Strategy means saying no? Yes? Maybe?

In his book Strategy & the Fat Smoker, David Maister says that strategy means saying “no.” In fact, that is the name of an entire chapter. He says that strategy is not just about choosing a target market but about designing an entire organization aligned to the benefits sought by this particular target market. However, as the operation becomes more and more aligned to the needs and expectations of this target market, it becomes increasingly unsuitable for other target markets, with different needs and expectations. Therefore, Maister concludes, strategy is also significantly about deciding whose business must be turned away.


Of course, this is quite similar to the “Focus Strategy” described by Porter – one of his three well-known generic competitive strategies. The other two are the “Differentiation strategy” targeted at a relatively larger (mass) market and the “Cost leadership strategy,” also targeted at the mass market. However, in the service industry, given the average professional profile (highly educated, providing a specialized service, ambitious,) the Focus strategy by and large seems relatively more attractive. I think this is because success in the Focus strategy implies “superior expertise in niche areas,” which typically sounds attractive to this profile of people, and comes with the promise of a “premium.”

However, in my experience (albeit limited) in the service industry, I perceive reality to be quite the opposite. A large number of firms aim to be, as Maister puts it, one-stop-shops for clients – If you need it and are willing to pay for it, we will do it. Maybe not do everything, but definitely provide quite a broad spectrum of services.

Now I feel that this one-stop-shop strategy is not a bad idea, for multiple reasons:

• Cost of selling to an existing client is significantly lower than finding a new client, even if he is seeking a slightly different product or service
  
• Providing new, and multiple, services to a known client may be an efficient way for a firm to learn and evolve. Attempting a new offering to a known client is definitely less risky than trying it in a new and alien environment
  
• Since no one product or service will remain relevant and attractive for too long, even for the same target market, trying out such new offerings is a prudent way to diversify, and thereby ensure sustainability of the firm
  
• Such one-stop-shop diversifications are typically not fundamentally diverse. Such cross-selling usually happens at different segments of the same value chain (e.g. Consulting leading to Technology leading to Outsourcing). Such forward and backward integrations often make prudent sense

More importantly, I feel that in the service business, where sales often happens based on long-term relationships and trust, a client may be willing to trust his trusted advisor in a relatively new area rather than bring in an “expert” and start from scratch. This is especially more likely when the trusted advisor has delivered satisfactorily on multiple, diverse domains in the past. I suppose this is a corollary of the principle that it is cheaper to sell to an existing customer – It is easier (and often cheaper) to buy from an existing vendor.

I think that is why the implicit, though obvious, strategy for many consulting firms seems to be:

• Step 1: Get a project with a new client – by hook or by crook
• Step 2: Bust posterior to deliver on the first assignment – ensure that all key recommendations necessitate more “focused, in-depth and downstream” work. Oh, and do mention the happy coincidence – “We can do all of it…”
• Step 3: Cross-sell, cross-sell, cross-sell
  

Of course, how smooth the path is from step 2 to step 3 depends on how much trust has been built with the client. This “trust,” I strongly believe, is the key differentiator between honest, sincere and dedicated firms and firms that can only “faff.”

Of course, the flip side is that soon the client may start thinking that he may take any ball and throw it in any direction and the consultant will happily run to fetch. Put in a more diplomatic fashion, the consultant may feel that he is “being taken for granted and not appreciated” and eventually, even his “premium” may be questioned.

Anyway, the fact remains that there is this elusive balance between focus and diversification (related diversification, or even strategic diversification, are acceptable corporate phrases, I hear.) There are tons of strategic frameworks available which are supposed to help firms strike this strategic balance. But you know the one I find most interesting?

“Yes, it is crap work. Yes, it is not going to add any value to us or our firm. Yes, we will hate doing it. Yes, it is an insult to our intelligence and capabilities. But hey, it will help us stick on and on with this client, and maybe someday, we will get to cross sell the real stuff to them. If we do not, the wolves just across the fence are waiting – to happily wade through this crap, all the while sniffing the meat!”

And in such situations, what is done about morale, you ask – Get into a pack and howl “We’re the best, we’re the greatest, and we’re the next best thing to baked bread.” And if you hear whisperings on the contrary? Howl louder!

I hope this does not happen to me (at least as prominently as I have expressed it). And I hope it never happens when (and if) I am in charge.