Yesterday I shared that, according to David Maister, there are two key elements that shape the operation, management and organization of every firm: how you decide to do the job ("choice of technology") and your personal goals and motivations ("collective values of the principals").
Of course, how you decide to do the job largely depends on the type of problem you are solving. After studying other professional firms - especially law and accounting ones - Maister recognized a pattern. He segmented firms into 3 categories:
- Brains: Solve complex and relatively unique problems.
- Grey-Hair: Solve problems that are uncommon for the client, but common in the industry or market segment.
- Procedure: Solve common and frequent problems.
Here are a few thoughts on each one of them.
Brain firms' clients are mostly looking for expertise, so the solutions focus on providing new and innovative ideas. As a consequence, these consultancies tend to employ talented and creative people, command hired fees, and have low leverage (the ratio of consultants to partners).
Grey-hair firms' clients are mostly looking for experience, so the solutions are customized but rarely innovative. As a consequence, they tend to employ older experts that have worked with other similar organizations and have medium leverage with at least a few partners.
Procedure firms' clients are mostly looking for execution, so the solutions are productized and standardized. As a consequence, they have high leverage (employing a large number of junior consultants who can get the job done efficiently) and command lower fees.
These differences are fairly straightforward. Things get really interesting when we look at how each of those types of firms manage projects, make decisions, communicate their value proposition, market their offerings. And how founders and partners lead and manage their consultancies.
With that said, it's common for different types of problems to overlap. Often, clients hire a consultancy to produce a desired outcome that requires solving a common problem that turns into a complex one. Or vice-versa.
But there's usually a pattern to how technologies develop in every firm and market. Innovative solutions often come from firms that are good at coming up with new ideas. As the market starts to understand and accept these solutions, they get adopted by firms in the industry, that polish the ideas and develop best practices. Finally, when the ideas become well-known and in demand, the service gets productized and offered by firms that focus on efficiency and scale.
How does the critical problem your consultancy solves match the market?
All models are wrong, but some are useful. While I believe this simplification is not so accurate anymore (topic for another post), it is still helpful for partners to rethink and evaluate their business models. Brains, grey-hair, and procedure firms are more similar than you think.