Friday, June 22, 2018

Is Differentiation Really Worth Pursuing?

Differentiation is a popular business topic. And an elusive goal for professional service firms. Many firms have invested substantial amounts of time and money in the pursuit of differentiation, but arguably few have achieved success. Indeed, some experts are skeptical that differentiation in professional services is realistic.

For example, in his article "The Myth of Differentiation," consultant Mike Schultz writes, "Much as firms might hear otherwise, being different isn't much of a factor in winning or keeping clients. Often, the 'we're different' message affects them negatively." He mentions performing a quick Google search on the phrase "unique consulting firm." It yielded almost 4,000 web pages. For this reason, claims of distinction are understandably dismissed by most clients.

Bruce Marcus is another skeptic. He writes, "Professional service marketers talk of differentiation, which, frankly, is baying at the moon...differentiation is overrated, and is perhaps, like branding, a myth." He questions the ability of professional service firms to claim distinction given the nature of the business. "You can't say, 'Our firm gets better mileage' [an objective differentiator]. But neither can you say, 'We do better audits.' Or, 'We write better briefs' [meaningless subjective claims]." Few professional firms can offer evidence to support their differentiating messages.

On at least one point, I must agree with the skeptics: Saying you're different doesn't accomplish anything. And this is the extent to which most A/E firms have pursued differentiation. They make unsubstantiated claims of being different. Almost everyone does. So why should we think that clients take such marketing messages seriously?

In a study by Suzanne Lowe, 81% of professional service firms reported that they sought differentiation as part of their marketing strategy. But she found that "a majority thought of differentiation as simply an exercise in image enhancement." The differentiation tactics most commonly used also tended to be among the least effective. (I refer to a few of these in an earlier post entitled "The Deceptive Distinctives.") Generally, the most common "differentiators" are also the easiest to implement.

By contrast, Lowe found, "The reality is that when it comes to differentiation, the more complex and organizationally deep the differentiation strategy is, the more competitively potent it is." That reminds me of an interview with Dell Computers CEO Michael Dell that I read years ago. He was talking openly about the manufacturing and distribution strategies that had given his company the edge on its competitors. The interviewer asked if he was concerned that the competition might steal their business model, given his candor. "They can't do it," he replied, noting that the real difference was rooted deep in Dell's organizational culture.

"The strongest competitive advantage," writes Dena Waggoner in the Encyclopedia of Management, "is a strategy that cannot be imitated by other companies." That's real differentiation. So what does this mean for your firm? Is differentiation worth pursuing? Is it even achievable?

To be honest, probably not for the average A/E firm. Few firms have the management fortitude to create a truly distinctive company. It's hard work. It has to be. If differentiation was easy, then everyone would be doing it and succeeding. Which means, of course, they wouldn't ultimately be successful at it because all their competitors would be doing it too.
Does this mean that differentiation is beyond your firm's reach? Not necessarily. 

Differentiation in our business is largely relational rather than positional. Developing a reputation in the marketplace as a notable firm can be very useful. But success in our business is really forged at the relationship level. If you want to be distinctive, excel at building lasting, mutually profitable relationships. Out-serve the competition, client by client by client. Then leverage those strong relationships to create new ones.

For the truly dedicated, I believe there is the potential for carving out a place of marketplace distinction. Some have suggested that your best opportunity for differentiation is in how you do business development. Selling in our business is still largely transactional and seller-oriented. Flip the script with a buyer-centered approach and you will stand out from the crowd. But can you maintain that difference after the sale?

Focusing on value creation, particularly in connecting your work to delivering business results, is another ripe opportunity. This is a subject that is oddly little discussed in our industry. If you can demonstrate an understanding of and ability to deliver business solutions, clients will take notice. A/E firms often tout their commitment to helping clients be successful, but there's commonly a big gap between their technical focus and the client's business objectives.

Any of these differentiation strategies must be rooted in your firm's culture, because the real difference isn't in what you say, or even in what you strive to do. It's in what you routinely do because of who you are as a firm. When you can translate your firm's cultural strengths and practices into value for the client, that's a good base for true differentiation. It's not easy to achieve. But it's even harder for others to replicate.

Monday, June 11, 2018

Create Client Value Through Better Collaboration

Imagine you're a client who recently hired an engineering consulting firm to solve a challenging problem. Your selection was made in large part because of the firm's deep bench of experts with relevant experience. But as the project progresses, you realize that the firm's project manager is doing almost all of the work of characterizing the problem and defining the solution. The project team serves only to perform related work assignments devised by the PM.

This scenario is unfortunately not all that uncommon in the A/E industry. Too often firms tout the breadth of their expertise but give clients only a small sample of it when it comes to problem solving and design development. This might be expected on smaller projects, but more complex multidisciplinary projects call for collaboration—something that many firms frankly neglect.

The A/E/C industry has been fairly characterized as "fragmented, inefficient, and adversarial because each [project partner] is responsible for its own silo of work and attempts to maximize their individual profit in the areas of their own expertise." This has led to several efforts to try to improve collaboration among parties, including Integrated Project Delivery, which attempts to force better cooperation by sharing legal risks.

But the problem of fragmentation isn't limited to work between design and construction firms. It's estimated that half of construction change orders are due to coordination errors during design. Undoubtedly, disciplinary silos existing within many A/E firms contribute to this problem. These silos also rob clients of the integrated problem solving and solution development they should expect from the multidisciplinary firms they hire.

So here's a potential competitive advantage that too few are talking about—creating added client value through better collaboration. Clients deserve better, and it's fairly simple to deliver it by more effectively pooling the intellectual and manpower assets you have in your firm, or your extended project team. Let me suggest some opportunities for improvement:

Collaboration through project planning. It's surprising how little real project planning I observe among the A/E firms I consult. This is where collaboration should begin. The best planning starts with a broad, multidimensional view of the project—vision, goals, critical success factors, concerns, opportunities. Too often firms rush to defining scope, schedule, and budget before really understanding what outcomes the project is supposed to achieve.

To kick off an effective planning process, assemble a group with diverse backgrounds and perspectives. Involve all of the key disciplines that will ultimately contribute to the project. Develop an integrated plan up front to help avoid the common disconnects and blind spots that occur when disciplines are only engaged in linear fashion over the course of the project.

Collaboration between project phases. Speaking of our linear approach, have you ever considered how much better our solutions might be if we involved planners, designers, builders, and operators in all stages of the project? Might our plans be more practical, our designs more constructable, our facilities more operator friendly? The evidence suggests there's a good deal more value we could deliver with better collaboration.

I can anticipate the counter-arguments—too expensive to involve so many, too many cooks in the kitchen, too impractical to get all those parties together, etc. Those are legitimate concerns. But what about the unrealized benefits of greater collaboration? Fewer coordination errors, better solutions, better business results, higher value delivered to clients.

Collaboration within the project team. We could probably all agree that members of the project team are expected to collaborate. But in my experience, that's often not happening. The project manager (and perhaps a project engineer or architect) call the shots and the rest of the team simply performs their respective tasks as directed.

Beyond the collective intelligence, there are other benefits of engaging team members in collaboration. It produces higher quality. People take more ownership of their work when they have more say. They can see more opportunities to improve their work product when they better understand the bigger picture. It increases employee engagement, which yields multiple performance advantages. There are reasons we have historically worked in teams; perhaps we can take better advantage of those strengths.

Collaboration between experts and nonexperts. A/E firms have a tendency to compartmentalize work based on respective areas of expertise. For example, electrical design is left to electrical engineers. Makes perfect sense, doesn't it? Maybe not. Is it possible that a nonexpert could help electrical engineers come up with a better design?

Indeed, this has happened in multiple technological fields, and the trend is growing. Steve Jobs wasn't an engineer, but was the force behind most of Apple's most popular innovations. Elon Musk founded PayPal, then served as head of product design at Tesla, and now is CEO of SpaceX, which is sending rockets into space. Organizations from NASA to Dell have ushered in the crowdsourcing phenomenon, where people with all kinds of backgrounds are invited to weigh in on some of their most challenging technical issues.

Technology pioneer Naveen Jain writes that nonexperts are often better at technical breakthroughs because (1) they're free from the myopic thinking that limits innovative thinking among many experts and (2) they have the ready access to abundant information that opens up new realms of thinking. Accordingly, technology companies are increasingly engaging nonexperts in technical problem solving and product development.

Are there not similar opportunities within our industry? Aren't we also prone to myopic thinking? Can we not benefit from asking more "dumb questions" that lead to fresh insights? Wouldn't it be helpful to partner with those who are better at recognizing the human dimensions of the technical problems we tackle? In fact, I've personally witnessed such breakthroughs coming from nonexperts.

Value creation, even in the technical fields, is not just about technical expertise. When we bring diverse people together to collaborate on our client's challenges, we create added value. Shouldn't we be doing this more often? I'd love to hear what you think.