Our previous post (“Does Industry Focus Matter?“) presented rationale for why we believe industry focus can deliver benefits to both clients and firms. This post addresses question number two in our fifteen question series: “Has the firm made strategic decisions about which industries to target and focus on?”
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Many industry teams are simply a reflection of the accumulated experience of the partners. Worse, some smaller and mid-sized firms claim to serve just about every industry — and can seriously undermine their credibility in the process. This post will challenge your firm to make deliberate, strategic choices about which industries to focus on and provides some practical tips on how to get started.
Strategy Involves Deliberate Choices Around Resource Allocation
“Strategy” is often misunderstood in the context of professional service firms. Strategy should be thought of as a clear, shared understanding of where the firm will allocate its scarce resources (people, time, dollars) towards the goal of being the “leading” or “go to” firm for one (or multiple) segments of clients, facing one (or multiple) types of business issues.
In practical terms, strategy helps guide deliberate choices about where a firm is and, just as importantly, where the firm is not going to direct resources. This extends to hiring, training, office locations, marketing, and business development. It can also (more controversially) include which clients and targets a firm will (and will not) continue to serve and/or pursue.
“Industry” is a Critical, Equal Component of an Overall Firm Strategy
The most effective professional service firm strategies do not treat industry in isolation as a “stand-alone” component but rather as an equal partner with services and geographies. This doesn’t mean reorienting your entire firm to only be focused on industry; rather we advise our clients to be thoughtful and deliberate about which sub-industry or sub-industries to invest in versus letting industry capabilities develop haphazardly.
Most firms have already made some decisions about where to focus, usually along service line and/or geographic dimension. One question to consider is why would you not apply an industry lens to that analysis and those decisions?
Some firm leaders resist defining industry focus points for fear of “missing out” on opportunities — however our experience is that being more industry focused allows firms to find more (and better) client opportunities, less expensively for three key reasons:
1. Clients and prospects actively seek you out because of your increased profile through publishing and speaking on topics that are relevant to their specific businesses and issues;
2. Deeper relationships are developed more quickly because of the industry understanding and focus, unlike more “generalist” firms where the client is often wondering how much time and money it will cost to “bring you up to speed” on their industry and business issues; and
3. Firms that are industry focused more quickly identify and respond to new and emerging opportunities because of their superior understanding of the underlying industry and business issues and/or are able to more quickly and concretely identify how a new regulation, piece of legislation, etc. is going to specifically impact a particular industry and the companies within it.
Taken together, we believe these three factors enable firms with industry focus to create real competitive differentiation, which often results in them being able to charge higher fees because they are being called upon to complete more difficult and specialized work — which is also usually more intellectually interesting work!
Why? Because clients trust these firms to understand how to apply their knowledge and expertise within the context of the client’s specific industry and business issues.
Getting Started: Key Questions to Consider Regarding Areas of Industry Focus
The first steps towards thoughtful, deliberate industry practices require analysis and discussion among the partner/director group as well as with clients and targets.
The key question to reach agreement and take action upon is: What type(s) of clients should the firm be developing relationships with?
This can be a controversial discussion — yet it gets to the heart of what types of clients the firm wants to serve in the future. The most effective client portfolio decisions are based on a number of factors, some quantitative and other qualitative. While not exhaustive by any means, some of the key considerations when considering the best client industries to target in the future include:
- Current size and projected growth rate of the industry segment: an obvious place to start; you should ensure that the current size and the projected growth rates for each industry segment under consideration will result in a sufficiently large market for you to compete in. “Sufficient” will naturally vary by firm — but should always be substantial enough that it can support a critical mass of partners and professionals.
- Comparative strength of your firm’s capabilities in that sector versus major competitors: it is important to critically (and objectively!) assess your firm’s existing capabilities to solve clients’ most pressing problems in a given industry. Will clients view your firm as credible? Does your partner group have solid client references and relationships that will help you compete effectively? Do you have (or can you quickly develop) insightful points of view and usable intellectual property (methods, templates, tools, etc.) that will pique your clients and targets’ interest? If no, it will be difficult to compete effectively and might not be the best industry sector to focus on — unless your firm is willing to hire aggressively and train extensively to build up the missing capabilities and credentials.
- Size of the firm’s existing client base and fee levels in that industry: also somewhat self-evident, however we have been surprised by a number of professional service firms deciding to enter markets where they had little (or no!) critical mass of existing clients and were up against significantly entrenched, well-positioned competitors dominating the landscape. We are not saying that you should never move into totally new industry markets, but you do want to carefully evaluate whether the competitive battle is your firm’s best investment of time, energy and focus compared against other industries where your firm is starting from a more established position.
- Extent to which the industry needs the firm’s complete array of services: this is not a “hard and fast” rule but is an important consideration. It may not make sense to focus on an industry if only one of the firm’s six service lines can provide needed services.
- Geographic alignment between an industry and the firm’s locations: be sure to evaluate the level of geographic fit between your target industries and your office locations, given the geographic clustering that is prevalent in many industries. For example, it will be challenging to service oil and gas clients in the Houston area if your firm only has offices in the Northeast US. Similarly, a firm in Silicon Valley is well placed to serve clients in the high tech industry.
- Match between your firm’s culture and each particular industry: the reality is that some firms and their partners/professionals are better suited to some industries than others; for example, media businesses and executives are quite different from oil & gas executives who are different from partners running hedge funds. Because clients generally tend to retain people they “like,” it is hard to understate the importance of this criteria. This cultural/personal match (or lack thereof!) should be discussed openly (and without fear of retribution) to help guide your firm towards the right industry decisions.
Before the partner group dives into the detailed trade-offs and considerations, it is useful to have an open discussion about the weighting of each factor shown above (as well as any additional factors that you might add). This will help reduce the potential for “gaming” the results once these considerations have been debated.
Finally, once the firm’s various industry options have been debated and examined, it is also time to consider how the firm will commit to its choices. Sometimes the commitment “forcing mechanism” can include specifically exiting industries and clients that are not on the strategic priority list. While oftentimes emotional for the individual partners and professionals involved, it is a healthy discussion topic for the firm to be making proactive decisions about where to invest its precious (and constrained) resources.
Industry should not become the only focus for firm strategy, marketing or service delivery. Deep professional technical expertise remains critical as does outstanding client service. However industry is a critical but often overlooked or undervalued component of the client-focused professional services model. Elevating industry to being an equal partner in defining how a firm targets and serves clients will, in our experience, deliver significant revenue and profitability enhancements.
Have Your Say!
Please share your thoughts in the comments section below.
Our next post will tackle how to assess the strength of your firm’s industry practices relative to key competitors and best practice for professional services firms.