Counting the cost of generalisation

Clients love a specialist. In a previous article on this blog I’ve discussed how the extent to which clients’ rating of the quality of consulting work is very influenced by whether they see the firm concerned as a specialist. The more specialised a firm is seen to be, the higher the quality of its work is rated.

What we’ve also noticed is that, as a firm diversifies, i.e. is associated with an increasingly wide range of services, perceptions of its core service deteriorate. So when a firm that’s historically excelled in – say – HR consulting moves into – say – operational improvement, clients might be more positive about the firm’s quality of work in the latter, but they’re also more likely to be negative about the quality of its original, HR-related work. What clients give with one hand, they take away with the other. Even if we didn’t have data to back this up (and we do), it still makes intuitive sense: a client familiar with one set of services will believe that the firm is distracted, taking its eye off its core business, etc.

And the more you diversify, the greater the problem – it’s almost as though clients have only so much positive thinking to go around and, if those positive vibes aren’t concentrated in one service, they’re spread across several, bringing the scores down.

One solution is not to diversify, or to diversify incredibly slowly, taking one tiny footstep at a time. And it’s actually a perfectly viable option: most consulting markets are big enough that even the largest firms have space to grow. You don’t always have to jump over the fence to find green grass. But most consulting firms seem to find it hard to do that: the new services they launch are either a bit too far from their core business, or they’re too numerous. Either way, the process of diversification often runs out of control.

We’ve seen this happen so often, it feels like an inevitable part of the evolution of the consulting firm. So the interesting question isn’t so much whether you can prevent this happening, as how you can solve it once it has. Can you put the diversification genie back in the bottle, once you’ve let it out?

The answer is, of course, focus: consulting firms need to be far more ruthless in reviewing their portfolios and trimming back the parts of their business that add only marginal value. If that’s not possible, either because they want to retain a specific capacity as the foundation for future growth, or for simple political reasons, then they need to make a clearer distinction between their key services/markets, and the rest – to be multi-specialists in effect. They also need to accept that clients’ views about the quality of work they do in this secondary tier will almost certainly become more negative. On the plus side, perceptions of their work in key markets will improve. You can’t, it seems in consulting, be a high-quality generalist.