional service firms can be divided into four segments with these main characteristics:
Standardized services. In this segment, clients are looking for an efficient and low-cost solution to a common problem. They are in the opportune position of having many potential suppliers to choose from and can negotiate hard for the lowest price. The selling proposition, therefore, is "better, faster and cheaper" than any in-house or competitors' offers. With this reality, firms operating in this segment need to drive profitability through the deployment of established methodologies, models and processes, as well as efficient and low-cost delivery systems. Leverage is high while margin is low, making service line profitability a function of volume.
Customized services. One of the theories associated with professional services segmentation (which is also supported by anecdotal observations), is that, over time, an increasing number of suppliers are able to replicate specific service offerings and, in conjunction with this greater supply, clients change their expectations of value for money. The question for firms facing the move towards standardization, therefore, becomes how to prevent their services from becoming commoditized, with all of the margin and profitability issues that brings. And there is only one way to respond successfully: to customize the services for those clients who, while still looking for an efficient solution, are willing to pay more for a solution tailored specifically to their needs. To generate an acceptable level of profitability, firms need to have all of the delivery expertise necessary in the "Standardized" segment, plus very good relationship skills and, critically, the ability to keep the sales costs under control. This last point is especially important, as part of the tailored offer is support through the purchasing process, both before and afterwards -- which, of course, is one of the ways to both build trust and keep competitors out of the game.
Expertise-Driven services. These services are a direct response to situations when clients have a complex and often ill-defined issue, which they have little or no experience of and look for outside help in resolving. The selling proposition in this segment is, "Trust us, we've seen similar problems before and will help and support you in coming up with a solution that works for you."
To be able to provide these services effectively and retain a reputation for doing so, firms need high levels of technical/functional knowledge, as well as experience of similar problems, typically in multiple sectors, from which they can draw on in responding to the client's specific issue. A high level of analytical skill is also a prerequisite for success in this segment, as is the ability to quickly build trust and confidence.
So, while brand is important in this segment (as it is in all segments), so is the personal brand of the lead partners.
"Rocket Science" services. When clients have a major "bet your company" issue that they have little or no experience of and they want external support, they typically turn to firms that have an outstanding reputation and track record of delivering solutions based on the highest level of diagnostic skills and the ability to create innovative solutions through their state-of-the-art knowledge and pioneering concepts. As with Expertise-Driven services, a firm's brand is important but, with these services, it is ultimately the quality of the partners leading the work that will be the deciding factor in a client's purchasing decision. Unsurprisingly, there are a limited number of firms capable of providing "Rocket Science" services, which, inevitably, yield the highest fees and have the lowest leverage, as the clients are paying for the expertise of the principals.
One very important point is that some firms make the mistake of believing that money can only be made in the Expertise-Driven and "Rocket Science" segments, and this is absolutely not true. It is possible to make money in all of the segments. The key is to ensure that the delivery model is appropriate to the service offering.
Each segment poses its own unique business development challenges.
Standardized. We referred to the importance of the firm's brand in the Expertise-Driven and "Rocket Science" segments, but it is equally important here. While the buyers of these services are rarely the company's top management, they are usually important players at their level. And, with access to a multitude of suppliers basically offering the same product or service, they typically look for a supplier with a proven track record, who they believe will deliver without causing any internal problems and who will instantly generate internal acceptance across the business. They want confidence, and confidence comes from selecting a strong brand.
So the business development challenge is an obvious one: to build brand credibility. The service has to do "exactly what it says on the tin" every time without fail, or the likelihood of another supplier winning (or taking over) the business is extremely high. One of the ways to build additional credibility is through making the service appear more relevant in a particular market by referring to the expertise that has been built up through working in specific sectors or geographies (a reality that applies in all segments).
The processes, methodologies and supporting technologies that are fundamental to low-cost delivery can also be used to generate the key performance metrics, which, in turn, can be used to monitor performance and build confidence and credibility. This is critical in building brand credibility, and the results must be continually integrated into updated performance data, which then become one of the messages used to reinforce credibility. Examples of the metrics could include quality measures like rework percentages and end-user feedback, as well as efficiency metrics like turnaround times.
Given that the buyers are buying a known "corporate" brand, the service can be promoted via targeted advertising and direct marketing; and sold by people who do not actually deliver the service. The people selling the service, though, must have a detailed knowledge of the service in operation and convey absolute confidence in its ability to do the job requested.
Customized. When competing in this segment, firms are trying to put some "stickiness" into their relationship with the client's personnel by helping them think through the customization and implementation process. So, the business development challenge is to know who the client's key personnel are and to select fee-earners who will develop an effective relationship with them, as the deliverers. This makes identifying the client's key personnel the No. 1 task, alongside gaining a clear understanding of what drives them and what they personally need to achieve in order to be seen to be successful.
In our experience, one of the associated activities that can yield significant benefits over time is, when it's appropriate, to use the customization process as an opportunity to collaborate with and educate the client's personnel. We have always found that, at some stage in the future, people tend to reach out to those who have helped them in the past, as reciprocity is central to most enduring relationships. Using the customization process as educative and as part of the relationship-building process reinforces the collaborative nature of the task and the importance of both parties to its success. Business development only succeeds if the firm's people have the right capabilities -- making the development of the firm's people central to the success of all of its activities, including business development.
Another key judgement call in the process is to assess what a reasonable fee is for the customization: How important is the customization to the client and how much is that in monetary value over and above the cost of buying a "standardized" solution?
Expertise-Driven: This is a segment where a firm's brand is critical. (Don't forget the famous line, "No one ever got fired for buying IBM.") Brand strength is the business development challenge, which means creating, and making known, success stories, which add to an already proven track record.
Of course, the success stories rarely have clients' names attached to them (that piece of information is usually shared discreetly between chief executives and chairmen) but what firms have to be very savvy about is using the knowledge they generate from undertaking a series of similar assignments to create a point of view that resonates with their main board buyers. But that is typically not enough. Firms operating in this segment have to develop their own evidence-based research (often referred to as thought leadership or white papers) on issues that, again, resonate with their potential buyers. And, of course, their lead partners have to be outstandingly good at developing and sustaining relationships in the boardroom.
Alumni are also very important in this market and, typically, are a source of significant work for most of the firms competing in the segment. And, of course, there are the traditional reputation-building activities like speeches at key forums, as well as the evidenced-based research we referred to earlier.
Rocket Science: To be successful in this segment, firms need to establish a position that results in them being approached by the client (often before the need is in the public domain). Requests from individual businesses for help are unlikely to be frequent, yet when they do occur, their impact on the company will always be significant. Indeed, at the extreme, the outcome of how the issue is resolved can literally make the difference between the life and death of the business. But, in all cases, the successful resolution of a "Rocket Science" issue will always have a significant impact on the organization's economic health.
Given this reality, what all of the issues have in common is the undivided attention of the company's board and top management. The issues have their attention, not just because of the issue's importance to the business, but also because, if the issue is not resolved satisfactorily, one or more of the board members may lose their jobs.
To be "top of mind," firms need to be highly networked across the top management of all of the major players, not just in the company's sector but industry-wide. But, before that, they need to demonstrate a proven track record.
The names and reputations of the partners involved in creating the innovative solutions, for thinking outside of the box, must be known by the top players, as these situations usually demand prompt action and the top players always know who to go to. Their names may not be on speed dial, but the top players always know how to access them no matter where they are.
So, in these circumstances, how do firms influence opinion and compete successfully with the limited number of firms who play in this segment? Besides being personally known in the boardrooms of the top companies, the firms must have strong relationships with potential intermediaries like the merchant banks, hedge funds, lawyers, and even other accountants.
The positioning challenge for all firms, to quote Marty Lipton in the Harvard Business School case on Wachtell Lipton Rosen & Katz, "is to be part of our clients' institutional memories; we want them to turn to us when a serious problem arises." It is a tough challenge but the rewards and prestige are high.
COMPETING ACROSS SEGMENTS
While most firms do not compete in all four segments, a lot compete in two or, increasingly, three (the Standardized, Customized and Expertise-Driven segments) -- an approach that can bring with it the challenge of brand stretch and credibility.
Although the buyers can be the same in the Standardized and Customized segments, they are distinctly different in the Expertise-Driven segment, and it is the perception of these senior buyers that is the issue. Do they want to see the firm that they select to help them resolve organizationally important issues also provide basic Standardized services? There is no definitive answer to this question, although there is no doubt that the top management who purchase Expertise-Driven services do not expect the Standardized services to be delivered by the partners and professionals they are interacting with. Nor will they countenance paying the same fees for work of significantly different strategic importance.
These increasingly sophisticated buyers are easily capable of attributing value to the individual services they purchase, and even if they don't use the same terms as we have used to describe the type of services within each segment, they have a very clear view of where services fit within their own version of the service segmentation matrix.
So, what do we believe firms need to do to work successfully across multiple segments? As we said at the beginning of this article, from all of our years of working with professional firms and their clients, it is clear that success starts from knowing which segment the service is in and tailoring the marketing, business development and service delivery to the segment. For all firms that means:
- Being absolutely clear about which segment(s) each of the firm's services fall within.
- Organizing the service delivery process and having the appropriate resources for each segment.
- Developing the internal capabilities applicable to each segment.
- Not expecting the same people to work across the Standardized and Expertise-Driven segments, as they demand different capabilities as well as organization.
- Communicating the different service offerings to clients and being completely honest about the differences.
- Communicating the differences internally, explaining the type of work that the firm does within each segment and letting everyone know how the work is delivered and the mechanisms for getting it to market.
- Being clear about the business development challenges of each segment and incorporating them into their business development strategies.
- Knowing who the buyers are in the different segments.
- Managing the client or target's perceptions of value, both organizationally and with the different buyers.
- Tailoring the business development activities to the different buyers.
These points do not specifically address the issue of whether firms should create a separate brand for their Standardized services, as we believe that the critical point is clear decoupling in the client's eyes. However, a number of firms have created separate legal entities and brands to deliver such services. As we have said, there is no right or wrong answer; the key is managing market and client perceptions, as clients will always know the ultimate owner of any firm they employ.
Commercial success is a function of many factors (one of which is winning business), but it starts with a clear understanding of which market(s) the firm is competing in. Only with that understanding can firms go to market effectively. As we said at the beginning of the article, some firms do this well, others less so. The challenge for the firms that fall in the "less well" category is to copy those that do well.
In today's unforgiving markets, no firm can afford not to be clear about which markets they compete in and how they can differentiate their services from their competitors. Winning business is difficult at the best of times; the smart firms -- those with the necessary market clarity -- go to market with a much greater chance of succeeding than those that don't.
Derek Klyhn is a founding partner of MÃ¸ller PSF Group Cambridge. Reach him at derek. email@example.com. Rob Lees is a founding partner and a director of Moller PSF Group Cambridge. Reach him at firstname.lastname@example.org. August Aquila consults to professional service firms in the areas of mergers and acquisitions, compensation design, succession planning and partnership issues. Reach him at email@example.com. Derek, Rob and August are the co-authors of Leadership at its Strongest: What Successful Managing Partners Do.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access