Driving differentiation in professional services
Commoditization = Profit Erosion
The greatest threat to professional services companies is commoditization. Firms that offer the same services, delivered in the same way, at the same level of quality as their competitors will see prices driven down to base costs. This in turn will sap the ability to invest in differentiation and lead to a downward spiral.
The only answer to this is differentiation. Your firm has to be uniquely better than the alternatives at something. In professional services there are only three vectors of differentiation: Excellence, Uniqueness and Insight.
Excellence
Excellence is the easiest to understand, if not to achieve. Your firm does something better than anyone else. Other firms may offer the same or a similar service, but they do not have the thought leaders, the frameworks and the experience to deliver at the same level. Claims of excellence are compelling if they can be substantiated by project experience and outcomes, but only if they can be sustained. Yesterday’s excellence is today’s best practices and tomorrow’s commodity. The benchmarks are always moving and firms that differentiate on excellence have to make constant investments to stay ahead.
The major consulting firms, McKinsey, Bain, BCG and their close competitors are driven by an excellence strategy. You can see this from their investment in thought leadership and in frameworks they have developed and brought to market. Today almost everyone is familiar with frameworks like the BCG Matrix or the McKinsey 7S Model.
Uniqueness
Offer a service that no one else can. This is difficult, if there is demand for a service then other companies will follow you into the market. There are two ways to achieve uniqueness: specialization and blending.
Specialization is based on skills but not just any skills. In any field there will be a core set of skills that all participants are expected to have. These core skills are table stakes. Everyone has them at some level and only a very few companies can claim excellence (if many companies can claim excellence the skill package has become a commodity). In professional services digital marketing, market positioning, market research are all core skills. Many people do these well. To get to uniqueness a firm needs to have some special area where it excels. Simon Kucher Partners is a premier vendor for pricing. Kalypso has expertise in innovation strategy. frog and Ideo are leading design studios who have taken their discipline around design process and applied it to many new areas.
Blending is the other way to build a unique market position. Firms that combine deep expertise in two or three areas (more than this and it is very difficult to actually blend the expertise) can establish well-differentiated positions. There are two flavours of this. Some firms combine two different areas of expertise. This could be a combination of deep software platform knowledge plus an area of business excellence, the Vancouver company Traction on Demand combines knowledge of sales processes with Salesforce and the Force.com platform. Or a firm may combine deep knowledge of a specific industry with technical expertise in a specific sector the way another Vancouver company, ZE Power Group, blends together data management and analysis with unparalleled experience in energy trading.
Insight
It may seem odd to have Insight as a vector of differentiation. After all, consulting firms are always selling insight. What I mean here is a very special type of insight. The insight that comes from combining unique access to data with data analytics and the ability to interpret this data for clients in a way that makes it actionable. Consulting companies are investing more and more money into gathering and organizing data sources and into the software that will find patterns. Their ability to operate across multiple companies and even industries gives them access to data that no one company can have. Many software companies are as much consulting companies as they are software platforms. This is obviously the case at IBM, but it is also true of Palantir where a lot of skill is needed to get value from the platform or even a smaller company like ThoughtExchange, where a ‘process’ is a set of services delivered through the ThoughtExchange platform for group insight.
At TeamFit, we help you build differentiation thorough Excellence and Uniqueness. We are improving our SkillMap to make it easier to identify the skills that underlie excellent performance (and this is almost always a coherent set of skills rather than excellence specific skills) and the combinations of skills that make for a unique value proposition.
Excellence, uniqueness, insight are the foundation of differentiation. This is as true for individuals as it is for companies. Set aside some time this week to think about the skills that make you unique and how you will be developing them in the second half of this year.