-->
Aligning the Stars
Aligning the Stars
Aligning the Stars
Strategy
In talent-driven companies, especially professional service firms, the organization has to come before the strategy. Because people matter most, a company cannot effectively implement a strategy that its stars will not or cannot follow - or they will leave. But the downfall of many professional service firms is that they become so encumbered with organizational issues that they ignore their strategy. Or strategic decisions emerge as too little, too late. Questions like: “Should we diversify our business? Should we change our ownership form or structure? Should we expand globally? Is bigger really better? How do we achieve our growth targets? How do we compete against new aggressive competitors?” do not get the attention they should.
Interrelated strategic choices, like those above, comprise a firm’s strategy. They define how an organization will differentiate itself from its competitors, who its target clients will be, and the nature of the value proposition the firm will offer to them. The relationship among these elements of strategy is depicted in the strategy pyramid below.
Goals
A firm’s goals should reflect its strategy and highlight the few unique circumstances that will affect its future most deeply.
Goals define the ambitions of the enterprise, the hoped-for point of arrival along whatever dimensions are most important to the firm and its owners.
Competitive Differentiation
In a competitive marketplace, winning requires that a business serve some set of customer needs better than its competitors. In the competitive market for professional services, the same principle applies: clients award their business to one firm rather than another because they think that the winning firm will do a better job. In the vocabulary of strategy, the winning firm is differentiated along one or more dimensions that matter significantly in the clients’ eyes. Differentiation is what gives a firm its competitive edge.
Customer Strategy
In professional services, the adage that no two customers are exactly alike is especially apt. A firm’s competitive differentiation depends on its ability to fully meet the specific business and individual needs of certain customers. This makes the question “Who are our target clients?” both critical and complex.
Geographic Strategy
The strategic decisions surrounding a professional service firm’s target clients are bound up in issues of geographic strategy as well as customer differentiation. Firms face strategic questions such as: To what extent can or should a firm remain local? Or national? What level of presence is required to compete effectively in large markets? What does being “global” mean – a presence in five countries or twenty-five? How can that presence be achieved? The firm’s answers to questions like these determine its geographic strategy.
Client Value Proposition
The true value proposition to your client is all-inclusive, encompassing both the comprehensive service you provide and the process with which you provide it. In addition, because it is the entire experience of working with an outside professional that matters to the client, your firm’s value proposition has a personal element as well. This personal value element is critical to the person purchasing the professional service.
Business Line Strategy
One aspect of value proposition is identifying the lines of business in which a firm engages (auditing services, for example, or Web design). Management must make decisions about whether or not to expand the business into new adjacencies or how their acquisition of another firm could enhance their business line strategy.
Service Strategy

When clients purchase a service from professional service firms, it includes a certain level of attention as well as a particular kind of capability from the firm. Do you meet with the client every day or monthly? Do you meet at your office or theirs? Do you involve three client executives in the service process or thirty? Do you staff your project with a heavy mix of experienced professionals, or do you deploy a single senior partner supported by specialists and young analysts? These are some questions that determine a firm's service strategy – and cost structure, a central aspect of client value proposition.
Pricing Strategy
How professionals price their services is a critical strategic issue for two reasons: it helps define the client value proposition (value at a price), and it drives the firm’s economics. Pricing strategy involves many related issues: Do you quote a fee for the project or price your services on an hourly basis? If it’s on a project fee basis, how are overruns and changes of scope accommodated? How is your fee to be paid? Do you price differently by geography, by business line, or by customer segment?
Strategic Risks
Strategic risks come in all shapes and sizes, and obviously depend on the particular circumstances of a firm and its marketplace. There are four general types of risk that are common among professional service firms. These risks are common because they are unavoidable.
Strategic Obsolescence
In a rapidly changing environment, yesterday’s strategy is seldom the answer to tomorrow’s problems. This is obvious, yet time and again firms maintain the status quo. There are at least three understandable reasons for this head-in-the-sand behavior: human nature, money and power.
People tend to hang on to the comfort of past practices rather than venture into uncharted territory. Absent a crisis, partners in professional service firms tend to stay on track and support only modest adjustments to their strategy.
Money and power are the other two factors. Even in rough times, compensation for accomplished stars may exceed their personal needs. Their firm may decay, but their annual income and personal incentives don’t motivate them to pursue new strategies. Obsolescence sets in because the more complacent elders who may be focused on retirement trump the future generations (with the most to lose).
Strategic Drift
Strategic drift occurs because professionals have their own perspectives, independent of what the firm’s leaders may think. Professionals view themselves as running their own businesses. So strategic drift is inherent in the professional service business model. Whether it becomes problematic and costly depends on how it’s managed.
The most significant changes to a firm’s strategy occur at the strategic perimeter of the firm. This is the zone where new types of capabilities are developed, new clients are engaged, new markets are penetrated, and experiments are pursued. How the firm manages this strategic perimeter ultimately determines the consequences: costly strategic drift or productive innovation.
Strategic Identity
Professional services is inherently a word-of-mouth business. The intangible, personal nature of the services makes it difficult for potential clients to judge the quality or fit of a law firm, an accounting firm, or a consulting firm, so they ask around.
There are two aspects of strategic identity, internal and external. Both are developed through experience, not public relations or marketing. A firm’s external strategic identity is its cumulative profile in the marketplace: the way the market defines its capabilities, shortfalls, character and personality. Because a firm’s external strategic identity lives outside its bounds, and because it compounds over time, it is often inconsistent with a firm’s self-image, or its internal strategic identity. Internal strategic identity is the firm’s genetic code, the deeply held strategic beliefs that drive the partnership toward desired strategic goals. To know whether your firm’s strategic identity is a problem or an asset, you must develop an objective awareness of what others who have experienced your firm truly think about you.
Strategic Shortcuts
Professionals like shortcuts because shortcuts save time. Their hardwired orientation is to free up as much precious time as possible for current and potential clients. Normally, this behavior is appropriate. It encourages higher firm utilization and reflects the can-do approach required to win every day in the competitive arena. When it comes to strategic choices, however, apparent shortcuts, like mergers and acquisitions – though alluring prospects – also represent enormous risks.
Professional service firms’ strategies typically resemble long marches, in which greatness is achieved client by client, star by star, day by day. Building a successful firm is akin to building a brick wall: You may want to add many bricks at once, but it’s tough to do so without toppling the wall.