Subscribe Did a colleague forward this newsletter? Sign up to receive your own copy. News & Events Structure Magazine, Is Your Firm Irreplaceable? (PDF), December 2005 (© Structure Magazine) Measuring PR Budget as a Percentage of Sales mini-survey December 2005 Consulting to Management review of Marketplace Masters (PDF), September 2005 (© C2M) Suzanne Lowe spoke at the Legal Sales and Service Organization Raindance Conference in June 2005. See the LSSO Web site for details on the conference. Recent Issues ACNielsen Case Study November 2005 Methods of Measuring Marketing ROI October 2005 Does Your Firm Measure Up? September 2005 You can order Marketplace Masters from Barnes & Noble, Amazon, or your favorite online bookseller. For bulk sales please contact CEO-READ.

The Marketplace Master^TM is a monthly email publication on professional service marketing from Expertise Marketing, LLC.

Seasons Greetings

Best holiday wishes to all my subscribers, friends, colleagues, and clients!

Most of us in the professional services field will agree that 2005 was a better year than the last few years. For one thing, newspapers are devoting far less ink to plunging profits, painful layoffs and breathtaking firm implosions. But the latest batch of good news (or lack of bad news) doesn’t mean we can get complacent about our firms’ long-term marketing strategies.

This end-of-the-year issue sums up some of my observations on dealing with the hot and cold nature of the professional services marketplace.

Also, many, many thanks to all of you who participated in the Marketing Effectiveness Study. We’ve collected all the responses, and will spend the next several weeks analyzing the data. Those of you who took the survey will be seeing a complimentary report of the results first.

One last thing. Are you curious about what percentage of sales firms invest in external PR agencies? If so, don’t miss our TalkBack section, below.

Suzanne Lowe
Author, Marketplace Masters: How Professional Service Firms Compete to Win
President, Expertise Marketing, LLC

Keeping Cool When the Marketplace Starts to Boil

If only clients would stand still. How much easier our lives as professional service providers would be if client needs were consistent year after year and their marketplaces were never buffeted by changes from the economy or competition.

It sounds ridiculous to expect this from clients and their markets, but in reality there are plenty of service firms that operate as if their clients are standing still. Let’s face it: operating a professional services firm is a complex task! With people as the “product,” there is of necessity a significant internal focus. Moreover, most people respond well to short-term requirements, and not so effectively to longer-term strategies. Naturally, these factors can lead to leaders being distracted from the myriad changes that are taking place in their own marketplaces. As a result, they’re always playing catch-up with their competitors, too rarely taking advantage of opportunities to branch out into emerging – and profitable – markets.

It’s understandable that firms focus on short-term results when it has served them well in the past. Back then, life was good. Engagements were huge. Hourly fees were hefty. Clients accepted whoever was assigned to their project. “Talent wars” of the 1990s drove double-digit revenue growth. But a focus on long-term growth was lacking then, and it still is now.

Temperature Shifts in the Consulting Marketplace

Take the consulting industry, for example. Whether they’re doing too much – too blindly – or too little, consulting firms are facing a wake-up call. Now that the recession has ended, too many management and IT consultants are heaving a premature sigh of relief that things can now get back to the way it was in the high times. What many either don’t realize or fail to act on is the fact that the marketplace has shifted. Like the proverbial frog in the pot of cold water set on a hot stove, many of them will slowly cook without ever realizing what’s happening.

What shifts have already happened? One of the biggest is a competitor that consultants always hoped wouldn’t appear: the client. Clients are increasingly using their own internal consulting resources rather than hiring outside help. These days, it’s less expensive to own talent than to rent it for $250,000 a year – in fact clients might hire two internal people for that price!

How did clients become the hot water that boils their consulting frogs? Some clients pose a competitive threat because they suffer from “service fatigue.” After a time consuming those stand-still services, clients’ expectations get raised beyond what it is possible to deliver. A sure sign of fatigue is when they start staffing up to handle the work internally. (Boiling water, indeed!)

And clients are also more discerning about who is assigned to their teams. Wet-behind-the-ears MBAs charged at big-firm rates are no longer acceptable. Clients are increasingly interviewing potential consulting team members and rejecting those who will gain more value from the job than they’ll deliver. Despite this trend, the recruiting teams at many consulting firms are hopping this year. After all, their partner compensation models depend on an influx of new frog-princes.

Smaller engagements are another signal of pots that are heating up. Some firms are staying put and accepting what’s available. Others are jumping to cooler water. IBM, a savvy competitor, recently announced a significantly strengthened company wide focus on providing technology and consulting services for small- and medium-sized companies. Only time will tell if IBM's leap into this pot will help the firm achieve a longer-term competitive advantage.

Stagnant hourly fees have become the norm. Let’s face it: Firms are selling harder to win smaller engagements, work longer hours, and earn the same revenues. Feels like hot water to me!

One last sign of boiling water is merger and acquisition activity. Since the beginning of 2005, 20 percent of the global HR consulting market has changed hands. And some firms, like Towers Perrin and EDS, have set up alliances with high hopes for significant growth. But will this move turn them into princes? It’s more likely if they’ve also built their firms’ market-driven infrastructures.

Know Thy Marketplace… and Master It

There’s no argument that consulting firms are trying to gain marketplace traction. Just look at the new alliances that IT firms are forming with offshore partners for an example. But the landscape is littered with too many boiled frogs.

We need only look to the recent Internet bubble for evidence of marketplace myopia carnage. marchFIRST was an Internet consulting firm that hired legions of eager Web experts for what they thought would be an endless stream of deep-pocketed clients. Their Web site now offers only bankruptcy documents and information on claims for former employees.

It’s hard to avoid the truth. Too many consulting firms, even though they weathered the recent recession, still haven’t fostered a real understanding of their marketplace, made strategically effective internal efforts to compete, and / or created a robust framework for systemic innovation.

An even more sobering truth is that this situation exists beyond the management and IT consulting arenas. Take a look at your own professional service sector: do these scenarios ring a bell? Arguably, only the accounting sector, as a result of sweeping changes related to Sarbanes-Oxley legislation, has had to truly examine its role in the marketplace, and make appropriate shifts.

Stay Cool: Build a Market-Driven Infrastructure

Firms with a good handle on what’s happening in their business environment are more adept at handling short-term crises and long-term shifts. They’re armed with information to help them detect the marketplace’s temperature. They’re prepared with market-driven processes, tools, and protocols to jump to another pot when the heat starts to rise.

It takes building a market-driven infrastructure – a consulting frog’s best friend when faced with boiling water.

Let’s look at a few concrete examples of how any professional service firm could master its marketplace by building a market driven infrastructure.

Put market research in the budget – nearly 60 percent of the firms we’ve studied did not have a formal market research budget. Yet those that did found that they were two to five times more effective at attracting and retaining clients.

Differentiate your firm – Find an uncopyable “sweet-spot” where your firm can stand alone. Although 81 percent of our researched firms think they are differentiated, they’re actually confusing differentiation with image enhancement and brand messaging. Professional firms must learn the difference and pursue their own path where engagements are destined to grow, competitors will be few and fees will be high.

Mine customer data - data mining can deliver solid competitive results. Only 30 percent of the firms we studied tap their contact database's strategic potential for mining and using valuable data. But those firms that practiced data mining were two to three times more likely to be successful in attracting and retaining clients than those that did not.

Pay attention to your firm’s culture – not all marketing strategies work for all types of firms. Understanding – and aligning marketing strategies to maximize their competitive advantages to the firm -- can mean the difference between marketplace leadership or mediocrity.

Use R&D to innovate your service portfolio – R&D isn’t just for product development. Follow the lead of RSM McGladrey, which wanted to move beyond its traditional accounting and consulting silos toward totally new and effectively integrated services. From 2001 to 2004, the firm employed a new notion of R&D: a highly experiential client-and-consultant learning laboratory. The move paid off with a revitalized professional development program and a noticeable uptick in revenues from the clients that attended its learning events. Intentional R&D efforts like this are the reasons why RSM McGladrey is making significant inroads in the marketplace.

The new millennium has brought new realities: professional service firms must cultivate a more astute understanding of their marketplace – and they must make the leap to cooler waters when the pot starts to boil. They must learn from the experience of the high-flying 1990s: clients and marketplaces are constantly shifting. When we look back at firms that thrived during the 2000s, we’ll remember the ones that had a market-driven infrastructure that helped them monitor the temperature of the marketplace and know when and how to react.

	TalkBack - Measuring PR Budget as a Percentage of Sales After our last two articles on Methods of Measuring Marketing ROI and the ACNielsen Case Study we heard from Bruce Hokanson. Bruce is the vice president in charge of the semiconductor practice for Loomis Group, a marketing and public relations firm with offices in San Francisco, Austin, Boston, and Paris. Bruce asked if we had ever collected data on the average percentage of sales that firms invest in their PR agencies. We don’t have specific data on PR, but thought it was a great question. Chances are, you’d be interested to know what other firms spend on PR too. So, we’ve created a mini survey with Bruce’s questions. We’ll tabulate the responses and share them in a future newsletter. Does your company provide products or services? Is your business in B2B or consumer markets? Is your company in the high-tech field? What percentage of annual sales does your company invest specifically in outside PR help? What ROI metrics do you use to quantify your investment in PR? Click here to answer these five questions (www.surveymonkey.com/s.asp?u=977411594885)

Take the confidential, web-based Marketplace Masters professional service firm differentiation assessment test for instant feedback on whether your firm is doing differentiation right.

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